The housing bubble traces to private securitization, not government GSE lending
Evidence
The GSEs had been getting prodded by members of Congress to purchase more subprime; but mostly, the “advice” came too close to the pricking of the housing bubble. There has been substantial dispute over just how much subprime and Alt-A loans Fannie and Freddie hoovered up in this narrow window; but a major riposte to the neoliberal story “The Democrats Made Them Do It” is that neither GSE touted a change in policy, but if anything, tended to underreport these activities. This is one primary reason most outside analysts trace the housing bubble to the private sector, and in particular, specialized subprime originators such as Countrywide and Ameriquest and the banking firms that repackaged them into baroque securities; it even corrupted profitable subsidiaries of “industrial firms” such as GMAC and GE Capital; consequently, “the biggest factor contributing to the subprime boom was securitization.” Another argument against the neoliberal story is that there was in parallel a bubble in commercial real estate, which had nothing whatsoever to do with the GSEs. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 888
Categorization
- XREF: Connects to the post-2008 blame-consensus debate — Tea Party ‘Fannie and Freddie Did It’ narrative vs. left/analyst accounts blaming private securitization. — connects to: Loan securitization concentrated risk rather than eliminating it. — Mark Blyth, Austerity: The History of a Dangerous…, 80; The Eurozone crisis was private, not public, debt — Mark Blyth, Austerity: The History of a Dangerous…, 190; European banking crisis was mostly private-sector exposure, not sovereign over-spending — Mark Blyth, Austerity: The History of a Dangerous…, 240 (+7 more)
Broader Connections
- Cheap credit migrated from the dot-com bubble to the housing bubble
#expands(0.78) — Andrew deWaard, Derivative Media, 83 - Securitization transforms debt from a personal bank relationship into an abstract market connection
#expands(0.75) — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 46 - Securitization erased the functional boundary between commercial and investment banking
#expands(0.72) — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 47 - Securitization made bankers believe dispersion minimized risk
#expands(0.72) — Yanis Varoufakis, Technofeudalism, 181