Kevin Hassett of AEI has just written a must-read commentary on the Wall Street mess for Bloomberg. It’s an excellent response to the past week or so of preposterous analysis in the media that blames the mortgage crisis on the free market, despite its origins in the massive government manipulation of the mortgage market. Hassett explains:
Enough cards on this table have been
turned over that the story is now clear. The economic history
books will describe this episode in simple and understandable
terms: Fannie Mae and Freddie Mac exploded, and many bystanders
were injured in the blast, some fatally.Fannie and Freddie did this by becoming a key enabler of the
mortgage crisis. They fueled Wall Street’s efforts to securitize
subprime loans by becoming the primary customer of all AAA-rated
subprime-mortgage pools. In addition, they held an enormous
portfolio of mortgages themselves.In the times that Fannie and Freddie couldn’t make the
market, they became the market. Over the years, it added up to an
enormous obligation. As of last June, Fannie alone owned or
guaranteed more than $388 billion in high-risk mortgage
investments. Their large presence created an environment within
which even mortgage-backed securities assembled by others could
find a ready home.
Efforts to rein in the government-backed mortgage companies faltered in 2005. That is most unfortunate. Washington has now taken over both monstrosities, and it would be most fortunate if they were eventually to be whittled down and sold off. As for this week’s mania, I find myself hoping that Nancy Pelosi, Mike Pence, Ron Paul ? somebody ? will, in George Jetson’s words, ?Stop this crazy thing!?
