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The Political Origins of the Financial Crisis: The Domestic and International Politics of Fannie Mae and Freddie Mac
Author(s) -
THOMPSON HELEN
Publication year - 2009
Publication title -
the political quarterly
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.373
H-Index - 37
eISSN - 1467-923X
pISSN - 0032-3179
DOI - 10.1111/j.1467-923x.2009.01967.x
Subject(s) - politics , creditor , government (linguistics) , incentive , finance , china , financial crisis , business , financial system , economics , political economy , political science , law , market economy , debt , linguistics , philosophy , macroeconomics
For much of the last decade it was clear that the commercial operations of the government‐sponsored enterprises Fannie Mae and Freddie Mac were creating an increasing systemic financial risk. That risk was compounded by the fact that the Japanese and Chinese central banks were acting as cheap creditors. The Bush administration and some Republicans in Congress made efforts from 2001 to create a tougher regulatory framework for Fannie and Freddie. Fannie and Freddie were able to defeat these attempts to constrain their operations by a four‐fold political strategy involving campaign contributions to members of Congress, a vast lobbying apparatus, the cultivation of a political language around affordable housing for minorities, and abusing and smearing their regulator. Since Japan and China understood that the US government would have to assume Fannie and Freddie's liabilities in a crisis they had no incentive to expose the political fiction that it would not.