But panel members lambasted the executives for taking undue risks to win bigger bonuses and for failing to take responsibility for a housing crisis that has ravaged the economy.
“Their irresponsible decisions are now costing taxpayers billions of dollars,” said committee Chairman Henry Waxman, D-Calif.
Fannie and Freddie own or guarantee half of outstanding home loans and became the largest buyers of subprime and Alt-A mortgages, both of which have had high rates of defaults. Alt-A, a category between subprime and prime, did not require documentation of income or assets. With the firms facing $12 billion in credit losses this year, the government took over both in September.
And the failure of Congress…?
Barney Frank and Chris Dodd should both be on the hot seat.
I cannot believe Chris Dodd and Barney Frank aren’t being grilled by their colleagues. Until that happens, this is all a circus act to look like they’re doing work.
How about Chris Bond, Robert Bennett, and Alphonse D’Amato?
[i] Until that happens, this is all a circus act to look like they’re doing work. [/i]
Just so you know: this hearing is being held at the behest of the committees’ Republicans.
I don’t care who requested it – both parties are circling the wagons around their own institution. Republican senators should be ashamed that they have not insisted that any and all committee members, either party, be questioned in a public hearing about the reasons for congressional mandates given to Freddie and Fannie on loan requirements, etc. Until that happens, I give no credence to any of it.
Yu all are right. FNMA and FDMC both responded to direction of the US Congress (Frank. Dodd, et al) to make those loans, to avoid the “racist lender” label that was constantly held over the lending institutions’ heads, to make these loans to those who everyone had to know could likely not pay them back – – but it all started with the Congress, and most specifically the Community Redevelopment Act of (I think) 1977. If congress wants to find the fundamentally guilty parties, they need only look in the mirror.
[i] Republican senators should be ashamed that they have not insisted that any and all committee members, either party, be questioned in a public hearing about the reasons for congressional mandates given to Freddie and Fannie on loan requirements, etc. [/i] —#5
A fine example of partisan blindness. You start by assuming the truth of the talk-show myth that Fannie and Freddie’s problems resulted from “congressional mandates given to Freddie and Fannie on loan requirements.” Then, to show you aren’t merely after Democrats, you declare you also want the Republicans grilled for failing to insist on questioning “any and all committee members, either party, be questioned in a public hearing about the reasons for congressional mandates.”
[b] Fannie and Freddie became huge players in the subprime market because because they saw subprime lending as the best available way to maintain earnings growth and maximize profits. [/b] They’d had extraordinary earnings growth during the 1990s and wanted it to continue. But they had already taken over most of the traditional market in which they were allowed to operate. Like many lenders and investors, they believed the subprime market offered attractive returns. No one forced them to become huge suprime players. They chose to do it. They wanted to do it.
They were also encouraged, as were banks, to increase homeownership – by any means possible, it appears. I am not a Republican or a Democrat – I am independent, with a definite “conservative” leaning, especially when it comes to government oversight (or lack of) – it’s too partisan and too prone to political whims, and way too inefficient. And I will never understand how quasi-governmental agencies, like Freddie and Fannie, are allowed to make political contributions to anyone. Just because “they wanted to do it” doesn’t mean they should have or been allowed to since they did have government oversight – oversight that they bought access to and manipulated. I’m obviously not an expert – but the whole thing stinks.
[i] it all started with the Congress, and most specifically the Community Redevelopment Act [/i]
Not so. The Community Reinvestment Act (CRA) did [i] not [/i] cause the mortgage debacle—a point [url=http://www.housingwire.com/2008/11/20/comptroller-dugan-comes-out-strong-in-support-of-cra/]recently emphasized by the chief regulator of national banks[/url].
Neither in principle nor in practice did the CRA force lenders to make bad loans.
http://new.kendallharmon.net/wp-content/uploads/index.php/t19/article/16653/#285444
http://new.kendallharmon.net/wp-content/uploads/index.php/t19/print_w_comments/16417/#282378
CRA lending has had “about the same†or “somewhat higher†profitability than banks’ other lending.
http://www.federalreserve.gov/boarddocs/surveys/craloansurvey/cratables.pdf (tables 3a, 4a & 5a)
Who generated most subprime loans? Not banks but mortgage companies and other firms to which the CRA [i] does not apply[/i]. http://www.mcclatchydc.com/251/story/53802.html The CRA applies to only [i] one [/i] of the top 25 subprime lenders. Just one.
Branford [#8]: I agree that the whole thing stinks. Fannie and Freddie should have been privatized long ago. They have received enormously valuable government benefits for doing things that had a strong profit motive to do anyway (and that other firms would also have done but for Fannie and Freddie’s artificial competitive advantages).
If Fannie and Freddie’s special privileges had been phased out during the early 1990s, the two firms would have continued to conduct their legitimate businesses—(notably guaranteeing that investors in mortgage-backed securities would receive full payment of principal and interest. But they would have become subject to market discipline that would have helped correct their financial weakness and curtail their abuses and gamesmanship. No longer could they have borrowed $2 trillion at the government rate and invested the proceeds in their own mortgage-backed securities. No longer could they have operated with only $2 in shareholders’ money for each $98 in borrowed money. And the riskier their lending practices, the more their borrowing costs would have risen. In any event, their asset portfolios would have been a tiny fraction of their current size.
I think an important lesson here as we head into bailouts is that governments as well as markets can create bubbles. As Lloyd Bentsen once said (with regard to Reagan era excesses), he could create an illusion of prosperity by spending billions of dollars too.