Continuing the look at events readers say will have consequences beyond 2011. Ann Crickmer of Seattle writes, “Finally making available the “trail of evidence” that charges that Fan and Fred were ‘at the heart of the housing bubble.’ In an effort to meet HUD MANDATES to serve “credit-impaired” borrowers they degraded their underwriting standards. The WSJ review of the SEC investigation notes ‘Expanded Approval’ of very high-risk loans and that they hid this risk from investors. I keep asking who was head of HUD to impose this mandate, and which congressmen sheparded it through Congress. Please. Before the next election we need to know.”
The problem is that Fannie Mae and Freddie Mac didn’t cause the bubble or the financial collapse. Joe Nocera of the New York Times performs a good takedown of this Big Lie. The Atlantic’s David Min provides further facts.
The housing bubble and financial collapse were cooked up on Wall Street, greased by easy Fed money, outlandish profits and deregulation of the banking industry. As I’ve written before, Fannie and Freddie were late to the subprime game and got into it because they were losing profits and market share to the likes of Countrywide and Washington Mutual. It might be a pleasing morality play to imagine this calamity was brought on by poor people, mostly minorities, getting mortgages they didn’t deserve. But it just isn’t so.
Which isn’t to say Fannie and Freddie aren’t a problem. They worked the political system expertly, as shown by the $1.6 million Freddie paid former House Speaker and Republican presidential candidate Newt Gingrich as a “historian.” They arguably helped distort the economy to an over-depedence on housing. But, as Nocera writes:
Three years after the financial crisis, the country would be well served by a real debate about the role of government in housing. Should the government be helping low- and moderate-income Americans own their own homes? If so, is there an acceptable level of risk? If not, how do we recast the American dream?
To have that debate, though, we need a clear understanding of what role the government’s affordable-housing goals did — and did not — play in the crisis. And that is impossible as long as the Big Lie holds sway.
And Don’t Miss: Business far outspends labor on lobbying || Open Secrets
Today’s Econ Haiku:
What climate change, eh?
We’ve got tar sands oil to sell
Oh, oh, Canada