Sunday, October 23, 2011

Wall Street Vs. Government Responsibility for Economic Crisis

According to Investor's Business Daily, the percentage of responsibility for the subprime and nonprime mortgage crisis is pretty clear. Out of 27 million such mortgages, the government held 19.2 million: 12 million by Fannie & Freddie, 5 million by FHA, and 2.2 million with HUD and CRA loans. Wall Street held 7.8 million.

That would mean Wall Street bears 29% of the responsibility, while Washington bears 71%.

In a related piece, Gretchen Morgenson at the NYT notes a recent speech on needed financial reforms by Paul Volcker, former head of the Federal Reserve:

THE other area that cries out for change, Mr. Volcker said, is the nation’s mortgage market, now controlled by Fannie Mae and Freddie Mac, the taxpayer-owned mortgage giants.

“We simply should not countenance a residential mortgage market, the largest part of our capital market, dominated by so-called government-sponsored enterprises,” Mr. Volcker said in his speech. “The financial breakdown was in fact triggered by extremely lax, government-tolerated underwriting standards, an important ingredient in the housing bubble.”

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