The Predators’ Ball

Spokesmen for Fannie and Freddie say they've sought to work with states, not override them, and they have often backed consumer-friendly new rules, such as one banning unnecessary credit insurance. Late last month President George W. Bush signed a law that created a new regulator for Fannie and Freddie called the Federal Housing Finance Agency. But that law also offered Fannie and Freddie multibillion-dollar bailouts at taxpayer expense, with no demand for internal reform, critics say. Former Treasury secretary Larry Summers argues that we're missing a "once in a generation opportunity" to reform Fannie and Freddie, which wield enormous lobbying power in Washington and on Wall Street. Summers, a Harvard economist, says the subprime crisis could end up costing taxpayers much more than the 1980s savings and loan bailouts, which left Americans with a $300 billion bill.

Spokesmen and lobbyists for Fannie, Freddie and the banks say many of the problems that caused the current mess are being addressed. "The new law empowers our regulator to crack down on us in many ways," says Freddie spokesman Doug Duvall. At the Federal Reserve, chairman Ben Bernanke announced a new "Regulation Z," which created some common-sense rules, such as forbidding loans without sufficient documentation to show if a person has the ability to repay. As for now former governor Barnes, he may have turned out to be mostly right in his analysis of the subprime problem, but he says he's staying out of politics. Instead, as a real-life Ben Matlock, he will fight for consumers in the courts. "My law's a toothless tiger now," Barnes says. "We have one of the highest rates of foreclosure in the country." And the states still seem to be fighting a losing battle.

© 2008