The New York Times published an editorial authored by Joe Nocera on 12/19/2011. Nocera defends Fannie Mae and Freddie Mac (Fannie/Freddie), with some minor exceptions, by way of 2 points. First, That Fannie/Freddie followed private mortgage markets into the sub-prime realm. Second, that a federal lawsuit against Fannie/Freddie executives is bogus.
It’s important for Tea Party Patriots to be familiar with our Nation’s founding principles set forth in the Declaration of Independence and the Constitution of the United States of America. In addition, Tea Party Patriots must arise and become competent on other matters of National interest. Failure to do so will leave Tea Party Patriots unable to refute propaganda. In my opinion, the New York Time publication of Nocera’s editorial is propaganda. The purpose of my reply is to demonstrate to my brother and sister Tea Party Patriots a sound mechanism to refute this propaganda. I’m writing to the RWU blog as a licensed real estate broker, and a licensed real estate appraiser, and having been accepted by a Michigan circuit court as an expert. I also acted “in pro per” all the way to Michigan’s so-called “supreme” court only to be told that the right to a “jury trial” is not substantial. In other words, I paid my dues.
Nocera claims that Fannie/Freddie got into sub-prime business
in 2005. Nocera is wrong. 6 years earlier, the NYT reported that Fannie/Freddie got into
subprime in 1999 (http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-...). It should also be noted, that the 1999 NYT article reported that Fannie/Freddie moved into the subprime market as a result of “pressure from the Clinton administration”. In addition, in 1995 Bill Clinton repealed the “Glass Steagall Act of 1933. It’s my understanding that prior to Clinton’s repeal of Glass Steagall, the nation’s banking industry was prohibited from claiming mortgage backed securities as assets. Whether the Fannie/Freddie moves into sub-prime markets occurred in 2005 or 1999 the fact is that Bill Clinton lead both private and public mortgage markets into sub-prime business.
Nocera's second point is that the lawsuits filed against Fannie/Freddie
executives (for fraud) - are bogus. Nocera submits 2 facts as a basis for
his claim. First, that in dismissing a previous lawsuit (which he did not
specifically reference) a federal judge ruled that disclosures (in the
previous case) had been sufficient. In essence, Nocera argues, that because a prior case was dismissed, the current case is bogus. But that's absurd. A dismissal of 1
case does not entitle executives to a lifetime of immunity in other cases. We don’t even know if the same executives were involved, or the same securities.
Every single instance of potential fraud by government executives must be
investigated because they are using - or abusing - tax payer resources.
Nocera's second fact is that in the 2nd quarter of 2010 default rates were lower
among Fannie/Freddie mortgages than in the private sector. Unfortunately, Nocera doesn't provide a reference for this fact so I cannot verify whether or not it's
true. But given that his allegation about the date Fannie commenced
sub-prime lending, it's at least fair to conclude that he may be wrong about
the default rates as well.
I did some research into default rates and found that Freddie defaults
hovered below 1% from 2002 - 2008 and then increased to about 4% through the
end of 2010.
Fannie Mae default rates were similar:
One resource I found corroborates Nocera, and claims that prime mortgages
were deteriorating faster than sub-prime, apparently during the 2008-2009
Even if it's true, a single year period 2008-2009 comparison of default
rates between conventional and Fannie/Freddie does not prove that the fraud
lawsuit is bogus. In order to prove that the lawsuit (the lawsuit against
Fannie/Freddie executives) - is bogus - Nocera has to examine the "allegations"
set forth in the suit. Normally, allegations are argued back and forth
between plaintiff and defendant attorneys, and a jury decides what the final
facts are, and a judge rules how the law applies to the facts. Nocera
appears to be "prejudiced" in that he is concluding that the legal action is
bogus before the jury has determined the facts.
Nocera also failed to recognize an important distinction between
Fannie/Freddie defaults and defaults within the private mortgage markets.
Fannie/Freddie involves public money and therefore - in my opinion - those
agencies should be subjected to higher standards. And although their
default rates may be lower, it is the total amount of public money that is
the issue. There is no public money involved when a private mortgage
defaults, therefore the rate of default is not relevant. In addition,
Fannie/Freddie hold 90% of the nation's mortgages and $3.2 Trillion in public
assets. Therefore, a 4% default of $3.2 trillion is 128 billion of lost public money. How much private money was lost in private mortgage market defaults? This is an estimate. The answer is estimated to be approximately 10% of the $350 billion amount because the private default rate is 10% and private lending assets were approximately 10% of the Fannie/Freddie volume. The answer is therefore approximately $35 billion. In other words, although the private market default “rate” is higher, the volume of money wasted by Fannie/Freddie is much higher than that wasted in private markets. But so what? Why is Nocera comparing lost public
money to lost private money? The answer is: he's not! He's only comparing
the "rate" of defaults. And since the "rate" is higher in private markets
Nocera is implying that Fannie/Freddie are above reproach. But the "rate"
is irrelevant. What is relevant, is the amount of public money wasted by Fannie/Freddie. Private market waste is irrelevant for the purpose of judging Fannie/Freddie fraud.
As a result of this analysis, I conclude that the NYT Nocera editorial is wrong. Both Fannie/Freddie and private banks moved into sub-prime business as a result of Clinton policies. Nocera did not present facts relevant to the federal fraud lawsuit against Fannie/Freddie and therefore Nocera does not have a basis to determine whether the lawsuit is bogus – or not. Nocera’s comparison of default rates is irrelevant because the issue for the People of this Nation is the amount of “public” money their government is wasting.
I hope this analysis and conclusion is sufficient to assist my brother and sister patriots.
Respectfully submitted by your humble servant,