Whopper 6: This shows incontrovertibly, in my view, where demand for these loans came from, and why these mortgages proliferated.Note 6: The foregoing explains, incontrovertibly, how easy it is to use cherry picked data, embellished with a few rhetorical sleights of hand, to fabricate a false history.
Whopper 7: When the bubble finally deflated In 2007 and 2008, these loans defaulted in unprecedented numbers, driving down housing values and weakening financial Institutions in the US and around the world. When Lehman Brothers collapsed, financial panic ensued, with banks and other financial institutions hording cash and refusing to lend to one another and that was what we knows the financial crisis.Note 7:
A. In 2007 and 2008, GSE and FHA defaults were relatively minor. As shown below:
by Mortgage Bankers Association
C. The financial panic was not triggered by mortgage defaults, but by liquidity crises tied to derivatives.
AIG lost $30 billion in liquidity because of ratings triggers following a ratings downgrade, which was precipitated by margin calls from Goldman Sachs. Lehman triggered a panic, because its bankruptcy caused a money market fund to break a buck. Thanks to credit default swaps, transparency in the credit markets was compromised. None of this had anything to do with the GSEs and their underwriting standards.
Whopper 8: It's not as if these facts were unknown or unknowable. Fannie and Freddie were two of the largest financial in the world, and were taken over by the before Lehman Brothers failed.Note 8: Once again, Wallison conflates liquidity and solvency. Hank Paulson decided that, given his projections of future losses at the GSEs, they should be taken into conservatorship. But the GSEs did not face a sudden liquidity crisis, a perennial run on the bank like the ones that caused the downfalls of Bear Stearns and Lehman.
Whopper 9: You don't become insolvent by acquiring and guaranteeing prime mortgages.Note 9: Here we see the disconnect between Wallison's sophistry and the reality of free market capitalism. Try and complete this sentence: "You don't become insolvent by acquiring and guaranteeing __ ."
The statement is patently nonsensical, because no business activity is exempt from the risk of insolvency. A number of Texas banks and S&Ls had acquired nothing but prime mortgages in the mid to late-1980s, yet they became insolvent anyway. Businesses become insolvent because their leverage provides an insufficient margin for error. The GSEs became insolvent because their statutory capital was razor thin, which is very different from poor underwriting standards.
How dishonest is Peter Wallison? How deep is the ocean? How high is the sky? But the bigger scandal is not Wallison's mendacity, but Wallison's enablers, the perpetrators of that vast conspiracy of silence.
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