"Fannie and Freddie are definitely culpable in this...their mandate was to help people get mortgages for less interest, and those mortgages should have stayed in house, not sold to make money which is beyond their mandate. Besides, W himself has proclaimed promoting homeownership to be within the scope the government, so maybe some government subsidy to keep the loans in house would be in order, if you agree with him."
-a message I wrote to AM several weeks ago, in response to an article blaming the C.R.A./Fannie and Freddie for the crisis. I recently found out that Terry and I came independently to this same conclusion. I would modify my response slightly to acknowledge that the mortgage giants' hands were tied: they had to trade in these mortgages to raise capital to make new loans. If we as a country believe we should be promoting homeownership to underrepresented groups, then the capital should come from a combination our subsidy, i.e. taxes, and low-risk investment. The C.R.A. in and of itself is not necessarily a bad thing, but its intersection with bad policy had an outcome that contributed to our current global economic predicament.
Question: now that the crisis is really taking off overseas as well, were there similar government-backed mortgage giants engaging in risky behaviors in other countries, as well? I heard that the mortgage and housing culture abroad is much different; most mortgages have shorter terms and rates pegged to an inflation index, which limited the market for them. If that's the case, and there wasn't a player like Fannie/Freddie, were all these toxic securities American-made?
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