Over the eight years of the clinton administration

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worried. Over the eight years of the Clinton administration, Fannie Mae and Freddie Mac combined went from holding $153 billion in mortgages and guaranteeing the credit risk of another $714 billion to holding $993 billion and guaranteeing $1.28 trillion. 24 The task of dealing with the GSEs was left to the succeeding Bush Administration, which too would adopt a split personality towards the GSE business model. On the one hand, the GSEs were a convenient way to further and support the “ownership” society, which was the mantra of the Bush Administration. For example, on the Presidential campaign trail, on October 2, 2004, in Cuyahoga Falls, Ohio, then President Bush stated: Yet no action was taken.
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48 We're creating... an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property.” On the other hand, increasing numbers of administration officials and appointees were sounding the alarm on the systemic risk of the GSEs: “There is a general recognition that the supervisory system for housing-related government sponsored enterprises (GSEs) neither has the tools, nor the stature, to deal effectively with the current size, complexity, and importance of these enterprises.” (September 10, 2003, Testimony of John W. Snow, Secretary of the Treasury, before the Committee on Financial Services U.S. House of Representatives.) “The enormous size of the mortgage-backed securities market means that any problems at the GSEs matter for the financial system as a whole.” (November 5, 2003, Gregory Mankiw, Chairman, Council of Economic Advisers, at the Conference of State Bank Supervisors State Banking Summit and Leadership Conference.) “The GSEs' special advantage arises because, despite the explicit statement on the prospectus to GSE debentures that they are not backed by the full faith and credit of the U.S. government, most investors have apparently concluded that during a crisis the federal government will prevent the GSEs from defaulting on their debt.” (February 24, 2004, Alan Greenspan, Chairman of the Federal Reserve Board of Governors, statement before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate.) “I have argued today that the size and the potentially rapid growth of GSE portfolios, combined with the lack of market discipline faced by GSEs, raise substantial systemic risk concerns.” (March 6, 2007, Ben S. Bernanke, Chairman of the Federal Reserve Board of Governors, at the Independent Community Bankers of America's Annual Convention.) Of course, we know how this story ends. Calls for better regulatory oversight and receivership regimes for the GSEs went unheeded. But it should have been clear from the outset that no credible resolution authority existed for the GSEs, due to the amount of systemic risk produced by them. The GSEs were in effect too-big-to-fail.
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