• Frank
• Sep 26,2008
• In: News

Who could have known the economy would be like this?

The New York Times, that’s who. Back in 1999, it reported: (emphasis mine)

[Fannie Mae] will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. [...]

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

[...]

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.

Note especially the last paragraph; also note that Fannie Mae was encouraged—yes, encouraged—by the government to loan to people with poor credit. Yet nowadays everyone blames the crash on the private bankers, and just a few weeks ago clamored to bail Fannie Mae out of the mess it had put itself in.

(hat tip: Steve Horwitz)