GOP senator on mortgage bailout: 'Socialism is alive and well in America'

Republican Sen. Jim Bunning of Kentucky today slammed the Bush administration's proposal to bail out Fannie Mae and Freddie Mac, declaring, "socialism is alive and well in America."

"When I picked up my newspaper yesterday, I thought I woke up in France," Bunning said in a statement today. "But no, it turns out socialism is alive and well in America. The Treasury secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed's purchase of Bear Stearns' assets was amateur socialism compared to this."

In a news conference this morning, President Bush (pictured) defended the rescue plan for Fannie and Freddie, saying, "I don't think it's a bailout."

"If your question is, should the government bail out private enterprise, the answer is, no, it shouldn't," Bush said. "And by the way, the decisions on Fannie Mae and Freddie Mac -- I hear some say 'bailout' -- I don't think it's a bailout.  The shareholders still own the company.  That's why I said we want this to continue to be a shareholder-owned company."

Relatedly: The Securities and Exchange Commission is taking emergency action to protect Fannie and Freddie in the stock market. Bloomberg News: "The U.S. Securities and Exchange Commission will take emergency action today to the limit the ability of traders to bet on a decline in the shares of Freddie Mac, Fannie Mae and brokerages, the agency's chairman said."

Analysis: Under the president's proposal, the government could become a shareholder of Fannie and Freddie. That's not what most Americans mean when they talk about a "shareholder-owned company." The government is taking extraordinary and unprecedented steps to protect and support Fannie Mae and Freddie Mac.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: Getty Images.

Comments

[Carolina]

ShockG,

In the not too distant past 10% to 20% down was the norm and the default rate was near zero. The “little guy" lived in an apartment and saved until he could afford a home. The idea that everyone is entitled to a new car every year, the latest electronic gadgets, dinner out 3 times a week, Starbucks every morning, expensive, exotic vacations every summer, AND a new home is a recent phenomenon.

With a little frugality and patience "the little guy" could easily save a considerable down payment in a few years. In the past if the “little guy” wasn’t smart enough to save, then he was not entitled to risk his lender's capital on a home. This model produced a lower rate of home ownership, a lower default rate, and a very stable financial environment. It also limited housing speculation and kept housing prices from inflating.

Government pressure for an "ownership society", creative lending, securitized mortgages, and the "little guy's" lack of personal discipline combined with a narcissistic, overwhelming sense of entitlement created this bubble and its inevitable collapse.
--------------------------------------------------------------
"HAHA. This is of course coming from someone who claims to have sold his home near the peak and is sitting on a pile of cash. How realistic is 30% down? What about the first-time buyers who have no equity to roll into a house? Your situation is not representative of the little guy. What self-serving non-sense.

Posted by: shockg | July 15, 2008 at 05:42 PM "

[Roger Ramjet]

I find it amazing that Republicans that are most interested in less goverment are witness to this $ jerk off. Keep up the good work, Bush! You well go down in history as one of the best presidents USA ever had....

[Laker]

shock,
How realistic is 30% down? VERY
I assume you were born before 1999...
What??? Didn't people buy houses before 2003?
What was the standard loans in 1996? 1986? 1976?
People always knew the rule of thumb, that is 20% down.
Now you claiming that it doesn't make sense? Or are you denying the this was ever a standard and only my imagination????
What's wrong in having the people save some of their income and live little below their means for couple of years???
Why everybody is entitled to everything for putting nothing?
Please don't tell me the wages are low...If so, go to school and study, get a better profession!

[KingHorse]

I'm afraid shockg is correct -- there is no point in going back to the 20% down or 28% of income standard immediately -- not when prices are still so inflated. And I say that as someone who DID sell near the peak and HAS been sitting on a modest pile of cash for several years. Even with that and good credit, I still can't afford a decent house in my area on a repayment schedule that doesn't throw me into huge hock.

I'm not usually a proponent of the concept, but Fannie and Freddie really are too big to fail, given the admittedly modest regulatory check they provided on this disaster by not backing subprime loans. Their loan limits should never have been raised back in March, but that expires at end of year anyway, as well it should.

