>Thanks to the repeal of glass-steagall and the rule changes applied to Freddie/Fannie those securities grew exponentially
>
>But who lobbied for the repeal of that act? The banking industry. Who provided "evidence" to demonstrate that such legislation was no longer needed? The banking industry. Who proposed itself as a reliable manager of the market with natural checks and balances based on competent self-interest? The banking industry. Having got what it wanted, who then proceeded to behave contrary to the claims they had made about their own competence and ability? We all know the answer.
>
>If government made a mistake it was to listen to the banking industry and believe the tales of competence, ability and free-market theory they trotted out. Maybe it also was a mistake to listen to the politically powerful Freddie/Fannie executives and to be concerned about voters wanting to buy a house. But to suggest that government is responsible for misbehavior of people who promised that they could be trusted and did not need to be watched by a security guard all the time but abused the privilege as soon as they were given a chance to prove themselves, is not tenable.
>
>Based on the above, the most competent government behavior today is NOT to trust or listen to the banking industry. A cynic might suggest that the most competent course would be to seek advice from the banking industry and then do the exact opposite of whatever they advise. ;-)

I will grant that the banking industry lifted the shovel that dug the grave. However, it was the government (beginning with the Clinton administration) that gave them the shovel and insisted they use it:

Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.

For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.



http://online.wsj.com/article/SB122298982558700341.html

We have all heard the speeches by two presidents on how the goal is for every family to have the american dream of home ownership (whether they could afford it or not). Those special 'affordable loans' turned out to be not so affordable after all.