Freddie Mac: The Book
By Arnold Kling
Rep. Henry A. Waxman (D-Calif.), chairman of the House Oversight and Government Reform Committee, has asked the mortgage finance giants Fannie Mae and Freddie Mac whether they know of any White House involvement in the recent decline in their share prices.
I have a book recommendation. Somebody should write a book on Freddie Mac.
Waxman may be right that somebody in the Administration leaked that they were worried about Freddie and Fannie in a attempt to weaken the companies during the run-up to the housing bill. I suspected as much myself. However, the results were ironic.
(a) it made the housing bill more urgent, not less. The bill treated Freddie and Fannie really well, and the President lost all his leverage because he could not longer veto it without blowing up the two companies.
(b) Knowing what we know now, the leaks understated how bad things are, at least at Freddie. The same day as it reported on the Waxman latter, the Post reported that Freddie’s losses in the latest quarter were triple what had been expected.
Having said that, I would bet that the last thing Freddie wants is a Congressional investigation, even if it is led by a friendly Congressman.
In theory Freddie Mac’s CEO, Richard Syron, could argue that he was far more committed to affordable housing than the previous CEO. I do not think that anyone would dispute that. He could say that he did not trust risk warnings that came from Freddie Mac veterans, because in his view they came from a culture that scorned what Syron believed was the proper mission of the company. I think it should be possible to defend his motives, leaving only questions about his judgment.
But as they say, it’s not the crime, it’s the cover-up. The “memo? What memo?” statement on Freddie Mac web site is not credible.
The sense that I have is that for several months now, there has been a conflict going on at Freddie Mac between those who want to come clean and those who want to stonewall, lash out, and play political hardball. That conflict was brought to a head by the Times story, and so far the thugs seem to have the upper hand. We’ll see how long that lasts.
The financial meltdown over the past few years would be enough to make an interesting story. But the ethical meltdown of this summer is what would make the book a potential best-seller.
No, I’m not going to write it. I can’t be objective about the situation.