[KingHorse]

I'm all for the death of 0%, 5%, even 10%-down loans, by the way. I paid 20% down and I still can't imagine doing anything less. But no way am I getting back in until prices come back from nutball land.

[E]

The MLS is still manipulated. Why else would the STI homes be pulled off when they never were before? Could it be that they don't want the consumer to see that the houses that actually are selling are truly worth more than most of the overpriced crap out there?

I have seen some deals that are "closer" in line with reality (still pretty far away) and one that even pencils out nicely for my father. He may even make an offer on it.

Will it lose value?

Probably. But it actually works for him not too far below the asking price. (10% or so)

It's too bad that the NAR frowns on Real Estate Agents blogging or commenting about other members listings. It would bring more credibility to the profession if Realtors would actually discuss overpriced listings and even point them out.

But then again...what do you expect when everyone in the industry is in cahoots?

[Julia]

I agree with TakeFive, socialism is the cause of this mess.

The Socialists and Liberals want everyone to be able to buy a home and get a home loan whether you can afford the payments or not. They're the ones who don't like lending standards that favor the wealthy who have high credit scores and money for a 20% down payment.

A friend of mine worked at a bank that is currently in deep trouble. 5 years ago, she was nearly fired because she denied a loan to a hispanic housepainter who wanted to buy a house but didn't qualify. They got a lawyers and sued under some fair housing law. She told me that it was a relief for the bank to start doing stated income loans because they didn't have to worry getting in trouble for turning down buyers who didn't qualify. They all qualified. It was a win win situation.

In this society. No one wants to be told no anymore. Everyone's always right, everyone can buy what they want, even if they can't afford it. If you loose, it's someone else's fault.

[sfvrealestate]

It All Happens on the Margin: just a few factoids for you:

The standard commission here is 5%. Has been for years. When somebody talks about 6%, that tells me that they are not well informed about the local market.

And I can't buy the apples-to-apples analogy when you talk about foreign countries' standard commissions relative to ours. That's because you don't have info as to what standard marketing costs of a listing are, who absorbs those costs, are the commissions split with the buyer's agent or not, does an attorney or barrister or whatever get paid on top of that and whether the agent is an employee or an independent contractor.

While I know that there is a national fight going on about MLS access, there are many ways to access almost all data about a listing, including Realtor.com (publishes as many pics as are on the MLS and gives listing agent data). For sale prices, there are many internet venues, including Property Shark. For general info about a property, there are many websites. And listing agents can, and do, often put all info about a listing on Zillow and Trulia. What a buyer CAN'T do at the moment is make a deal directly with the seller if the seller's property is listed on the mls. And that's because of the exclusive agent-seller listing agreement, not the mls. If a seller doesn't like that arrangement and wants to deal with buyers directly, they can always sell a home themselves.

And just so you know for future arguments about business models: Re/Max and Keller Williams mostly give their agents 100% of the commission, but in turn, charge agents desk fees, supply fees, tech fees, etc. This varies from office to office. Prudential, Coldwell Banker, my company, etc. split the commission but pay for the "desk." As for Redfin, Zip and others like them, they make their money by having no infrastructure at all, do little to no marketing for listings, and kick back commissions to buyers (not exactly a popular thing with sellers).

[Tombstone Realty]

Who's to blame?

Ohhhh let's see - the Evil Republican President, who blew all our imaginary money on an imaginary war?

Or maybe the Doltish Democrats, like Schumer and Dodd, who blithely ignored all the horses running out of the barn until angry emails started to fill their interns' mailboxes?

But hey, there were more important things for our senators to discuss - like whether or not the Rocket was juiced.

But what about the American people? - who were all too happy to sit back with low interest rates on everything from houses to credit cards, sitting there with our KFC buckets o' chicken, watching Ultimate Fighting on our 60" flat screen tvs, in the 'mancaves' that we drew on our HELOCs for to build - instead of paying attention to what was going on with *everything* in this country.

Fact is, when things were going gangbusters, most of us didn't care what was going on. So it's pointless to blame Republicans or Democrats. We screwed up. We allowed them to rip us off blind.

It's not 'capitalism', or 'socialism'. It was their corruption, and our willful ignorance.

