Freddie Mac's "Omniscient Gnomes" Led the Company Astray

Freddie Mac's "Omniscient Gnomes" Led the Company Astray

Louis Hyman, assistant professor of history at Cornell University, writes in a Bloomberg News (10/31, 1M) op-ed, "For me, a magazine advertisement in 1984 explains where it all went wrong. In a bizarre ad in the American Bankers Association journal, the chief financial officer of Freddie Mac, Leland Brendsel, appears to be consulting with gnomes on how to oversee America's mortgage-backed securities markets." Hyman goes on to discuss collateralized mortgage obligation (CMO), which Brendsel helped to create. He says CMOs helped increase Freddie's profits markedly, and also provided the firm with access to new investors. He notes that Brendsel touted the importance of CMOs to Freddie's future, and adds, "Perhaps the gnomes should have advised him that magic is, after all, better wielded by magicians than financiers."