https://x.com/laurenlself/status/1789000569249755409/?rw_tt_thread=True

🌈 Abstract

The article discusses the Savings and Loan Crisis of the late 80s-early 90s and how it led to regulatory and capital legislation that favored Fannie Mae, a government-sponsored entity (GSE) created in 1938 to support lenders during the Great Depression. The article explores how this legislation allowed Fannie Mae to thrive, leading to competition with private lenders who felt threatened. It then delves into the misinformation campaign launched by private lenders and their lobbyists to paint Fannie Mae as the "bad guys" and themselves as the "good guys".

🙋 Q&A

[01] Fannie Mae's Rise and Private Lender Concerns

1. What led to Fannie Mae's rise after the Savings and Loan Crisis?

• The new legislation passed by Congress in response to the Savings and Loan Crisis paved the way for Fannie Mae to thrive.
• Downpayment requirements were tied to interest rate and credit risks, allowing Fannie Mae to offer attractive prices on their mortgages with low down payments if they kept risk low.

2. How did private lenders respond to Fannie Mae's success?

• Private lenders were not onboard with Fannie Mae's more attractive terms, as they now had to compete with a GSE offering better conditions.
• Lobbyists hired by private market lenders started initiatives to encourage competition between Fannie Mae and private lending markets.

3. What was the private lenders' strategy to take market share from Fannie Mae?

• Private lenders had to overcome reality, and they turned to lobbyists to help them bypass it.
• They launched a decades-long misinformation campaign to paint Fannie Mae and its programs as the "bad guys" and themselves as the "good guys".

[02] The Misinformation Campaign and Subprime Mortgages

1. What were the key claims made by private lenders against Fannie Mae?

• Private lenders claimed that Fannie Mae executives cooked the books to trigger payouts for themselves on taxpayer dimes.
• However, after a lengthy legal process, no evidence emerged to support these claims of wrongdoing.

2. What role did the Federal Reserve and the Treasury play in supporting private lenders?

• The private lenders' competition had support from the Federal Reserve and the Treasury, with whom they shared ideological beliefs about free-market principles.
• They planned to restrict Fannie Mae by raising their cost of capital and developing new private mortgage products.

3. How did the private lenders' new mortgage products compare to Fannie Mae's offerings?

• The private lenders introduced subprime mortgages as a way to compete with Fannie Mae's mortgage-backed securities (MBS), which received high credit ratings due to the GSE's guarantee.
• Subprime mortgages, on the other hand, came with no such guarantee.