June 22, 2009

Let us avoid subtle muddle

Sir I have participated for many years in the debate on the regulations for banks coming out of Basel but, in order to have an even fuller understanding of what happened, I recently completed all the requirements to be a mortgage loan officer and a real-estate salesman in the state of Maryland. From what I have been able to gather Clive Crook, and many with him, is wrong when he slips by some questions that seem to attribute much of the subprime crisis to Fannie Mae and Freddie Mac, “A thin outline of regulatory reform” June 22.

There might be other real problems with these “government sponsored entities” but the subprime avalanche was created by mortgage originators that managed to channel unbelievably lousy awarded mortgages into Wall Street created securities which had managed to hustle up AAA credit ratings, so much that even Fannie Mae and Freddie Mac fell into the trap of buying up some of this securities, as investors.

There might be other real problems with these “government sponsored entities” and there is a lot of pent up criticism of these by conservatives, and much of it might be valid, but creating regulatory reform in hard times like this is not made easier by subtle muddle being thrown into the debate.

In his article Clive Crook also asks “what would better regulation of the [credit rating] agencies look like? To this I would have to reply by asking? Why would we need better regulation that could make the credit rating agencies even more dangerous? Why do we not just take away the official powers they have had since only June 2004?