For Immediate Release
Causes of Fannie's Collapse -- and How to Stop the Speculators
JAMES K. GALBRAITH
Galbraith's latest book is The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.
He said today: "The collapse of Fannie Mae and Freddie Mac is partly
the result of their own practices, but it is also part and parcel of
the broader collapse of regulation that took hold in the late 1990's
with the repeal of Glass-Steagall [banking regulation], which opened
the door to massive securitization of subprime mortgages, and then the
deliberate fostering of the housing bubble under the Bush
"This was tied to financialization throughout the economy and the
sequence of bubbles and busts that have resulted. The first was in
information technology, the second in housing, and now we're seeing it
in commodities, especially oil.
"[Treasury Secretary Henry] Paulson's actions face up to reality that
government must be involved in housing. Meanwhile, John McCain
continues to deny that reality. McCain's economic policy was created,
in full, by Phil Gramm -- the architect of the deregulation that
brought us this crisis. If John McCain becomes President, we'll likely
see the 'solution' now being recommended by Alan Greenspan: breakup and
privatization of Fannie and Freddie, leaving the private bankers in
charge and taking government out of the housing business. There will be
no recovery of the housing sector if that happens, and many more will
Galbraith recently wrote the piece "How
to Burn the Speculators: Why is the price of oil so high? Because the
Bush administration did to the commodities market what it did to housing."
Galbraith is Lloyd M. Bentsen Jr. chair in government/business relations at the University of Texas.