Regulating Fannie and Freddie

[Crazed Rabbit]

Perhaps by renting cheap apartments and then renting them at a low price to those with low incomes. But the goal should not be profit, as with F&F.

CR

[LittleGrizzly]

Maybe the goverment could purchase 10-20% of the property, giving the low income family a good deposit and thus lower rates and the goverment is investing that money as im assuming house prices usually rise...

[Adrian II]

Perhaps by renting cheap apartments and then renting them at a low price to those with low incomes. But the goal should not be profit, as with F&F.

So the state should intervene in the housing market, thereby distorting it?

Your view that 'government [..] shouldn't mandate or regulate [..] the private market to enforce a certain aim, because that always leads to the government screwing up the situation' sounds like a mantra. It reminds me of Alfred Marshall's word: 'Every short statement about economics is misleading (with the possible exception of my present one).'

Regulation works fine in the Dutch telephony market, to name one example. We have a watchdog called 'Netherlands Competition Authority' which does a good job of preventing monopolization and other obstacles to competition, irresponsible use of collective facilities, as well as malpractice or unfair treatment of customers. Since its inception in the 1990's the NMa has been consistently run by gentlemen of the choleric persuasion who don't take crap from companies. It doesn't do well in certain sectors simply because markets in those sectors are not open and/or well-regulated to begin with. And it lacks clout to enforce rules and principles in certain instances. But it's a start. I see this as an important contribution to new ways and means to regulate markets in order to make them work in the public interest without impeding their natural dynamics.

[Kralizec]

The article is extremely interesting, thanks Adrian.

If I understand this correctly, they let these two banks borrow from the Federal Reserve on dirt cheap rates, because they're obliged (nominally, at least) to ensure affordable housing but nobody was really watching wether they were responsible with this advantage they held over everyone else

If a Dutch CEO did such irresponsible things and the firm was left to go bankrupt, it wouldn't be difficult to cash-strap him to offset at least part of the remaining debt.

On regulation of companies in general...
Limited liability for companies is, or at least should be a double edged sword. I have no doubt that it encourages enterprising and thus helps to increase wealth overall. But if we accept that shareholders aren't liable for poor company results beyond what they've paid for their shares (wich we accept because it encourages financial activity) they in turn have to accept that this comes at the price of being regulated, in the interest of creditors and more generally the long-term health of the financial system.

[ICantSpellDawg]

I don't understand much about the situation. It sounds like a jumble. Any jumble is automatically interesting to me.

I like what Adrian has been saying so far - pretty much positing a question. I recognize the need for regulation and would love to strike the right balance as well. The government has a place in our lives - I'd like it to be as limited as possible, but it is still a tool of tremendous value. We can find the right balance and a more sustainable relationship between public and private.

[Crazed Rabbit]

So the state should intervene in the housing market, thereby distorting it?

Your view that 'government [..] shouldn't mandate or regulate [..] the private market to enforce a certain aim, because that always leads to the government screwing up the situation' sounds like a mantra. It reminds me of Alfred Marshall's word: 'Every short statement about economics is misleading (with the possible exception of my present one).'

Regulation works fine in the Dutch telephony market, to name one example. We have a watchdog called 'Netherlands Competition Authority' which does a good job of preventing monopolization and other obstacles to competition, irresponsible use of collective facilities, as well as malpractice or unfair treatment of customers. Since its inception in the 1990's the NMa has been consistently run by gentlemen of the choleric persuasion who don't take crap from companies. It doesn't do well in certain sectors simply because markets in those sectors are not open and/or well-regulated to begin with. And it lacks clout to enforce rules and principles in certain instances. But it's a start. I see this as an important contribution to new ways and means to regulate markets in order to make them work in the public interest without impeding their natural dynamics.

You're right; it's a mantra and not always correct. One could look at other examples, like mpg mandates, as well. Though some short statements about economics aren't misleading; "Trade is, overall, good", for example.

I wouldn't say my solution has the state distorting the market as much. I mean, you could have the state try to build the public works projects - but that didn't turn out well, either.

