A lot of people have asked why nobody sounded the alarm prior to the housing crisis. Of course, the truth is that a few brave journalists and politicians did raise concerns over Fannie and Freddie. Trouble was, these malcontents were generally shouted-down by Republicans and Democrats who were equally happy with the current system.
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In 2005, Fortune Magazine wrote a powerful column comparing Fannie May to Enron. The subtitle said it all: "This is not your ordinary accounting fraud. Yes, there's the matter of $9 billion in overstated earnings. But the fight over Fannie is a nasty political showdown where everyone has his own agenda. And it's not over yet."
Of course, this wasn't enough to bring about the necessary changes that might have prevented the housing meltdown. And Fannie, of course, was aided and abetted by credible-sounding leaders representing "nice-sounding" organizations. For example, in the past, I've written about the Center for Responsible Lending -- a liberal organization that is largely responsible for the housing crisis.
It turns out that when others tried to sound the alarm about some of Fannie's questionable practices back in 2005, Martin Eakes (the founder of the Self-Help Credit Union who was in the subprime lending business with Fannie) -- defended Fannie and accused critics of conducting a 'hatchet job'.
According to the Fortune Magazine column:
After the Enron scandal broke, nobody defended Ken Lay or Jeff Skilling. But in the wake of the Fannie Mae scandal, Raines still had legions of supporters. There are plenty of people who still believe that what's good for Fannie is good for home-ownership--and that the whole thing was little more than a political dirty trick. "They're just not dishonest in any way," says Martin Eakes, who runs the Self-Help Credit Bureau in North Carolina. "It's a little hard for me to swallow that what appears to me to be a hatchet job by OFHEO has basically been validated by the SEC.... You mark my words, you will not find scandal there or fraud."
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