‘Kill Them, Bury Them’: The Rise Of Fannie And Freddie

By Alex Blumberg

Before the financial crisis, many Americans had never heard of Fannie Mae or Freddie Mac. Today, we own them. By 2010, roughly 90 percent of all new mortgages issued in this country went through the U.S. government. For all intents and purposes, the $1.5 trillion U.S. mortgage market is now a government-run industry. How did we get here? What happens next? We’ve teamed up with Bethany McLean and New York Times columnist Joe Nocera, authors of the book All the Devils Are Here, to answer those questions in a three-part series.  Part one continues below. Read part two, “Self-Fulfilling Prophecy,” and part three, “What’s Next.” Fannie Mae remained part of the federal budget until 1968, when President Lyndon Johnson was facing big deficits due to the Vietnam war. This strange, hybrid status gave Fannie and Freddie a very real advantage over other, traditional companies: Investors believed that even though Fannie and Freddie were private companies owned by shareholders, they were backed by the U.S. government. This implicit guarantee wasn’t official. “But it was as good as gold,” according to analyst Karen Petrou.