The retired chairman and CEO of Wells Fargo and the former chairman of the FDIC are making no more bones about it: the say that Fannie Mae and Freddie Mac caused the housing crisis and that the two now-federal entities have got to go. Richard M. Kovacevich, former CEO of Wells Fargo, and William M. Isaac, former FDIC chairman and current global head of financial institutions at FTI consulting, revealed their plan for unwinding the GSEs in a report published by CNNMoney. The two criticized Washington politicians for being “bereft of ideas for turning things around” and stated outright that “without these government guarantees [from Fannie, Freddie and other government agencies] the subprime bubble and resulting financial crisis would never have happened.” They also stated that bank regulators and industry experts alike had warned congress “for decades” about the GSE’s risky lending behaviors. Then, they proposed an “orderly…easy” solution, which we have summarized below:
- Sell off the GSEs’ existing portfolios at a rate of $75 billion a year until there are none left
- Reduce the size limit on new mortgages guaranteed by Fannie and Freddie by $100,000 a year so that they are “out of the guarantee business within six years”
- Use the Federal Housing Authority (FHA) in a transparent manner to handle all low-income and minority housing aid
The two then tackled a variety of potential objections to their plan, pointing out that countries with private mortgage markets have only about 2 percent fewer homeowners than the U.S. and that “a tax-deductible $40 or so extra per month” paid by homeowners on private mortgages moving forward would keep all Americans from being “on the hook” for the GSE’s multi-billion-dollar and ongoing bailouts.
Do you think that this proposal for unwinding Fannie and Freddie is a good one? Should the GSEs be unwound at all?
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The magic word id ‘transparency’ in the third bullet point. That alone indicates a need for serious study of this proposal. Now for transparency in the mortgage business for the last 20 years.
Yes, Fannie Mae and Freddie Mac should be eliminated, along with their debt that taxpayers have to pay for their incompetence. This plan elimination is simple and probably beyond our Congressmen to fathom without adding pork barbell riders.
Two big establishment bankers with a solution to the problem. Well go figure! OK, they came up with a solution, but using the word transparent? With the gov’t?
The focus keeps coming back to who to blame. Gov’t blames big banks, and big banks blame the gov’t and it goes round and round. The problem: we have a massive debt created by a gov’t gone wild. We need to reign in our politicians, deal with the federal reserve, and get out of debt. The rest will fix itself within a few years.
Agreed. They should go. Their elimination would hopefully keep the politicans’ hands out of something for which they have been unwilling to hold anyone accountable.
Talk about the arsonists blaming the first responders for not putting out the fire in time! The GSE’s were enablers, not the entities that created the firestorm. THE CEO OF ANY BANK THAT PUSHED THE SUB-PRIME AND ALT-A LOANS SHOULD HIDE IN SHAME! THEY ARE THE ARSONISTS THAT CAUSED THIS FIRESTORM IN THE FIRST PLACE! They may not have directly created the products that lured sub-prime borrowers into purchasing, however they certainly had the power to resist the use of these products. But they didn’t because it meant huge upfront fees for their institutions, and obscene bonus packages for top management. LOOK AT THE MESS YOU CREATED FOR THE GREATEST NATION THE WORLD HAS EVER KNOWN. It will likely create at least a decade more of pain and sorrow for the huge majority of Americans – BUT NOT THOSE WHO REAPED THE MULTI-MILLION DOLLAR BONUSES. GROW A SET OF ****’S. HAVE THE GUTS TO ADMIT THE RESPONSIBILITY FOR WHAT YOU HAVE DONE, NOT PASSING THE BUCK TO WHOEVER YOU CAN PLACE IN THE CROSSHAIRS. .JIM MYERS
hogwash !!! Let’s put horse before the cart ! It’s all of the big companies (fortune
100 etc) who have Congress in their pockets. The Congress is nothing more highly paid
hores who obidiently serve their pimps. In many (way, way, too many) case cases
industry executieves write the bills and the Congress passes them. So for these former execs to to say that’s Fannie and Freddie fault is total absurdity. I can probably make at leat a dozen more points. But I’m not going to waste breath.