Regulators not focused on prevention

Marketplace Staff Jul 14, 2008
HTML EMBED:
COPY

Regulators not focused on prevention

Marketplace Staff Jul 14, 2008
HTML EMBED:
COPY

TEXT OF INTERVIEW

Scott Jagow: No doubt our man Allan Sloan from Fortune Magazine has something to say about all this.

Allan, it seems like the Fed and the Treasury are always playing catch up, bailing out, rescuing. Where is the preventive medicine?

Allan Sloan: Yeah, well, what’s happening now is you’ve got meltdowns and freeze-ups all over the globe and they have to spend their time putting out fires rather than trying to put in a better fire code to prevent them and we’re always behind and at Fannie and Freddie, that’s especially true.

Jagow: Why?

Sloan: OK. If you have a sense of history going back roughly two or three months — I know that’s history these days — part of the last batches of stuff the government did was it allowed Fannie and Freddie to buy much more in the way of mortgage-backed securities than they would otherwise have, the idea being you didn’t want those prices to meltdown and you wanted a buyer in the market. So these guys, who are now having problems because they’re so exposed to mortgage-backed securities, went out and bought hundreds of millions of dollars more of mortgage-backed securities because of a special dispensation they got from the Treasury and the White House, which sort of told their regulator to let them do this.

Jagow: Well, do you think the government has learned anything here about trying to anticipate problems instead of waiting until the horses have already left the barn?

Sloan: Well, it’s much easier to react to what’s out there and what’s been in the news than to anticipate and often when you anticipate, you want people to do things that are painful and they get upset. The guy who regulates Fannie and Freddie, named Jim Lockhart, who I think is a very smart guy, he’s been trying for two years now to sit on these guys and get them to put up more capital and cut back their risk and the minute there’s a problem, everybody runs and loosens the regulations on Fannie and Freddie and mortgages that are being made to be sold to Fannie and Freddie are now something like 80 percent of the mortgage market and if these guys can’t buy, you’re going to have an incredible mess because, God help them, the lenders are going to have to make the mortgage loans and keep them.

Jagow: Alright, Allan Sloan from Fortune Magazine. Thank you.

Sloan: You’re welcome Scott.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.