The Real Cause of the Financial Meltdown

By Chip Hanlon | October 09, 2008 | 2:00 PM | 1 Comment

Below is a great post from Red County about the true cause of our current financial crisis: Washington D.C., not Wall Street.  Read on for a tremendous description of how the political agendas attached to affordable housing pushed Fannie and Freddie to abandon all common sense.

In it, Richard Swier posts the remarks of Ed Pinto, the former Chief Credit Officer of Fannie Mae (from 1987-'89). Mr. Pinto will also be the guest on the next episode of my podcast, Market Neutral, next Tuesday.  Here's the article:

You may already know that the event that brought the world's largest economy to its knees was the skyrocketing foreclosure rates on subprime and Alt-A junk loans.  

You may already know that Fannie Mae and Freddie Mac were the leading actors in this crisis and that they are now under government conservatorship.  

As a taxpayer you might expect the regulator/conservator would work to rehabilitate them so this does not happen again.

Well, not exactly: On September 25, 2008 James B. Lockhart, Fannie and Freddie's federal regulator and conservator, in a statement to the House Committee on Financial Services chaired by Rep Barney Frank, acknowledged that poor underwriting and credit concerns were the main causes of their collapse1.

He then made the seemingly odd observation, given his role as their safety and soundness regulator: .... read the rest of this in-depth explanation of the roots of the credit crisis here at RedCounty.com

Looking Forward to the Pod Going to be interesting...... Submitted by Jim Slagle on Thu, 2008/10/09 - 2:24pm » reply |