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  • Fannie and Freddie Finally in Focus

    At the height of the campaign season, House Oversight Committee chair Henry Waxman (D-CA) held a number of hearings on the burgeoning financial meltdown including investigations into the bankruptcy of Lehman Brothers, the bailout of AIG, The Breakdown of Credit Rating Agencies, and The Role of Federal Regulators. The purpose of all of these hearings was to blame deregulation and Wall Street greed for the markets downturn. Not until the election was safely over did Waxman manage to hold a hearing on the role government intervention played in the disaster. But yesterday, that hearing finally happened when the Oversight committee grilled four former executives of Fannie Mae and Freddie Mac. Waxman explained:

    The documents make clear that Fannie Mae and Freddie Mac knew what they were doing. The documents make clear that Fannie Mae and Freddie Mac knew what they were doing. Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market. But these warnings were ignored. … Their irresponsible decisions are now costing the taxpayers billions of dollars

    But liberals on the committee still have not learned the right lessons from Fannie and Freddie’s failure. The AP reports:

    Democrats acknowledged that the government-sponsored companies contributed to the crisis. But they stressed that Wall Street banks, not Fannie and Freddie, led the dramatic decline in lending standards.

    This is simply not true. It was Fannie and Freddie that led the market into riskier loans. Witness the success of Fannie’s partnership with Countrywide Financial. For decades Countrywide Financial was a largely unsuccessful firm that was only re-listed on the New York Stock Exchange in 1985. But between 1985 and 2003 Countrywide delivered investors a 23,000% return, exceeding the returns of Washington Mutual, Wal-Mart, and Warren Buffett’s Berkshire Hathaway. How did they do it? This 2000 report by the Fannie Mae Foundation provides a clue:

    Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. …

    When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs.

    In other words, Fannie and Freddie favored lenders like Countrywide that had irresponsible lending practices. In fact, Fannie Mae was Countrywide’s biggest customer. Thanks to its loose lending practices and backing of Fannie Mae, Countrywide became the largest mortgage lender in the country. In 2006, it financed 20% of all mortgages in the United States — 45% of which were subprime. Fannie and Freddie’s subprime business was not isolated to Countrywide.  Fannie and Freddie noth bought subprime securities since 1995, and by 2004 they were purchasing $175 billion worth of such securities a year, or 44% of the entire market. From 2003 through 2006 Fannie and Freddie bough more than a half trillion dollars in subprime securities. That is more than any other purchaser in the entire world.

    Unfortunately the left still wants to use Fannie and Freddie to prop up home prices. With the left in power, one wonders why they should bother to continue paying their own mortgage.

    Posted in Economics [slideshow_deploy]

    3 Responses to Fannie and Freddie Finally in Focus

    1. Dennis Anacortes, says:

      I'd like to know/hear when (if ever) Congress or the FBI or ??? will issue indictments against these past-CEO's of these institutions to:

      A) get the money paid to them as bonuses returned

      B) throw their asses in prison

      C) get Barney frank and Christopher Dodd kicked out of Congress or at the very least lose their positions on the Committees that oversee anything to do with finances.

    2. Rick, WI says:

      If our Government had the power to take back the Billions of Dollars that were paid out to the 2,000+ Wall Street Executives in 2007, how much would it all add up to?

      For example, Richard Fuld, former CEO of Lehman Brothers, the brokerage that went under in September, was the 13th highest-paid executive of the 30 highest paid executives in a recent study. Fuld took home $71.92 million in total compensation last year, including more than $40 million in value realized from stock options.

      Paying yourself millions of dollars from funds that your company does not have is no different than "We the People" bouncing a check for $5K, except for We the People would be arrested,thrown in Jail for a Felony and ordered to make Restitution for every cent, in addition to Court costs and Huber Law fees.

      Richard Fuld, John Thain and the majority of Wall Street CEO's are judged by & live by their own set of Laws & Rules, and our Government allows it.

      They can all eat my shit from their silver spoons.

    3. Barb -mn says:

      National action lawsuit to the individuals involved so we don't sue ourselves and we know they will have to use their own money. The government isn't gonna listen. They're just going to continue stealing. And since this fannie and freddie came about in 1995, while obama was at the community organizer wheel, he does play a part.

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