Arnold Kling  

Freddie Mac: The Book

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The Washington Post reports,


Rep. Henry A. Waxman (D-Calif.), chairman of the House Oversight and Government Reform Committee, has asked the mortgage finance giants Fannie Mae and Freddie Mac whether they know of any White House involvement in the recent decline in their share prices.

I have a book recommendation. Somebody should write a book on Freddie Mac.

Waxman may be right that somebody in the Administration leaked that they were worried about Freddie and Fannie in a attempt to weaken the companies during the run-up to the housing bill. I suspected as much myself. However, the results were ironic.

(a) it made the housing bill more urgent, not less. The bill treated Freddie and Fannie really well, and the President lost all his leverage because he could not longer veto it without blowing up the two companies.

(b) Knowing what we know now, the leaks understated how bad things are, at least at Freddie. The same day as it reported on the Waxman latter, the Post reported that Freddie's losses in the latest quarter were triple what had been expected.

Having said that, I would bet that the last thing Freddie wants is a Congressional investigation, even if it is led by a friendly Congressman.

In theory Freddie Mac's CEO, Richard Syron, could argue that he was far more committed to affordable housing than the previous CEO. I do not think that anyone would dispute that. He could say that he did not trust risk warnings that came from Freddie Mac veterans, because in his view they came from a culture that scorned what Syron believed was the proper mission of the company. I think it should be possible to defend his motives, leaving only questions about his judgment.

But as they say, it's not the crime, it's the cover-up. The "memo? What memo?" statement on Freddie Mac web site is not credible.

The sense that I have is that for several months now, there has been a conflict going on at Freddie Mac between those who want to come clean and those who want to stonewall, lash out, and play political hardball. That conflict was brought to a head by the Times story, and so far the thugs seem to have the upper hand. We'll see how long that lasts.

The financial meltdown over the past few years would be enough to make an interesting story. But the ethical meltdown of this summer is what would make the book a potential best-seller.

No, I'm not going to write it. I can't be objective about the situation.


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COMMENTS (4 to date)
shayne writes:

Representative Waxman's question is a case of asking precisely the wrong question at precisely the wrong time - a well-executed case of political diversion.

David writes:

I'm sure Waxman's hearings, should he get to that point, will be free of political point-scoring and self-aggrandizement- a real effort by diligent, earnest congressmen to get to the heart of the matter. NOT!! I'm Jewish, but whenever I hear what emanates from Reps. Waxman and Frank and Sen. Schumer, I wonder if maybe the anti-Semites may be a tiny little bit right. Kidding, of course!

Brad Hutchings writes:

The part I don't get is how making risky loans makes housing more affordable. What it did in actuality was make housing much more expensive, as speculators, egged on by easy credit, bid against traditional buyers who wanted to live in homes!

What is it about Dems that they don't get that the way to lower prices is to get supply increases to outpace demand increases? It is comical to watch the same conceptual mistake play out over and over.

Jim Glass writes:

I was wondering about the Martin Mayer/NY Times op-ed saying the real motivation behind the rapid bailout was to preserve the US's credit worthiness because the Chinese, Arabs, et. al. now own nearly a trillion of Fannie and Freddie debt...

... by the mid-1990s the countries that had large trade surpluses with the United States — primarily in East Asia and the Persian Gulf — began to demand a better return on investment than that offered by Treasury paper. In response, the New York Fed began to buy them “federal agency” paper ...

These foreign-government accounts now hold $985 billion worth of Fannie and Freddie paper. It explains why, in mid-July, Secretary Paulson (as well as Senator Chris Dodd, the Connecticut Democrat who heads the Senate Banking Committee) began giving press conferences about how sound the two firms really were, no need to worry. Behind the scenes, Treasury officials overseas made phone calls ...

So the debate about whether dishonest lenders and dumb borrowers should have been bailed out was really meaningless — the conclusion was foregone. The international position of the dollar had to be defended against even the hint of possible failure at Fannie and Freddie...

Anyhow, as to Waxman, considering all the crap Congress loaded into the housing bill -- including tax breaks for Chrysler, and dropping a Canadian-owned railroad car factory located in Alabama into a "hurricane relief" zone 300 miles away from it to get it millions of dollars of tax-exempt financing -- he and everyone else in Congress should be shamed into being the last people on earth to complain about anything regarding all this.

If that's what they consider to be a "housing bill", I just can't wait to see what they put into a "nationalized health care" bill.

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