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The Left's Official News Service

Written by The Heritage Foundation

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October 13, 2008
The Heritage Foundation
The left is beginning to realize that its credibility on economic matters has been seriously compromised by its 40-year relationship with the government mortgage financing duopoly Freddie Mac and Fannie Mae. Witness Rep. Maxine Waters (D-CA) lying on HBO's "Real Time" about how much money she accepted from the two mortgage giants.
Enter McClatchy's David Glodstein and Kevin Hall. McClatchy operates 32 daily newspapers in 29 markets, with a total circulation of 3.3 million. There are few better outlets through which one can propagate leftist lies.

Goldstein and Hall have written an article , "Private sector loans, not Fannie or Freddie, triggered crisis," which is a masterpiece in half-truths and opinion journalism disguised as hard news. Goldstein and Hill cite "Federal Reserve Board data" that show "More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions." This are the first and most prominent example Goldstein and Hill use to support their thesis. It is also completely irrelevant. As Goldstein and Hill later admit much later in their own article, Freddie and Fannie "don't lend money, to minorities or anyone else." Exactly. So the fact that 84% of subprime loans were made by private institutions is completely irrelevant. So why is it the first "fact" Goldstein and Hill cite?

Goldstein and Hill then describe a little of what else Fannie and Freddie do in the real estate market: "They purchase loans from the private lenders who actually underwrite the loans. It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more." Goldstein and Hall then begin to try and absolve Fannie and Freddie from their role in the subprime mess. They write: "Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent. ... During those same explosive three years, private investment banks -- not Fannie and Freddie -- dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie."

So, according to Goldstein and Hill, Fannie and Freddie are innocent in the subprime mess because it was private banks that securitized most subprime loans during the height of the boom. But this Disney version of the truth leaves one huge question unanswered: Who bought all those subprime securities from the investment banks who were securitizing them? You will not learn this in Goldstein and Hill's hackjob, but according to the Washington Post, at the height of the subprime boom Fannie Mae and Freddie Mac purchased 44% of the entire subprime security market.

Remember what Goldstein and Hill mentioned earlier: "It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more." In other words, every government subsidized dime that Fannie and Freddie spent buying up subprime securities is another dime private banks had to make bad subprime loans. Countrywide Financial was among the biggest players in the subprime market. It has lost $2.5 billion in just the past year and has another $6 billion in nonperforming assets on its books. Fannie Mae was Countrywide's biggest customer . This means that, through Fannie and Freddie, you the taxpayer helped subsidize Countrywide's subprime loan underwriting.

Fannie and Freddie played a primary role in creating our current financial crisis. Just ask Warren Buffet and George Soros. Despite these facts, politicians on the left such as Senate Banking Chairman Chris Dodd (D-CT) want to preserve Fannie and Freddie in their current form. The U.S. economy cannot afford their continued existence, and dishonest "journalism" from the likes of Goldstein and Hill only provide cover for the left's crony capitalism. Check this list of McClatchy owned newspapers. If you're local paper is on the list, write McClatchy and demand the truth is added to Goldstein and Hill's story.

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