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Wednesday, September 24, 2008


So the government is bailing out financial institutions. Fannie Mae and Freddie Mac were among them. Once chartered as government enterprises, each was sold respectively into the public market and operated as a public stock corporation for years. They fell on hard times and now the government has effectively nationalized each of them, wiping out shareholders and taking control of the stock of both companies.

Who are these companies? Were they really "too big to fail?" Arguably, the answer is yes. Between these two companies, they provided more than half of all the mortgage money being used in the United States for single family or multifamily housing. Essentially banks and mortgage companies make the mortgages and then sell them immediately to Fannie Mae or Freddie Mac - to recoup their capital and be able to make the next loans with it. If Fannie Mae or Freddie Mac were to shut down, the availability of home mortgages would disappear overnight. Talk about the real estate market taking a nosedive --- that would be catastrophic beyond imagination!

So it would seem that nationalizing these companies again and giving them government bailouts was probably a prudent measure. However, there is another organization that has a role to play in this mess, and they are noticeably quiet and absent. They are called the Office of Federal House Enterprise Oversight (OFHEO). OFHEO was chartered after the thrift industry went bust in the 1980's. Its purpose was to oversee Fannie Mae and Freddie Mac. That's it. It had no other purpose. It's exclusive reason for existing was to ensure that Fannie Mae and Freddie Mac operated safely and didn't get into any trouble that would cost the government money.

OFHEO hired about 300 people, and they spent their time "watching" Fannie Mae and Freddie Mac. Apparently they watched those companies wade into risky investments and get caught with their proverbial pants down in the market meltdown. Both companies became insolvent on OFHEO's watch - costing the government more money than anyone could have ever imagined.

So what I'm wondering is who from OFHEO will go to jail for this crime of negligence? Who from OFHEO will be held accountable for their poor performance? The American taxpayer is taking it on the chin for this. Will someone at OFHEO be called to answer for this? So far, not so much. We haven't heard anyone blame OFHEO, point fingers at OFHEO, launch an inquisition of OFHEO or anything else. In this election year, Mr. Obama and Mr. McCain, perhaps the two of you could ask some pointed questions about our illustrious OFHEO. The people want to know!

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