Finally, Some Truth About Freddie and Fannie
The sub-prime mortgage bust has been the topic of much discussion in the media since late 2008. Unfortunately, given the left-leaning composition of most of America's elite newsrooms, very little of that discussion has focused on the federal government-backed mortgage bundlers Freddie Mac and Fannie Mae.
That's unfortunate because while Fannie and Freddie are ostensibly private corporations traded on the stock market, they have been subject to a huge degree of government meddling, particularly by the former Clinton Administration which, along with Democratic Massachusetts Congressman Barney Frank, pressured them to encourage banks to provide loans to people who simply could not afford to pay them.
There's lots more to the story of Fannie and Freddie's overheating the mortgage market which is now finally being told in a new book called Reckless Endangerment released by New York Times reporter Gretchen Morgenson. As Investor's Business Daily notes, Morgenson's work is a breath of fresh air in a media environment where blame-private-enterprise-first is the usual rule:
Refreshingly, the lead villain in Gretchen Morgenson's book isn't Lloyd Blankfein or some other "fat cat" banker. It's ex-Fannie chairman Jim Johnson, one of many Clinton cronies who helped set the stage for the financial disaster back in the 1990s.
She blames Johnson and Fannie for fanning the easy credit flames by underwriting home loans for low-income minorities. But this is still only half the story.
The Clinton White House and Democrat Congress were obsessed with closing the racial mortgage gap, and they enlisted Fannie and its brother, Freddie Mac, in their reckless social crusade.
Fannie and Freddie didn't co-opt regulators, as the book argues. It was the other way around. Their chief regulator — HUD — pressured them to target credit-poor blacks and Hispanics with subprime loans. If they didn't meet HUD's increasing quotas, they were threatened with fines and stiffer oversight. [...]
The Times' assistant business editor deserves cautious praise for recognizing, if belatedly, government-sponsored Fannie's role in the subprime crisis, and for finally calling it by its proper name—a Washington scandal. Still, the cover-up of what really caused the crisis goes on.
Read the full editorial here.