John Cordes

Fannie and Freddie Did Not Cause This Crisis

Whole heartedly agree that the "agency" issue is at the heart of the problem. However I would disagree slightly on two points. The consumer, in affect the home buyers, are motivated by simpler reasons based on baser criteria. The desire to own a home and participate in the widely promoted benefits there in. Consumers have been told for a long time that renting is waisting money and home owneship confers the triumverate of benefits, equity, appreciation, and tax deductible expenses. Naturally the average person would leap at the chance to purchase when it becomes more available through lowered lending standards and cheaper down payments. While not blameless, it is disengenuous to now impose the standard of frugal and puritan morality on the masses of people who took advantage of a buying opportunity. Likewise, it is not so unthinkable that Democratic politicians would encourage enlarging this fiasco to less fortunate consumers, when confronted with the frenzy of inflating home prices and increased purchases, however unwise it was.

Indeed, the agency problem extends throughout the context of the situation. Perhaps another word to describe this is unfettered greed. Selling more snake oil without haveing to answer to anyone. It would seem disengenuous indeed to then blame the buyers for not knowing better than to buy the snake oil. Some of us will manage to avoid the traps, some can afford to avoid the trap, buy many gullibles are waiting in line for the next promise of improving their lot. Someone simply needs to regulate the snake oil salesman a little more closely, at all levels of the product chain. Fannie and Freddie, should have known better, but in the end the GSE's were just another cog in the system facilitating the spread of the contagion, failing to balance the chartered purpose against the pittfalls of agency greed.