It wasn’t just Fannie January 20, 2012 at 7:49 am

Jonathan Weil, as so often, has a good article on Bloomberg. He trashes the ‘Fannie and Freddie were the cause of the crisis’ thesis, pointing out that

there was no single cause. What we can say is this: But for the actions of a vast number of actors, including Fannie and Freddie, the crisis wouldn’t have happened the way that it did.

Quite right. As I suggested in my account of the Crisis, there is no single cause, nor a single bad guy who we can blame. The Crisis was caused by a complex interaction between the design of various element of the financial system and the incentives of various parties within it. Blaming Fannie for the crisis is like Woodrow Wilson for the second world war. Sure, he might have had something to do with it, but other things were happening too…

One Response to “It wasn’t just Fannie”

  1. Consistently overlooked in these discussions is the fact that the GSEs would never have purchased even one of the sub-prime loans that caused the Mortgage Mess if they hadn’t been pressured to do so in 1999 by the Clinton Administration and the banking industry. Clinton’s social engineering experiment to expand home-ownership among low- to moderate-income Americans pressured Fannie Mae to relax its underwriting guidelines to purchase mortgage loans from banks who could now lend to ‘borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans,’ in the words of The New York Times on September 30, 1999. In short, Clinton forced Fannie to hold the bag for banks that could now make mortgages to people who could not afford them under guidelines that had stood the test of time for generations. Clinton rolled the dice on co-opting the banking industry into his social agenda — and taxpayers around the world are still paying the price with lost jobs, lost homes and lost life-savings.