Defending Fannie and Freddie, Paul Krugman posted “Fannie Freddie Phony” a month ago:

…Fannie/Freddie did some bad things, and did, it turns out, get to some extent into subprime. But thanks to the accounting scandals, they were actually withdrawing from the market during the height of the housing bubble — the vast majority of the loans now going bad came from the private sector.

This whitewashing of Fannie’s/Freddie’s role in the housing mess was proven absolutely false today when Krugman’s own paper reported on one insider’s account of the VERY LARGE extent to which Fan & Fred gorged on toxic mortgages:

Fannie Mae and Freddie Mac engaged in “an orgy of junk mortgage development” that turned the two mortgage-finance giants into vast repositories of subprime and similarly risky loans, a former Fannie executive testified on Tuesday…The former executive, Edward J. Pinto, who was chief credit officer at Fannie Mae, [said] that the mortgage giants now guarantee or hold 10.5 million nonprime loans worth $1.6 trillion — one in three of all subprime loans, and nearly two in three of all so-called Alt-A loans, often called “liar loans.”…

Such loans now make up 34 percent of the total single-family mortgage portfolios at Fannie Mae and Freddie Mac, a level that will link them to eight million foreclosures, or one in six, in coming years.

Thanks to Randy Carney and Dave Duval for the link.

Posted by Donald L. Luskin at 7:38 PM | link

HE REALLY MEANS IT For Paul Krugman, this posting on his blog concerning his Nobel Prize is more than his usual self-congratulatory narcissism. He means it. Remember, he once wrote, “my economic theories have no doubt been influenced by my relationship with my cats.”

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