Turns out, private sector loans caused the mortgage crises, because Freddie Mac or Fannie Mae were under regulations that prevented them from being as expansive with subprime loans as private lenders.
This factoid is critically important to the last remaining bits of cred for those conservatives treating the private sector as a sacred totem.
Conservatives manage to blame the current credit crisis on government and democrats as follows:
- Fannie Mae and Freddie Mac issued lots of bad mortgages to unworthy borrowers, called "subprime".
- They were forced to do so by evil democrats in congress.
- Now I get a little fuzzy on the next step, but somehow either democrats or government forced financial institutions to buy mortgage backed securities, or somehow disguised the fact that those subprime mortgages weren't primo, in a completely deregulated market.
- Now I get even fuzzier, because somehow evil democrats made AIG and Lehman actually insure those MBS through CDS in another completely deregulated market.
Anyway, it's all bullshit, because it wasn't Freddie and Fannie who caused the number of subprime loans to increase at all. It was unregulated private sector lenders, says new Fed stats.
Federal Reserve Board data show that:
_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
_ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
_ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday.
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Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.
During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.
(italics added)
http://www.mcclatchydc.com/...
Well, another conservative economic theory runs into reality. It's not all government overregulation or government being stupid about subprime loans, aside from government listending to them GENIUSES like Phil Gramm and our wall street titans.
Turns out, McPanic's condescending lecture at the last debate was WRONG. The secret to the crisis is NOT Freddie Mac or Fannie Mae. McCain is wrong, wrong in approach, wrong in analysis, wrong.
Poor Neil Cavuto.
It was such a perfect republican piece of BS while it lasted. while it lasted....government involvement in markets, democratic legislators, forcing these institutions to make bad loans to minorities...again, I'm not sure how we forced big wall street instituions to buy these MBSs, but aside from that, it had all of the republican betes noir to blame. Awwwww.