Has President Barack Obama learned nothing from the collapse of Fannie Mae and Freddie Mac, the government-guaranteed mortgage giants? Has he learned nothing from the broader collapse of the housing market, caused in large part by the rotten mortgage securities that these two firms churned out and sold to investors during the past decade?
Instead of learning from those sorry spectacles, Obama has bought into his own false narrative about some imaginary deregulatory action causing the economic collapse of 2008. Hence his baffling decision, cleverly buried in the Christmas Eve news dump from the White House communications office, to remove the $400 billion cap on federal loan guarantees for Fannie and Freddie.
Obama’s decision is particularly disturbing for two reasons. First, taxpayers already sunk $111 billion into the Fannie-Freddie bailout in just the past few months. The removal of the $400 billion cap suggests that things are about to worsen considerably. Second, it was precisely such government guarantees that caused the housing bubble and economic collapse in the first place.
In 1999, when Fannie Mae initially began securitizing subprime mortgages in a pilot program, AEI’s Peter Wallison predicted in the pages of The New York Times that a massive bailout would eventually be necessary. Wallison’s warning was ignored by
President Bill Clinton and the Republican-controlled Congress, which together allowed the pilot program to expand year after year.
The process continued under President George W. Bush, with loan standards being steadily lowered by Fannie and Freddie in their effort to give 55 percent of their mortgages to families at or below the median income level. The economic carnage of politically motivated mortgages surrounds us now.
Today, Wallison points out that nearly two-thirds of the nation’s subprime and otherwise bad loans were created, securitized, backed by and/or required by various programs within the U.S. government, including Fannie and Freddie, the Federal Housing Administration, Ginnie Mae and the Community Reinvestment Act. Ten million of these 17 million dicey mortgages — or about 40 percent of the nation’s subprime and otherwise low-grade mortgages — were either owned or securitized by Fannie and Freddie when they collapsed last year.
That Obama would now give these two firms a blank check is incomprehensible. Taxpayers got another thumb in the eye when Fannie and Freddie chose the same Christmas news dump to announce $42 million in bonuses for 12 top executives — obviously for their excellent work last year as they drove the ship into
Keep that one in mind the next time you hear Obama feign outrage about Wall Street bonuses.