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In June 2008 (before the government takeover), former St. Louis Federal Reserve President William Poole, said: “Congress ought to recognize [Fannie Mae and Freddie Mac] are insolvent, that it is continuing to allow these firms to exist as bastions of privilege, financed by the taxpayer.”20 In 2006, U.S. regulators imposed limits on lending for Fannie Mae and Freddie Mac after discovering $11.3 billion of accounting errors. On March 1, 2008, regulators lifted those limits. Meanwhile, the FHA, which provides funding for low-income borrowers, is struggling to abolish future no-money-down mortgages.2122

In July 2008,Treasury Secretary Paulson obtained broad authority to purchase unlimited shares of the stock in the companies,23 which could mean unlimited tax dollars—a completely insane and unsound economic policy. The costs are potentially unlimited, as are the opportunities for looting the treasury by gaming the shares.There is no quid pro quo except for a goal of reducing the size of the portfolios over time.Yet there is still little discipline for mortgage brokers and many mortgage lenders. If we want to restore confidence in Fannie Mae and Freddie Mac, we need a two-pronged approach: (1) support the debt (not the shares) issued by Fannie Mae and Freddie Mac; and (2) strongly regulate what backs that debt in the first place. In other words, if taxpayer money is used to help, we must enforce sound lending: 20 percent down payments, verified income, low debt loads and more—the traditional standards of sound mortgage lending.There are worse things than renting; for example, piling up crushing debt that forces you into bankruptcy just as the country sinks into stagflation—that is much worse.

The Government Accountability Office (GAO) says we have even greater worries. We are $52.7 trillion in the hole based on our fiscal burdens of social security, Medicare, public debt, and more. That number grows $3 to 4 trillion per year on autopilot. The GAO recommends tough budget controls, comprehensive tax reform, reform of social security, and reform of Medicare. The U.S. needs to generate more revenues through growth. In the face of this, the only advice one can give is don’t retire and keep saving.24 On August 21, 2008, Warren appeared in the documentary on our growing debt burden I.O.U.S.A., a scarier summer thriller than JAWS. Your odds of suffering a shark bite are small, but we are being slowly devoured by our national debt.25

On March 13, 2007, while New Century watched its credit lines disappear and faced allegations of fraud, U.S. regulators complained that the United States investment banks lost business to London. Sarbanes-Oxley requirements became the scapegoat. Hank Paulson assembled a panel at Washington’s Georgetown University. Paulson invited several notables in the financial markets, and Mr. Buffett went to Washington.26

John Thain, then head of the New York Stock Exchange (later the CEO of Merrill Lynch that arranged its sale), said that only two of 25 IPOs in 2006 were made in the United States. The implication seemed to be that Sarbanes-Oxley, inspired by Enron, Worldcom, and other corporate malfeasance, hampers business. The collapse of Enron and WorldCom led to billions of dollars in losses for investors and cost thousands of people their jobs. Adelphia’s former CEO, John Rigas, and his son, Timothy Rigas, the chief financial officer, were found guilty of fraud and conspiracy after hiding $2.3 billion in debt. On June 17, 2005,Tyco’s L. Dennis Kozlowski and Mark Swartz, charged with stealing $600 million in unapproved compensation and illicit share deals, were found guilty of criminal counts of securities fraud, eight counts of falsifying business records, grand larceny and conspiracy. Ex-waitress Karen Kozlowski filed for divorce in August 2006 and sought to keep booty paid with loans that Tyco later “forgave,” including some of hundreds of thousands of dollars in Harry Winston jewelry. She may be disappointed. Businesses