The Mae and Mac Mess

I somehow nearly missed this Tyler Cowen crushing of the argument that Fannie and Freddie did not play a major part in driving the financial crisis:

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.

An excellent summary. I don’t see how anyone can even dispute #2. I mean, wasn’t that more or less the explicit purpose for their existence?

Also, Megan has linked the working papers by which they attempted to ease credit via securitization. They led, the market followed.