Saving mortgage giants Fannie Mae and Freddie Mack "was the single most important thing we did to prevent disaster—real disaster," said Mr. Paulson in a recent interview. But five years later, he adds, "it didn't occur to me that we'd be here with nothing done."
Fannie and Freddie remain the largest single piece of unfinished business from the financial crisis. As record profits have replaced huge losses, some now question whether cosmetic changes could substitute for the more radical overhaul of the companies envisioned five years ago.
The Obama administration, congressional leaders and the financial industry all insist that Fannie and Freddie must change. But figuring out exactly how to reshape or replace them is proving harder than most anyone imagined.
The biggest reason is that the firms play such a central role in the mortgage market, including access to the 30-year, fixed-rate mortgage. That product, which doesn't exist in much of the world, is popular with Americans who enjoy stable payments even if interest rates rise.
The firms don't make loans. They buy them from lenders and package them into bonds. That middleman role created deep markets for mortgage securities by matching banks with investors willing to manage the risks of holding long-term, fixed-rate mortgages.
Fannie and Freddie got into trouble because they took on more risk over the past two decades while using their political clout to beat back attempts to force them to hold more capital.
As the housing bust deepened in 2008, by August 2008,Treasury officials concluded the firms didn't have enough capital and feared what would happen if investors lost confidence in Fannie and Freddie.
On Friday, Sept. 5, 2008, Treasury Secretary summoned the companies' chief executives to separate afternoon meetings and told them they were being taken over. Two days later, the firms had been effectively nationalized.
Source: WSJ
Fannie and Freddie remain the largest single piece of unfinished business from the financial crisis. As record profits have replaced huge losses, some now question whether cosmetic changes could substitute for the more radical overhaul of the companies envisioned five years ago.
The Obama administration, congressional leaders and the financial industry all insist that Fannie and Freddie must change. But figuring out exactly how to reshape or replace them is proving harder than most anyone imagined.
The biggest reason is that the firms play such a central role in the mortgage market, including access to the 30-year, fixed-rate mortgage. That product, which doesn't exist in much of the world, is popular with Americans who enjoy stable payments even if interest rates rise.
The firms don't make loans. They buy them from lenders and package them into bonds. That middleman role created deep markets for mortgage securities by matching banks with investors willing to manage the risks of holding long-term, fixed-rate mortgages.
Fannie and Freddie got into trouble because they took on more risk over the past two decades while using their political clout to beat back attempts to force them to hold more capital.
As the housing bust deepened in 2008, by August 2008,Treasury officials concluded the firms didn't have enough capital and feared what would happen if investors lost confidence in Fannie and Freddie.
On Friday, Sept. 5, 2008, Treasury Secretary summoned the companies' chief executives to separate afternoon meetings and told them they were being taken over. Two days later, the firms had been effectively nationalized.
Source: WSJ
