Who's Going to Regulate the Regulators?

by Marilou Long on April 28, 2009

in Credit Crisis,Guest Voices

This post is an expansion of my column that ran in today’s San Antonio “Express-News.”  Each month, you’ll find my partner, Laura Ehrenberg-Chesler, and me sharing our viewpoints in the business section of the paper.  We hope you’ll follow us both in print and online.  Your comments and conversation, are of course, welcome.

The Wall Street Journal had an on 4/18/09 titled “The Largest Failure” that decrys the cozy relationship between Fannie and Freddie and Washington lawmakers.  It quotes from Jamie Dimon”s letter to the shareholders of JP Morgan where he describes the poor regulation of the mortgage giants as “perhaps the largest regulatory failure of all time”. 

Fannie and Freddie were charged with providing liquidty and stability to the US housing market, but their implosion and the damage to our financial system illustrates the danger of asymetrical risk taking.  The taxpayers are on the hook for the losses, but the executives were able to reap large compensation packages due to the cheap cost of money while fooling the regulators.

There will obviously be a sweeping overhaul of the regulatory system for the mortgage market, and I hope that it includes doing away with the public/private system that is currently in place.  Fannie, Freddie, and the FHA should also be merged in order to save costs and streamline the system.  The Bush administration tried to do something about Fannie and Freddie in 2003 according to a New York Times article,  but Congress” focus on affordable housing overrode common sense.

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