What are the risks to the global financial system that remain
in the wake of the crisis of 2008?
I have thought a lot about this
topic, but I’ve always believed that
trying to forecast the cause of the
next meltdown is an exercise in
futility. One rule about financial
crises that seems to hold true is that the spark that
lights the fire is never what everyone, or even any-
one, was expecting.
Nevertheless, there is a big issue left over from
the darkest days of the financial crisis, and, while it
might not be the cause of an imminent meltdown, it is
a festering problem. That is what to do about Fannie
Mae and Freddie Mac, the mortgage giants that the
U.S. government took over in the fall of 2008 by put-
ting them into “conservatorship,” a state in which they
are supported by a line of credit from the U.S. Trea-
sury and effectively run by a government agency. My
new book, Shaky Ground, is about the tangled history
and very messed-up present of these two companies,
which impact the lives of a lot of Americans, whether
they realize it or not. I think it’s a pretty nuanced
book, because I’ve never found any simple way to
summarize what I think about the GSEs. My goal was
to lay out the issues in a way that fosters debate and,
hopefully, makes people care. This is too important to
let special interests determine the outcome while we
all play possum.
We were supposed to figure out how to resolve
these controversial companies—collectively called the
GSEs for government-sponsored enterprises—and
maybe even to push RESTART on the role that the
government has long played in promoting and sup-
porting America’s cult of homeownership. But here
we are, seven years after Fannie and Freddie were
taken over. The big banks have at least superficially
paid back the money the government gave them;
General Motors and Chrysler are out of bankruptcy;
but Fannie and Freddie are still in conservatorship.
Even more significant, most of the mortgage market
in this country is now supported by government
SHAKYGROUND
The Fannie and
Freddie Debacle
By Bethany McLean
