The trouble with Fannie and Freddie

Franklin Raines, CEO of Fannie Mae, appeared resigned to the attention his agency is getting when he spoke at a press conference earlier this year: "I've gone to Capitol Hill to answer questions from the Congress banking committee about 12 times in the last year. I'm happy to make it 13." He must have thought such regular grillings were behind him. In October 2000, Fannie and Freddie finally agreed a compromise with one of their longest-running critics, representative Richard Baker of the House banking committee. Under the compromise, the agencies agreed a six-step programme to improve transparency and safety, including the issuance of subordinated debt to act as an early-warning system to the market if the agencies got into trouble. As Said Saffari, an analyst at CSFB, put it at the time: "The agencies and their congressional critics have, in effect, signed a peace treaty." Halcyon days seemed to be...