FINANCIAL FIASCO CAUSED BY POLITICAL MALFEASANCE: MORE WRITING ON THE WALL WHICH WAS IGNORED BY THE DEMOCRATS OF CONGRESS: NYT 2002

NYT - IN 2002 - SIX YEARS AGO:

For all the potential risks lurking on their balance sheets, the government-sponsored enterprises argue that the government gets a lot of bang for its theoretical buck. So long as the government never has to mount a rescue, they have a point.

But the bigger they get, the greater the public's exposure.

Certainly, Fannie and Freddie are already so large that some argue the government could no more let them fail than Chrysler, which got federal help in 1980. ''The issue is what would the government do here, and I'd argue there is an implicit guarantee with Citigroup, J. P. Morgan Chase, General Electric'' as well, Mr. Miller said. ''The government cannot allow any of these big institutions to fail.''

Contagion would be one problem.

Two-fifths of all United States financial institutions hold one to five times as much debt from these agencies as they do capital. The system encourages banks to treat the agencies' paper as a near substitute for Treasuries, so that concentration limits do not apply. Central banks are also big holders.

.... As Alan Greenspan, the Federal Reserve chairman, has warned, a lack of due diligence is inevitable in a world where market participants assume the government will make things right.

George J. Benston, a finance professor at Emory University who served on Farmer Mac's board in its early days, said the failure of a smaller enterprise would actually give the government ''a wonderful chance to teach the market a lesson at a bargain price.''

''Legally, the government is not obligated,'' he said. ''But Congress tends to bail these people out.''

There are rumblings that even Congress is having second thoughts. Representative Christopher Shays, Republican of Connecticut, and Representative Edward J. Markey, Democrat of Massachusetts, want Fannie Mae and Freddie Mac to comply with the same disclosure rules as other public companies.

And Paul A. Volcker, the former Fed chairman, has stated publicly that Fannie Mae and Freddie Mac may have become larger than Congress intended.

Bigger than ORIGINALLY intended, but not bigger than the current leadership wanted. YET THEY STILL HAD PLENTY OF WARNINGS: FROM the NYTIMES in 2002, and from BUSH IN 2003.

• BUT THE DEMOCRATS OF CONGRESS DID NOTHING ABOUT IT.
• BUSH WANTED IT, BUT THE DEMOCRATS WHO RUN CONGRESS BLOCKED IT.
• NOW WE HAVE THE BIGGEST FINANCIAL FIASCO OF ALL TIME TO CONTEND WITH.

VOTE ACCORDINGLY.