Pardon me for interjecting on my break, but I see an issue here.
And yet none of it would have been a problem if those finance companies and their investors were left on the hook for the results of their actions
This would be a true statement if the nature of the game they were playing contained the risk to two counterparties. That's not the case for two reasons: 1. toxic debt was chopped up and spread around to a load of institutions that had no idea what was in them. 2. these securities were heavily levered. Once one institution blew up, those who were counterparty to its liabilities also blew up. The damage was already done before the government stepped in.
one cannot possibly understate the role that government agencies Freddie and Fannie played in encouraging, practically even demanding that lenders make these ridiculous loans.
One can certainly overstate the role that GSEs played. Without a doubt, Fannie and Freddie did play a role in the fiasco. But how much? Can you tell anyone here?
Technically (and largely a moot point but I'll say anyway), GSEs were not allowed to make subprime loans, though they irresponsibly bent the boundaries of their charters to get some in. Regardless, I think their liabilites, and those acting according to HUD, were somewhere along the lines of 1/5 of the entire subprime market if I remember right. There was plenty of private capital out there, flush with liquidity due to prolonged low interest rates, that was playing in that market.
no subject
And yet none of it would have been a problem if those finance companies and their investors were left on the hook for the results of their actions
This would be a true statement if the nature of the game they were playing contained the risk to two counterparties. That's not the case for two reasons: 1. toxic debt was chopped up and spread around to a load of institutions that had no idea what was in them. 2. these securities were heavily levered. Once one institution blew up, those who were counterparty to its liabilities also blew up. The damage was already done before the government stepped in.
one cannot possibly understate the role that government agencies Freddie and Fannie played in encouraging, practically even demanding that lenders make these ridiculous loans.
One can certainly overstate the role that GSEs played. Without a doubt, Fannie and Freddie did play a role in the fiasco. But how much? Can you tell anyone here?
Technically (and largely a moot point but I'll say anyway), GSEs were not allowed to make subprime loans, though they irresponsibly bent the boundaries of their charters to get some in. Regardless, I think their liabilites, and those acting according to HUD, were somewhere along the lines of 1/5 of the entire subprime market if I remember right. There was plenty of private capital out there, flush with liquidity due to prolonged low interest rates, that was playing in that market.