Anyone even casually following the financial crisis, precipitated by the burst in the housing bubble which was inflated by sub-prime mortgages (low interest, no interest, no money down mortgages sold to people with sub prime credit), should know that “ground zero” in this entire meltdown was the quasi government banking institutions Fannie Mae and Freddie Mac. Yet in this so called Financial reform bill authored by Connecticut’s senior Senator Chris Dodd, there is not an iota of regulation that corrects this gangs business. You would think it would be at the top of the list?
Today on the Morning Joe, Treasury Secretary Tim Geithner said, don’t worry … we will get around to them. That puts my mind at ease. How about you?
Fannie and Freddie, under direction from Congress, encouraged this kind of irresponsible lending in order to bring the dream of home ownership to people who would otherwise not qualify. Big heart … bad business.
Fannie and Freddie guaranteed these loans as well as buying, packaging and securitizing them, but since they themselves were under-capitalized (I believe their capital reserve requirements were a mere 1% of guarantees – not sourced) … the whole shabang imploded as mortgages collapsed.
One more thing to note here. President “W” tried valiantly to clamp down on Fannie Mae and Freddie Mac in 2003 and 2004 by proposing regulations that would force them both to increase their reserve requirements and tighten lending standards. That bill was rebuffed by none other than Senator Chris Dodd (D, Countrywide) who promised a lengthy filibuster. The bill Reform died in 2005. Three years later the economy collapsed.
UPDATE: From the wayback machine. Karl Rove last year explaining how Bush’s attempts to clamp down on Fannie and Freddie were blocked.
UPDATE 2: Here’s another backgrounder on President Bush his attempts to control Fannie and Freddie.