"A lie gets halfway around the world before the truth has a chance to get its pants on." - Winston Churchill

Apparently via George Will's cherry-picking a new book on the finanical crisis, the "Fannie Mae and Freddie Mac (and Community Reinvestment Act and Democrats) caused the financial crisis" fairy tale is finding new currency.  Pushing this phony narrative is of utmost importance for the right because it puts government rather than Wall Street at the center of the ugly story that's caused the country so much pain.

We went through this fraudulent "history" at the rarified levels of polite parlor conservatism already with David Brooks parroting the nonsense that generally emanates from crazy old Know-Nothings with tea bags taped to funny hats.

Now it's George Will, whose words will be echoed "halfway around the world" in certain ideological and intellectually vulnerable circles before they are countered. Certainly Will's pronouncements have more cachet than a guy holding a hand-lettered sign at a Michele Bachmann rally or  the ravings of one of the usual suspects on FOX News. Will's voluminous commentaries are larded with the Ivy League erudition of 19th Century historical references and lots of Winston Churchill quotes.

Will once wrote "A politician's words reveal less about what he thinks about his subject than what he thinks about his audience." Apparently - given Will's willfull misrepresentations, aka Big Lies, regarding Fannie, Freddie and the CRA - this applies to pundits as well. George Will thinks his readers are as ignorant and eager to swallow fabrications based on his long-standing ideological resentments as the Tea Partiers he echoes. 

We'll let Dean Baker at Council for Economic and Policy Research do the necessary debunking:

It really is incredible to see such a concerted effort to rewrite history in front of our faces. There is not much ambiguity in the story of the housing bubble. The private financial sector went nuts. They made a fortune issuing bad and often fraudulent loans which they could quickly resell in the secondary market. The big actors in the junk market were the private issuers like Goldman Sachs, Citigroup, and Lehman Brothers. However, George Will and Co. are determined to blame this disaster on government "compassion" for low-income families.

The facts that Will musters to make this case are so obviously off-base that this sort of column would not appear in a serious newspaper. But, Will writes for the Washington Post.

The first culprit is the Community Re-investment Act (CRA). Supposedly the government forced banks to make loans against their will to low-income families who did not qualify for their mortgages. This one is wrong at every step. First, the biggest actors in the subprime market were mortgage banks like Ameriquest and Countrywide. For the most part these companies raised their money on Wall Street, they did not take checking and savings deposits. This means that they were not covered by the CRA.

Let's try that again so that even George Will might understand it. Most of the worst actors in the subprime market were not covered by the CRA. The CRA had as much to do with them as it does with Google or Boeing.

The second CRA problem is many of the worst loans would not have been covered even if the institution was. Many of the worst loans were made to finance homes purchased in newly created exurbs. The CRA is about having banks make loans in inner city areas where they take deposits. So we have the wrong location and wrong institutions for the George Will story.

Step 3, the big subprime issuers (Ameriquest, Countrywide, New Century, IndyMac) were making money hand over fist on their subprime mortgages. Their profits and stock prices soared in the peak years of the housing bubble. Does George Will think that bankers need government bureaucrats to tell them to make money?What sort of free market believer is he?

Finally, the CRA has no enforcement power. In the worst case the government tells you that you have been a bad boy. If a bank wants to merge, they may be forced to pledge to do better in the merged company. (With the pledge generally being unenforceable.)

So we have banks that are not covered by the CRA, being forced to make loans that are not covered by the CRA, which were hugely profitable, by a rule that had no enforcement mechanism. Welcome to the world of George Will logic.

The beating up on Fannie Mae as the main cuplrit in this story is similarly short on logic. Fannie Mae and Freddiie Mac lost market share at an incredibly rapid pace in the peak bubble years precisely because they were not buying the worst of the junk. That was going to the private investment banks.

This is not a secret. They did start to get into the junk market late in the game in 2006, precisely because they were losing market share.

Here's what Moody's had to say about Freddie Mac in their December 2006 assessment:

“Increasing Market Share

Freddie Mac has long played a central role (shared with Fannie Mae) in the secondary mortgage market. In recent years, both housing GSEs have been losing share within the overall market due to the shifting nature of consumer preferences towards adjustable-rate loans and other hybrid products. For the first half of 2006, Fannie Mae and Freddie Mac captured about 44 percent of total origination volume -- up from a 41 percent share in 2005, but down from a 59 percent share in 2003. Moody’s would be concerned if Freddie Mac’s market share (i.e., mortgage portfolio plus securities as a percentage of conforming and non-conforming origination), which ranged between 18 and 23 percent between 1999 and the first half of 2006, declined below 15 percent. To buttress its market share, Freddie Mac has increased its purchases of private label securities. Moody’s notes that these purchases contribute to profitability, affordable housing goals, and market share in the short-term, but offer minimal benefit from a franchise building perspective. (p 6).”

This puts things about as clearly as they possibly could be. Moody's was concerned that Freddie (the same applied to Fannie) was losing market share to the private issuers because they were not big actors in "adjustable-rate loans and other hybrid products [i.e. junk]." However, they were cheered by the fact that Freddie was moving in this direction. In other words, the private issuers were very clearly the big actors and Fannie and Freddie were jumping in as a business decision to preserve market share. In other words, it was profit, not government compassion that drove this bubble.

Just to be clear, Fannie and Freddie were horrible actors in this story. I criticized them throughout this period and raised the possibility of these two mortgage giants being sunk by the bubble as early as 2002. Housing is all they do, how could they have totally missed the largest housing bubble in the history of the world?

There were also numerous cases of some really seriously misguided "compassion." There were many community groups and foundations touting the rise in homeownership even when it should have been apparent that this increase was being driven by people were using junk mortgages to buy homes at bubble-inflated prices...

But it is a tremendous re-write of history to blame misguided do-gooders for the core problem. Good old-fashioned capitalists were making money hand over fist and they were doing it largely without government support, except for the implicit too-big-too fail (TBTF) guarantees that ensured that outfits like Citigroup and Bank of America would survive no matter how reckless they had been. If Will wants to blame the government because of the implicit subsidy of TBTF then he has somewhat of a case. But the argument in this article belongs in the fiction section.

If you want to dig deeper into this fabrication, Mark Thoma at "Economists View" has more on the Will column, HERE.  And find even more on the bogus Fannie/Freddie/CRA angle HERE and HERE. There's not really much room for debate over this notion of Fannie and Freddie or CRA's pushing home ownership for poor people as the villains behind the worst financial crisis since the Great Depression. It's simply not true. But it's become an ideological Teddy Bear for intransigents who fear the facts of this massive market and regulatory failure.

Will went down this road of gross misrepresentation at least once before on the central facts of a critical issue when he started pushing climate change denialism, so in this "Fannie and Freddie's fault" column we're being treated to a pattern of Will's putting his ideology, resentments and disdain for readers over any attempt at intellectual or even factual integrity.  It's little more than the idiocy of the Tea Party filtered through an Oxford English Dictionary.