The Fannie/Freddie Flat Earth Theory
Monday 13 October 2008

by: Dean Baker, t r u t h o u t | Perspective

"There is one basic problem with the Flat Earth story: Fannie and Freddie jumped into the junk mortgage market because they were trying to keep pace with the private issuers of mortgage-backed securities. Fannie and Freddie made a conscious decision to dive into the junk in order to protect their market share, which was being seriously eroded by the aggressive tactics of private giants like Citigroup and Merrill Lynch."



Just because someone else is making questionable profits does not warrant a Government program to dive in to share in those profits..Of course if Barney Frank was around in Al Capones times he would have invested in Al.
I noticed the article left out all the warnings about Fannie and Freddie from Repubicans in recent years ...

"There is one basic problem with the Flat Earth story: Fannie and Freddie jumped into the junk mortgage market because they were trying to keep pace with the private issuers of mortgage-backed securities."

So why does Fannie Mae and Freddie Mac have to keep up with the mortgage market? Last I saw, Ginne Mae (government guarantee of mortgages) kept to their standards.

So, if a bunch of kids are playing with fire, and then the Bully comes along with a can of gasoline, you don't blame the Bully? - Well, they were playing with fire already.

Yeah, but Fannie Mae and Freddie Mac were the 1,000 pound Gorillas that were able to take a small problem and turn it into a worldwide economic crisis. It was the Democrats that pushed Fannie Mae and Freddie Mack to join the party in order to avoid oversight regulation.

Fannie Mae and Freddie Mac joining the party also legitimized the issuance of sub-prime mortgages. Well, if Fannie Mae and Freddie Mac are in the game, then it must be ok to play. Kind of like negotiating with Terrorist States without Preconditions. It legitimizes what they are doing.

Finally, they were not an innocent victim of the housing bubble. They helped cause the housing bubble. By purchasing the sub-prime mortgages in such large quantities, they created demand for housing from people who could not afford it. Artificially increase demand, and what do you get? A bubble that bursts.