I think there needs to be a realization that not everyone can move into a nice house immediately, and the government should remove regulations that make it hard to build affordable dwellings, even if it means the dwellings don't look that nice or whatever.

So to start, the government should undue its damage by pulling back its social engineering regulations and then see what the market does before trying more regulations. Another example from Washington is the state's 'growth management act' which makes it harder for cities to grow so there's less space for people, less supply of housing. That makes it very difficult to build low income housing in the first place - more regulations won't help. The market can and has made low income housing when they have the opportunity. But the political class will have to make a choice on whether they want people to afford homes or have all neighborhoods look as they please.

CR

[ICantSpellDawg]

If Freddie goes under will Fannie skyrocket?

[Adrian II]

Another example from Washington is the state's 'growth management act' which makes it harder for cities to grow so there's less space for people, less supply of housing.

As far as I can see (from a ten thousand mile distance) the GMA isn't a bad initiative. The execution may be bad, but the idea sounds alright. From the Washington State website:

The Growth Management Act was adopted because the Washington State Legislature found that uncoordinated and unplanned growth posed a threat to the environment, sustainable economic development, and the quality of life in Washington.

The GMA requires state and local governments to manage Washington’s growth by identifying and protecting critical areas and natural resource lands, designating urban growth areas, preparing comprehensive plans and implementing them through capital investments and development regulations.

Public life in cities is a concern for the entire community of their inhabitants, not the preserve of investors, builders and property developers. Accessibility, the quality of public spaces (nature, landscape or cityscape, the availability of services and shops, public transport, educational establishments and all sorts of other communal issues) should weigh in.

Of course this makes certain options (like low income housing) more difficult, just as it makes other options (developing parks, shopping malls or entertainment centres) more attractive. So be it, after all it's the inhabitants' call if they want their city to maintain or develop a particular character. What I like most about it (on paper) is that it promotes local and regional variety instead of centrally planned development.

So please enlighten me, what is wrong with it?

[Crazed Rabbit]

I have, I confess, not studied it extensively and so will defer to this article:
http://www.effwa.org/main/article.php?article_id=152

Spoiler Alert, click show to read: 

Growth Management Act: good intentions gone bad
Washington's Growth Management Act celebrates its 10th anniversary this year. It could be a poster child for good intentions gone awry.

Ten years ago, many lawmakers and citizens rightly observed that the unique quality of life afforded to Washingtonians because of our beautiful and diverse natural environment was being compromised. Rapid population expansion engendered many challenges. The Legislature's remedy was the Growth Management Act (GMA), which directly affects at least 95 percent of the state's population.

A decade after the passage of GMA, we see that the unintended consequences have been devastating for many, while the noble goals envisioned by the Legislature are mostly unrealized.

Lawmakers designed GMA with 13 goals, most of which can be embraced by people of all political persuasions. Among the goals were affordable housing, efficient transportation, economic opportunity throughout the state, timely permit processing and citizen involvement in land-use planning.

Through various bureaucratic perversions of legislative intent, GMA has not only failed to meet its own established goals, it has negatively affected the ability of Washington citizens to afford homes, find jobs and expand their businesses — particularly in the rural parts of our state.

Landowners, especially farmers, are losing their property rights and, in many cases, their life savings. While GMA-authorized impact fees and land-use restrictions are driving up the cost of new development, the waiting process for some development permits stretches from months into years.

Is it even necessary to discuss GMA's goal of helping improve traffic congestion?

For most of us in urban Western Washington, the recession is relatively new. But in many rural counties, economic recession is a decade-old reality. These counties have not only lost tax revenue, they are now groaning under the weight of complying with GMA's planning, implementation and litigation costs. Jefferson County, for example, is at $3 million and counting. Meanwhile the county faces budget cuts in areas such as juvenile and family court.

We got into this mess because unelected government officials breached their legal boundaries under GMA and elected officials, the governor in particular, failed to rein them in.

While the Growth Management Act established goals for local planning, it was not designed to run roughshod over decisions made by locally elected officials. Yet, that is precisely what has happened.

