posting.php?mode=post&f=10" onclick="window.open(this.href);return false;So now they're coming back with this, pegging the whole mess not to greed but to Clintonian policies involving Fannie and Freddie. Note that although they could have done so, the AEI is not criticizing Clinton for the things he was actually guilty of, like repealing the Glass-Steagall Act and signing off on the Commodity Futures Modernization Act (which deregulated the types of derivatives that made the mortgage-backed securities boom possible) in 2000.
No, the criticism here is not really partisan; it's designed more to put class and race at the middle of the crash discussion, pitching the financial crisis as the result of a botched socialistic scheme to put "those who normally would not qualify," i.e. poor white trash and poor black and Hispanic people, in fancy homes...
This crisis was about banks bundling subprime mortgages and selling it off as AAA-rated gold to pension funds.
That means a bunch of jackasses on Wall Street with $1000 suits and slicked-back hair were passing the word to Countrywide lenders that they needed masses of crap loans that they could then turn into investment-grade paper and sell it all off to, say, the state pension fund of Indiana.
That way, thousands of Indianan toll booth operators and teachers and prison guards and janitors who'd been working their whole lives and saving up nest eggs were made into customers of this toxic crap these bankers knew would blow up eventually. Indiana's pension fund lost $5 billion during the crisis. Virtually every state in the union suffered similar fates. Why? Because a bunch of used-car salesmen on Wall Street sold them fleets of lemons with no engines under the hoods...
This has to be repeated: Fannie and Freddie did not invent this scheme to turn subprime crap into AAA-rated gold. They were not the ones who were mismarking dicey home loans; that was the fault of the ratings agencies, who did so because they wanted to retain relationships with the big banks. Here's what Fannie and Freddie did do; they followed the market and bought lots of these loans after the banks had already collected them and chopped them up and mismarked them. As Barry Ritholz points out, they were essentially just another in a long line of dumb banks that jumped ass-first into the MBS market once it started to bubble up.
There's certainly a legitimate debate about government housing policy and whether or not it makes sense to have the Government-Sponsored Entities like Fannie and Freddie putting so much of our capital at risk to help low-income borrowers get houses. It may very well be that the Clintonian dictums went too far and were ultimately unsustainable. But that is an entirely separate issue, very different from the question of what caused the mortgage bubble and, by extension, the crash.
Plain and simple, the mortgage bubble was caused by the unregulated mass-marketing of mismarked, or fraudulently marked, subprime mortgages to customers who had no idea or only a very dim idea of what they were buying. This was high-tech fraud and stealing, and not just greed but unconscionable, criminal greed on a grand scale.
I still say it was an inside job:
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