Jonathan Chait

Who Will Dissent From The Dissenters?

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Joe Nocera takes apart the Republican narrative of the financial crisis:

The F.C.I.C. commissioner who has complained loudest about Fannie and Freddie is Peter Wallison, a former Reagan-era Treasury official who for the last two decades or so has been a fellow at the conservative American Enterprise Institute. Long before it was popular to criticize Fannie and Freddie, they were Mr. Wallison’s bugaboo. Back then, he was a lonely indeed a brave voice arguing that the enormous portfolios of mortgages of the G.S.E.’s combined with their quasi-governmental status created systemic risk.

He was right about this, though it’s worth nothing that his precrisis prognosis of Fannie and Freddie’s ills was wrong in a number of key ways. Like most Fannie and Freddie critics at the time, he believed the risk they posed was interest-rate risk, rather than credit risk, which is what actually brought the two companies low. He also argued that Fannie and Freddie were consistently ignoring their mission to help make affordable housing available to Americans.

As he wrote in 2004, “Study after study have shown that Fannie Mae and Freddie Mac, despite full-throated claims about trillion-dollar commitments and the like, have failed to lead the private market in assisting the development and financing of affordable housing.”

After the crisis, his tune changed considerably as did that of many other Republicans, who tended to follow his intellectual lead on this issue. Now, he said, it was government policy aimed at increasing homeownership that essentially forced the private sector to make bad subprime loans.

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