How much did Fannie and Freddie cause the financial crisis?

Rortybomb summarizes some of the “not much” case (piling on here); see also Brad DeLong, Paul Krugman, David Min, and others.  He wonders what the non-spinners think and I will tell him what I think:

1. It is not denied that the mortgage agencies were guaranteeing about half of all U.S. mortgages right before the crisis  (Yet somehow they had not so much to do with the crisis?)  And the crisis was not just about subprime.  The mortgage market remains screwed up to this day, with no clear end in sight.

2. There is also the more ambitious claim — not necessarily true but not obviously dismissable either — that leverage would have been much, much lower in American real estate markets without the mortgage agencies.  It is hard to judge such counterfactuals, but arguably lenders would have demanded more money down and offered fewer 30-year fixed rate mortgages.

3. Arnold Kling has a good response to the delinquency chart which is circulating.

4. Following the crisis, banks recovered and paid back virtually all of their bridge/bailout.  The mortgage agencies remain hundreds of billions in the red.  And yet the agencies had not much to do with the crisis?

5. It is wrong to suggest that the agencies caused the crisis in the sense that I will cause myself to eat breakfast cereal this morning.  One can debate which weaker notion of cause might be appropriate, but I will just say that the mortgage agencies made the crisis much, much worse.

I don’t yet see that the counters to Wallison and Co. should budge me from this position.  I would prefer that they start by acknowledging (or challenging) #1 and #4 and then trying to talk their way back to what they see as the truth.  As it stands, I see a lot of “devalue and dismiss” being applied to the messengers, rather than focusing on what the agencies did or did not do in the broader scheme of things.  From my quiet sofa seat in Fairfax, VA, it ain’t a pretty picture.


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