Freddie Mac`s Richard Syron—Architect Of The “Diversity Recession”


Why did the

housing market
turn into America`s economic
cancer—growing out of control before recently

killing economic growth
?

It`s is a difficult question to answer—but not because
there is a shortage of reasons. Instead, all the causes
are interconnected——just as

all the players in the game
, from the top of society
to the bottom, egged each other on.

The housing disaster is not an isolated incident.
Instead, it is intimately interwoven with most of the
destructive trends in our society:

non-traditional mass immigration,
growing

economic inequality
,

multiculturalism
,

globalization
, and the

decline of community
and traditional standards of
behavior.

The economic logic of the

Bush Decade
turned out to be wholly circular and
thus is now collapsing in on itself.

Yet that makes it difficult for the analyst to find a
starting point.

Trying to think about the

mortgage meltdown
is reminiscent of the infinitely
recursive children`s song

Yon Yonson
, which was memorably featured in Kurt
Vonnegut`s Slaughterhouse-Five:


"My
name is Yon Yonson / I live in Wisconsin / I work in a
lumber mill there / The people I meet / When I walk down
the street / They ask me my name and I say: / My name is
Yon Yonson / I live in Wisconsin…"

Similarly, in trying to explain this decade`s
socioeconomic logic, you end up with thought processes
like this:


Q.
Why did we need

so many illegal immigrants
?


A. To
build all those McMansions out in the

distant exurbs
.


Q.
Yes, but why did so many Americans want

to move to the exurbs?


A. To

escape all the illegal aliens
flooding their
neighborhoods and schools.


Q.
Okay, so then why did we need so many illegal aliens?


A. To
build all those

McMansions out in the distant exurbs
.

Everything just spins around and around, like those
chrome wheel rims, those insanely expensive hubcaps that
were the signature useless extravagance of this decade.
Neely Tucker wrote in the

Washington Post
in 2005:

"Today rims are a $3.1 billion industry that stands at
the revolving heart of two American obsessions:
automobiles and finding ever more expensive ways to buy
things you already have and don`t need."

Some economist should calculate what proportion of all
the money spent on blinged-out rims came out of home
equity loans taken out on houses bubbling up in nominal
value.

Similarly, it`s hard for most people to grasp the
interrelatedness of

multiculturalism
and greed in fostering the housing
bubble. "Diversity" gave the big guys an excuse
for doing what they had always wanted to do: debauch
credit standards and take the money and run, leaving the
mess to be cleaned up by taxpayers (through direct
bailouts) and savers (through Fed-created inflation
eating away their capital).

To
find a starting place in understanding how America`s
interested elites conspired across lines of race, party,
and class to defraud savers and taxpayers, let`s just
pick one name in the news:

Richard F. Syron
, the CEO of Freddie Mac, a
"Government Sponsored Enterprise"
that guarantees
almost $2 trillion in mortgages.

Freddie Mac

and its "rival" Fannie Mae
are able to borrow
at lower interest rates than other publicly-traded
private firms because it has always been hinted that, if
they messed up, the U.S. taxpayers would bail them out
on the grounds that they were

"too big to fail."

The privilege of borrowing at below market interest
rates while lending at market interest rates is a
license to print money (until the inevitable
catastrophe, of course). In return for this license,
naturally, politicians ask Freddie and Fannie to pay off
their supporters with

loans they couldn`t get on their merits
.

Because Congress controls the Fannie and Freddie, the

GSEs in turn have long controlled Congress
, easily
fending off the handful of politicians prudent enough to
point out that they were on the treadmill to
destruction. Fannie and Freddie spend a fortune on

lobbying
, as well as on

foundations
that hand out grants, typically to

charities and pressure groups
with ties to the Left.

Freddie Mac is one of those fortunate kind of entities
where the taxpayers are "implicitly" on the hook
for losses, but the bosses get paid like

private moguls
rather than like

civil servants
. (Heads I win, tails you lose.) Mr.
Syron, the former president of the Boston Federal
Reserve bank, has pocketed $38 million since
taking over Freddie Mac a half decade ago.

Last Monday, August 6, 2008, Charles Duhigg of the
New York Times
reported

At Freddie Mac, Chief Discarded Warning Signs
:


"The
chief executive of the mortgage giant

Freddie Mac
rejected internal warnings that could
have protected the company from some of the financial
crises now engulfing it, according to more than two
dozen current and former high-ranking executives and
others. That chief executive, Richard F. Syron, in 2004
received a memo from Freddie Mac`s chief risk officer
warning him that the firm was financing questionable
loans that threatened its financial health."

Later last week, Freddie Mac announced a quarterly loss
of

$821 million
—triple Wall Street`s expectation. (The
next day, Freddie`s larger "rival" Fannie Mae
announced a $2.3 billion quarterly loss.)

