Schilling on the Financial meltdown [dri]

Red Sox pitcher Curt Schilling, better known for his coolness under playoff preasure and his bloody sock, has written one of the better synopses of the current financial mess that I have read thus far. Yes it is simplistic in some regards but he really nails the keys points of how we got into this debacle and the article provides an excellent starting point towards greater understanding. Enjoy.

UPDATE: Commentor quiggs correctly points out that Schilling infact did not write the article here but merely linked to it. It was written by Kevin Hassett of Bloomberg. Thanks quiggs!

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission’s chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie’s position on the relevant accounting issue was not even “on the page” of allowable interpretations.

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn’t be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie “continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,” he said. “We are placing the total financial system of the future at a substantial risk".

But the bill didn’t become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn’t even get the Senate to vote on the matter.

posted by xgenghisx at 07:07 PM

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