Leaking Losses

Come out upon my seas
Cursed missed opportunities
Am I part of the cure
Or am I part of the disease?
--Coldplay

Not quite apples to apples, of course, but asking why Washington focuses on British Petroleum (BP) while largely ignoring Fannie Mae (FNM) and Freddie Mac (FRE), who are 'leaking' as much money per quarter as BP has pledged in entire clean up escrow, is a good question. After all, using the $145 billion figure (which is likely conservative), cost of GSE probs so far is equivalent to about 6 Gulf oil spills.

We know the reasons. Salience and vividness effects make a major oil spill nicely exploitable from a political standpoint.

Moreover, Fannie and Freddie are government creations. Thus these institutions are likely to be protected rather than criticized and disassembled. Near the bottom of the article there are some nice quotes from bureaucrats who were already circling the wagons around the GSEs years before the bubble burst (more in this vid clip).

It is rare indeed that government points fingers at itself.

no positions