What's up with Fannie and Freddie?

William (Bill) Isaac is chairman of LECG Global Financial Services and served as chairman of the Federal Deposit Insurance Corporation (FDIC) during one of its most challenging periods during the savings bank and savings & loan crises of the 1980s.

Isaac’s recently published book “Senseless Panic: How Washington Failed America,” details the numerous blunders of government officials during the recent credit crisis ultimately resulting in the $700 billion Troubled Asset Relief Program (TARP), which Isaac says was completely unnecessary. The book also details steps taken by Isaac during his FDIC tenor that helped stabilize the banking industry during that time of crisis and which should have (but didn’t) serve as a template for dealing with the current crisis.

Futures recently interviewed Isaac regarding TARP and financial reform legislation. That interview will appear in the July issue of Futures with an extended version online. Here is an excerpt of the interview with Isaac addressing the problems with Government Sponsored Enterprises Fannie Mae and Freddie Mac:

Futures Magazine: You said that the cost of the Savings & Loan crisis was 10 times what it should have been. Is there a bigger problem looming due to the poor execution of TARP?

Bill Isaac: Well Freddie and Fannie are the two biggest ongoing things and legislation before Congress does not address that at all. Estimate of losses already are $200 billion and counting. Not to mention the finance companies and the car companies; AIG is not over?

FM: What should they have done with Fannie and Freddie?

BI: They should have done Sen. Corker’s (R-Tenn.) amendment where he tried to impose some bare minimum underwriting standards on the loans, [but] they rejected that in the Senate, which is dumbfounding. That would have been a stop-gap measure but it would have been better than nothing. We have two choices, we break them into smaller pieces and turn them into truly private companies; and the other possibility is to leave them in the government as public utilities with very strong restrictions on them. I don’t know what direction we are going to go. We haven’t had that debate yet.

Futures will publish an extended interview with Bill Isaac with the publication of our July issue> Here is an excerpt from that interview.

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