Fannie and Freddie Did Not Cause the Crisis

Once again, Richard Green's refutation of the right-wing hack claim that Fannie and Freddie caused the crisis by leading poor private-sector financiers to make stupid loans:

Richard's Real Estate and Urban Economics Blog: Charles Calomiris and Peter Wallison blame Fannie Mae for the Subprime Mess: Hmmmm. The loan performance on Fannie's book of business is substantially better than the overall mortgage market. And starting in 2002, Fannie Freddie (pink line) lost market share to ABS (light blue line). The data underlying the graph is from the Federal Reserve, Table 1173. Mortgage Debt Outstanding by Type of Property and Holder:

Comments

[Neil B]

Yeah, good show on that but the meme that F-Macs and ACORN etc. caused the sub-prime-oriented meltdown has taken hold among the redstater/freeper types. They *need* to believe that because blaming up-scale greed instead of liberal market-meddlers is discomfiting to them. Here are some more links. The latter are interesting since derived from science blogs:

http://www.slate.com/id/2204583/pagenum/all/

http://www.mcclatchydc.com/251/story/53802.html

http://scienceblogs.com/authority/2008/09/the_subprime_mortgage_crisis_a.php

http://scienceblogs.com/authority/2008/11/acorn_and_the_community_reinve.php#more?utm_source=readerspicks&utm_medium=link

[Bill Lumbergh]

Thanks Neil, for that McClatchy link.
Only 1 out of 26 of the top subprime lenders fell under CRA provisions. Wow, kinda puts the final nail in the Repug lie about poor folks and blacks causing the entire mortgage meltdown.

[Doctor Jay]

Close study of that graph seems to show that mortgage-backed securities such as CDOs took market share away from Fannie and Freddie over the last decade in a pretty decisive way.

So maybe it's Fannie and Freddie's fault for allowing Wall Street to take over a business that turned out to be a bad one?

[ferd]

So, somebody needs to write out the two short sentence rebuttal to "Fannie and Freddie" caused the crisis.

Write it out so laymen can lay it on their winger friends and relatives this Thanksgiving.

[Neil B]

ferd, maybe "Fannie and Freddie didn't do enough of the lending to begin with, and didn't play with it afterward as an investment trick - compared to the bankers and investors that the Republicans deregulated the most."

[Bill Lumbergh]

I had a sad but amusing thought just now.
Has anyone here ever watched the episode of the 'Sopranos' in which Tony and his crew rip off HUD? That scam is very similar to what the banks and mortgage firms did during the housing bubble. Tony's crew bought garbage properties in urban development areas, had them appraised at far above their actual value, then sold them to phony 'investors' who obtained HUD-backed loans that they never intended to pay, leaving HUD holding the bag, and Tony and the 'investors' making a tidy profit at the taxpayer's expense.
This is essentially what the financial industry did with loans during the bubble. They gave high-profit loans with no concern whether those loans would ever be paid, because they never intended to take responsibilty for the loans, instead bundling them as Mortgage Backed Securities, obtaining a phony credit rating for the MBS from unregulated credit rating agencies, and then selling them off to suckers (in many cases taxpayer-backed entities like Fannie and Freddie) who would eventually get stuck with the bad debt, leaving the government to bail them out, under threat of a total economic collapse.
Crooks in suits indeed.