HoodaThunk?

I’ve not had anything to say about the current financial mess that’s on everyone’s minds and in everyone’s words, lately. (The business conference I’m attending is, supposedly, aimed at techies such as myself and nearly half of the fellow-techie engineers giving the presentations have managed to work in references to this crisis during their talks.) The primary issue I have wanted addressed is a real explanation of how we got into this mess in the first place, was there something that could have/should have been done to avert it, and what – if anything – can or should be done about it now?

I’ve suspected the answer to the first part of that question. This post over at Power Line which shows a segment on Fox News tells me I was right. The bottom line is that Fannie and Freddie made the practice of issuing loans to uncreditworthy people seem safer than it should have.The banks that made those loans did so in the confidence that Fannie or Freddie would buy the paper on them, thus relieving the bank of the responsibility to weigh more carefully the credit status of the people they were loaning the cash to. When those 2 institutions turned around and sold those loans to other financial houses, they put the air of government-backed assets around the whole affair, which made the purchasing institutions more confident about the buy than they should have been.

Former FED chairman Greenspan warned of this very occurance 3 years ago and his warning sounds like a prophecy today. He hit it squarely on the mark. Republicans in Congress proposed legislation that would have put more oversight on both Fannie and Freddie, something they obviously needed badly. Every Republican in the Senate voted to bring the bill to the floor; every Democrat voted against. As a result, the bill never made it to an up-or-down vote for passage and died off.

Go watch the report yourself and hear all the details.