“Crying in the wilderness. Raging against the machine. Call it what you will, but Peter Wallison has been warning of the Freddie and Fannie meltdown for 10 years,” we wrote in Boomer Market Advisor’s December 2008 cover story on five forward-thinking individuals in the advisor industry. Unfortunately, little has changed with the mortgage giants since then (an understatement, since things have actually gotten much worse).
As we noted then, Wallison was largely dismissed as “obsessed” with the mortgage giants by pundits and politicians alike in the run-up to the meltdown. But the former Reagan White House counsel and current American Enterprise Institute fellow is in demand now, and chances are in any given week you’ll catch him on cable news or read one of his Op-Eds in the Wall Street Journal. People are listening as he explains how we got to this point, and what needs to happen to ensure it doesn’t happen again.
Wallison was co-chair of the 2009 Financial Reform Task Force and a member of the Congressional Financial Crisis Inquiry Commission. In 2007 and 2008, he was a member of the SEC’s Advisory Committee on Improvements to Financial Reporting.
Q. Any end in sight to the Fannie and Freddie woes?
Peter Wallison: No, it’s a mess. Fannie Mae announced its 11th consecutive quarterly loss of $11.5 billion and asked the Treasury for another $8.4 billion. The total is now close to $145 billion. But the CBO puts the total cost to taxpayers at $380 billion. On Christmas Eve of last year, the Treasury Department lifted the $400 billion cap on the amount of money it would provide to Fannie and Freddie, so it will probably go over that amount. If you look at these numbers, it would appear we’re not even half way there.
Q. The blame for the crisis falls largely along partisan lines. What’s your opinion on how it all came to this?
Wallison: Two narratives seem to be forming to describe the underlying causes of the financial crisis. One, as outlined in a New York Times front-page story in December 2008, is that President Bush excessively promoted growth in homeownership without sufficiently regulating the banks and other mortgage lenders that made the bad loans. The result was a banking system suffused with junk mortgages, the continuing losses on which are dragging down the banks and the economy.