JMc

Fannie and Freddie Are Largely Responsible for the Housing Bubble

The GSEs did not force the rating agencies to mis-rate risk, did not force mortgage bankers and investment bankers to originate garbage in return for huge bonuses, did not force securitizers to spin tales of structuring the risk out of investments, did not force fund managers to buy toxic waste that they little understood, did not force regulators to dismiss concerns with blind faith in the marketplace and distribution of risk. What the GSEs did was expose the taxpayers to this mess even as they avoided most of the sub-prime waste. Perhaps it would have been better if they were still government entities and the taxpayers were clearly on the hook. But to avoid charges of "socialism" we moved them into government sponsored SIVs and paid foreign investors a premium to help us pretend that the weren't really backed by the Treasury (but wink, wink don't worry).