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US Mortgage Market Myth - Short analysis explains why state influence on Fannie Mae and Freddy Mac (the GSEs) is the wrong culprit in explaining the subprime disaster.

The financial crisis which now cost us billions of Euros to support States like Ireland, Portugal and Greece is also triggering rightist parties like the "True Finnish" Party to block the further development of Europe. What they ignore is that this help for such States is in fact help for the big bank monopolies in Europe who provided insane credit to such states because they were easy to manipulate. Ireland was seen as just an economic aircraft carrier which had been sent off-shore in order to evade taxes and supervision. Nearly 50% of such private investment has already been turned into the public debt of the EU and still the big banks do not want to write off the rest but want tax payers to overtake the risk they had voluntarily incurred, through a greed for the enormous profit one can make with empty money claims. 

The financial sector still staffed with the same people together with their journalists who had accompanied their wild west activities so nicely and in cooperation with the still remaining people in Brussels and the different Lamfalussy councils who acted as (de-)legislator without democratic legitimacy also managed to change the language. We have nearly forgotten that the crisis started as a supbrime credit crisis and not as a crisis of frauded investors. The exploitation of borrowers in the American mortgage markets through empty credit which was only extended to facilitate a price increase and the reallocation of hard earned income to speculative financial conglomerates had its counterpart all over the world. The debtors and victims of the crisis are still visible: SMEs, consumers who borrowed money for living, education and housing as well as the cities who were destroyed by the run and destroy policies of credit extension and foreclosures.

In his wonderful book entitled "Foreclosed" Dan Immerglueck has described the mechanisms of this crisis. The movie "Philadephia versus Wall Street" only availble in English and French until now provides a shocking inside into the destruction the pre-crisis behaviour of banks has caused in the US, and which neo-liberal think tanks like the Munich ifo-institute tried to attribute to the social housing policy under Clinton.

Now Dan Immerglueck has published an essay which attacks another myth: that the state influence on Fannie Mae and Freddy Mac were at the origins of the subprime disaster. Both institutions buy mortgage loans, package them and sell them as securities. Both would have had the power to spread risks, stir investments into needy areas and help poor debtors with the money available from the whole of this monopolistic business. But they did the opposite. Servicing to the hazardous banking industry. Immerglueck shows that both institutions still worked well when they truly were under state control.

In Germany we can easily transfer this insight onto the Landesbanken (State Banks) which developed from being banks to serve the Laender and their public good into independent private banks who used their political ties to provide the banking sector with the necessary influence and corruption while still using the state guarantees.

Here is a link to Dan Immergluck’s article from a special report on the housing crisis from the (forthcoming) June issue of the American Prospect, entitled, The American Dream Deferred.

A pdf of the full report can be downloaded from
http://pages.nxtbook.com/nxtbooks/americanprospect/201106specialreport/offline/americanprospect_201106specialreport.pdf

Or it can be read online at
http://www.nxtbook.com/nxtbooks/americanprospect/201106specialreport/index.php#/0

The table of contents is below.

Special Report
Contents

Restoring the Dream
By Barry Zigas

A Needless Housing Collapse
By Alyssa Katz

Designed to Fail
By Marcus Stanley

Reform That Hurts Homebuyers
By James H. Carr

Not with My Home
By Rebecca Ruiz

Cleaning up the Aftermath of Subprime
By Mike Konczal

Fannie, Freddie, and The Future
By Dan Immergluck


ID: 47279
Publication date: 11/05/11
   
 

Created: 31/05/11. Last changed: 31/05/11.
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