Fannie and Freddie Symptoms of Larger Problem

(Video: Real News/Text: Globe & Mail)

AFL-CIO economist says this system amounts to “Socialism for the rich and capitalism for the poor” and predicts that the two mortgage lenders may eventually be nationalized.

Fannie and Freddie: Wards of the State

Former treasury secretary Snow says White House had to bail out mortgage giants or face ‘a catastrophe’

John Snow devoted much of his tenure as U.S. treasury secretary trying to convince investors they were wrong to assume the federal government would bail out housing behemoths Fannie Mae and Freddie Mac if the two companies ever got into trouble.

Owners of the debt issued by Fannie Mae and Freddie Mac gave the warning about as much heed as a teenager would over a threat to make curfew or face a locked door – what parent is going to leave his or her child out in the cold?

The teenagers bet right. With Fannie Mae and Freddie Mac on the brink of collapse, President George W. Bush's administration moved late Sunday to guarantee solvency for two companies that buy or finance almost half of the $12-trillion (U.S.) of U.S. mortgages.

“The market has been proven right,” Mr. Snow, treasury secretary from February, 2003, to July, 2006, and now chairman of New York-based Cerberus Capital Management, said in an interview Monday. “The systemic risk became so large. It could be a catastrophe.”

The reversal is remarkable for an administration that has spent almost eight years trying to reduce the government's role in the world’s largest economy. Mr. Bush's tax cuts were the most obvious example of the administration's market-based orthodoxy, but the White House tangled regularly with legislators in a failed bid to restrain Fannie Mae's and Freddie Mac’s growth. Read the complete article.