Whodunnit? “Fannie Mae and Freddie Mac!”
Never have so many owed so much to so few.
–Winston Churchill
If Winston Churchill had been alive to witness The Crash of ’08 and the events leading up to it, I think he would have offered an updated version of his famous observation about the Royal Air Force pilots who defended and ultimately saved England from the Nazis’ feared Luftwaffe.
I think it would have gone something like this:
“Never have so few taken so much at the expense of so many.”
Fannie and Freddie as Fall Guys
On the Op-Ed pages of The Wall Street Journal and other “finance-friendly” publications, I detect a certain closing of ranks lately regarding who’s most responsible for The Crash of ’08.
Their preferred fall guy(s)?
Fannie Mae and Freddie Mac, the so-called Government Sponsored Enterprises that — according to The Journal’s Op-Ed writers, Peter Wallison, and many, many others — debased lending standards and enticed marginal borrowers to get in on the housing boom, with famously disastrous results.
There’s just one, little problem with that narrative: it ain’t true.
Revisionist History
No, at the heart of The Crash of ’08 were the Wall Street players who ginned up a multi-trillion dollar mortgage securitization juggernaut; the credit rating agencies it got to bless its garbage (guess how?); the politicians it seduced (guess how?); the regulators it co-opted; and, of course, the sub-prime lenders who originated the garbage Wall Street securitized and sold and ultimately “shorted” — that is, bet against.
Oh, and a Wall Street-friendly Fed that presided over a monetary environment where all this could occur.
At least until it crashed, aforesaid machine showered billions on Goldman Sachs, J.P Morgan Chase, Countrywide Financial, et al — money that, incredibly incidentally, its senior leaders have managed to hang onto, thank you very much (never mind their liberty).
Meanwhile, the trillions in bad debt Wall Street underwrote — and the hundreds of trillions in credit derivatives it heaped on top of that mess — are very much still with us. (See, “Number of the Week; $600 Trillion“).
Sluggish recovery, indeed.
P.S.: the fact that the now-discredited “The News of The World” cum Wall Street Journal has endorsed the “Fannie/Freddie-as-culprit” narrative is all you really need to know.
