Mr. B

Fannie and Freddie Did Not Cause This Crisis

I don't agree. The CRA and GSEs are the root cause of the problem. Government interference in free markets.

It started with the passage of the Community Reinvestment Act in 1977 under Carter. Like many Democratic initiatives, the intent was noble - try to make home ownership more affordable for low income people. By 1994, groups like ACORN were demanding quotas from banks seeking to merge. Clinton pushed through broader CRA mandates and Fannie and Freddie were used as vehicles to accomplish the goals by purchasing subprime loans. That is the root cause and Democrats like Barney Frank and Christopher Dodd stopped all efforts at reform in 2001, 2003 and 2005 and warnings about systemic risk from Greenspan and the Bush Administration. It's all on video tape too. The 2005 bill was co-sponsored by John McCain.

Of course, there was complicity from unsavory mortgage brokers, to the Fed which kept rates to low for too long, to Wall Street that sold what it likley knew was junk paper, the ratings agencies, to hedge funds looking to make a quick buck, to real estate investors including flippers, speculators and home buyers and to the widespread availability of new mortgage products such as interest only, payment option ARMs (e.g. pick your own payment), no doc loans and ARMs with low teaser rates. All of this helped create the perfect storm.

However, none of this would have happened or if it happened it would have been on a much smaller and manageable scale if government interference had not distorted the marketplace with the CRA and Fannie and Freddie.

One of the many problems with the TARP legislation is that the root causes were never addressed. Everyone is afraid of the racism charge. The CRA, while noble, needs to be modified to include sound uinderwriting standards. The GSEs (Fannie and Freddie) need to be cleaned up, slimmed down and sold back to the public with NO implicit or explicit government guarantee.

None of this will happen with Obama as President. It will only get worse.

I could go on, but this summaries the issues.