The head of Freddie Mac, the mortgage finance giant which is having to be propped up by the US government, ignored warnings as early as 2004 that the company's bets on the housing market were putting the financial system at risk.
A former risk manager at the Virginia-based company has revealed an internal memo he wrote, warning that underwriting standards were slipping and Freddie Mac was becoming exposed to potential losses.
Freddie Mac and its sister company, Fannie Mae, were set up to provide liquidity to the mortgage market, but they have plunged deep into the red since the US housing market went into its tailspin. Last month the Bush administration was forced to promise it would bail the companies out if they ran out of cash, and analysts believe US taxpayers could be on the hook for tens of billions of dollars of potential losses unless conditions improve.
The calamity was foreshadowed in a 2004 memo written for Freddie Mac's chief executive, Richard Syron, but he continued to expand the company's activities buying and selling home loans.