Postcards: 1993 - Part 5 - The Hiring of Andrew Cuomo at HUD

If you want to understand how America's financial system is so entirely screwed up... look no further than six policy decisions in 1993. Andrew Cuomo was a disaster for the U.S. housing market.                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: 1993 - Part 5 - The Hiring of Andrew Cuomo at HUD]( If you want to understand how America's financial system is so entirely screwed up... look no further than six policy decisions in 1993. Andrew Cuomo was a disaster for the U.S. housing market. [Garrett {NAME}]( Dec 29   [READ IN APP](   Dear Fellow Expat: I’m not claiming that the six events we are covering this week are (alone) responsible for the full financial crisis that bears down on us. I’m not blaming one person – and I’m not taking any political side. Outside of 1993, we can look at former Fed Chair Alan Greenspan’s decisions after the Dot-Com Bubble, former Congressman Barney Frank’s defense of Fannie Mae, former President George Bush’s changes to leverage at the SEC, the Community Reinvestment Act, and general greed on Wall Street (people were making too much money, to quote Hank Paulson). But there’s something very notable about these six events that happened in 1993 and have helped fuel the disconnect between the equity markets and the economy, the gaps between the rich and the poor, and the rising cost of living crisis in a post-capitalism world primarily driven by the refinancing of massive debt levels and never-ending bailouts to the banks. People ask - why are things so expensive? I’m answering that question. This corrupted system will continue until it breaks… and when it fails… they’ll blame capitalism (the free exchange of goods and services between people) and not the policy decisions that destroyed America’s economic engine. Then, they’ll double down on the same policies that created the problems. [We’ve talked about reckless monetary policy]( and inflation targeting in Part 1. [We covered the perverse incentives for executive pay]( created a massive divide between the Top 1% and the rest of America in Part 2. [We discussed Robert Rubin’s role in NAFTA]( the repeal of Glass Stegall, and the Commodity Futures Modernization Act (CFMA) in Part 3. We discussed [how an executive order destroyed our supply-side policies]( in Part 4. In Part 5 - we talk about Andrew Cuomo, [the sniveling, snarling, corrupt, and unaccountable]( former Governor of New York - who helped implode the U.S. housing sector. Cuomo was appointed assistant secretary at the United States Department of Housing and Urban Development in 1993. He took over HUD in 1997. And his track record is a disaster. [Upgrade to paid]( On Cuomo Before Andrew Cuomo became governor of New York and forced elderly residents to return to nursing homes with COVID, he was a disastrous public policy maker at Clinton’s Housing and Urban Development (HUD). He joined in 1993… but quickly rose the rank to Secretary. During that time, he set the course for a housing crisis that still lingers. Dick Bove – one of the greatest bank analysts of our time – has called Cuomo the “[Father of the Subprime Crisis]( Few people talk about this. I suppose it helps that Cuomo’s brother works at CNN. Bove dropped an elbow with this quote about Cuomo: “His lack of financial acumen may prevent him from doing the right things even if he wants to. You just don’t want someone with that type of lack of understanding of the financial system running a state as important as New York." The truth hurts… --------------------------------------------------------------- Sign up as a Founding Member, and you’ll never pay more than the current price again. [Go here now.]( The reversion momentum portfolio comes out on Tuesday. And Founding Members get a full how-to guide on how to manage the portfolio. --------------------------------------------------------------- Cuomo has never been held accountable for his disastrous policies. Under Cuomo's watch, HUD issued a handful of terrible policies that greatly contributed to the housing crisis in the 2000s. First, Cuomo pushed for easing lending standards on Federal Housing Administration home loans. The easing was horrible because of the incentives that it created. [Matt Snape does the reporting](. Writes Snape: “Under [Cuomo’s] watch, HUD oversaw the easing of lending standards on Federal Housing Administration home loans, with the maximum size of FHA-approved loans for single-family homes in low-cost areas increasing from $86,317 to $121,296, while minimum down payments fell from 7 percent of the asking price to 3 percent.” Think about this for a moment. A down payment of 3% - when mortgage rates were above 7% is just foolish. [Here’s a video of Cuomo admitting]( he wanted banks to take on riskier loans. It’s on tape, as Snape noted as well. Now, [I’m in the camp of Barry Ritholtz]( - as I will not blame the housing crisis on immigrants and poor people. But the problem isn’t the person who was given the loan. The problem was the incentives created for the banks. Banks were incentivized to skirt smart underwriting standards and write NINJA loans (no job, no income) at a high risk of defaulting. But here’s where Cuomo screwed up. If we look at Fannie Mae and Freddie Mac - the two Government Sponsored Entities that imploded in 2008, they didn’t originate the loans. But Cuomo demanded that Fannie Mae and Freddie Mac buy the riskier loans originated by other entities… thereby providing more capital to lenders to make additional, questionable loans. It was a negative feedback loop that added massive amounts of leverage to the system. Then, the GSEs had to buy mortgage-backed securities. And what happened next? But it gets even worse because, after 2008, homebuilders stopped building, leading to greater imbalances between supply and demand. About a year ago, the supply-demand gap was about four million homes - and the real money in the market is building for higher-end clients. The affordable housing market is in shambles - mainly because of lousy regulation and reckless monetary policy. You might find this number to be insane - but I consulted for the GSEs a few years ago. The number of regulatory bodies that oversee housing construction and building in America… is 25,000 total at the state, local, and Federal levels. That’s insane. When you combine reckless regulation with perverse incentives, you end up with an unaffordable housing market. Tack on multiple rounds of cheap money over the last 15 years – radical support by the Federal Reserve to keep rates low and… of course… the policies of Cuomo. Today's housing market is a disaster, and we’re facing bigger problems. Inflation targeting pushes up asset prices, and incentives are ugly because of government interference in this market. Once again, they’ll blame capitalism for the problems, but we can just point to the work of men like Cuomo, who helped break the housing sector. What’s worse… they want to keep doubling down and interfering. People like Cuomo can’t help themselves. If you want to understand just how terrible Cuomo was as a politician, consider this: The very left-wing publication Jacobin (a socialist publication) wrote a [scathing op-ed on his corruption]( when he departed his role as governor. You know the man is corrupt when you nod in agreement with Jacobin. Stay positive, Garrett {NAME} Secretary of Defense Invite your friends and earn rewards If you enjoy Postcards from the Florida Republic, share it with your friends and earn rewards when they subscribe. [Invite Friends](   [Like]( [Comment]( [Restack](   © 2023 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()