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The Tragic Demise of Fannie Mae
The American ^ | October 22, 2012 | Alex J. Pollock

Posted on 10/23/2012 9:32:11 PM PDT by neverdem

A new book offers an instructive lesson on the unhappy surprises caused by the government’s attempts to manipulate the housing market.

James R. Hagerty’s new book, The Fateful History of Fannie Mae: New Deal Birth to Mortgage Crisis Fall, shows how hard it is for administrations throughout history to know what they are really doing in their political attempts to manipulate the housing market.

As Hagerty explains, the Eisenhower administration, working through the Housing Act of 1954, tried to wean Fannie off the government’s credit and make it operate with private capital. It succeeded instead in creating the essence of the fateful and costly government-sponsored enterprise (GSE) structure.

In 1968, with an expanding government deficit and debt, the Johnson administration figured out how to remove Fannie from the federal budget accounting with “privatization.” This wasn’t privatization at all, but GSE-ification. This made Fannie’s profit private and the risk public, while giving it huge advantages over truly private companies. The result was even more government debt and risk.

The Nixon administration, through the Emergency Home Finance Act of 1970, put Fannie into the business of “conventional” mortgages (i.e. government mortgages that were not via the Federal Housing Administration or Veterans Affairs Department), thus vastly expanding the realm of government guarantees to the majority of mortgages, which did not need them. The same act set up a whole new GSE: Freddie Mac.

The Clinton administration, to promote homeownership, did so by pushing “innovative credit,” which simply meant riskier credit with higher leverage. This ran Fannie’s (and Freddie’s) risk up even further.

The risk came home to roost and the George W. Bush administration put the busted Fannie (and Freddie) into conservatorship, making them effectively government housing banks, entirely controlled by the government — a status which has now been continued for four years by the Obama administration. Utterly insolvent, the GSEs both should have been put into receivership.

But now the government is stopped from the logical act of receivership, because this would force all Fannie’s (and Freddie’s) debt onto the government’s books. Well, it certainly would be unfair to ask the government to tell the truth about its debt! What a tangle — and what an instructive lesson in the unhappy surprises caused by the government’s attempts to manipulate the housing market!

To hear more of the inside story of this “fateful history,” hear Hagerty discuss his book at AEI on October 24 at 5:00 p.m.

Alex J. Pollock, a resident fellow at the American Enterprise Institute, will moderate the Fateful History of Fannie Mae book forum.

FURTHER READING: Pollock also writes “Geithner’s View from the Top of the Bubble,” “The Pension Benefit Guaranty Corporation: Who Will Guarantee This Guarantor?,” and “Who Will Guarantee This Guarantor? Part Two.” Edward Pinto discusses “Government Housing Policy: The Sine Qua Non of the Financial Crisis.” Phillip Swagel and Jim Millstein say “It’s Time to End the Bailout of Fannie and Freddie. Here’s How.” Peter J. Wallison explains “Hey, Barney Frank: The Government Did Cause the Housing Crisis.”

Image by Dianna Ingram / Bergman Group

TOPICS: Crime/Corruption; Culture/Society; Editorial; Politics/Elections
KEYWORDS: davidgregoryswife; fanniemae; freddiemac

1 posted on 10/23/2012 9:32:14 PM PDT by neverdem
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To: neverdem

Democrats on Fannie Mae and Freddie Mac =

2 posted on 10/23/2012 10:15:35 PM PDT by doug from upland (I don't like RINOs, but I love my country more than I hate Romney...Muslim marxist, get out!)
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To: neverdem

Something tragic? Where? It’s creation was pretty tragic

3 posted on 10/23/2012 10:23:13 PM PDT by GeronL (
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To: neverdem

The stock value of both Fannie and Freddie went to zero.

Fannie Investor Loss - about $70 billion.

Freddie Investor Loss - about $55 billion.

To my knowledge, this issue has never been covered by the MSM.

Instead, the MSM still claims that Enron (about $60 billion loss) was the greatest fraud in history.

4 posted on 10/24/2012 12:52:04 AM PDT by zeestephen
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To: zeestephen

stock price ?.....whoa....and these same SOB’s said investin social security was criminal.....whoa...what a sound bite

5 posted on 10/24/2012 12:58:26 AM PDT by advertising guy (" that lie has it's own sleep number " David Feherty PGA Championship 2012)
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