Business of Predicting Business- Business Week and Fannie and Freddie

I am going through my old Business Week magazines and looking at what the magazine predicted and what has actually transpired.

• Fannie and Freddie: September 27, 2004. Just How Risky Are Fannie and Freddie?
  

Excerpt: Not everyone is as worried as Greenspan and Snow -- particularly R. Glenn Hubbard, President George W. Bush's former chief economist. In a 33-page study that Fannie Mae commissioned and made available to BusinessWeek before publication, Hubbard, who now heads the Columbia Business School, argues that Fannie is no riskier than the 10 largest commercial banks or their holding companies. Hubbard also concludes that Fannie's capital reserve -- the cushion that financial institutions need in case of emergency -- is adequate.

Why does this matter? Fannie Chairman and CEO Franklin D. Raines will use the report to rebut critics who charge that Fannie's low borrowing costs represent an implicit federal subsidy created by debtholders' confidence that the government will rescue them in a financial crisis. Hubbard's work will bolster Raines' argument that Fannie has a cost advantage because it's low-risk. In the study's foreword, Raines writes that Hubbard "confirms the low-risk nature of Fannie Mae's business but also...indicates a fundamental flaw in studies that purport to quantify an 'implicit subsidy' to the company." Hubbard says: "That's Frank Raines's view."

The current turmoil in the credit markets and the bailout of Fannie and Freddie proposed by Mr. Paulson, to be authorized by the Congress and signed by the President is the verdict on Hubbard's opinion and the BW article.