Upping the amount of sub-prime mortgages that are backed by Fannie and Freddie doesn’t make it cronyism, and it is not the root cause of the chaos. The root cause of the chaos is that mortages were made that should never have been made, and were then packaged up with good loans and sold as investment securities; essentially passing the buck into the entire financial system.
A sub-prime mortage is generally one that has less than 20% down. There’s really nothing wrong with that. In fact, I put 5% down and have one backed by Fannie myself. The difference between what has been going on recently from what happened when I got mine ten years ago is that the lender crawled up my rear with a fine-toothed comb. They wanted to know everything about where my money came from for several years prior and they contacted all my references. From what I hear, people who make 35k/yr, if that, somehow qualified for $1M mortages in recent years, sometimes without even so much as a check of ID. The reason they could do this is because whomever made the loan could package it up and pocket a tidy profit by offloading the risk onto someone else. And it wasn’t just Fannie and Freddie that bought, it was all of them (some more than others, like Bear). That’s why it’s been such a hammer especially on investment banks.
The thing about this is that loans like these were allowed to be made in the first place and to get mixed in with everything else to where no one really knew what they were buying. We put warning lables on nearly everything, but there weren’t any required for this. If there is such a requirement, it clearly wasn’t enforced.
I guess that was the whole idea. Sort of like a dishonest company selling tainted food - mix the tainted food with the good food and hope no one notices. But then almost everyone thinks they can make a quick buck by selling a tainted product, so things get more tainted until everyone starts to get sick. Or something like that.