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Originally Posted by tw
Glass Stegall separated investment banks and commercial banks. But it was never completely repealed. For example, ask your commercial banker about your stock investments. He cannot access them. Investments are separted from commercial banking.
Fannie and Freddie were crated to help low income families more easily afford a home. Make homes affordable to the early comers and increase housing prices for everyone else. There is no free money. A lower interest rate for early applicants means homes now have more buyers: so home prices increase making homes just as less affordable. But now we have this massive government bureaucracy that also must be paid for. Worse, to put things back to normal - to eliminate Fannie and Freddie – home prices drop down to where they should have been. Home sellers take an unexpected price drop.
The intent (a popular belief) is not what Fannies and Freddie actually do. Did it worked great for decades? Or did people appreciate them while ignoring why Fannie and Freddie only caused higher housing prices and more government bureaucracy? Show me how Freddie and Fannie also capped housing prices?
Why would Fannie and Freddie be necessary? Because commercial banks would not make home loans? So we maintain massive government bureaucracies rather than fix the problem - bank loan officers? Yes, things like Freddie and Fannies had a purpose to fix a temporary problem during the Depression. However their continued existence does little productive. Their functions should have been passed back to commercial banks and other mortgage lenders long ago.
All that goodness by Fannie and Freddie ignores how both distort market prices – keep prices artificially higher – do not make houses any more affordable. IOW too many believe what they are told - ignore how the housing market compensates low interest Fannie and Freddie mortgages by raising prices.
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If they are so bad, why then did they only now crash? Fannie has been around since the 30s or 40s. Seems to have worked pretty well up until recently.