A favorite conservative pastime since the financial crisis of 2008 struck is to try and deflect blame away from Wall Street and its excesses and onto Fannie Mae, Freddie Mac, and government housing policy. No matter how many times the theory that the government mortgage giants caused the crisis gets debunked, it keeps on coming back to life.
The latest political figure to join this parade was New York City Mayor Michael Bloomberg (I), who responded to a question about the ongoing Occupy Wall Street protests by saying that the protesters’ grievances are “unfounded,” since “it was not the banks that created the mortgage crisis”:
“I hear your complaints,” Bloomberg said. “Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, Congress, who forced everybody to go and give mortgages to people who were on the cusp. Now, I’m not so sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn’t have had them without that.
“But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it’s one target, it’s easy to blame them and Congress certainly isn’t going to blame themselves.”
While the government sponsored mortgage giants were certainly not blameless, Federal Reserve data shows conclusively that it was private mortgage brokers, not Fannie and Freddie, who drove the subprime housing bubble:
— More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
— Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
As economist Robert Gordon has written, the lenders that made the bulk of subprime loans weren’t even covered by government laws to encourage homeownership. In fact, 94 percent of high-cost loans were totally unconnected from government homeownership laws.
As Paul Krugman has written, “Fannie and Freddie had nothing to do with the explosion of high-risk lending…In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.” But this is a zombie lie that refuses to be put to rest thanks to lawmakers like Bloomberg constantly promulgating it.