Fannie Mae and Freddie Mac bosses made 'reckless bets'

The chief executives of Fannie Mae and Freddie Mac, the collapsed mortgage finance giants at the centre of the US housing market, repeatedly ignored warnings that they were putting their companies at risk with exotic mortgage investments, a congressional hearing has been told.

Daniel Mudd, of Fannie Mae, and Richard Syron, of Freddie Mac – who both lost their jobs when the companies were taken into conservatorship by the US government in September – were harangued by lawmakers at a hearing on Capitol Hill yesterday, accused of putting the pursuit of their personal bonuses ahead of preserving the stability of their companies.

But the two men pushed the blame back on Congress and on regulators, saying they were under pressure to make more mortgages available to low-income Americans. Mr Mudd said there were conflicts between Fannie Mae's duty to shareholders and its duty to support the housing market.

Henry Waxman, chairman of the House of Representatives oversight committee, which has been investigating the causes of the credit crisis, said executives saw private Wall Street firms making money from lending to riskier borrowers, and pursued market share in defiance of warnings from their risk officers. The housing market downturn has cost both companies $14bn (£9.5bn) in losses this year, forcing the US government to take more than $5trn of their liabilities.

"The CEOs of Fannie and Freddie made reckless bets that led to the downfall of their companies," Mr Waxman said. "Their actions could cost taxpayers hundreds of billions of dollars."

Many politicians, mainly Republicans, blame Fannie and Freddie for helping to inflate the US housing bubble when they started buying sub-prime loans. Executives yesterday, though, denied that suggestion, saying that Wall Street's demand for risky loans was already inflating the bubble.

The pair were very profitable private companies, but they operated with an explicit government mandate to buy and sell mortgages. That mandate came with an implicit government guarantee, which meant that their bonds were seen to be as safe as US Treasuries, giving them access to cheap borrowing.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The Green Recruitment Company: Investment Associate – Energy Infrastructure

£50000 - £60000 Per Annum Discretionary Bonus: The Green Recruitment Company: ...

The Green Recruitment Company: Graduate Energy Analyst

£20000 Per Annum: The Green Recruitment Company: Summary: The Green Recruitm...

Ashdown Group: Finance Accountant - Financial Services - Central London

£30000 - £35000 per annum + benefits : Ashdown Group: Finance Accountant - Fin...

Ashdown Group: Chief Technology Officer (CTO) - Glasgow

£90000 - £98000 per annum + benefits : Ashdown Group: A truly exciting opportu...

Day In a Page

Solved after 200 years: the mysterious deaths of 3,000 soldiers from Napoleon's army

Solved after 200 years

The mysterious deaths of 3,000 soldiers from Napoleon's army
Every regional power has betrayed the Kurds so Turkish bombing is no surprise

Robert Fisk on the Turkey conflict

Every regional power has betrayed the Kurds so Turkish bombing is no surprise
Investigation into wreck of unidentified submarine found off the coast of Sweden

Sunken sub

Investigation underway into wreck of an unidentified submarine found off the coast of Sweden
Instagram and Facebook have 'totally changed' the way people buy clothes

Age of the selfie

Instagram and Facebook have 'totally changed' the way people buy clothes
Not so square: How BBC's Bloomsbury saga is sexing up the period drama

Not so square

How Virginia Woolf saga is sexing up the BBC period drama
Rio Olympics 2016: The seven teenagers still carrying a torch for our Games hopes

Still carrying the torch

The seven teenagers given our Olympic hopes
The West likes to think that 'civilisation' will defeat Isis, but history suggests otherwise

The West likes to think that 'civilisation' will defeat Isis...

...but history suggests otherwise
The bald truth: How one author's thinning hair made him a Wayne Rooney sympathiser

The bald truth

How thinning hair made me a Wayne Rooney sympathiser
Froome wins second Tour de France after triumphant ride into Paris with Team Sky

Tour de France 2015

Froome rides into Paris to win historic second Tour
Fifteen years ago, Concorde crashed, and a dream died. Today, the desire to travel faster than the speed of sound is growing once again

A new beginning for supersonic flight?

Concorde's successors are in the works 15 years on from the Paris crash
I would never quit Labour, says Liz Kendall

I would never quit party, says Liz Kendall

Latest on the Labour leadership contest
Froome seals second Tour de France victory

Never mind Pinot, it’s bubbly for Froome

Second Tour de France victory all but sealed
Oh really? How the 'lowest form of wit' makes people brighter and more creative

The uses of sarcasm

'Lowest form of wit' actually makes people brighter and more creative
A magazine editor with no vanity, and lots of flair

No vanity, but lots of flair

A tribute to the magazine editor Ingrid Sischy
Foraging: How the British rediscovered their taste for chasing after wild food

In praise of foraging

How the British rediscovered their taste for wild food