Tuesday, September 21, 2010

"Fannie and Freddie Acquitted"

Case closed.

Oh yes, there are the so-called GSE investments. Problem there is that they lost a relatively measly $20 billion. Hardly enough of an investment to stoke a massive bubble. Quoting from the GSE Conservator report:

"The Investments and Capital Markets segment accounts for $21 billion, or 9 percent, of capital reduction from the end of 2007 through the second quarter of 2010. Losses in the Investments and Capital Markets segment stemmed from impairments of private-label securities, fair-value losses on securities, and fair-value losses on derivatives (used for hedging interest rate risk)."

Of course, as I have long noted on this blog Fannie and Freddie actually leaned against the bubble by essentially exiting the market just when it reached bubble proportions:

These are damning facts for those claiming that Fannie and Freddie caused the meltdown. Basically, their subprime investments were a drop in the bucket and they had little or nothing to do with the worst of the lending.

The bottom line is this: in a desperate effort to save face, laissez-faire ideologues strove mightily to impugn government efforts to facilitate home ownership rather than massive financial deregulation as the primary cause of the meltdown of 2008. They lacked facts and they ignored history--after all, Freddie and Fannie have been around for decades before the housing bubble whereas massive deregulation immediately preceded the fiasco. The Conservator's Report will not stop their delusions.

Students of history and economics know that laissez-faire does not work--it did not work in 1929 (before Fannie, Freddie, the SEC, the FDIC, etc.) and did not work in 1995-2008. It has not worked anywhere. Laissez-faire may be an attractive political philosophy in theory but it is an economic dead end. The subprime fiasco is just the latest laissez-faire disaster.

1 comment:

  1. Exactly right.

    How will the law and economics shills spin this report to continue to support deregulation?