Fannie and Freddie played too: “What are Freddie Mac’s principal businesses?”
“Freddie Mac supports liquidity and stability in the secondary mortgage market through two principal lines of business. Our credit guarantee business purchases residential mortgages and mortgage-related securities in the secondary mortgage market, securitizes these mortgages and subsequently sells them to investors as mortgage-backed securities. We also have a portfolio investment business that purchases mortgages for our mortgage-related investments portfolio.”
The government guaranteed that the market was kept in the dark and they got on board too. But they made sure that the market was unregulated. The cats out of the bag. The government gave the green light to this potentially dangerous market. It allowed these frivolous loans to happen. In fact it mandated it to these independent bankers. It was a bunch of liberal social engineering programs, the independent banking scheme, the potentially dangerous financial instruments, the credit default swaps, Barney Frank saying that everything is just fine, and nobody looking at the history of the housing market. Politicians were getting their money too. So why not just go along with Greenspan. They all gambled and they all lost. Only they put the tax payer on the hook for everything. There is no way it was just the banks.
Fannie and Freddie were created in order to develop a secondary market for mortgages and mortgage backed securities. That market didn’t exist until Fannie was established in 1938 and Fannie had a monopoly on it for over 30 years. Fannie was spun off as a private corporation in 1968. Freddie was established in order to give Fannie some competition, and it too was spun off as a private corporation.
“The government guaranteed that the market was kept in the dark and they got on board too. But they made sure that the market was unregulated. The cats out of the bag. The government gave the green light to this potentially dangerous market. It allowed these frivolous loans to happen”
You have this wrong on a number of counts. Fannie and Freddie’s transactions were always transparent. But there was a parallel shadow banking market that hedge funds and investment banks had developed, and they used their influence to make sure that it remained hidden from view and unregulated.
“In fact it (government) mandated it to these independent bankers.”
That’s absolutely incorrect. You couldn’t be more wrong on this point.
” It was a bunch of liberal social engineering programs, the independent banking scheme, the potentially dangerous financial instruments, the credit default swaps, Barney Frank saying that everything is just fine, and nobody looking at the history of the housing market.”
There were and are liberal social engineering programs involved including one promoted by GW Bush: “the American Dream Downpayment Initiative”. There were plenty of risky financial instruments innovated by Wall street including CDOs, synthetic CDOs, CDOs squared, and so on. Credit default swaps had been around for years but investment banks had managed to turn them into a rigged casino. They badly needed to be regulated, to be confined to only insuring the primary contract. An IB could sell toxic paper to a bank, then take out as many swaps as it wanted to betting against the bank’s survival.
” Barney Frank saying that everything is just fine, and nobody looking at the history of the housing market. Politicians were getting their money too. So why not just go along with Greenspan. They all gambled and they all lost. Only they put the tax payer on the hook for everything. There is no way it was just the banks.”
There were loads of people saying that everything was fine. The real estate and finance industry who wanted the party to never end. Politicians who were bragging about how well the economy was doing under their watch. Anti-regulation oriented economists like Greenspan who thought that their vision of a self-correcting unregulated market was being vindicated. But there were also a number of people who identified the bubble and warned that it was going to do a whole lot of damage.