ECONOMY - The Fannie Mae Domino

"Protecting Its Fannie: How Mortgage Giant Primed the Bubble, Covered Its Assets"
PBS Newshour 7/1/2011


"Shields, Gerson on Bachmann, Parties' Willingness to Budge on Spending, Taxes" PBS Newshour Transcript 7/1/2011 (includes video)

Excerpt on Fannie Mae

JIM LEHRER (Editor, Newshour): And to the analysis of Shields and Gerson, syndicated columnist Mark Shields, Washington Post columnist Michael Gerson. David Brooks is away tonight.

Mark, what do you make of that Fannie Mae story?

MARK SHIELDS: Well, the drive for homeownership was something I can recall President Clinton speaking about it, President Bush speaking about it, how important it was. It was a measure of the achievement in the country.

But, as you go to the story of Fannie Mae, what it comes down to is, they privatized profit -- in other words, whether it's the investors -- but they socialize losses. In other words, everybody else in the country picks up the tab when it doesn't -- when it goes under. That is really...

JIM LEHRER: While you're making money yourself.

MARK SHIELDS: Yes. I'm making money, it's mine. But now that...

JIM LEHRER: But if I lose it, it's yours, government.

MARK SHIELDS: Yes.

JIM LEHRER: Yes.

MARK SHIELDS: It's yours, taxpayers. And I just -- I think that's a really bad public policy.

JIM LEHRER: Michael?

MICHAEL GERSON: Well, it's still also the political context in which everyone's operating right now.

As far as I know, the president didn't have anything to do with this. But the bursting bubble of the housing market has really undermined confidence in the whole economy. We have had a larger percentage fall in housing prices in this crisis than we did in the Great Depression. It's hard for people to feel good about the economy when their principal asset has declined in that way.

JIM LEHRER: And Fannie Mae and Freddie Mac were huge dominoes in this collapse, were they not?

MICHAEL GERSON: No, it's absolutely true.

And as it points out, this was a massive bipartisan failure. Both parties built this house of cards. Nobody really wants to take responsibility in the aftermath, because it might hurt the markets even further.