Thursday, September 11, 2008

Why Fannie and Freddie Failed

Dean Baker on why Fannie Mae and Freddie Mac failed:
These mortgage giants went under because they were somehow unable to recognise the housing bubble and to adjust their lending to protect themselves against the inevitable crash. Fannie and Freddie are very far from innocent victims. It is their job to know the housing market and to recognise a bubble. Furthermore, if Fannie and Freddie had begun to tighten credit five or six years ago, when house prices were already clearly out of line, they could have stopped the growth of the bubble before it reached such dangerous proportions.

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