Monday, September 08, 2008


This is a major come-down for the two mortgage giants. Only a short time ago, they were untouchable. The two companies had cultivated close ties with members of Congress and could deflect criticism. They still have supporters on the Hill. However, with the Treasury having placed both institutions into conservatorship, there isn't much that Congressmen can do.

This is a lesson that good PR only goes so far. Performance counts. Neither company performed. They took on too much risk and made the same erroneus assumptions that most of the rest of the financial world made. Namely, housing prices will always go up and homeowners would fight to keep their dwellings. Neither assumption proved true in the housing bubble. In a sense, their close relations with Congress also proved their undoing. The companies could not have pulled back from guaranteeing mortgages even if they wanted to do so. They would have been summoned by irate Congressmen demanding to know why they were not helping American citizens buy homes.

Still, they could have done more to protect themselves. They didn't. We've entered a new era, and it is not clear where we go from here.


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