I continue to hear a number of commentators blame the entire collapse on Fannie Mae. Like the prior group of cads who tried to blame the collapse on the CRA, this one tends to come from political hacks seeking to avoid responsibility for their past errors.
There certainly are legitimate criticisms of the GSEs — they were cesspool of fraud and bad judgment — which is why we told clients in 2007 to short Fannie Mae. And several academics and independent analysts have excoriated Fannie for its failings, separately from and long before the economic collapse.
But I digress. Here is my Fannie Mae thought experiment:
The Facts: Its 1995, and the private securitization market has developed on its own. Fannie Mae looks around, and notices that they are not really all that necessary anymore. Wall Street had become a securitizer of not just mortgages, but student loans, credit card receivables, auto loans.
The Hypothetical Counter-Factual: So the CEO of Fannie announces they were going to sell off their mortgage portfolio, dissolve,, returning their capital to shareholders.
Question: Would the Housing boom and bust have occurred? What about the credit bubble? Derivative crisis? Abdication of lending standards? Leverage increases to Wall Street? Misaligned Compensation packages?
Unless your answer is NO to all of these, than its impossible to blame Fannie Mae for the collapse . . .
Fannie Mae Looks Like Hell (November 16th, 2007)
Fannie Mae: Ouch! (November 20th, 2007)
Fannie Mae and the Financial Crisis October 5th, 2008
CRA Thought Experiment (June 26th, 2009)
Who is to Blame, 1-25 (June 29th, 2009)