S&P doubled up on its US credit downgrade today by downgrading the credit ratings of Fannie Mae and Freddie Mac, the twin government-private home lending agencies that were at the root of the housing collapse.
I have no quarrel with S&P’s downgrade; after the “historic” debt deal last week, I predicted that a downgrade would happen. The logic of S&P’s April warning had not been disrupted, so a downgrade was inevitable. And I don’t have any quarrel with downgrading Fannie and Freddie now. The only question I have about this is, what took them so long? Fannie and Freddie were at the heart of the 2008 collapse. That was three years ago. And Fan-Fred’s problems go back several years. Mickey Kaus blogged about the scandals at the agencies as far back as 2004. The Bush administration tried reforming them, only to have Rep. Barney Frank lead their defense in Congress (why he isn’t taking more heat for his role in the collapse remains a mystery to me). Fan-Fred’s credit could have been downgraded at any point over the past seven or eight years, and certainly after the 2008 collapse. But S&P and the other credit rating agencies kept Fan-Fred’s credit ratings aloft throughout, even after they were de-listed from the stock exchange.
Beginning in the Clinton years, the Democrats treated lofty and lucrative board positions at Fannie and Freddie as spoils of political patronage. Franklin Raines, master of disaster Jamie Gorelick, Harold Ickes, and former Obama lackey and current Chicago Mayor Rahm Emanuel are just a few of the Democrats who cashed in with extremely lavish stints at Fannie and Freddie. All of these high rollers shared at least two things in common: None of them had any experience in the home lending industry, and all were well-connected Democrats. They all cashed in, and we’re all suffering for their terrible stewardship.
Had S&P or any of the other credit ratings agencies given Fannie and Freddie proper, objective ratings of the creditworthiness years ago, we might not be dealing with the terrible economic conditions we find ourselves in now.