From the Cassandra Files: "I Saw This Mess Coming"

Anecdotal Economics confers its Prognosticator of the Decade award upon Peter J. Wallison, a resident fellow at American Enterprise Institute.

Wallison was interviewed by New York Times writer Steven A. Holmes for a story which appeared on September 30, 1999, and said:

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'' (emphasis ours.)

Full Story Here: "Fannie Mae Eases Credit To Aid Mortgage Lending, 09/30/1999"

According to the Times, a 15-market pilot program "will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring." (Editor's Note: Fannie Mae did expand the program nationwide in 2000.)

Continues the Times: "Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits." (Editor's Note: A volatile combination - public policy and shareholder profits.)

"In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans." (Emphasis ours, and perhaps the first use of the term "subprime.")

"In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's," the Times reporter concludes, based on Peter Wallison's observations. (Emphasis ours.)

September 30, 1999. You have been warned.