What Went Wrong?

So what happened?

Fannie Mae and Freddie Mac were supposed to do well by doing good. Since increasing homeownership facilitates hard work, community, and respect for property, why not charter a private company to facilitate financing? Use an implicit government guarantee to lower financing rates. Harness the profit motive to meet a social objective.

But the more I look at it, the more Fannie and Freddie resemble the old British East India Company. They have an effective monopoly on the US mortgage market, and this has emboldened them to take on more risk with their capital through leverage, loan size, and guarantees.

Over its 250 year history the East India Company overreached and had to be taken over. Fannie and Freddie’s tenuous position has led many to question whether they can survive, or whether the taxpayers will have to bail them out.

It’s hard to do well. It’s hard to do good. When someone suggests combining the two, it’s a smart idea to reach for your wallet.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-03T20:15:58+00:00July 21st, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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