CHAPTER 17The Market Melts Down: Fannie Mae Is Nationalized

WITHIN A FEW MONTHS OF FANNIE MAE’S DECISION TO MOVE more heavily into the subprime and Alt-A markets, a number of hedge funds and investment banks turned negative on the private-label securities market the company was trying to win business from. Had it been Fannie Mae or Freddie Mac who were negative on that market—as they should have been had they been paying attention to what was going on there—they would have not only pulled back from it but also warned borrowers and investors of its dangers. The government-sponsored enterprises had a public mission, and because their business was limited to the residential mortgage market, they had strong incentives to protect it. (Fannie Mae had ...

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