The Wall Street Journal and CBS have reported that Freddie Mac and Fannie Mae spent millions of dollars lobbying some influential members of congress, in exchange for, among others, lax capital reserve requirements.
As a result of their lobbying prowess, these obsolete institutions became virtually untouchable behemoths.
While the crisis cannot be blamed on one single entity because it came about as a result of greed and complacency of consumers, investors and businesses alike, it is widely argued that the lack of good governance at the public and private levels led to this meltdown.
Good governance, in the private and public sphere, is the ability to exercise power, and to make good decisions over time, across a spectrum of economic, social, environmental and other areas.
There are many ways to define good governance, however, there seems to be a general consensus that key factors, as outlined by the OECD programme on Public Management and Governance (PUMA) include: Technical and managerial competence of leadership is an obvious factor of good governance.
In this financial crisis, it is hard not to question the competence of the regulatory bodies responsible for overseeing the financial institutions, and the competence of the financial institutions themselves.
Accountability is a convoluted concept with respect to this financial crisis because of the global nature of the financial system.
Consumers are at fault for over-borrowing, banks are at fault for over-lending, investment banks are to blame for over-securitizing, and regulatory institutions are at fault for allowing this excessive behaviour.
Governments have access to a vast amount of important information.The exemption would free up billions of dollars held in reserve as a cushion against losses on their investments.Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities, credit derivatives, and other exotic instruments.It became obvious that neither public sector leadership nor private sector leadership really understood the complex financial instruments that were structured, packaged and sold during the boom years. Only after the crisis had begun unfolding did the New York Times publish an account of the brief meeting between Security and Exchange Commission (SEC) officials and the heads of the large investment banks.The investment banks wanted the SEC to exempt their brokerage units from an old regulation that limited the amount of debt they could take on.