Bailout Blame: Not Fannie Or Freddie

Those who would like to blame poor people for the financial crisis need to read this from swimming freestyle. Maybe we can focus on the fix, instead of blame (since the blame is so misdirected)?

One more time; it wasn't Fannie and Freddie

On the campaign trail, or at least the one being traveled by the Republicans, the current economic crisis is all about Fannie Mae and Freddie Mac. Fannie and Freddie are singled out because it fits the narrative; "Hey, this mess isn't our fault. It's those Democrats who resisted regulating Fannie and Freddie". There's plenty of blame to go around here, both for Republicans and Democrats, especially as it relates to Fannie Mae and Freddie Mac. But, as noted before, the two mortgage finance companies aren't the root of the problem.

A new McClatchy article places the blame for the mortgage financing debacle primarily within the private sector:

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height vrom 2004 to 2006.

Federal Reserve Board data show that:

_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

_ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

_ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

In fact, Fannie and Freddie weren't even as involved in the secondary mortgage market as has been assumed:

Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.

Fannie and Freddie...struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.

It continues to be about at least some modicum of regulation. I can't think of a time in history when human greed went unchecked and things worked out well in the end.