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Politics : American Presidential Politics and foreign affairs

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From: TimF	9/13/2010 8:58:24 PM
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Political Pressure and the Bubble: Case Closed By Alex J. Pollock September 13, 2010, 6:21 am Everybody knows that the “GSEs”—Fannie Mae and Freddie Mac—have failed disastrously, with heavy credit losses on risky mortgage loans. Was there political pressure on them to make risky mortgages—for which the euphemism is “affordable” mortgages? Of course there was. Consider this revealing language from a letter sent to President Bush while the housing bubble and its way of thinking were in full bloom, in June 2004: We write as members of the House of Representatives who continually press the GSEs to do more in affordable housing. Until recently, we have been disappointed that the Administration has not been more supportive of our efforts to press the GSEs to do more. We have been concerned that the Administration’s legislative proposal regarding the GSEs would weaken affordable housing performance by the GSEs, by emphasizing only safety and soundness. This letter was signed by Barney Frank, Nancy Pelosi, Steny Hoyer, and 73 other congressional Democrats. We wouldn’t want to overemphasize safety and soundness for these hyper-leveraged GSEs, now would we! In 2010, with the bubble and its mentality over, we have time to contemplate the $200 billion to $400 billion it will take to bring Fannie and Freddie’s capital all the way up to zero. Did political pressure have anything to do with that? You bet. Case closed. blog.american.com

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