Fannie Mae and Freddie Mac were created by Congress to serve the American Dream of homeownership. By the end of the century, they had become extremely profitable and powerful companies, instrumental in putting millions of Americans in their homes.
So why does the government now want them dead?
In 2008, the U.S. Treasury put Fannie and Freddie into a life-support state known as “conservatorship” to prevent their failure—and worldwide economic chaos. The two companies, which were always controversial, have become a battleground. Today, Fannie and Freddie are profitable again but still in conservatorship. Their profits are being redirected toward reducing the federal deficit, which leaves them with no buffer should they suffer losses again. China and Japan are big owners of Fannie and Freddie securities, and they want to ensure the safety of their investments—which helps explain why the government is at an impasse about what to do. But the current state of limbo is unsustainable.
Based on comprehensive reporting and dozens of interviews, Shaky Ground chronicles the story of Fannie and Freddie seven years after the meltdown, and tells us why homeownership finance is now one of the biggest unsolved issues in today's global economy—and why it must be placed on firmer ground.
The 2008 financial crisis had many root causes, and the debate hasn't ended about how much blame to apportion to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation Fannie Mae and Freddie Mac, respectively, as they're known on Wall Street and Main Street. Business reporter McLean (coauthor of The Smartest Guys in the Room) takes on the thankless task of explaining how these little-understood government-sponsored enterprises (GSEs) support American homeownership by buying mortgages so that banks can make more capital available for new borrowers. That function was a contributing factor in banks bingeing on subprime loans and thereby nearly triggering a world financial collapse. McLean ably describes a situation where, seven years past the brink of economic collapse, Fannie and Freddie are severely undercapitalized, faced with investor lawsuits, and caught up in political infighting that prevents either comprehensive reform or their ultimate abolition. It's a complex story with no apparent solution, as even longstanding critics of the agencies have, in McLean's words, concluded that sticking with "the devil you sort of know" is preferable to upending a still shaken domestic economy. McLean makes a convoluted tale, far removed from most people's day-to-day economic lives, as clear as it can be made.
Retired Citizen from Eastern PA
Well written, easy to grasp in spite of the complex subject matter; for me a must read primer on an important element of our political and financial systems.