On September 9, 1999, an article appeared in The New York Times, “Fannie Mae Eases Credit To Aid Mortgage Lending.” The story begins:
“In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.”
With Fannie Mae a bank created by the Congress, political pressure was put on Fannie Mae to begin making bad loans in the name of social justice.
However, even liberal The New York Times recognized the risk:
“In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.”
The article describes how down payment requirements were lowered for those with a low credit rating.
Most ominously, there was a prediction of a coming bailout:
“‘From the perspective of many people, including me, this is another thrift industry growing up around us,’ said Peter Wallison a resident fellow at the American Enterprise Institute. ‘If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.’”
And so it has come to pass that The New York Times forecasted correctly. The catastrophe is upon us. The politicians who pushed Fannie Mae and minorities into contracts that couldn’t be honored are busy blaming bankers.
Filed under: The Ongoing Financial Crisis Tagged: | New York Times forecast subprime financial crisis Fannie Mae
