Wednesday, September 10, 2008

Again, regulators blind to making of a financial debacle


Unless U.S. Treasury officials block them, severance pay totaling millions of dollars will go to CEOs of Fannie Mae and Freddie Mac who have been fired for standing by while the mortgage-finance colossuses collapsed and now are to be seized and run by the federal government.

Being paid millions of dollars seems to be an expected perk for incompetent executives tossed out of their cushy jobs these days. However, that issue is far less important than this question: Where were members of Congress and federal regulators while this giant failure was developing slow enough to spot in plenty of time?

Fannie Mae (Federal Home Loan Mortgage Corp.) and Freddie Mac (Federal National Mortgage Association) own or guarantee more than half of the $12 trillion U.S. mortgage market, much of it now considered junk because of conditions in the national housing market. The bailout is bound to cost tens of billions of dollars.

Treasury had no choice but to take over. Unless Fannie Mae and Freddie Mac were seized and their capital assets guaranteed, a crippling ripple effect would have spread throughout the U.S. financial system, threatening the ability of Washington to borrow from foreign central banks and thus pay for a wide set of operations, including the war in Iraq.

This latest financial debacle comes within months of the government intervening to keep the giant Wall Street firm Bear Stearns afloat long enough to sell it. It also comes as other failing industries—airlines and automakers, for example—are in Washington talking about loans.

Lack of diligent oversight of Fannie Mae and Freddie Mac is reminiscent of the 1980s failures of more than 700 savings and loan associations and the ensuing cost to taxpayers of $160 billion.

Which begs the question of accountability and whether government institutions have failed to learn from experience, or worse, even care. Corporations also seem to have successfully inculcated Congress and the president with the notion that government is no longer the last resort, but the first to bail out failing businesses.

The weakened oversight by Congress and the executive branch have led to relaxed enforcement throughout government, from the importing of dangerous pharmaceuticals and food, fraud in health care, over-budget weapons systems, to the mortgage industry.

The government destroys public trust when it fails to police activities for which it is responsible. Little wonder that the cry for "Change!" in Washington is the new battle cry echoing throughout the land.




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