Monday, January 17, 2011

Fannie Mae pumped the housing bubble full of hot air


"The Fed’s low interest rates, combined with Fannie and Freddie’s government-sponsored purchases of mortgages, made it highlyand artificially profitable to lend to anyone and everyone. The banks and mortgage companies didn’t need to be any greedier than they already were. When banks saw that Fannie and Freddie were willing to buy virtually any loan made to under-qualified borrowers, they made a lot more of them.

Greed is no more to blame for these bad mortgages than gravity is to blame for plane crashes.  Gravity is always present, just like greed. Only the Federal Reserve’s easy money policy and Congress’ housing policy can explain why the bubble happened when it did, where it did.