There are quite a few shaky assertions in Alan Zibel's Associated Press report yesterday about Freddie Mac's latest quarterly loss ($6 billion), its latest bailout installment request to the U.S. Treasury ($1.8 billion), and the cumulative taxpayer bailout amounts that have been paid out to Freddie Mac and big sister Fannie Mae thus far ($148.2 billion) -- too many to cover in a blog post.
So I'll concentrate on the howlers present in just a single paragraph near the end, wherein the AP reporter attempts to explain why the two formerly government-sponsored mortgage giants that are now government-bailout enterprises ran into the ditch. The verbiage pretty much states the meme that the establishment press seems to want the public to swallow about what went down, and who's to blame:
During the housing boom, Fannie and Freddie faced political pressure to expand homeownership and competitive pressure from Wall Street to back ever-riskier loans. When the market went bust, defaults and foreclosures piled up, and the government had to take them over.
Zibel treats the two giants as if they were innocent bystanders in a boom that "just so happened" to coincide with the political pressures it faced. Nonsense. It's more accurate to say that Fan and Fred fed the boom to the point of being its major cause. Many already know that in 1999, Fannie Mae announced looser lending standards (Fred soon followed; go here to see what this specifically meant). Even the New York Times was a bit concerned at the time:
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.''
Probably much more important is something that is about the best-kept secret outside of the Wall Street Journal in the establishment press. In a December 29, 2009 article, the aforementioned Wallison conveyed an assertion by Edward Pinto, who is certainly in a position to know, that, as far back as 1993, Fan and Fred "routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A." In other words, they deceived the financial markets and the ratings agencies on a massive scale about the underlying quality ofhundreds of billions if not trillions of dollars of securitized mortgages. If Zibel isn't aware of this, he should be. If this has anything to do with "competitive pressure," I'd like him to explain how that's the case.
It's also not written in stone that "the government had to take them over." Perhaps it felt obligated because of the implicit guarantees against default (they were not explicit, despite Zibel's claim that they were), but the legal requirement for Uncle Sam to take over Fan and Fred in troubled circumstances was not there.
Zibel wants readers to believe that Fan and Fred were really just victims of a "market (that) went bust" during the final year of the Bush administration. No sir, it has become painfully apparent that they sowed the seeds of that bust by committing fraud on what may be an unprecedented scale all the way back to the early Clinton years. Taxpayers are now reaping the whirlwind.
Cross-posted at BizzyBlog.com.
