Short summary:
1. Fannie Mae is created during the Carter Administration (1976-1980).
2. Fannie Mae is expanded during the Clinton Administration. B. Clinton claims he tried to rein it in, but Democrats blocked it.
3. GW Bush calls repeatedly for regulation, but Democrats block it. They did hold hearings in 2004, which are rather startling to watch. At one point a Democrat is even cussing the regulator and questioning the competency of his agency.
4. Fannie Mae continues to be expanded and defended by Barney Frank, Maxine Waters, Christopher Dodd (and other Democrats) and given teeth. Banks are required to hold larger and larger percentages of these bad loans, or must pay high penalties. The penalties finally reach a point the banks can no longer ignore them.
5. Lending institutions begin to advertise "No Money Down!" The lines form, people who can't afford a house are given a loan as required by law (Fannie Mae). Dumb.
6. One unfortunate result is that more and more houses are taken off the market. The loans are bad, but that doesn't matter. As housing availability drops, the prices soar to unreasonable levels.
7. Somebody or some group tinkers with the oil futures market, gas prices soar to around $4 a gallon. Who did this is still not clear. The economy begins to slow down, bad loans go... bad, people fall behind on mortgage payments. Housing values start going back down.
8. Regulation regarding how lenders compute value had been changed from "future value" to "current value." So the current value was declining rapidly at a time the lenders had filled up their portfolio's with bad loans. Computing their new values, banks came up with next to nothing, or worse. They could no longer apply to Fed for money to lend. No money to lend meant no more housing loans, no houses sold leads to more dramatic reduction on housing values.. driving the lenders value to negative values of millions or billions of dollars in a few weeks.
The Fannie Mae ponzi scheme had finally burst, costing us more than a trillion dollars to fix, so far, and we haven't seen the last of it yet.
It does beg the question: Why not reinstitute the measure that allowed lenders to compute on "future value"? Wouldn't this help solve the problem?
Anyway, thats the best I can do to explain it. Hope this helps.
Good post, and spot on!
And, George Bush. Please, get it right.
That has to be one of the biggest lines of green BS I've seen posted. Are you speaking of the Fannie Mae, Fannie Mae, is a stockholder-owned corporation chartered by Congress in 1968 as a government sponsored enterprise (GSE), but founded in 1938 during the Great Depression.