Paul Krugman puts an end to the right wing lie that the housing bubble was caused not by lack of regulation, but by the Community Reinvestment Act, a "do-gooder" effort to make home ownership more available to lower income families.
Some readers have asked for data showing that Fannie and Freddie did not play a key role in the housing bubble. Mark Thoma has a good picture, link here [shown above].You'll still hear the story, though, because stories is all they have.
The two lines to track are the ones at the top. One shows the share of mortgages accounted for by S&Ls, the other the share accounted for by agency-backed pools — i.e., Fannie/Freddie mortgages. Fannie and Freddie did get very big in the 90s, basically filling the hole left by the S&Ls. But they pulled back sharply after 2003, just when housing really got crazy.
So who drove the bubble? The blue line, “asset-backed securities issuers.” Notice, by the way, that these were not depository institutions — and therefore not subject to the Community Reinvestment Act.
Once again, the whole Fannie/Freddie/liberal mandates story is phony.
By the way, did you see Krugman's slap-down of George Will's revisionist "story" of the Great Depression?
It's morning in America. Policy based on facts is coming back!
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