When Fannie and Freddie Hit the Fan
Fannie and Freddie are part of a complex, spontaneously evolving, and partially disguised system of government support for homeownership.
by Clive Crook
Sat. Jul 19, 2008
The Treasury Department's "vast plan" to save Fannie Mae and Freddie Mac, as Monday's headline in The New York Times put it, was apparently not vast enough. Wall Street's instant reaction to the announcement from Treasury Secretary Henry Paulson Jr. was to drive shares of the two big lenders--pseudo-private agencies that own or guarantee nearly half of the mortgages in the United States--to new lows. This latest twist moved the lenders to the fore in the country's still-unfolding financial and economic drama, and they show no sign yet of moving aside.
This new prominence must feel strange. Until recently, Fannie and Freddie had maintained low profiles, given their amazing scale and the centrality of their operations to the housing mess that is dragging the economy
down. Their combined housing-loan book--mortgages, and guarantees of mortgages and mortgage-backed securities--is worth a staggering $5 trillion (equivalent to more than one-third of the economy's entire annual output). Over the years, some experts voiced concern about their management, their ambiguous status, and the regulations under which they operated. Little was ever done. Finally, Fannie and Freddie have made the front pages.
The pair are part of a complex, spontaneously evolving, and partially disguised system of government support for homeownership--probably the most generous system of its kind in the world.
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