The worshipers at the alter of "Free Markets" (sic) are beginning to use this lie in an attempt to divert blame and attention from their polices and actions which are at the core of the current economic turmoil.
There are 2 main reasons:
- It allows them to blame "government" instead of deregulated market greed, corruption and incompetence
- They can try to shift blame to the Democratic party since Freddie and Fannie execs backed Democrats monetarily.
This meme needs to be gutted as quickly as possible before the nodding heads like Chris Matthews buy into it.
Point #1
Our credit crisis has stemmed from credit being far too cheap and too easily offered to people with little ability to pay. This is a direct result of Republican Alan Greenspan's era of cheap money, Wall Street and the finance industry's profit engine from loan fees and securitization of debt, and the gutting of regulation by the Forclosure Phil Gramms of the Republican Party.
While Freddie and Fannie have their own problems, the toxic core of the debt mess was and is the sub-prime, Liar, Ninja and other loans being pushed by finance companies who advertised relentlessly. We can all remember being blasted every 10 minutes from 2003-2007 by the cheap money lenders selling the seductive idea than we can have it all now if we just tap the equity in our homes. We were offered loans at 2% interest teaser rates or with negative amortization to get us into homes beyond our reach, only to have the payments explode as rates reset to the real world.
This behavior was the driver of our real estate and credit bubble that is collapsing and Freddie Mac and Fannie Mae had NOTHING to do with this.
Sub Prime loans to people with poor credit, Alt A loans to those who had iffy situations or were unwilling to provide full documentation was purely a phenomena of the "free market". From WAMU to IndyMac to Greenpoint to dozens of other finance companies bundled up this toxic debt and sold it to Wall Street. Investment banks sliced and diced the debt into high risk segments and supposedly AAA rated pieces which were insured by the AIG's of the world.
In truth, the Wall Street estimates of failure rates were way low. Far more of the debt was of poor quality than estimated and as more and more developers and individuals defaulted, the run on the system began. First the finance companies cratered in late 2006 into 2007. Then the toxic pool spread to the worst managed thrifts (Indy Mac). Their failures spread back through Wall Street's paper to the banks holding the risk and then to the AIG's and the banks demanded the insurance they thought they had on this "AAA" paper that was really just crap.
The much higher quality paper underwritten by Freddie and Fannie was caught in the mess as the real estate bubble popped putting a large proportion of recent real estate sales under water (mortgage greater than the house is worth). As unemployment rates rose, even people with good credit that could get conforming Freddie and Fannie loans were hit, putting Freddie and Fannie in the same mess. They were also too big and too poorly regulated, something both parties are to blame for to some extent.
While Freddie and Fannie are not without blame, THEY WERE NOT THE ROOT OF THE PROBLEM. So no matter what liars like Mike Spence try to sell the talking heads, it's flatly false and just a wheeze to deflect blame from Republican failures. Go read Redstate (take some Maalox to avoid immediate nausea) if you want to see how this pack of lies is jelling and beginning to be spun.
On the second point, the obvious partisan ploy is just stereotypical. If we expose the lies of blaming Freddie and Fannie, the attempt to blame the Democrats (though some certainly share in the blame) will fail.
We need to blister the MSM with e-mails debunking this canard ASAP or risk allowing the R's to deflect the blame of which the Lion's share is theirs.