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Thursday, September 25, 2008

We come to bury Fanny and Freddie, not to praise them ...

So it turns out that Fannie and Freddie were the victims of the downturn, not the cause. They started losing market share to companies dabbling in sub prime loans, and eventually followed them in. Ezra:

In other words, Fannie and Freddie were private institutions with shareholders they were responsible to. The lending market changed, shifting away from the fairly safe mortgages they tended to buy. They lost market share. This is where government regulation or oversight should have intervened and kept them from changing their business strategy and buy low-quality loans to increase market share. It did not.

There's a good graph and explanation on this site:

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