Richard Drew/AP
Treasury Secretary Henry Paulson

Fannie Mae and Freddie Mac: Finger-Pointing Season Begins

July 23, 2008 10:55 AM
by Anne Szustek
Congress’s proposed bailout plan for the government-assisted home lenders may cost taxpayers $25 billion. Let the finger pointing begin.

30-Second Summary

After making a speech Tuesday morning in New York bolstering the cause of federal intervention to support the two mortgage companies, Treasury Secretary Henry Paulson pleaded with Republican senators during a closed-door lunch at the Capitol.

Sen. Judd Gregg, R-N.H., the highest-ranking Republican on the Budget Committee, concurred with Paulson: “Freddie and Fannie are important mainstays in the American economy, and we need to find solid footing for these enterprises.” Others in the GOP are not as approving. Kan. Sen. Jim Bunning said the Paulson proposal “smacks of socialism.”

The Federal Reserve and members of the office of the federal comptroller are examining Fannie and Freddie’s books for evidence of accounting impropriety—the findings of which Paulson is sure will provide market confidence.

The two lenders could very well bail themselves out of their current crisis and never need federal assistance. But the mere specter of a massive federal bailout has observers wondering why a debacle so widely predicted was nonetheless allowed to happen.

Accounting malfeasance was spotted by the Office of Federal Housing Oversight in September 2004. This was not widely covered by the press, and no meaningful reforms resulted. The Heritage Foundation says of the startling lack of strengthened oversight: “the two have built auras as invincible, all-knowing and essential parts of the economy.”

Former St. Louis Fed president William Poole argued in an interview with Foreign Policy magazine that the two lenders did not have the funds to endure gravely bearish housing markets. Of analysts, he said, “I can hold them to a standard of holding adequate capital to be able to withstand unforeseen circumstances. That’s what capital is for.”

See Wallstrip coverage

Headline Link: ‘Congressional Analysts Peg Cost of Propping up Fannie Mae and Freddie Mac as High as $25 Billion’

Background: The decline of the state-supported lenders, Congress’s rescue plan

Opinion & Analysis: Too little money, too few eyes


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