In a just-released book, former FCIC member Peter Wallison says that a Democratic Congress worked with the commission’s Democratic chairman to whitewash the government’s central role in the mortgage debacle. The conspiracy helped protect some of the Democrats’ biggest stars from scrutiny and accountability while helping justify the biggest government takeover of the financial sector since the New Deal.
Everything old is new again. The financial crisis was caused by a dirty crony capitalist partnership. The financial institutions took the blame for government and got bailed out. And now we’re doing the time warp again.
Government policies encouraged the granting of mortgages to non-creditworthy homebuyers, and government-sponsored enterprises Fannie Mae and Freddie Mac funneled securities laced with high-risk mortgages into major financial institutions. When house prices suddenly and unexpectedly dropped in 2007, these mortgage-backed securities became unsellable and the financial crisis quickly followed.
Wallison traces the policy mistake back to 1992, when Congress passed a law requiring the GSE’s to purchase a certain percentage of its mortgages granted to low- and moderate-income homebuyers–30 percent originally, later adjusted up to 56 percent by the Department of Housing and Urban Development.
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