Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor

Portfolio > Alternative Investments > Private Equity

Geithner Blasts Fannie and Freddie's 'Short-Term' Strategies That Led to Crisis

By Danielle Andrus

X
Your article was successfully shared with the contacts you provided.

Tough words from Treasury Secretary Timothy Geithner. In prepared remarks on Tuesday, August 17, Geithner accused Fannie Mae and Freddie Mac of reckless strategies enacted to “maximize short-term returns to shareholders and senior management.” A “toxic combination” of perceived governmental guarantees and lack of oversight made these strategies possible, and while they didn’t cause the financial crisis on their own, Geithner admitted, they made it worse.

The Geithner’s remakes were made at the Conference on the Future of Housing Finance in Washington.

There is no “clear consensus” on how to design a new system, Geithner said, but he declared the Administration would side with whoever argued for reform.

“We will not support returning Fannie and Freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support. We will not support a return to the system where private gains are subsidized by taxpayer losses.”

Geithner asked whether it was the responsibility of the government or private markets to provide insurance against losses. Without support, he said, the financial system would be unable to support mortgage lending in future recessions.

“The challenge,” he said, “is to make sure that any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure.”

Finally, Geithner asked how the transition to a new housing finance system should be managed. He said it was imperative to begin “weaning the markets away from government programs” and to include the private market in the mortgage business. Furthermore, it is important to keep overall mortgage rates low, and to ensure consumers have access to credit at “attractive rates,” he said.

While he declared the Administration would “side with those who want fundamental change,” Geithner argued for bi-partisanship.

“The failures that produced the system we have today were bi-partisan. The solution must be as well,” he said. “We must take this opportunity to build a more stable housing finance system that that better protects American taxpayers.”

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.