Some of the conservative commentators on blogs are making the case that the GOP wanted more regulation, in particular of OFHEO.
I'm going to go out on a limb here, because I don't know the entire history of that push for a change in the regulator.
However, my guess is that the GOP wanted a stronger political/regulatory control for the purpose of limiting Freddie/Fannie, not making them more efficient regulators or better risk takers.
The ultimate failure at Freddie and Fannie appears - appears - to NOT be related to "bad loans", in the strict sense that performance on loans fell so far that the "bank" was "broke".
What appears to have happened to cause a failure is that (independent) management dabbled in off balance-sheet "excitement", in order to boost near-term earnings.
There is no indication that GOP regulatory schema would have shut that down (as it should have been, completely). Someone should look into how the decision to "approve" these instruments was made. It reeks of moral hazard.
Meanwhile, a well regulated Freddie/Fannie continue to have an important role, even moreso as we see the private sector meltdown, i.e. they have a "new" role as market stabilizers, not just facilitators.
Still, politicians cannot help themselves. The FHA was supposed to help first-time home buyers. Lifting the limits on FHA loan sizes, as Congress did recently, was ... misguided and opportunistic.
Tuesday, September 16, 2008
The OFHEO Myth
