Posted on 08/24/2026 6:48:44 AM PDT by Pete Dovgan
The commentary in a recent Wall Street Journal by Senator Phil Gramm and Representative Jeb Hensarling did the nation an immense service by dismantling the persistent myth that private market greed and financial deregulation caused the 2008 financial crisis. As they rightly pointed out, inflation-adjusted mortgage rates during the bubble era were historically high, and financial institutions were suffocating under increasingly strict federal mandates, not running wild in a deregulated vacuum.
Yet, for nearly two decades, the public has been fed a completely fabricated baseline narrative. Having served as the Chief Economist at the Department of Housing and Urban Development (HUD) and later as the Chief Economist at Freddie Mac during critical regulatory shifts, and as an expert in securitization—having structured the first CMO with Larry Fink at First Boston, the first CBO with Mike Milken at Drexel, the first unique MBB with Lou Ranieri at Salomon, and later the first CLO—I watched the true mechanics of this disaster play out from the inside. The reality is uncomfortable for the political class: the real crime of 2008 was not a failure of capitalism, but a catastrophic failure of central planning.......
(Excerpt) Read more at mises.org ...
It was so profitable to make bad mortgages and resell them that in my area there were dozens of new, small mortgage companies put together by lawyers and doctors who would simply write a mortgage and resell it a week later to a big bank for a few thousand dollars profit on top of the closing costs they collected.
The whole market was distorted by the invention of Mortgage Backed Securities, which made trading the mortgage more profitable than holding the mortgage earning interest, something also facilitated by the super low interest rates created by the Federal reserve. Turning mortgages into tradeable securities where the risk could be instantly offloaded onto someone else created the conditions for moral hazard.
The Federal Reserve supplied the capital by low interest, but capitalism created the tradeable instruments as it always does when market conditions changed, and the banks took advantage of it knowing the FDIC and their capture of regulatory agencies would mean they were "too big to fail," socializing the costs.
The libertarian notion of some "free market" out there that would prevent such things has been a myth ever since Britain's enormous deficit financing of the Seven Years War fundamentally changed the state's relationship to capital, something Alexander Hamilton noticed working for a British trading firm in the West Indies.
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“Second, whatever high-risk mortgages that were encouraged or required by government policy formed only a small part of the vast real-estate boom. No one forced banks to implement policies allowing “liar loans” to any great extent:” There is blame on both sides, government and private. But Fannie/Freddie together held $2 trillion in MBS, more than any other entities. $1 billion is a big hedge fund. 2000 hedge funds is the equivalent of Fannie and Freddie. Franklin Raines got paid more than $50mm in 2006 as CEO of Fannie, he didn’t want the music to stop.
LOL It was the greedy banks. The Fed's low interest rates led to the creation of Mortgage Backed Securities, turning mortgages into tradeable securities. These securities were then leveraged using fractional reserve banking to make even more loans and investments.
The executives and shareholders walked away with the gold, we got the shaft.
The other side of it was outfits like Goldman Sachs and Lehmman Brothers bundled up mortgage backed securities and sold them to investors to bet on the housing market. Goldman Sachs at least get out before the crash.
Lehamn Brothers? Well, where are they now?
There were two fundamental causes: First and biggest was the Federal Reserve's low interest rate policies. The second was the Fed Gov's support for Fannie and Freddie, plus FDIC, plus control of the FTC and Treasury by the banks insured the moral hazard, a hazard was fueled by pure greed by the banks that continued even when signs of failure became apparent.
Prior to the collapse there was massive fraud as the big banks sold off MBS to pension funds, etc. The executives responsible should have sued into poverty for lack of fiduciary responsibility and many others jailed for fraud. The failed banks should have been bankrupted and ownership transferred to the Treasury and sold off when stabilized with the profit going to the American people.
The housing market crashed almost a year before the banking crash. What did crash just before the banking crisis was the price of oil and the euro. Both dropped sharply during the first week of July and trillions of dollars evaporated. Less than three months later the banks were broke.
Look it up...
Barney Frank and Chris Dodd engineered the 2008 panic.
This. ^^^^ You said it.
The Community Reinvestment Act.
