One of the more puzzling reactions to the global financial meltdown has been the tendency to demonize the government-sponsored agencies, Fannie Mae and Freddie Mac, with an intensity that seems to grow with the crisis itself. It seems to be seeping its way into standard Republican talking points (and duly parroted by their Fox News acolytes), with the notion that the nefarious Democrats instructed these agencies to make loans to poor people and minorities who would never be able to repay.
As newly-minted Nobel laureate Paul Krugman pointed out a few months ago, this is hogwash, as Fannie and Freddie largely sat on the sidelines during the explosion of high-risk lending and the weakening of credit standards that took took place between 2004 and 2007. Now, a new study backs this up, showing that more than 84 percent of the subprime mortgages were issued by private lending institutions, and that the private sector made nearly 83 percent of the subprime loans to low- and moderate-income borrowers. Despite the clear problems with the agencies, tighter regulation served a valid purpose.
Another scapegoat dragged out by those who can’t resist blaming the poor and minorities for the crisis is the 1977 Community Reinvestment Act (torture supporter Charles Krauthammer has been pushing this one). See here for a debunking. In short, the timing is wrong, only a small minority of subprime loans came from entities covered by the act, and the most dangerous lending was made precisely by those entities not subject to the act. But then again, why should facts get in the way of ideology?
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