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"I do think I do not want the same kind of focus on safety and soundness that we have in OCC (Office of the Comptroller of the Currency) and OTS (Office of Thrift Supervision). I want to roll the dice a little bit more in this situation towards subsidized housing ... ."
Rep. Barney Frank, Sept. 25, 2003
"I just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time .. . ."
Sen. Chris Dodd, Feb. 24, 2004
This "great success story" turned out to be an epic failure. The account of Fannie Mae and Freddie Mac has been splashed all over this paper since that fateful day in the fall of 2008. The GSEs were at the heart of the housing bubble and are major contributors to our current economic malaise.
Today, it is widely understood that in order to grow and expand their profits, they dramatically grew their portfolios. It is also understood that the GSE investment portfolios grew because they were funded by implicitly government-subsidized debt.
This seal of approval absolved these mortgage giants of any type of market discipline, which would have kept in check wholly private firms.
What is often overlooked is the relationship between these two mortgage giants and the federal government. Without their allies in Congress, Fannie and Freddie would not have been able to continue their reckless ways and engage in arbitrage with leverage ratios of 100-to-1.
As Frank's quote suggests, these members' willingness to gamble on safety and soundness sprang from a desire to have the GSEs comply with their aspirations for homeownership. Getting many more Americans into homes was their goal, and the GSEs were their primary vehicle.
Beyond the duopoly over the prime mortgage market, Fannie and Freddie were heavily invested in the subprime and Alt-A market. Through the affordable housing goals put in place by Congress in 1992, the GSEs became the largest purchasers of junk mortgages (well over $1 trillion worth). This meant that despite the low quality of the loans, millions of Americans now had a mortgage they otherwise could not afford.
Believing the GSEs should be doing even more to promote affordable housing, their allies in Congress created a housing slush fund that would have taken a portion of the companies' profits and sent it to like-minded organizations, thus ensuring that this army of affordable housing activists would continue to grow.
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Posted By: Rosebud(100) on 4/30/2010 | 2:56 AM ET
TWO OF THE MOST CORRUPT MEMBERS OF CONGRESS IN HOUSING & FINANCE GET TO WRITE FINANCE REFORM? THEY WERE ON THE PAYROLL OF CEO/FANNIE MAE, FRANKLIN RAINES, TO DEFEND THE BANKS WHILE HE KEPT 2 SETS OF BOOKS. CLINTON SIGNED THE COMMUNITY REINVESTMENT ACT & LOWERED CREDIT STANDARDS. FANNIE & FREDDIE WERE 1ST FAIL & BAIL. OBAMA WORKED FOR ACORN AS A COMMUNITY ORGANIZER, FORCING BANKS TO GIVE LOANS TO THE POOR. THESE LOANS DEFAULTED & THE BANKS FAILED. BLAME IT ON CLINTON, FRANK,DODD & OBAMA!
Posted By: Serfdumb(1695) on 4/29/2010 | 9:30 PM ET
They don't want to fix problems; fail = state takeover = socialist elites w/more power & control.
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