News Release

Causes of Fannie’s Collapse — and How to Stop the Speculators

JAMES K. GALBRAITH
Galbraith’s latest book is The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. He said today: “The collapse of Fannie Mae and Freddie Mac is partly the result of their own practices, but it is also part and parcel of the broader collapse of regulation that took hold in the late 1990’s with the repeal of Glass-Steagall [banking regulation], which opened the door to massive securitization of subprime mortgages, and then the deliberate fostering of the housing bubble under the Bush administration.

“This was tied to financialization throughout the economy and the sequence of bubbles and busts that have resulted. The first was in information technology, the second in housing, and now we’re seeing it in commodities, especially oil.

“[Treasury Secretary Henry] Paulson’s actions face up to reality that government must be involved in housing. Meanwhile, John McCain continues to deny that reality. McCain’s economic policy was created, in full, by Phil Gramm — the architect of the deregulation that brought us this crisis. If John McCain becomes President, we’ll likely see the ‘solution’ now being recommended by Alan Greenspan: breakup and privatization of Fannie and Freddie, leaving the private bankers in charge and taking government out of the housing business. There will be no recovery of the housing sector if that happens, and many more will face foreclosure.”

Galbraith recently wrote the piece “How to Burn the Speculators: Why is the price of oil so high? Because the Bush administration did to the commodities market what it did to housing.”

Galbraith is Lloyd M. Bentsen Jr. chair in government/business relations at the University of Texas.
More Information

For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167