Fannie's Friends

When the walls
Come tumblin,' tumblin'
Crumblin,' tumblin'
Down
--John Mellencamp

You'll never see clips like this one on mainstream news outlets. The timeframe is 2004 when the Office of Federal Housing Enterprise Oversight OFHEO, a government agency charged with overseeing the government sponsored entities (GSEs) of Fannie Mae (FNM) and Freddie Mac (FRE), reported issues with FNM's accounting practices.

As shown in the video clip, Democrats rushed to defend the GSEs and did their best to discredit the OFHEO report. They claimed that the report unearthed problems that didn't exist. They even trotted out racism as a motive for the negative findings.

To be sure, the producer of this video is clearly partisan with the other side of the aisle, and insinuates that the Republicans in the video represented the 'good guys.' But Republicans at the time were mostly calling for more regulation of the GSEs--which was not the right thing to do.

Ironically, btw, if you fast forward to the Goldman (GS) situation today, then the roles of Democrats and Republicans are pretty much reversed.

The point of the matter is that politicians tend to staunchly defend their special interests, even in the face of evidence that suggests a catastrophe ahead. And they have no problem turning their hats around if they smell political gain.

How did the FNM situation turn out?

The time bomb went off about 3 yrs later. The thinly capitalized GSEs quickly became insolvent, and their implosions occurred at ground zero of the credit meltdown.

The right thing to do in 2004 and now is not more regulation and oversight of the GSEs. Instead, these entities need to be taken apart and tossed on the scrap heap of history. Unfortunately, FNM and FRE are now wards of the State--which means We the People own them. And...they're back at the heart of the mortgage business once again.

As they are apt to do, politicians have built a new bomb. And it's ticking.

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