Later On

A blog written for those whose interests more or less match mine.

Wall Street sank Fannie and Freddie

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Interesting article by Dean Starkman in the Columbia Journalism Review. It begins:

My only quibble with the gusher of stories this morning on the government’s takeover on Fannie Mae and Freddie Mac is my usual one—ahistoricism.

Reading all this, one gets the impression that those politically protected mortgage buyers and fee machines caused the global credit crisis.

They didn’t.

The fact is: Wall Street sank Freddie and Fannie, not the other way around.

It was only a few years ago, during the heyday of the housing bubble, that these government-sponsored enterprises were elbowed aside by Wall Street, which was busy furiously shoveling money to the Countrywides, New Centurys, Ameriquests, and other bucket shops that provided the rotten mortgages that were the raw material Wall Street repackaged and foisted onto return-hungry global bond markets.

This Credit Suisse report (from March 2007 and eerily prescient) reminds us that the government sponsored entities’ share of the overall new mortgage market had fallen to 42 percent by the end of 2006 before shooting up to 76 percent at the end of 2007 (on their way toward 90 percent now) as the market collapsed.

And that’s the overall market. As Paul Krugman points out, a “subprime borrower is basically someone whose credit wasn’t good enough to qualify for a Fannie- or Freddie-backed mortgage”. The subprime market&the really toxic stuff—was always dominated by Wall Street and Wall Street-backed lenders.

According to Bloomberg’s tally, bank write-offs from the subprime and credit calamity have now passed $500 billion.

As I argue in the current print edition of the Columbia Journalism Review, the business press has largely missed …

Continue reading.

Written by Leisureguy

9 September 2008 at 3:02 pm

Posted in Business, Daily life

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