Tags: JPMorgan | Dimon | Fannie | Freddie | biggest | Disasters

JPMorgan's Dimon: Fannie, Freddie ‘Biggest Disasters of All Time’

Friday, 11 Feb 2011 08:25 AM

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said government-sponsored mortgage companies Fannie Mae and Freddie Mac were “the biggest disasters of all time” and a leading cause of the U.S. financial crisis.

“That one was an accident waiting to happen,” Dimon said in an Oct. 20, 2010, interview with the Financial Crisis Inquiry Commission. The congressional panel yesterday released audio files of interviews gathered during its 18-month investigation into the causes of the crisis.

The Obama administration is set to announce in Washington today its recommendations on how to restructure the U.S. housing finance system. Washington-based Fannie Mae and Freddie Mac, in McLean, Virginia, have taken more than $150 billion in federal aid since regulators seized their operations in September 2008.

“We all knew about it, we all worried about it, no one did anything about it,” Dimon, 54, told investigators.

The companies, which were privately owned by shareholders, received federal tax breaks and other subsidies to help fulfill their public mission to bolster the U.S. housing market. Dimon said they financed risky loans like subprime mortgages that helped drive more than $1.9 trillion in writedowns at financial institutions across the world.

Dimon said lax lending standards across the industry and excessive leverage and risk-taking by banks helped cause the crisis.

“You kind of got sucked into this whole sense of security because there were no losses,” Dimon said. “I would also say people lied. There was more and more of that in a frothy market.”

Shrinking Roles

Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan plan to present lawmakers with three options for shrinking the roles of Fannie Mae and Freddie Mac in the U.S. housing market. Together, the companies accounted for 67 percent of the mortgage bonds issued in the third quarter of last year, according to U.S. government data. Government mortgage bond insurer Ginnie Mae accounted for 29 percent, leaving about 4 percent to private lenders.

President Barack Obama’s plan doesn’t endorse a particular option or offer legislation. All three proposals seek to end taxpayer support for Fannie Mae and Freddie Mac.

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JPMorgan Chase Co. Chief Executive Officer Jamie Dimon said government-sponsored mortgage companies Fannie Mae and Freddie Mac were the biggest disasters of all time and a leading cause of the U.S. financial crisis. That one was an accident waiting to happen, Dimon...
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Friday, 11 Feb 2011 08:25 AM
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