Crony Capitalism in the United States (Economist.com): The mortgage markets may now be mature enough not to need Fannie Mae and Freddie Mac any more. Certainly, the two companies think that they have outgrown their original brief. Both have moved away from buying, packaging and selling mortgages towards retaining them instead. Because they can raise money cheaply, there is profit to be made from buying and holding higher-yielding mortgages. A consequence has been the swelling of their balance sheets. They have become such vast buyers that they have become a risk to liquidity. Suppose that, as some believe, America is going through a housing bubble. Given their exposure to mortgages, what happens if the bubble bursts? Now America’s accounting scandals have belatedly brought Fannie Mae and Freddie Mac into legislators’ purview. Many on Wall Street have watched efforts such as Mr Baker’s fail before, and are sceptical about the latest. Yet with every new, questionable report that emerges about the mortgage companies the pressure for change increases. Nobody in Washington wants to be tagged with having fiddled while Fannie and Freddie burned.
Crony Capitalism
