Seattle Bubble Forum Archive

It has almost gone unnoticed in the media, but since the credit crisis began in early 2007 the US government has gradually become the primary underwriter of all mortgages. The only mortgage securities investors are interested in are those from Governmental Special Entities (e.g. Fannie Mae, Freddie Mac, FHA), with the comfort that they are backed by the government. Most banks have been greatly reducing the number of loans they keep on their books, and have largely been sticking to conforming GSE products that can be re-sold.

Now that the possibility of an official government re-capitalization of the GSEs is a real possibility, it looks as if the American tax-payer is about to become the mortgage lender of both first and last resort.

I am sure that the private sector would be happy to still underwrite mortgages, but the tax-payers will offer far better deals to borrowers than pound of flesh the capitalist system would demand these days. Why take a private mortgage with a 9% interest rate requiring 30% down when you can get an FHA or GSE conforming loan at far better terms?

In short, since it is the policy of the government to ensure that mortgage financing is loose and affordable, they will squeeze out the private sector. The long-suffering tax-payer will just pick up the tab.

It's a brave new world. Private finance has virtually ceased to exist, the government (and tax-payer) has become the de-facto bank of the nation.

Interesting diatribe from Housingpanic....

"Americans have $6.8 trillion deposited in institutions.

$4.2 trillion is FDIC insured

And the FDIC only has $52 billion tucked away to back the entire system.

One more time, the FDIC only has 1% put away to back the entire thing. And Americans stupidly have $2.6 trillion sitting out there at naked risk.

(side note - just think how dumb you had to be to have more than the FDIC limits sitting in IndyMac. Amazing)

In the end, after the banks fail, and the tiny little FDIC kitty is swiftly blown away, the 'insured' deposits will still be backed up. But you-know-who will be called upon to cut the check.

You and me.

The taxpayer.

And once again, if this happens, Bennie and the Inkjets would just get those printing presses going.

And the US currency emergency would go into high-gear.

Got gold?"

I would add that having your funds in Wamu is also VERY risky right now....

What really angers me is that we fiscally conservative "keep your nose to the grindstone" folks will simply end up with flat noses....and nothing else. We (thru our taxes and financial pain) will end up bailing out all of the very people who have caused what will be the most spectacular financial collapse in the history of the U.S. So what do we tell our kids...crime DOES pay?

"We are ALL in this TOGETHER".....has never sounded more hollow or grating.