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What about Fannie and Freddie?

Lawmakers look to place blame for the financial crisis, but not (yet) on the institutions it had a hand in.

By Staff writer of The Christian Science Monitor / October 9, 2008


In a bid to fix blame for the meltdown in financial markets, the lead House oversight panel this week launched into the bailout of insurance giant American International Group (AIG) – and the non-bailout of Lehman Brothers investment bank.

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Next week, it's the turn of high-flying hedge fund managers, once earning $1 billion a year, plus; then, the rating agencies who assured investors that all was well and the federal regulators who let it all happen.

But conspicuous for their absence – at least before November elections – are former executives of mortgage giants Fannie Mae and Freddie Mac, now in federal conservatorship.

Together, Fannie and Freddie owned or guaranteed some $5 trillion in home mortgages. Critics say they enabled the spike in exotic financial products, or "toxic" assets, now clogging US credit markets – an argument now emerging as a major GOP theme in the last weeks of the 2008 campaign.

"Fannie and Freddie were the catalysts, the match that started this forest fire," said Republican nominee John McCain at Tuesday night's presidential debate.

"There were some of us that stood up two years ago and said, we've got to enact legislation to fix this," he added. "Meanwhile the Democrats in the Senate ... and some members of Congress defended what Fannie and Freddie were doing. They resisted any change."

In response, Democratic candidate Barack Obama charged that Republicans were obscuring their own record of promoting deregulation across all sectors of the economy – a leading cause of meltdown in the financial services industry.

"Let's first of all understand that the biggest problem in this whole process was the deregulation of the financial system. Senator McCain, as recently as March, bragged about the fact that he is a deregulator," he responded in the debate. "I never promoted Fannie Mae. In fact, Senator McCain's campaign chairman's firm was a lobbyist on behalf of Fannie Mae, not me."

But GOP strategists are convinced that pointing fingers is, in fact, exactly what the public wants to see, and that Fannie and Freddie may be the best argument they have in the current electoral season.

On Wednesday, the National Republican Congressional Committee launched an ad targeting former Kansas City mayor Kay Barnes, who is challenging Rep. Sam Graves (R) of Missouri and who served on Fannie Mae's national advisory board.