| New Book Blames Former CEO of Fannie for Financial Crisis |
| Written by Adam Silverman |
| Tuesday, 31 May 2011 00:48 |
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When people speak of the financial crisis, it is difficult to single-out one main cause of the collapse. Banks, Wall Street, borrowers, Congress, and many other players all had their influence in some form or another. However, according to Gretchen Morgenson and Josh Rosner, co-authors of the new book Reckless Endangerment, the main culprit of the financial crisis was the former CEO of Fannie during the 1990's, James Johnson. How could somebody who was in charge during the '90s be responsible for the crisis in 2008? Morgenson and Rosner state that Johnson was responsible for the major increase in the size and influence of Fannie. They claim he was, "learning and teaching others how to manipulate Congress". Their theory is that he was the reason for deregulation of the company, which allowed it to pursue all of its objectives, and its the enormous size it grew to caused its actions to have major impact. If it weren't for Johnson, the influence of the GSE would not have been as great as it is currently.
There is one thing that they don't consider in their evaluation. While he was responsible for increasing Fannie's size and influence, Johnson did not dive into the subprime market while in charge of Fannie. It didn't start buying subprime mortgages from the banks until 2006, when Johnson was already out of the company. In addition, the only reason Fannie started buying up subprime mortgages was because the banks started buying, packaging and reselling them first. They needed to "keep up" or fall behind and risk falling into obscurity. Therefore, the banks played a very large role in the financial crisis, if not an even larger one than Fannie did, because they forced Fannie to play "follow-the-leader" and put consumers into peril.
Check out their argument by following this link. Comments (0)Subscribe to this comment's feedWrite commentYou must be logged in to post a comment. Please register if you do not have an account yet.
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