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Joe Nocera's New York Times article on the report of the Financial Crisis Inquiry Commission this past week is a wonderful example of the blindness to facts that can result from dogma. It has become a mantra of the Left that Fannie and Freddie followed Wall Street into subprime lending in order to gain market share and profit, not because of any government requirements. In a conversation in December, Nocera repeated this idea to me. I told him that my dissent, when it came out, would contain facts that showed this idea was incorrect.
After the report and my dissent were published last week, Nocera sent me an email asking for the pages in the dissent that supported my position and I told him which pages to look at. I can't tell whether he actually read what I directed him to, but if he did he had trouble assimilating the information. There is a lot of material there, showing beyond question that Fannie and Freddie were driven into insolvency by the loans they were required to buy because of the government's affordable housing policies, and that their motive was not to gain market-share or profit. Included in this information are statements by Fannie itself that say the firm bought risky loans because of the affordable housing requirements. Here, for example, is a statement from Fannie's 2006 10-K report, filed with the SEC:
We have made, and continue to make, significant adjustments to our mortgage loan sourcing and purchase strategies in an effort to meet HUD's increased housing goals and new subgoals. These strategies include entering into some purchase and securitization transactions with lower expected economic returns than our typical transactions. We have also relaxed some of our underwriting criteria to obtain goals-qualifying mortgage loans and increased our investments in higher-risk mortgage loan products that are more likely to serve the borrowers targeted by HUD's goals and subgoals, which could increase our credit losses.
This paragraph by itself destroys the long-standing narrative of the Left that Fannie and Freddie bought subprime and other high-risk loans in order to gain market share or profit. Other than wishful thinking or dogma-induced blindness, it is difficult to understand how Nocera could have read this statement and the associated material and still repeated in his column that "the two government-sponsored entities followed Wall Street and the subprime companies off the cliff." Go figure.
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