wilmott.com

Bill Cunningham had a guest on last night who warned back in 1999 about impending disaster at Fannie MaeParty like it’s 1999 redux: The New York Times predicted Fannie Mae failure(contrast the LA times in 1999)Part of the problem was that in the bad old days, banks would "red-line" certain neighborhoods and not make loans there. By an unfortunate coincidence, large numbers of minorities tended to live in some of those neighborhoods, so the practice was viewed as racist by the Clinton administration:QuoteUnder Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities. It was that action which ultimately snowballed into the subprime crisis

Pushed by Congress to take more risk, Fannie hit tipping pointQuote"Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers"

In my prior life in academia I fudged with a model for the default of Fannie+Freddie, valuing the fact that everybody knew they would get bailed out if something went wrong. Seemed slighly irrelevant then.. times change. paper here

Larry Summers was very critical about the GSEs. He has made some bitter remarks of late..

QuoteOriginally posted by: SorenIn my prior life in academia I fudged with a model for the default of Fannie+Freddie, valuing the fact that everybody knew they would get bailed out if something went wrong. Seemed slighly irrelevant then.. times change. paper hereindeed, you should be nominated for the Nobel Prize in Economics for the foresight !