Thursday, December 11, 2008

The Body Cooled Down

In July, August, and September the housing market and investment banking industry was dead and twitching. Now that the body is cold, a U. S. House of Representatives regulatory committee finally put the blame on Fannie Mae and Freddie Mac (the FMs), which is almost where it should go.

I said this stuff three months ago here. The ultimate blame goes to congress, though, particularly to our representatives that prevented oversight of the FMs. Why is congress only waking now? Because they had an election to survive and had to delay blame. That explains the delay. I still do not know why they are even addressing the issue.

The idea that congress was to blame was mentioned (barely) at the hearings. The demons were, of course, CEOs of the FMs. Franklin Raines, at Fannie Mae, certainly did not help the situation by basing executive bonuses not on profitability, but on total numbers of mortgages that his underlings bought. But congress created the FMs and passed the Community Reinvestment Act (creating subprime mortgages); then the Clinton administration forced the FMs to buy subprime mortgages and congress shielded the FMs from oversight.

Government trashed the economy.

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