Inside Job

FOR months, President Bush stood by his veto threat. While members of Congress argued over how big the housing bailout should be, the Bush administration took the position that such a bailout was unnecessary and would serve only to reward reckless lenders and borrowers who gambled on home prices during the housing boom and lost. The president’s hand was strengthened when Portfolio magazine revealed that several of the housing bailout’s key sponsors had taken loans at preferential rates from Countrywide Financial, a major beneficiary of the bill.

Then, suddenly, everything changed. Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) tasked with supplying liquidity to the mortgage market, saw their stock prices drop by half over the course of a single week of frantic selling in mid-July. Investors panicked at the thought that the troubled companies would lose their access to cheap credit, which would leave them unable to pay back the trillions of dollars they owe on mortgages and mortgage-backed securities.

About the Author

Stephen Spruiell

Stephen Spruiell is a former staff reporter for National Review Online.

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FOR months, President Bush stood by his veto threat. While members of Congress argued over how big the housing bailout should be, the Bush administration took the position that such a bailout was unnecessary and would serve only to reward reckless lenders and borrowers who gambled on home prices during the housing boom and lost. The president’s hand was strengthened when Portfolio magazine revealed that several of the housing bailout’s key sponsors had taken loans at preferential rates from Countrywide Financial, a major beneficiary of the bill.

Then, suddenly, everything changed. Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) tasked with supplying liquidity to the mortgage market, saw their stock prices drop by half over the course of a single week of frantic selling in mid-July. Investors panicked at the thought that the troubled companies would lose their access to cheap credit, which would leave them unable to pay back the trillions of dollars they owe on mortgages and mortgage-backed securities.