Rather than providing a bottom-up planning process as the law intended, GMA policies are now handed down by governor-appointed Growth Management Hearings Boards — a process that is neither representative of local citizens nor effective in implementing the Act's goals. Whenever the Legislature has passed bipartisan measures aimed at reining in these unelected boards, governors have used their veto pen: first, Gov. Mike Lowry; now, Gov. Gary Locke.

Counties are running out of money and options. From 1993 to 1998, Mason County experienced a 10-percent drop in the number of private businesses located within the county. GMA land-use restrictions significantly limit the types of businesses that can locate in rural areas, and the Western Washington Growth Management Hearings Board ruled that animal hospitals, pet shops, small engine repair and plumbing shops are unacceptable uses.

This means many Mason County residents are forced to drive to neighboring Thurston County to find jobs, increasing commuter use of roads and highways.

In Lewis County, efforts to revitalize its struggling economy and lower its high unemployment rate were thwarted by hearings board restrictions on where businesses should be allowed to locate. Recent restrictions may impact 1,400 workers, nearly three times the level of countywide job growth since 1995.

According to the Act's original intent, it was to be the responsibility of local counties and cities, through their elected officials, to meet the state's land-use goals, while preserving rural character and encouraging economic development.

As it stands now, the governor-appointed review boards thwart rather than implement the GMA's goal of public participation. Citizens have almost no voice in who is appointed to the hearings boards, let alone in the land-use decisions the boards hand down.

Ultimately, hearings board decisions reflect the opinions of board members, and possibly the special-interest groups who challenged their local plans or regulations, rather than representing the views of local citizens and their elected officials.

Developing land-use policies to handle growth is a difficult task, particularly when geography and economics make growth unwelcome in some areas while welcomed eagerly in others. The Growth Management Act meant to do a good job in this arena, but has failed miserably.

The governor holds on to every jot and tittle of GMA, as if changing one element would make our beautiful state a wasteland of concrete and cars. When confronted with rural counties pleading for relief, Gov. Locke maintains that everything would be fine if these counties would just become compliant. In fact, a spokesperson from the governor's office recently maintained that the state has given counties 10 years of help and understanding, and now "it's time to get them in line."

Speaking of getting in line, the best way to mark GMA's 10th anniversary is to make sure enforcement is in line with the Act's original goals.

CR

[Papewaio]

From the link provided by Hosa and then changing it to a football game.

Freddie and Fannie are playing for the same team.

They get free kit (line of credit to the US Treasury, no state or local taxes)
They have 'left home' (private shareholders).
But their dad is the owner of the team (although private, it is a GSE)
Not only is their dad the owner, the ref has been told not to look too closely at any of their infractions (exemption from SEC oversight).

Who would like to have to play even on the same team as these guys as you would struggle for recognition and highly unlikely to get the Man of the Match as they can move around unimpedended.
Then think about the competitors, this is not a flat playing field.

=][=

My line of reasoning would be that government should were possible only be a regulator. And if it is to be a player it should set the standards. Be more heavily regulated, accountable and transparent... the dead opposite of The Federal National Mortgage Association & the Federal Home Mortgage Corporation.

BTW the nicknames of Freddie and Fannie don't inspire much faith in their maturity, level headness or ability.

[yesdachi]

Not everyone should be a home owner. Guaranteeing affordable housing is a good thing but it still should not be used to get people who cannot afford a house the burden and responsibility of a house. Regulate the credit score needed to get a home and still receive an acceptable foreclosure rate to stay in business. Anyone with a low credit score can still get an apartment, work on their credit and then get a house in a few years. We (society) are always in a hurry; homeownership is a massive undertaking for someone on the cusp of financial security. Lending institutions, private or government, should tighten their access and stop dangling the carrot.

If they want to be a successful lender that will be around for years, then maybe they should be a little more careful who they lend to. It is not mean or denying a right, it is common sense that will keep them around, as a resource, for all to use.

Having a certain percentage of the population renting is good and should keep the real-estate market from becoming what it is now, especially in Michigan, a giant mess of foreclosures and uncertainty.