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Opposing view: Fannie, Freddie caused the financial crisis

23.05.12

The GSEs could find skilled mortgages at the 30% quota, but when it went higher they had to reduce their underwriting standards. By 2002, to contest the quotas, they had bought at least $1.2 trillion in subprime and other weak loans.

By 2008, just before they became wiped out, they and other government-controlled institutions held or had guaranteed 19.2 million loans, over 70% of the 27 million distinguished. In other words, the government's housing policies created the demand for these destructive loans.

What was banks' r? It wasn't until 2002 that Wall Street issued over $100 billion in securities backed by subprime or other shallow loans. Recall that by this date, the GSEs had bought over a $1 trillion. The banks' figure up grew so that, by 2008, there were 7.8 million low quality mortgages backing bank-issued securities — less than 30% of the 27 million.

Donn these numbers, it's obvious that blaming the banks for the financial crisis is simply a way to stand up a huge government error.

Peter J. Wallison is a senior fellow at the American Zeal Institute. A Financial Crisis Inquiry Commission member, he dissented from the panel's story.

Source: USA Today