Hey, Barney Frank: The Government Did Cause the Housing Crisis
It is certainly possible to find prime mortgages among borrowers below the median income, but when half or more of the mortgages the GSEs bought had to be made to people below that income level, it was inevitable that underwriting standards had to decline. And they did. By 2000, Fannie was offering no-downpayment loans. By 2002, Fannie and Freddie had bought well over $1 trillion of subprime and other low quality loans. Fannie and Freddie were by far the largest part of this effort, but the FHA, Federal Home Loan Banks, Veterans Administration and other agencies--all under congressional and HUD pressure--followed suit. This continued through the 1990s and 2000s until the housing bubble--created by all this government-backed spending--collapsed in 2007. As a result, in 2008, before the mortgage meltdown that triggered the crisis, there were 27 million subprime and other low quality mortgages in the US financial system. That was half of all mortgages. Of these, over 70% (19.2 million) were on the books of government agencies like Fannie and Freddie, so there is no doubt that the government created the demand for these weak loans; less than 30% (7.8 million) were held or distributed by the banks, which profited from the opportunity created by the government. When these mortgages failed in unprecedented numbers in 2008, driving down housing prices throughout the U.S., they weakened all financial institutions and caused the financial crisis....

Congressman Frank makes assertions about who was responsible, but he, like all those who hold his position, have no data. He says that the banks were responsible, but cannot challenge the numbers I have outlined above. These numbers show, beyond question, that it was government housing policy that caused the financial crisis. Even he has admitted it. In an interview on Larry Kudlow's show in August 2010, he said "I hope by next year we'll have abolished Fannie and Freddie ... it was a great mistake to push lower-income people into housing they couldn't afford and couldn't really handle once they had it."...