A Few Links

Eric Salzman on Freddie and Fannie;

Eric Salzman writes,

The Trump Administration is seriously interested in selling 5% to 15% of Freddie Mac and Fannie Mae by the end of this year. Reuters reports all the shares of the two companies could be worth $500 billion.

…It seems to me that the only reason for the Trump Administration to do this is really to create an underwriting fee bonanza for Wall Street investment banks and make a few more billion for already-billionaire hedge fund managers.

He points out,

…Before 2008, Freddie and Fannie were public companies with an implicit guarantee from the Federal government. They had a small and insignificant regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), that was kept small and insignificant due to Freddie and Fannie’s tremendous and successful lobbying to quash any meaningful attempt at reigning in the two behemoth government sponsored enterprises (GSEs).

The initial mission was to protect investors against credit losses in Freddie and Fannie’s mortgage-backed securities (MBS). That started to change in the 1990s. The GSEs became akin to giant, highly-leveraged hedge funds that were able to fund themselves with debt just slightly more expensive than Treasury debt because of the “implicit” guarantee of Uncle Sam. At their height in 2007, Freddie and Fannie managed a $1.6 trillion retained portfolio of MBS.

My emphasis. In 2008, the giant hedge fund game fell apart, because the market started to charge a risk premium on the debt issued by Freddie and Fannie.

The billionaires who scooped up Freddie and Fannie stock after the firms were taken over by the government were not in any way contributing capital. They were making a purely political bet that some day the government would restore the firms to their status of private profits, socialized risk. With the Trump Administration, the handful of investors are getting their wish, making a fortune at the expense of the American taxpayer.

Kenan Fikri and Sarah Eckhardt write,

A plurality of whites and Asians live in prosperous zip codes, and more than half live in prosperous or comfortable ones. By contrast, a plurality of Hispanics live in at-risk zip codes, and a plurality of Blacks and Native Americans live in distressed ones.

The economy looks very different in distressed ZIP codes. On average, more than one in five residents lives in poverty in these communities. The median local household earns nearly $30,000 less annually than the median household nationally. One in seven homes is vacant or abandoned, one-third of prime age adults are not working, jobs are disappearing, and businesses are closing even as the national economy booms.

They have a sort of implicit causal model in which the economic characteristics of the location determines the economic status of the residents, rather than the other way around. Also, they claim that young people are somewhat more likely to live in distressed zip codes, but that does not take into account the fact that young people are more likely to earn more income and accumulate more wealth as they get older.

substacks referenced above:

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The geography of American exceptionalism

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Selling Freddie and Fannie - What's the Real Point?