Friday, June 03, 2011

The Truth Hurts (TTH 1.0)

I’ve decided I need another acronym. One of the things you never think about until you do it...I can’t help but wonder how many duplicate titles I have now. I’ve been writing this blog for almost 5 years and I have over 1,700 posts. I’m not original enough to come up with 1,700 unique titles.

Moving on. I’ve been dragging my feet on writing this post about Gretchen Morgenson’s recent appearance on Fresh Air. She’s a well-respected finance journalist from The New York Times and she has a new book out about the history of the financial crisis of 2008. And she’s not saying what I want to hear.

”So that was an example of the kind of thing that Fannie Mae would do. Now, when I asked Mr. Frank about this, I asked him, did it have any impact on his approach to the company. You know, was it a conflict? Did he feel that it had been a conflicted, put him in a conflicted spot? And he said absolutely not, that he didn't really remember being interested or having much to do with the 1992 legislation.

But the record shows that he was very aggressive and really tough on those who were testifying in Congress about reining in Fannie Mae and Freddie Mac. He was very aggressive to, for instance, the head of the Congressional Budget Office at that time, who was trying to call for increased capital requirements and to call for a focus on safety and soundness at Fannie Mae, that Frank really took him apart in testimony.

DAVIES: Right, and you write there were a number of occasions on which he defended Fannie and their record of promoting home ownership but in the end had a different view of the company, right?

Ms. MORGENSON: Well, after the taxpayers had to take it over, he, you know, came around, finally. But by then it was too late. He said: Well, we should shut them down. But, you know, it really was far too late, and he had been such a vocal supporter for so long that it was sort of an odd turnabout.”

Like I said, the truth hurts. Usually, everybody.

”DAVIES: You know, there's a Republican narrative about the financial crisis, and it's essentially that it was driven by government meddling in the markets, specifically the insistence that we push home ownership into lower-income folks who really weren't financially ready for it, and that that was sort of the original sin and that Fannie Mae, you know, carried that program, Wall Street eventually got sucked in and accelerated it.

Folks will find some support for that point of view in your book, won't they?

Ms. MORGENSON: It's one element of it, I think, Dave. It is certainly not the whole story, because you certainly can't say that Wall Street was a passive player in this. You know, what I think is a way to - best way to describe this is that this was a public-private partnership that was embraced by all of these characters. And they wrapped themselves in the flag and made it seem that this was a win-win for everyone.

Now, if you had had regulators doing their job, and if you had had a tough overseer of Fannie Mae who made it increase its capital, who made the company take greater care with some of its loans that it - that it guaranteed or bought, then you wouldn't have had this problem. So you can't lay it simply at the feet of Fannie Mae, but you have to throw in all of these other characters that were acting in their own interests.”

It’s a great interview and I’d encourage you to listen to it or read it.

Don Brown
June 3, 2011

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