I'd like to say we've learned our lesson, but chances are, we'll be having this same argument in 30 years, after getting hosed *yet again*.

[Jeremy R]

America has been part socialist part capitalist since 1935. Wake up folks. We haven't had pure capitolism in two generations. The question is HOW socialist are we? Well, we typically go up and down through the decades. Right now, we are leaning more towards socialism, but on the whole, we are still very capitolist

http://en.wikipedia.org/wiki/Economic_freedom

[Inland Empire]

Meanwhile, in other "enlightened" markets, like the UK, commissions are under 2%. In Hong Kong, they are around 1%.

Those "enlightened" markets in places like the UK have national health care which is a huge tax burden for the common folk, ditto a monarchy and no private ownership of guns. This is the United States - capitalism is supposed to be the order of the day.

[It All Happens on the Margin]

SFVRE:
thanks for your thoughtful response.

I am new to SFV, but lived in OC and inland LA county. I had homes in both markets and interviewed 10-15 total agents before selecting my agent. Nearly every interviewed REALTOR in both counties made a pitch for 6% citing buyer agent realtor dis-interest for homes less than 3 on the buy side, and the starvation of marketing dollars on the sale side.

the international piece is real, and I strongly suggest you read the UC article I linked.

thanks again - my point is that, in general, everyone wants regulation, until it hits their own business.

BTW, realtor.com listings are generally a few days old. they also lack critical info, like DOM.

[Fourth Generation]

Joe posted;
"Well it is not hard to see socialism is alive and well in America. Just listen to anything Obama says. Just about all the the elected Democrats are obviously socialist/marxists."

Except that are the Republicans the ones promoting socialism to the utmost. Sheesh, take your ideological partisan blinders off for a while and you won't look so moronic for once.

[Fourth Generation]

Julia, your story about your friend fired from a bank is so full of BS!!!!!!

[Maggie Knowles]

Tombstone Realty said: Fact is, when things were going gangbusters, most of us didn't care what was going on. So it's pointless to blame Republicans or Democrats. We screwed up. We allowed them to rip us off blind.

It's not 'capitalism', or 'socialism'. It was their corruption, and our willful ignorance. "
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The clearest explanation I've read so far. The party is over, it's time to clean house. It's going to take years to get the U.S. out of this stranglehold. (This information has been around a long time, I just discovered it, some of you may already know about it.)

I was looking for answers on the economic/financial blogs to the question, why are oil prices going through the roof, and it led me to a couple of web sites that seem to provide an answer, a key, to our economic instability - corruption on Wall Street.

I started to get a hint of it here,
http:// tinyurl.com/57rlj3
July 8, 2008 Tom Gallagher on the Global Economy - right around minute 40:00 and after, there is a panel discussion of Sovereign Wealth Funds and how they might be used to drive up the price of oil, (Tom says that oil should be around $60/barrel.) They also discuss a problem with short sales in the stock market and something called "failure to deliver".

http://deepcapture.com for the text, and this one, it's a slideshow: http://businessjive.com - to make an hour-long presentation short (I hope I get this right, better if you watch the slideshow yourself, it's very good, easy to understand), there is a loophole in the stock trading settlement system that allows traders of naked short sales to issue IOUs instead of actual shares. The IOUs are supposed to be settled within 3 days, apparently there is no mechanism in place to make sure this happens. So traders are flooding the system with these IOUs. It's called "Failure To Deliver (FTD), some call it counterfeiting, and people who have IOUs don't know they don't actually own the shares. Some are predicting that middle-class retirement accounts will drop in value by 50% once the cat is out of the bag.

Wall St. drove the housing bubble, the oil/gas bubble.

I think the Wall St. system is bubblicious, a corrupt, ruthless, manipulative bubble-making machine whose only motive is profit at any cost. So, what are we going to do about it? Business as usual? Get off our duffs and make change?

[It All Happens on the Margin]

Hey IE: that was entirely the point.

SFVRE is arguing for more regs. Areas with more regs happen to have lower commission rates, which bite into her wallet. Is that correlation or causation, not sure - read the UC study I linked - those are the 'smart guys/gals.'

