Killing Zombies: Freddie and Fannie didn't cause the mortgage crisis....

A Zombie lie is one that keeps being told long after it has been debunked.
One of the hardest to kill Zombies is the “fact” that Freddie and Fannie caused the mortgage crisis; you see they forced those honest banks to lend to lowlifes who could not afford the houses.

How do they (the conservatives) get away with telling this over and over? They lie; they bundle all of the “poor peoples mortgages” together and say that AS A GROUP, they were responsible for the crisis. And since they count Freddie and Fannie in that group, well, there you go.

The problem is that this is nonsense:

Wallison and Pinto claim that the GSEs were responsible for half of all subprime and subprime-like mortgages. They do this by making up a confusing definition of “subprime-like,” what above is mentioned as their “and other high-risk” mortgages.

The fun part of making up your own definition is that it can be whatever you want it to be. If we define a conventional loan made to a borrower with a FICO credit score between 620 and 660 as a “leprechaun” and a loan with a cash down payment of less than 10 percent as a “unicorn,” we can say that Fannie and Freddie was responsible for half of all leprechauns and unicorns under oath and while serving on the FCIC.

Now instead of a leprechaun they’ve created the definition of “subprime by characteristic” and instead of a unicorn they say “Alt-A by characteristic,” for the numbers mentioned above. This is a definition nobody in the financial markets use.

The three-card monte trick is pretty straightforward once you know where to watch. There’s a lot of statements that go: “Fannie and Freddie made a lot of subprime loans and other high-risk mortgages. And subprime loans had a 25% default rate!” And you naturally assume that the other high-risk loans must also have a gigantic default rate compared to regular mortgages. Except they don’t. From Min’s paper (p. 8): [...]

Surf to the blog post to read the rest.

Remember: the banks made these risky loans (the not-as-regulated ones) because of greed; they were going by the axiom “property values always go up”. Hence if the property defaults…well, “win-win”, right?

Remember: conservatives have their minds made up in advance; they then cherry pick and twist and…well…make stuff up to support their “common sense” positions. Ironically, when it comes to intellectual honesty and rigor, they are the analogues of some of the leftist activists that they despise (radical feminists, Afrocentrists, new age medicine types, etc.).

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