One Degree of Fannie-Freddie

[Geee]

American Spectator:

“And cut!”

Politicians and the establishment media are weaving an epic tale of the events that froze the markets five years ago this month and led to massive bailouts of the biggest financial firms. Yet, their retelling of the financial crisis, to use a filmmaking analogy, leaves a lot on the cutting room floor — namely, the role of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in fueling the subprime boom.

When Fannie and Freddie are discussed, their role is minimized. A recent USA Today editorial, for instance, conceded that some reform of the entities is necessary, but quickly added, “The two companies came late to the subprime party and didn’t cause the financial crisis.” The storytellers, quite simply, want nothing to distract from their narrative that the crisis was caused by rampant deregulation and the economy was “saved” by big-government rescues. But the data say otherwise.

As Peter Wallison, senior fellow at the American Enterprise Institute and a dissenting commissioner on the Financial Crisis Inquiry Commission created by Congress, put it recently in the Wall Street Journal, in September 2008, “[H]alf of all mortgages in the U.S. — 28 million loans — were subprime or otherwise risky and low-quality,” and of these, “74% were on the books of government agencies, principally the GSEs.” He adds, “We hear plenty about Wall Street rapacity but any discussion of the government’s central role in the disaster is neatly avoided.”