Synopses & Reviews
Fannie Mae and Freddie Mac were created by Congress to serve the American Dream of homeownership. By the end of the century, they had become extremely profitable and powerful companies, instrumental in putting millions of Americans in their homes. So why does the government now want them dead?
In 2008, the U.S. Treasury put Fannie and Freddie into a life-support state known as "conservatorship" to prevent their failure--and worldwide economic chaos. The two companies, which were always controversial, have become a battleground. Today, Fannie and Freddie are profitable again but still in conservatorship. Their profits are being redirected toward reducing the federal deficit, which leaves them with no buffer should they suffer losses again. China and Japan are big owners of Fannie and Freddie securities, and they want to ensure the safety of their investments--which helps explain why the government is at an impasse about what to do. But the current state of limbo is unsustainable.
Based on comprehensive reporting and dozens of interviews, Shaky Ground by bestselling author Bethany McLean, chronicles the story of Fannie and Freddie seven years after the meltdown, and tells us why homeownership finance is now one of the biggest unsolved issues in today's global
"The 2008 financial crisis had many root causes, and the debate hasn't ended about how much blame to apportion to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation Fannie Mae and Freddie Mac, respectively, as they're known on Wall Street and Main Street. Business reporter McLean (coauthor of The Smartest Guys in the Room) takes on the thankless task of explaining how these little-understood government-sponsored enterprises (GSEs) support American homeownership by buying mortgages so that banks can make more capital available for new borrowers. That function was a contributing factor in banks bingeing on subprime loans and thereby nearly triggering a world financial collapse. McLean ably describes a situation where, seven years past the brink of economic collapse, Fannie and Freddie are severely undercapitalized, faced with investor lawsuits, and caught up in political infighting that prevents either comprehensive reform or their ultimate abolition. It's a complex story with no apparent solution, as even longstanding critics of the agencies have, in McLean's words, concluded that sticking with 'the devil you sort of know' is preferable to upending a still shaken domestic economy. McLean makes a convoluted tale, far removed from most people's day-to-day economic lives, as clear as it can be made. (Sept.)" Publishers Weekly Copyright PWxyz, LLC. All rights reserved.
"McLean ably describes a situation where, seven years past the brink of economic collapse, Fannie and Freddie are severely undercapitalized, faced with investor lawsuits, and caught up in political infighting that prevents either comprehensive reform or their ultimate abolition." Publishers Weekly
In a way, the situation is ironic: housing was at the root of the financial crisis, and six years after the meltdown, housing finance is still the greatest unsolved issue. The U.S. housing market is roughly $10 trillion, making it one of the largest segments of the bond market. Roughly 70 percent of the American population has a mortgage, and for most people, the mortgage is the most important financial instrument in their lives. But until the financial crisis, few people knew the essential role that Fannie Mae and Freddie Mac play in their mortgages. Given the $188 billion government bailout of the two firms the most expensive bailout in history the politics surrounding housing are worse than they've ever been, and the two gigantic firms sit in limbo. Best-selling investigative journalist Bethany McLean, the coauthor of The Smartest Guys in the Room
and All the Devils Are Here
, explains why the situation is dangerous and unsustainable, and proposes a few solutions from the perfect, but politically unfeasible to the doable, but ugly.
Housing was at the root of the 2008 financial crisis, and, seven years after the meltdown, homeownership finance is still the biggest unsolved issue in the management of the economy. Fannie Mae and Freddie Mac, gigantic entities with assets in the trillions of dollars, were created by Congress to serve the dream of the U.S. as a global pioneer in creating a society of individual homeowners. A few days before Lehman Brothers declared bankruptcy, the U.S. Treasury put Fannie and Freddie into "conservatorship," a kind of government life support system, because their failure would have caused worldwide economic chaos. Today, Fannie and Freddie are still in conservatorship, with their profits redirected toward reduction of the federal deficit, which leaves them dangerously low on financial reserves. Russia, China and Japan are among the countries invested in Fannie and Freddie bonds; if they lost confidence in the safety of these instruments, the worldwide economic and political consequences would be severe. In SHAKY GROUND, Bethany McLean brings the biggest underreported aspect of the crisis into the public light and explains why the situation of our mortgage finance system held in limbo is dangerous and unsustainable - and must be placed on firmer ground.
About the Author
Bethany McLean is an investigative journalist known for her work on the Enron scandal and the 2008 financial crisis. In 2001 as a young reporter at Fortune magazine, where she eventually became an editor at large, she wrote "Is Enron Overpriced?," one of the first skeptical articles about Enron. After the company collapsed into bankruptcy, she coauthored the bestseller, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron with her Fortune colleague Peter Elkin. A documentary based on the book was nominated for an Academy Award in 2006. Her most recent book, which she coauthored with New York Times columnist Joe Nocera, is All the Devils Are Here: The Hidden History of the Financial Crisis. Prior to joining Fortune she had been an investment analyst at Goldman Sachs. She is a contributing editor at Vanity Fair, a columnist for Fortune.com and a contributor to CNBC. A graduate of Williams College, she lives in Chicago.