Quote:
Originally Posted by dippin
The FDIC has nothing to do with it, so I don't know what you are talking about there. Freddie and Fannie, while they had something to do with it, is far from being the main culprit.
Had it been about that, the bail out of Freddie and Fannie would have been enough to stop the crisis.
The problem that generated the crisis was strictly in the derivatives market and the underestimation of risk, in a system with a significant conflict of interest as the risk agencies are paid by those they are rating.
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You are right. I typed FDIC, but meant FED. Although, I did think that HUD and/or HNA loans are somehow backed by the FDIC. Is that not correct?
Bottom line, the FED kept rates low and in line with the prevailing banking AND political wind of the time - the politicians wanted people who couldn't afford them to buy houses. The FED enabled the behavior by keeping rates low and creating a huge amount of cheap, available money for people to use. The bankers knew they could just sell the loan and dump the mortgage on Freddie/Fannie, then take the same money and go sell another mortgage. Freddie and Fannie would buy those loans because there was big money in the fees and they knew they would be bailed out by the Federal government because it was the federal government who wanted people who couldn't afford them to buy houses. The derivatives guys knew they were too big to fail and had lobbied for years to have the government look the other way while they wheeled along.