Rebutted by Richard Green:
Mark Thoma and Dean Baker are correct: Fannie Mae and Freddie Mac did not start the crisis. Rather they followed it.... Mark Thoma and Dean Baker take down the Will-Brooks-Morgenstern-Rosner meme that in the absence of Fannie and Freddie, we would not have had a financial crisis. Did Fannie and Freddie behave admirably? In many respects no, but they did maintain underwriting discipline longer than most of the rest of the mortgage market. On the other hand, their bad behavior from early in the decade prevented them from leading the market: accounting scandals (Freddie understated earnings while Fannie overstated them) led the companies' regulator, OFHEO, to require both companies to improve their capital ratios, which meant they needed to shrink their share of the mortgage business. The most disturbing part of the attacks on the GSEs is that it is an indirect method for blaming minorities and the poor for the financial crisis, an argument that is at once ludicrous, disingenuous, and reprehensible. (Once again, I should disclose that I worked for Freddie from September 2002 until January 2004. I should also note that the fact that I stayed there for such a short period reflects in part a lack of particularly warm feelings for the company. I do own a few hundred worthless shares of Freddie Mac stock).