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published online an interview with Congressman Barney Frank.In it, he called me a "real extremist." This name-calling was not only false but also inappropriate to the seriousness of the issue -- which is whether government housing policy, and not the banks or the private sector, caused the 2008 financial crisis.Before that time, these two government sponsored enterprises (GSEs) had been required to buy only mortgages that institutional investors would buy--in other words, prime mortgages--but Frank and others thought these standards made it too difficult for low income borrowers to buy homes.The affordable housing law required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.Of the 19.2 million subprime and low quality loans that were on the books of government agencies in 2008, 12 million (about 62%) were held or guaranteed by Fannie and Freddie.No one who has grasped the significance of these numbers--and there is much more data in my dissent--could believe that Fannie and Freddie were "not a major factor." It was the unprecedented number of delinquencies and defaults among these mortgages, as I noted above, that drove down housing prices all over the country and caused the financial crisis.
As a result, in 2008, before the mortgage meltdown that triggered the crisis, there were 27 million subprime and other low quality mortgages in the US financial system. Of these, over 70% (19.2 million) were on the books of government agencies like Fannie and Freddie, so there is no doubt that the government created the demand for these weak loans; less than 30% (7.8 million) were held or distributed by the banks, which profited from the opportunity created by the government.
In your view, what caused the mortgage crisis and subsequently the financial crash?
Congressman Frank, of course, blamed the financial crisis on the failure adequately to regulate the banks.
The data and my analysis led me to a conclusion that is exactly the opposite of Congressman Frank's: if it hadn't been for the government's housing policy, there would not have been a financial crisis.
In the presidential race, how would you grade Republicans' grasp of the history of the financial crisis, and would you say they're distorting it?
It is the government's fault for offering a housing finance program without making any effort to prevent the deterioration in mortgage underwriting standards.