Paul Krugman: Fannie and Freddie Are Not Good Things, But They Did Not Cause the Financial Crisis
Paul Krugman
Fannie Freddie Follies: Joe Nocera gets it right.
It’s worth noting, as Joe does, that when you hear the AEI guys asserting that Fannie and Freddie bought lots of “subprime and other high-risk” mortgages — which often gets truncated to assertions that they bought lots of subprime — you are being conned. There’s not much actual subprime in there, and the “other high-risk” turns out to be not all that high risk, and nothing at all like subprime.
But why did Fannie and Freddie have to be bailed out? Basically because they had virtually no capital, so that even though their losses as a percentage of assets were smaller than private institutions, the losses were still enough to put them underwater.
None of this is meant to defend what F&F did or how they behaved. But there’s no contradiction between the assertion that F&F were bad institutions run by bad people, and the assertion that they played no important role in creating the financial crisis. The widespread belief that they did play such a role is the result of an effective right-wing disinformation campaign, not serious analysis.
: http://krugman.blogs.nytimes.com/2011/12/20/fannie-freddie-follies/?smid=tw-NytimesKrugman&seid=auto&pagewanted=all
