Fannie, Freddie, and the Truth

Mark Thoma is worried that federal government credit policies are taking too much of the blame for the financial crisis. I wrote about this here. There are two competing narratives out there. The left-wing narrative is that the financial crisis was caused by some greedy Wall St. types, while the right-wing narrative is that the government, working by way of the CRA (the Community Reinvestment Act of 1977), Fannie Mae, Freddie Mac, and various government housing policies, caused the financial crisis.

As I wrote in my earlier piece, neither of those narratives gives you a good picture of the financial crisis and what it was about. That people on Wall Street are greedy is a given. That financial institutions were behaving in suboptimal ways was the fault of lawmakers and regulators. CRA, though wrongheaded, did not have much to do with the financial crisis. And, yes indeed, Fannie and Freddie were as much a part of the financial crisis as any of the other large financial institutions in the United States.

To remind you, Fannie and Freddie, formerly privately-owned (but "government-sponsored") enterprises, have been under government conservatorship since September 2008, and bailing them out will ultimately cost us in the neighborhood of $300 billion. Indeed, Fannie and Freddie appear to be the principal source of bailout losses to the federal government and the Fed. Fannie and Freddie are corrupt, they survive - indeed thrive and expand - because they are subsidized, and they perform no important economic role.

Now, where Thoma seems confused is in his characterization of this book by Gretchen Morgenson and Joshua Rosner:

That’s why I was so disappointed to see the new book by Gretchen Morgenson and Josh Rosner, Reckless Endangerment, blaming the financial crisis on Fannie, Freddie, and Democrats. The book has been highlighted recently by George Will and David Brooks, and it joins a chorus of conservative voices promoting the idea that government policies to encourage home ownership among middle and low income households is at the heart of the financial crisis.

If you read the reviews of the Morgenson/Rosner book here, you will find glowing ones from those right-wing nuts Bill Moyers and Simon Johnson. Morgenson works for that right-wing rag, the New York Times, and Rosner writes in the Huffington Post. I have not read the book, but the review here makes it sound more like the left-wing bad-Wall-Street-guys narrative. Don't worry Mark, I don't think anyone is seizing your narrative.