A reader took issue with my post yesterday, McCain: How Not to Explain a Meltdown," in which I argued that McCain was wrong to blame Fannie Mae and Freddie Mac for the current crisis. "Anon666" wrote:
This article should read: How not to explain what McCain said....
He specifically laid the blame with BOTH the agencies AND "within our home loan system". To narrow that down to just Fannie and Freddie is to completely remove the facts from your story....
So the fact is that the blame SHOULD lie with BOTH the government agencies AND the with those who make up the financial sector, also known as the "system". Just as McCain correctly explained.
I will not argue that Fannie Mae and Freddie Mac are completely blameless is the current debacle, but as McCain made absolutely clear in his speech on economic affairs today, the Republican candidate is arguing that they were the primary bad actors. There is no ambiguity.
The financial crisis we're living through today started with the corruption and manipulation of our home mortgage system. At the center of the problem were the lobbyists, politicians, and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac.
These quasi-public corporations led our housing system down a path where quick profit was placed before sound finance. They institutionalized a system that rewarded forcing mortgages on people who couldn't afford them, while turning around and selling those bad mortgages to the banks that are now going bankrupt. Using money and influence, they prevented reforms that would have curbed their power and limited their ability to damage our economy. And now, as ever, the American taxpayers are left to pay the price for Washington's failure.
McCain's analysis is incorrect. The real center of this problem is the explosion of the market for unregulated credit derivatives and other complex financial products over the last ten years that allowed risk to be improperly repackaged as safety. These products were invented by the private sector and specifically excluded from government regulation by ppoliticiansfrom both parties.
And they did not perform as promised.