Dan Gainor

Six years.

That’s how long it took for the Fannie Mae/Freddie Mac crisis to grow from warning sign to $25-billion bailout.

In most cases, six years is ample warning. We won WWII in less time. But when The Wall Street Journal compared Fannie Mae to Enron in February, 2002, no one wanted to listen. Most of Washington had their hands too deep in the Fannie Mae/Freddie Mac piggy banks to work on the problem. And though other print outlets followed the Journal, the network news shows waited until a bailout was a foregone conclusion to do much reporting.

A day late and a dollar short? Try more than 2,000 days. That works out to $114 million short – per day. And The Washington Post estimates that $25-billion bailout tab could go much higher. “[T]here is an outside chance the companies could call upon Treasury for more than $100 billion,” the paper reported before the bailout was approved.

Even that is just the beginning. Overall, the tab for this governmental failure is closer to $150 billion when you count in fines for executives, fines for the two organizations, accounting restatements, stock losses and bailout. That’s right – governmental failure. Fannie and Freddie aren’t typical public companies. They are Government Sponsored Enterprises.

By comparison, the folks at Enron were rank amateurs. But they were only politically connected. Fannie and Freddie operated for years under what was an implied guarantee that the government would help them in troubled times.

Thanks to a do-nothing Congress and the ignore-everything networks, that implied guarantee is now an actual fact. And every one of us is on the hook for it.

The Journal did its best to let us know year in and year out. A 2004 editorial about Fannie said “the company was cooking the books. Big time.” That’s not especially subtle. In the future, maybe the paper should include USA Today style graphics so network anchors can understand.

The Journal wasn’t a voice in the wilderness. The nation’s most well-known financial newspaper was joined by then-Federal Reserve Chairman Alan Greenspan. He told lawmakers in 2004 there was a need for “preventive action” “sooner rather than later.”

We were comparative latecomers. The Business & Media Institute warned about Fannie Mae in early 2005 – still three years before it really hit the fan. It was obvious at that point that this was a major story being updated almost daily. But that didn’t matter. Fannie and Freddie kept restating earnings in the billions of dollars, the stock was plummeting and the network news shows were talking … Enron.


Dan Gainor

Dan Gainor is The Boone Pickens Free Market Fellow and director of the Media Research Center’s Business & Media Institute.