Syron struck back against his critics in the pages of
the Boston Globe, saying he was just following
orders:

“Syron yesterday defended his loan decisions, arguing
that Freddie needed to take additional risk to meet its
government mandate to provide affordable housing.
Although a private company, Freddie Mac was created by
Congress to expand mortgage credit and home ownership.
`If you`re going to take aid to low-income families
seriously, then you`re going to make riskier loans,`
Syron said in an interview yesterday. `We have goals to
meet.` ”

[Syron`s
side of the story
, By Robert Gavin, August 6,
2008]

Indeed, the quotas for Freddie`s mortgages reserved for
"underserved
areas
,"
(which are officially defined as
"low-income census tracts or in low- or middle-income
census tracts with high minority populations"
), have
been raised from 21 percent during the Clinton
Administration to 39 percent during the Bush
Administration.

Syron prides himself that he was more dedicated to
"affordable housing" t
han to prudence with the
taxpayers` money. When he arrived in 2003, Syron put an
end to Freddie`s habit of cooking the books in order to
be more cautious than Congress wanted:


"In
addition, Freddie`s commitment to affordable housing had
declined to the point it employed gimmicks to meet
congressional goals. For example, said Syron, Freddie
would essentially rent loans to meet affordable housing
goals, buying them from lenders to carry on the books at
year end, then selling them back. Syron ended that
practice and re-emphasized the

housing mission
."

What could possibly go wrong with lending money to
people who wouldn`t qualify for credit without the
government leaning on the lenders? I mean, besides all
the trillions in stimulation making "affordable
housing"
unaffordable without trick mortgages
concocted around the assumption that home prices can
only go up?

But don`t blame Syron for the bubble!

"Syron added the cause of Freddie`s problems isn`t those
loans, but a deep and extended housing downturn,
spreading into the broad mortgage market. US home prices
are falling for the first time since the Great
Depression, and the economy is weakening, affecting even
creditworthy borrowers."

Right … of course, housing prices wouldn`t be falling so
fast now, especially in the "affordable" tier, if
the

whole house of cards
hadn`t been built up so wildly
on Syron`s watch.

The circular insanity of it all was obvious even to a
commenter on the

Calculated Risk blog
who calls himself

Currently Smoking Cannabis
:


"But
to meet affordable housing goals, Freddie had to engage
in activities that helped push house prices higher, and
thus more unaffordable? And the more their numbers
indicated that Freddie was dedicated to affordable
housing, the more housing was allowed to balloon
artificially?

"Am I way off the mark or is this as crazy as it sounds?
…. Gives you something to tell the people you are
doing for their benefit, while achieving the exact
opposite."

Why was Syron chosen to be CEO of Freddie Mac, anyway?
Well, one reason was that he was a hero to the Great and
the Good in the early 1990s for unmasking a terrible
societal scourge:

lending discrimination.


The
Globe`s

Gavin
credulously recounts:


"Syron
encouraged the Boston Fed`s research department to wade
into important, but contentious public policy issues.
Perhaps best known was its study of lending
discrimination, [Mortgage
lending in Boston: Interpreting HMDA data

(Working Paper 92-7|PDF)]
which found race, not lending risks, driving loan
decisions."

This study was hugely popular and influential with all
the right people:


"Joseph
P. Kennedy II,
then a Massachusetts congressman,
said the study helped change lending practices and
expand credit to minority and

poor neighborhoods
."

Unfortunately, it was based on

economic illiteracy
. As Gary Becker`s

Ph.D. thesis
(based on a suggestion by his adviser,
Milton Friedman) pointed out, if firms were

irrational
ly discriminating against minorities, it
would be

profitable for nondiscriminators to enter the market

and cash in.

In
reality, as Peter Brimelow and Leslie Spencer wrote in


Forbes
on January 4, 1993, whites and minorities
had the same default rate back then—demonstrating
that


"
[t]he
market, in short, worked. The mortgage lenders somehow
weeded out the extra credit risks among minorities, down
to the, point where white and minority defaults were at
an equal, apparently acceptable, rate."

Today, of course, minorities have higher default
rates than whites—due in large part to the

quotas
whose justification traces back to the stupid
study Syron sponsored.

Now, even Syron has noticed what he hath wrought,
saying, according to a March 12, 2008 Bloomberg News
article entitled

Rules Let Too Many Poor People Buy Houses, Syron Says
:


"It`s
`perverse` that Freddie Mac and Fannie Mae, the two
biggest providers of money for U.S. home loans, have
been encouraged `to put people into homes that they end
up losing."

Syron, however, is apparently in no danger of losing his
$38 million compensation.

Funny how that works.


[Steve Sailer (
email
him) is founder of the Human Biodiversity Institute and

movie critic

for

The American Conservative
.
His website


www.iSteve.blogspot.com

features his daily blog.]