It appears the spiral downward continues for Fannie Mae and Freddie Mac. When the bank crisis hit in 2008, there were many voices yelling that the main player was Fannie and Freddie. However, driven purely by political reasons, those voices were drown out. The reason is simple,exposure of the truth would have destroyed the public approval of the bailout plan.
The process was as follows.
Politicians pushed for mortgage loans to the "underprivileged" guaranteeing a large segment of the population would vote in a specific manner. To accomplish the goal mortgage approval had to eased and this is where the large banks entered the picture. Fannie and Freddie, established as mortgage companies were used as quasi purchasing agents for the government. The banks approved the loans, sold them to Fannie and/or Freddie, for a profit and continued rolling in the mortgages and sending out the cash. As the process grow wildly out of control and the bad mortgages piled up faster then they could be sold, the bubble started to burst. When the real estate market sank and oil prices sky rocketed the banks were in trouble. The banks were left holding loans nobody could pay and they were stuck. Thus, the bubble burst. Enter the crisis talk, the bailout plan, the scare tactics and rush to fix the problem.
The end result is the American taxpayer is paying for two things; 1. Politicians buying votes 2. Large banks abusing a system and taking advantage.
No comments:
Post a Comment