"Let's not overreact…" Legislators talk about Fannie and Freddie

The Wall Street Journal has done a good service and excerpted comments about Fannie Mae and Freddie Mac from legislators now leading the effort to fix things.
It is getting increasingly clear that legislators charged with oversight of the GSEs (Government Sponsored Enterprises), were so focused on making housing available that they did not heed warnings of how such manipulations altered the market. We will now pay for this.
Here is a particular telling exchange:

Senate Banking Committee, Feb. 24-25, 2004:
Sen. Thomas Carper (D., Del.): What is the wrong that we’re trying to right here? What is the potential harm that we’re trying to avert?
Federal Reserve Chairman Alan Greenspan: Well, I think that that is a very good question, senator.
What we’re trying to avert is we have in our financial system right now two very large and growing financial institutions which are very effective and are essentially capable of gaining market shares in a very major market to a large extent as a consequence of what is perceived to be a subsidy that prevents the markets from adjusting appropriately, prevents competition and the normal adjustment processes that we see on a day-by-day basis from functioning in a way that creates stability. . . . And so what we have is a structure here in which a very rapidly growing organization, holding assets and financing them by subsidized debt, is growing in a manner which really does not in and of itself contribute to either home ownership or necessarily liquidity or other aspects of the financial markets. . . .
Sen. Richard Shelby (R., Ala.): [T]he federal government has [an] ambiguous relationship with the GSEs. And how do we actually get rid of that ambiguity is a complicated, tricky thing. I don’t know how we do it.
I mean, you’ve alluded to it a little bit, but how do we define the relationship? It’s important, is it not?
Mr. Greenspan: Yes. Of all the issues that have been discussed today, I think that is the most difficult one. Because you cannot have, in a rational government or a rational society, two fundamentally different views as to what will happen under a certain event. Because it invites crisis, and it invites instability. . .
Sen. Christopher Dodd (D., Conn.): I, just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time. And we don’t want to lose sight of that and [what] has been pointed out by all of our witnesses here, obviously, the 70% of Americans who own their own homes today, in no small measure, due because of the work that’s been done here. And that shouldn’t be lost in this debate and discussion. . . .

I wonder how many of those Americans now have lost those homes.
Some of my readers will assume I am posting information which makes Democrats look bad because I am a conservative. While that temptation is there, I am truly hopeful that those responsible will see why the crisis is upon us and learn from it. It is the ideas that are at issue, not the intent. The desire to promote home ownership is a good one, but the manipulation of markets to pursue that aim has been a disaster. If Chris Dodd, Barney Frank, Barack Obama, etc., articulated this for the people, this would be hopeful. However, I do not see this; in fact, here is what Barack Obama says about the crisis:

The era of greed and irresponsibility on Wall Street and in Washington has created a financial crisis as profound as any we have faced since the Great Depression.

Whose greed and irresponsibility is he talking about?
Knowing how the mess started is a big part of knowing how to get out of it.

6 thoughts on “"Let's not overreact…" Legislators talk about Fannie and Freddie”

  1. I agree with the above comments that said Fannie and Freddie were getting it from both sides.
    IIRC, the private sector loan houses (which sold to Fannie and Freddie, who then sold to Wall Street) were threatening to bypass them and sell directly to Wall Street if they didn’t start buying up some of their riskier loans as well.
    It was a damned if you do or damned if you don’t kind of situation. When everybody on all sides is saying “do this” it starts to hammer down your defenses.
    Unfortunately, for everybody saying that oversight and regulation would’ve fixed this: do you honestly think that the parties pressuring Fannie and Freddie wouldn’t have pushed through legislation pulling any oversight that had existed? Come on: this is what economic bubbles look like. They aren’t strictly preventable because the pressure of the market is what encourages everybody to behave stupidly at the exact same time.

  2. From Aceofspades’ list of Biden “lies”:
    8. OIL TAXES: Biden falsely said Palin supported a windfall profits tax in Alaska — she reformed the state tax and revenue system, it’s not a windfall profits tax.
    And here’s what a quick google search turns up:
    Windfall tax lets Alaska rake in billions from Big Oil
    Palin backed Alaskan windfall-profits tax

  3. Both Parties (Republican and Democrat) have completly sold out to special interest groups from Wall Street. From now on I’ll be voting for anyone who is not a Republican or Democrat, I don’t care if it’s an Independant, Third Party or the Local Dog Catcher.
    Vote for anyone who is not a Republican or Democrat in 2008.

  4. I’d love to stick it to the Dems on this one but the truth is that the blame is all around.
    Here is a video of Bush advocating lower standards to get more poor people into homes they can’t afford.
    Burning Down The House: (Karl Rove – Bush Version)
    Republicans and Democrats were in a heated race to see who could be the most politically correct and financially irresponsible at the same time.

  5. Congress Peter Defazio (D) from Oregon offers real solutions to today’s financial crisis.
    Put this guy in charge.
    Bailout is irresponsible and won’t solve the problem of falling home prices or frozen credit markets
    BTW I’m with anonymous about voting the bums out.

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