The irony of the "subprime" situation, it seems to me, is that we probably all would have been better off if the GSEs had gotten into it in a big way. If the GSEs had been able to create a market in "vanilla" subprime–fixed rates, no prepayment penalties, careful documentation requirements, competitive pricing–and forced their seller/servicers into a "subprime box," the subprime loan market would have been a lot better off. The "pseudo-Maes and Macs" have never really been very good at providing the kind of market discipline within their purview that the real Mae and Mac have. But we wanted "innovation" and "choice" and "flexibility," not domesticated subprime and "alt" financing with low margins, uniform loan terms, and front and side airbags.
Here is much more, very interesting throughout. You can add Matt Yglesias, Atrios, and now Tanta at calculatedrisk.blogspot.com to the list of bloggers calling for nationalization.