Nouriel Roubini: The Exit Strategy

[Winehole23]

I personally think Fannie and Freddie are more symptom than cause. The cause was a massive credit bubble, aggravated by implicit (and now, more or less explicit) public guarantees for the GSEs

One particularly keen illustration of this was the accelerated commitment of the GSEs to subprime mortgages after August of 2007.

The credit crunch was on, because of cratering subprime and the derivatives knock on. The percentage of the GSE's subprime exposure went from like 30% to over 60% in about one year. That can't be a mistake. We started fencing the bad risk well before the official bailout. Banks parked their crappy risk with Fannie and Freddie like crazy and the GSEs were willing buyers, well after it was already clear the market was going teats up.

[coyotes_geek]

I personally think Fannie and Freddie are more symptom than cause. The cause was a massive credit bubble, aggravated by implicit (and now, more or less explicit) public guarantees for the GSEs.

Agreed that they're a symptom, but still one that should have been treated. Had the risk at F&F been managed more responsibly the credit bubble wouldn't have been nearly so big.

[coyotes_geek]

No...when we try and buffer the effects of small down-turns we wind up making the problems much worse....that's what the Bush administration was doing...it was putting this recession off by any means possible, hoping to make it till Dubya was out of office and they almost made it...

Can't put it all on Bush. Congressional democrats went along with it all, and Obama's response to the crisis has been one of simply continuing the policies Bush enacted in the last few months of his term.

[angrydude]

To be fair, it wasn't really clear what was happening until it all fell apart. The economics profession really failed us. I do blame Bush for Tarp though.

[coyotes_geek]

To be fair, it wasn't really clear what was happening until it all fell apart. The economics profession really failed us. I do blame Bush for Tarp though.

Since we're being fair let's recognize that there's plenty of blame to go around for tarp as well. Obama was out there on the campaign trail saying how important it was to pass it and telling people how involved in the whole process he was.

[angrydude]

Since we're being fair let's recognize that there's plenty of blame to go around for tarp as well. Obama was out there on the campaign trail saying how important it was to pass it and telling people how involved in the whole process he was.

I agree. As I remember the dems in congress overwhelmingly voted for it.