Mortgage Crisis: Who’s Fault Is It?

So, the mortgage meltdown was caused by the Republicans and on their watch, right? No so fast!

As early as April of 2001, the Bush administration, while working on its 2002 budget, called the size of Fannie Mae and Freddie Mac a “potential problem” that could “cause strong repercussions in the financial markets.” In 2003, John Snow, the then Treasury Secretary, lobbied Congress to create a new federal agency to effectively regulate the two mortgage giants. At that time, Barney Frank, a ranking member of the House Financial Services Committee, was adamantly arguing that “Fannie Mae and Freddie Mac are not in a crisis.” 

Barney Frank: “The more people, in my judgement, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the treasury, which I do not see. I think we see entities that are fundamentally sound financially, and withstand some of the disaster scenarios, and even if there were problems, the federal government doesn’t bail them out.”

Even Alan Greenspan, during a House Financial Services Committee Hearing in 2005, argued for regulating Fannie and Freddie.

John McCain added his concerned voice in 2006 during a speech on the Senate Floor: ” . . . and the sheer magnitude of these companies and the role they play in the housing market . . . the GSEs need to be reformed without delay.”

This entire situation is laced with irony. Here we have Republicans arguing for more regulation while key Democrats arguing that the system is working just fine – mostly in the name of providing affordable housing to all.

I am fully aware that current financial and mortgage disasters were caused by a series of fairly complicated events. Clearly what’s presented here does not fully explain everything, but it is certainly something to think about.