Fannie and Freddie Down the Memory Hole?
The whitewash of Fannie Mae and Freddie Mac has to be numbered among the most successful spin operations of our time. Within days of the market collapse in September ‘08, both Senator Dodd and Representative Frank were marching stooges up to Capitol Hill to testify that Fannie and Freddie—virtually run by the congressional committees chaired by the two solons—were victims too and certainly had nothing to do with causing the crisis.
Our favorite witness was some lefty community organizer type who with straight face explained to Dodd’s committee that Fannie and Freddie could hardy be blamed for the junk mortgage market since their only crime was to buy the mortgages they were offered by the mortgage brokers, aka, the real crooks. Dodd nodded gravely and said something pompous. (Oh, wait, that might have been that other time Dodd nodded gravely and said something pompous.)
The truth—does this actually need to be said—is that the mortgage brokers, Countrywide and New Century and the rest, were nothing but sales offices for the banks and especially for Fannie and Freddie. Fannie in particular helped make Angelo Mozilo of Countrywide a folk hero and held his firm, Countrywide, up as an example others should imitate.
As we explain in Panic, these firms had little capital of their own. Their deal flow depended on their knowing in advance that the banks and the twins would buy the junk mortgages they were writing. And no two men were more responsible for urging the Twins to buy up more and more junk than Dodd and especially Frank. Frank’s denunciations of anyone who raised the possibility that the Twins might be getting into trouble, bordered on the hysterical. But of course since we are talking about Mr. Frank, he was on the other side of the border.
Mr. Dodd, perhaps not feeling up to the challenge of nodding gravely while being tossed out of office by an angry mob of voters this fall, has decided to retire with whatever dignity he has left after having been fingered for taking a “friends of Angelo” special low price loan from the man he helped make a billionaire.
Mr. Frank, deciding to stay and fight, has been playing ever more bizarre changes on the hysterical denial motif. For months now he has been saying that his very own pet banks, Fannie and Freddie, may have outlived their usefulness and perhaps should be abolished. Just last week he announced that no one holding the twins bonds should assume they are safe just because the government is now running the firms. His pronouncements sent spokesmen from Treasury and the Fed into a positive tizzy of denial, clucking about how such loose talk could imperil credit markets
Could Mr. Frank be doing this because with every passing day it becomes harder to deny that Fannie and Freddie were the epicenter of the quake? Most of the big banks have repaid all or most of their TARP money and look reasonably sound today. Credit markets are creaking along and bond prices have roared back from the abyss. But Fannie and Freddie are still sucking up taxpayer money with no apparent end in sight as more and more of the mortgages they approved go into default.
No smart politician wants to be associated with the twins today. But over the past decade, no politician has been more associated with them than Mr. Frank. Advocating their abolition, and sternly warning that the government is not responsible for their debts, is certainly a good way for Mr. Frank to put some distance between himself and the twins and perhaps even to begin rewrite a chapter of American history in which the Congressman does not appear to advantage.
Tags: Andrew Redleaf, bankers, banking crisis, banking deregulation, capitalism, Fannie and Freddie, Mortgage Crisis, Regulation, Richard Vigilante, Whitebox, WSJ
