Jan

8

 Surprising candor from a former flexionic bank CEO. Why???

"Blame Fannie and Freddie for Mortgage Crisis: Kovacevich"

Fannie Mae and Freddie Mac exacerbated the 2008 mortgage crisis, and that's why the U.S. government should get out of the home loan business, former Wells Fargo CEO Richard Kovacevich told CNBC on Monday. "If it wasn't for Fannie and Freddie, [the mortgage crisis] would have been a small problem. Fannie and Freddie and other government agencies guaranteed 70 percent of those [bad] mortgages," Kovacevich said in a "Squawk Box" interview. He argued that without government-sponsored guarantees, there would not have been any private money willing to buy the toxic loans that have been blamed for the crisis. "There needs to be a decision that the government will not be in the mortgage business in the sense of a hybrid [like Fannie and Freddie]," Kovacevich said. He did say that if the government wants to be in the home loan business, it should do so through the Federal Housing Administration, which has worked well for a long time.

"Everything else has to be privatized," he said, adding that that can be achieved "by reducing by $100,000 a year the Fannie and Freddie guarantee."


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2 Comments so far

  1. Edward Lam on January 9, 2013 6:38 am

    The general problem with flexions perhaps is that they admit their mistakes and flexionism after leaving office, not before. The greenspan “I have found a flaw” statement reminds me of this.

  2. Anonymous on January 12, 2013 11:00 am

    I believe there is a legal standard regarding the phrase “but for x, there would be no y” I believe Fannie and Freddie pass this legal standard of causation with regard to housing bubble and the debt accumulation they enabled. The implicit guarantee they offer is a cheap effective way to keep rates lows and credit flowing as long as the guarantee is never executed. Then it becomes terrible policy. The resolution of F and F over the coming decade will be something to watch. It is rarely talked about and must be powerful forces at work.

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