By Alan White
I’m coming back to a theme here, but the myth that Fannie and Freddie caused the crisis keeps being repeated. The subprime crisis was in no way caused by Fannie Mae and Freddie Mac, nor by Congressional regulation or nonregulation of them. To put some numbers behind the facts, I turned to my two-volume Mortgage Market Statistical Annual for 2008, published by Inside Mortgage Finance. I take it as a given that the current crisis was caused by the rapid and unexpected increase in defaults and foreclosures on subprime mortgages. Subprime losses led to subprime-backed securities losing value, which led to big losses for banks and investment banks, small towns in Norway, the collapse of Lehman Bros, etc. etc. There were of course, other problems, such as excess leverage in investment banks and hedge funds, the opacity of the credit default swap market, etc., but I don’t think anyone is blaming Fannie and Freddie for those systemic problems. When you look at the numbers, it is easy to see that Fannie and Freddie were bit players in the subprime crisis.