It is truly fascinating how liberal media members will do anything to protect the reputation of Fannie Mae and Freddie Mac.
On this weekend's "McLaughlin Group," Newsweek's Eleanor Clift revised history to largely absolve the two government-sponsored enterprises for last decade's mortgage collapse while predictably blaming it on Wall Street and of course George W. Bush (video follows with transcript and commentary):
ELEANOR CLIFT, NEWSWEEK: Because Wall Street wants to make it look like Fannie and Freddie were the drivers behind the mortgage collapse, when in fact Wall Street led the way and Fannie and Freddie basically caught up. I think, you know, Fannie and Freddie were the product of government policy, both parties, and President Bush championed the ownership society, and pushing low-cost mortgages were part of the Republican inroad into the Hispanic community.
The "Wall Street" character Gordon Gecko famously said, "A fool and his money are lucky to get together in the first place."
I'd love to know what he'd say about this nincompoop.
To claim that Fannie and Freddie weren't leaders in expanding the mortgage market that led to the housing bubble and the eventual near collapse of the entire financial services industry is addle-minded even for Eleanor.
To quickly refute her claim, let's cite a source she trusts; in September 1999, the New York Times reported:
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
Readers are advised that this was months before the Financial Services Modernization Act of 1999 was enacted largely deregulating financial institutions to do virtually whatever they wanted, and roughly fifteen months before the Commodity Futures Modernization Act of 2000 deregulated derivatives.
As such, it is quite absurd to say Fannie and Freddie didn't lead the way in driving the mortgage bubble or that George W. Bush played a significant role.
But there's more in this Times piece that folks like Clift conveniently ignore:
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'' [...]
By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
So, back in September 1999, under pressure from the Clinton administration to make more loans to minority and low-income home owners with bad credit ratings, Fannie eased the credit requirements on loans it would purchase.
At the same time, someone familiar with the industry was cautioning that such a move would force a government rescue of the GSE if the economy slumped.
As we all now know, the rest is history except for folks like Clift who feel they need to revise it in order to protect the institutions and the Party they so deeply adore.
Nice try, Eleanor.
