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| Chart shows that the loans Fannie and Freddie were making were largely not high-risk |
Reports Show Fannie And Freddie Were Not Root Cause Of Financial Crisis
The New York Times published a piece by Reuters' BreakingViews.com that attacked the Dodd-Frank financial reform law for not sufficiently regulating Fannie Mae and Freddie Mac, which the piece suggested were central causes of the economic crisis. This claim echoes a right-wing talking point, but as economic experts -- including Nobel Prize-winning economist and Times columnist Paul Krugman -- have explained, it has no basis in reality.
Times Piece Suggested Fannie, Freddie Were Central Causes Of Economic Crisis
New York Times Piece: Lax Mortgage Lending Was "Central" To Financial Crisis, But Financial Reform Law Did Not Focus On Fannie And Freddie. From a July 18 piece by Reuter's BreakingViews.com published by The New York Times:
A year after passage of the Dodd-Frank act, the $10.5 trillion American mortgage market remains in limbo. One big reason is that the law scarcely touches Fannie Mae, Freddie Mac and the Federal Housing Administration -- the government-run lenders that dominate the home loan market.
The consequences of lax mortgage lending were central to the crisis that Dodd-Frank was intended to make unrepeatable.
(Say it is not so - the supposed liberal New York Times published a disapproved urban myth as fact) - Reports Reject Claim That Fannie And Freddie Were Root Cause Of Financial Crisis
David Min: Fannie And Freddie "Did Not Buy Enough" High-Risk Mortgage-Backed Securities "To Be Blamed For The Mortgage Crisis." In a report about the causes of the housing crisis, David Min, the Associate Director for Financial Markets Policy at the Center for American Progress, wrote that while "Fannie and Freddie were responsible for some actual high-risk loans, primarily through their purchases of high-risk private-label securities for their investment portfolio as well as through purchases of actual high-risk loans for their core securitization business," the "actual high-risk activity by Fannie and Freddie was neither sufficient in volume nor did it come at the right time to persuasively argue that the two mortgage finance giants drove the surge in actual high-risk lending we saw in the 2000s." Min also wrote that Fannie and Freddie "did not buy enough of [high-risk mortgage-backed securities] to be blamed for the mortgage crisis." From Min's July 2011 report:
It is of course well known, including by their regulator, the Federal Housing Finance Agency, that Fannie and Freddie were responsible for some actual high-risk loans, primarily through their purchases of high-risk private-label securities for their investment portfolio as well as through purchases of actual high-risk loans for their core securitization business. Yet as Wallison knows, this actual high-risk activity by Fannie and Freddie was neither sufficient in volume nor did it come at the right time to persuasively argue that the two mortgage finance giants drove the surge in actual high-risk lending we saw in the 2000s.
Did Fannie and Freddie buy high-risk mortgage-backed securities? Yes. But they did not buy enough of them to be blamed for the mortgage crisis. Highly respected analysts who have looked at these data in much greater detail than Wallison, Pinto, or myself, including the nonpartisan Government Accountability Office, the Harvard Joint Center for Housing Studies, the Financial Crisis Inquiry Commission majority, the Federal Housing Finance Agency, and virtually all academics, have all rejected the Wallison/Pinto argument that federal affordable housing policies were responsible for the proliferation of actual high-risk mortgages over the past decade.
Indeed, it is noteworthy that Wallison's fellow Republicans on the Financial Crisis Inquiry Commission -- Bill Thomas, Keith Hennessey, and Douglas Holtz-Eakin, all of whom are staunch conservatives -- rejected Wallison's argument as well.
This is why neither Wallison nor Pinto try to make the argument that the federal government was responsible for the proliferation of actual high-risk lending that occurred in the past decade, as such a claim would be quickly rejected as ridiculous. Instead, what Wallison and Pinto do--the key to their argument--is to expand the definition of "high risk" and "subprime" to include new categories of loans not ordinarily understood to be high risk. This expansion of "high-risk" lending is essential to the Wallison/Pinto argument that the mortgage crisis was caused by federal affordable housing policies. [Ritholtz.com, The Big Picture, 7/13/11]
Conservatives want to blame anyone but the private sector. The private sector they helped deregulate for thirty years because they claimed DEREGULATION is always a good thing.