“What did crash just before the banking crisis was the price of oil and the euro. Both dropped sharply during the first week of July and trillions of dollars evaporated. Less than three months later the banks were broke.”
Looked both up, and both peaked in July of 2008. Oil was stupid high in July of 2008, reaching 141 a barrel.
https://www.sciencedirect.com/science/article/abs/pii/S0301421510004271
https://www.piie.com/publications/policy-briefs/2008-oil-price-bubble
Also Horsepucky. Loads of laws and regs, but damned few were enforced and fewer still audited.
It was like defund the police crappola. Yeah, lots of laws but a law that is not enforced and then not audited to see if it was implemented is just virtue signaling.
Well, they were forced to issue crap mortgages by the feds.
If you look they both peaked and fell almost simultaneously. For months prior I had been predicting a bubble effect. An over-inflated Euro was driving up the price of oil. With the sharp crash of a major currency and commodity trillions of dollars in assets evaporated decimating the balance sheets of banks.
we need more and better central planning. we need communism.
All of these videos were widely available during the 2008 elections. An honest press would have resulted in the *Democrats* losing that election in a landslide. They were responsible. The media narrative was "Well, Bush is President, so Republicans are responsible." The very Democrats who caused the crisis were given more massively more power. We are now having a repeat with the collapse of Obamacare and its ballooning costs and the dwindling of quality healthcare and availability of affordable insurance - caused entirely by the Democrats...but since "Republicans are in charge now", they are spun as being responsible for Democrat policies. There is some legitimate criticism for Republicans - but again, if there was an honest press that reported factual, truthful information - there would be, and would have been, great public pressure for total repeal. Instead, most believe the Republicans caused it, when the policy itself is simply undergoing its inevitable collapse.
All of these videos were widely available during the 2008 elections. An honest press would have resulted in the *Democrats* losing that election in a landslide. They were responsible. The media narrative was "Well, Bush is President, so Republicans are responsible." The very Democrats who caused the crisis were given more massively more power. We are now having a repeat with the collapse of Obamacare and its ballooning costs and the dwindling of quality healthcare and availability of affordable insurance - caused entirely by the Democrats...but since "Republicans are in charge now", they are spun as being responsible for Democrat policies. There is some legitimate criticism for Republicans - but again, if there was an honest press that reported factual, truthful information - there would be, and would have been, great public pressure for total repeal. Instead, most believe the Republicans caused it, when the policy itself is simply undergoing its inevitable collapse. And of course, the reason we have Obamacare is because the lying press not reporting on the financial crisis and the Democrats causing it and blocking all efforts to head it off as shown in those videos linked above - they would not have been elected to do so - quite the opposite.
we have an extremely stupid electorate for the most part ... universal suffrage and all that ...
“No one forced banks to implement policies allowing “liar loans” to any great extent”
It was government policy implemented over many years. The government had the carrot and the stick. The stick was to deny banks the opportunity to open branches as long as they were being sued for racism. The carrot was that Fannie Mae insured the risky loans. At the time of the collapse, 90% of new loans were insured by Fannie Mae or Freddy Mac.
Any sensible banking policy was deemed racist. If a bank demands ten percent down for a mortgage, that was racist because a greater percentage of white applicants could put ten percent down. If you demand that the applicant have a job, that was racist. If you only loan X multiples of income, that was racist. The only non-racist solution was to abandon all standards. Not to worry, Fannie Mae had your back (as indeed they did).
Government was in control. Government screwed up. Government is to blame.
Democrats pushed this because of their obsessive anti-racism agenda. They wanted to get black people into houses, even if they could not afford them. Banks were labelled racist, but that was not the case.
You might as well ask who benefits from crashed airplanes because young black and female pilots are not fully qualified. The drive to get blacks and females into the cockpit, qualified or not, trumps everything else.
The gov assisted the risk taking in 2 directions: low interest rates and by insuring losses (formally or "too big to fail").
Put it another way: the gov worked hand in hand with the big bank shareholders and bank executives to privatize profits and socialize losses. They never coughed up a penny of ill gotten gains.
The small number of coerced loans in minority majority areas were only a small part of the problem and focusing on that seems part of some conservative urban legend.
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