STANDING UP FOR FANNIE & FREDDIE

(h/t Robert Gordon at The American Prospect)

The wingnuts are trying to lay the blame for the Big Shitpile on Fannie Mae, Freddie Mac, the Community Reinvestment Act (CRA) and the Democrats. This is preposterous but we need to cooly look at the facts. As of 10 days ago, the banks had written off $510 billion of the Shitpile and its clear that there will be more write-offs, perhaps as much as $1.5 TRILLION more. Fannie and Freddie are a TEENY part of this problem:

Cost of Fannie, Freddie rescue - $25B
Budget agency puts possible price tag on Bush plan to stabilize mortgage finance giants Fannie and Freddie - says 50% chance money won't be needed.
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: July 22, 2008: 4:53 PM EDT

NEW YORK (CNNMoney.com) -- The Congressional Budget Office on Tuesday estimated that a government plan to stabilize mortgage giants Fannie Mae and Freddie Mac could cost government coffers an average of $25 billion.

The CBO said it thinks there is probably a better than 50% chance that the Treasury would not need to step in. It also said there is a 5% chance that Freddie and Fannie's losses would cost the government $100 billion.

CBO's $25 billion cost estimate is an average based on "the path of housing prices in the next several months." They considered three scenarios: prices stabilize, grow modestly or decline steeply.

The situation has deteriorated since this July report, so taking a guess, let's say that we'll owe $100 billion. That is still a small part of the total mess.

Further, the president of the Federal Reserve Bank of San Francisco noted that CRA-loans don't make up much, if anything, of the Big Shitpile. The "higher-priced loans" she refers to are the risky loans that comprise most of the Shitpile.

There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. I believe it is very important to make a distinction between the two. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans,16 and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households.17 We should not view the current foreclosure trends as justification to abandon the goal of expanding access to credit among low-income households, since access to credit, and the subsequent ability to buy a home, remains one of the most important mechanisms we have to help low-income families build wealth over the long term.18