2008-09-23 Blame Fannie Mae and Congress For the Credit Mess

2008-09-23 \Charles W. Calomiris\Peter J. Wallison Wall Street Journal \Fannie Mae\Freddie Mac\2008 mortgage crisis\Bill Clinton helped cause the 2008 mortgage crisis http://online.wsj.com/article/SB122212948811465427.html Blame Fannie Mae and Congress For the Credit Mess Blame Fannie Mae and Congress For the Credit Mess  Many monumental errors and misjudgments contributed to the acute financial turmoil in which we now find ourselves. Nevertheless, the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac. The poor choices of these two government-sponsored enterprises (GSEs) -- and their sponsors in Washington -- are largely to blame for our current mess.

How did we get here? Let's review: In order to curry congressional support after their accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of "affordable housing." They became the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse. Article assigns blame primarily to changes made in 2003 and 2004, and blames democrats (including Barack Obama) for not supporting a 2005 Senate Banking Committee reform bill (what bill?) which apparently did not pass. Pooh-poohs the idea that better regulation would have helped. If the reform bill wasn't intended to improve the situation through regulation, then how was it expected to help?

&ldquo;...the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac.&rdquo;   