Fannie and Freddie Go Under: Yes, This Was Predictable

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Okay, this is a bit of gloating. After having debated the economists at Fannie and Freddie more than a dozen times over the past six years, I am going to take the opportunity to say that I was right and they are bankrupt. Their economists consistently dismissed the possibility that there was a housing bubble and were enraged at the suggestion that these two corporate giants could face financial problems. Of course there was a housing bubble and it was inevitable that it would collapse and impose serious strains on Fannie and Freddie. As I said back in September of 2002: "If housing prices fall back in line with the overall rate price level, as they have always done in the past, it will eliminate more than $2 trillion in paper wealth and considerably worsen the recession. The collapse of the housing bubble will also jeopardize the survival of Fannie Mae and Freddie Mac and numerous other financial institutions."

--Dean Baker

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