Mile High letdown.

A mostly political Weblog.
Sept. 1 2008 3:40 AM

Mile High Letdown

Obama's non-memorable speech.

(Continued from Page 45)

Is there any doubt that by purchasing bonds backed by subprime mortgages Fannie Mae helped enable the "explosion of high-risk lending"? I wouldn't think so. Indeed, expanding subprime lending seems to have been the goal.  But then why doesn't Calculated Risk emphasize that aspect of Fannie's culpability? If anyone wants to explain this to me, I'll repackage it and sell it to my readers. ...

Answers! a) Yes, the explanation seems to be that Fannie Mae bought securities backed by subprime loans, not the loans themselves; b) Even Tantu says  these securities purchases were "supposed to be about supplying some 'needed' capital to the subprime market." If you're providing "needed" capital aren't you thereby enabling the "explosion of high risk lending," as Conn Carroll charges? Doesn't that leave Krugman--"Fannie and Freddie had nothing to do with the explosion"--looking like he's drunk some kind of Fannie Mae Kool Aid?  ...[Thanks to readers R and S11:57 P.M. link

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Curious passage in Paul Krugman's half-defense of Fannie Mae today:

But here's the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.

Partly that's because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn't do any subprime lending, because they can't.

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Huh? Does Krugman not know that Fannie Mae was a huge buyer of subprime mortgages, including mortgages from Angelo Mozilo's Countrywide? David Smith's eerily prescient AHI blog noted  that Fannie Mae and Freddie Mac reportedly bought $35 billion in subprimes in the first quarter of 2007 alone.

What you need to know here is that the right — the WSJ editorial page, Heritage, etc. — hates, hates, hates Fannie and Freddie. Why? Because they don't want quasi-public entities competing with Angelo Mozilo.

"Huh?" again. Conn Carroll responds:

The problem is that Fannie was Countrywide's No. 1 enabler. ... When he was CEO of Fannie, former Barack Obama campaign adviser Jim Johnson worked personally with Mozilo to streamline the two companies' business relationship.

Could Mozilo have done his subprime thing without Johnson and Fannie Mae as a backup to purchase his junky mortgages?

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