Daily Archives: October 5, 2008

Gold(man) Standards — Fannie Mae

Article in NYT concerning the evolution at Fannie Mae.  The pressure to take more risky loans came during the heyday of the Republican Congress. But it wasn’t just Congress, as Gov. Palin said during the debate on Oct 2.  Wall Street, investors and the White House pressured Fannie Mae to underwrite the subprime mortgages being written by Countrywide and others.

Seems Fannie Mae had connections to GS:

But earlier this year, Treasury Secretary Henry M. Paulson Jr. grew concerned about Fannie’s and Freddie’s stability. He sent a deputy, Robert K. Steel, a former colleague from his time at Goldman Sachs, to speak with Mr. Mudd and his counterpart at Freddie.

Mr. Steel’s orders, according to several people, were to get commitments from the companies to raise more money as a cushion against all the new loans. But when he met with the firms, Mr. Steel made few demands and seemed unfamiliar with Fannie’s and Freddie’s operations, according to someone who attended the discussions.

Rather than getting firm commitments, Mr. Steel struck handshake deals without deadlines.

That misstep would become obvious over the coming months. Although Fannie raised $7.4 billion, Freddie never raised any additional money.

Mr. Steel, who left the Treasury Department over the summer to head Wachovia bank, disputed that he had failed in his handling of the companies, and said he was proud of his work .

Mr. Steel now has a court fight over to whom he can sell Wachovia (disaster seems to follow him, no?).  Wonder what color his parachute is?

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Filed under Market Failure, Policy