I'm not against higher commission. Hell, make it 10% for the good agents and let the market play.

It's the proprietary nature of the MLS (which has been litigated and finally opened up recently due to the tenaciousness of RedFin and others) that has stifled competition.

[Nancy]

This is worse than socialism. At least when things are government controlled to begin with, the costs are just enough to pay for the services rendered - we are not paying for a private enterprise to make a profit.

By the way, the FDIC only insures $100k, and in this day and age, that's not very much!

[bum]

Posted by: TakeFive
"Gov regulations ARE why this happened. All this carping about low income earners with poor credit being denied loans because of racism lead to government meddling in the mortgage business. Fannie Mae and FHA being fine examples."
"If the lenders had their own money on the line and merely the objective standards of income and credit history to set the risk, this bubble would never have occurred."

This must be the spin being perpetrated by Fox News. The Republicans have been in power throughout the bubble, but blame someone else. Blame the Dems for insisting that Blacks receive the same treatment from lenders as whites.

The fact of the matter is that the lenders didn't have to be pushed on this one. They were fully willing to give all undeserving applicants loans so long as it included significant commission. It didn't matter what color you are, what your ability to pay it back was, or whether or not you were in jail at the time you took out the loan. And if they couldn't qualify you under your circumstances, they'd lie on the application for you.

So yes, more governement regulation is needed unless our ultimate goal is financial ruin, corruption and anarchy.

[problemwithcaring gets all mylessthanprime]

Is socialism for the wealthy, landed and moneied class simply the evolution -- a more perfected form -- of capitalism, therefore actually good for America and the West? I know, I just blew your mind...

[wobbly]

Georgie boy looks more like Alfred E. than ever.

[Stedwoo]

Some one asked in an earlier post what would happen if Fannie Mae and Freddie Failed. The housing market in the US would collapse. 70 percent of all mortgages in the US right now are written by the GSE's. Try and sell your house when 70 percent of qualified byers (A Borrowers) cannot qualify for a mortgage. You would see housing prices crash overnight. Your local bank would loose a source of cash flow and profits made by writing mortgages and selling them to the GSEs then the bank looses capitol and we have a run on the bank.

The two GSE's have 1.56 trillion outstanding and provides a cost basis forthe holding of other companies mortgages and the pricing of the holdings in the portfolios of those who hold the bonds for the mortgages. THey would have to write them down to the street price and loose the ability to borrow and you have a run on the bank.

That gasbag Senator has know clue and I suggest he take a basic economics history course. He should start with the "Bankers Panic of 1907" and then read what happened then as compared to "Black Tuesday" and the start of the Great Depression.

All that has been proposed is to provide liquidity if necessary the two GSE's to prevent them from stopping the writing of mortgages, Not a bailout. Already the announcement has increased the spreads that they are making on there securitizations and increasing demand for their sales.

JP Morgan in 1907 agreed to provide all the money necessary to keep the market going during the "Bankers Panic of 1907" and then initially did this in 1929 before saying enough was enough. So it is not socialism but the government keeping the markets stable so they can function during an irrational panic.

As to those blaming the government and poor borrowers for this crisis get educated. The reason the underwriting standards were lowered was not because of government pressure. The underwriting standards were driven based off of what those who were purchasing the Securitizations were willing to purchase. They wanted a higher return off of their investment and so they took higher risk to get it. So many groups were chasing that money that the spread of return versus risk dropped and to unrealistically low levels. This drove up housing prices as money was too easy to get and everyone wanted in on it; now the chickens are coming home to roost.

I was involved in the subprime market going back to the early Securitizations and this has happened at least three other times ( where default of loans versus interest received) got out of whack. This goes back to 9/11 and the need to keep the economy going with cheap money. During the other collapses int eh sub prime market it was small potatoes but everyone forgot their history and it swelled above all proportions.

Capitalism got us into this and smart policies will get us out of this. If that GASBAG Senator had his way we would learn what they learned in the 30's. ANY TAKERS

[Sergi Solt]

Now we know we are the weapons of mass destrution.
The destructtion of all americas patromony. Yes in their very own hands¡¡¡