Political accountability should be a matter of Congress being able to “hold their feet to the fire.” Certainly the OFHEO has made improvements, but GSE’s political ties have allowed them to get away with more than would be allowed in industries with fewer government ties.

Syron seems to be implying that they are held to a higher standard. I’m not seeing it.

Syron means politically accountable to Congress for that American Dream thingie. GSEs aren’t actually economic animals at all, they’re firmly attached to the government by strong cables, like anchors, so all their risks are political. That’s why F&F’s stock defied logic and rose with the Democratic Party’s fortunes through the mid-term elections. (Easy to see in retrospect!)

And like anchors, under certain desperate conditions the government can take a big axe to the cable and and cut themselves loose. That’s what that “US Treasury ain’t responsible” language on their senior bonds is for, implicit guarantee or no implicit guarantee.

The best line in the Rucker piece was this one:

Newcomers to housing finance like private equity firms and hedge funds “cannot be held accountable” like government-sponsored enterprises Fannie and Freddie, Freddie’s chief executive, Richard Syron, said earlier this month.

I thought pretty much everyone else listed on the stock exchange was required to report (which indicates accountability to me) when F&F’s financials remain unknown.

Syron must be great at parties.

“Risky loans come home to roost”, by Jim Spencer, Denver Post, February 21, 2007.

So on Tuesday, when a Federal Reserve governor expressed shock at the quick national collapse of the risky lending market, she sounded vaguely like Capt. Reneau in “Casablanca.”

Subprime lenders, as risky-loan makers are called, are closing up so fast that financial experts now debate if it will affect the entire economy. Analysts can’t agree. But with stock-market-traded mortgage companies reporting huge losses from subprime lending, it can’t help.

The explanation for crazy lending has always been crazy.

“It is no longer community banks making mortgage loans,” Englewood lawyer Robert Hopp told a recent foreclosure seminar at the Colorado Bar Association. Out-of-town lenders provide mortgage money for a fee. Risky loans are quickly packaged with other mortgages and sold as securities for a fee. Investors buy the mortgage-backed securities expecting a fat return.
…
The risky-lending boom of the early 21st century was a Ponzi scheme. It depended on constant growth in real estate values. You could lend anybody anything so long as their house was worth 10 percent more each year. For lenders, growth meant collateral would always be worth more than the money tied up in it.

According to Hopp and Arrowsmith, some lenders made loans worth up to 20 percent more than the assessed value of homes. These lenders believed appreciation would make up for negative equity. When the market stagnated and borrowers couldn’t keep up with mortgage payments, negative equity and zero-down lenders ended up with a bunch of houses worth less than the amount of money owed on them.

When that happens, you get foreclosure auctions where only one house in 32 is worth a bid.