Quote:
Originally Posted by Calgaryborn
You could argue that if a regulation was in place that disallowed the banks from lending so freely that the crisis wouldn't have happened but, that wasn't the cause of the crisis. Bankers without regulation aren't so incompetent as not to see a bad risk. And even if some were the majority wouldn't follow.
The problem was Fanny and Freddy were willing to insure high risk debt for a small fee which freed the banks to lend more because they didn't have to cover those risks. This created a lending frenzy because with the government backing Fanny and Freddy they couldn't lose. One day in 2008 Fanny and Freddy quit insuring high risk loans. What brought down the banks was all the bad debt still in their system which they couldn't get covered by Fanny or Freddy. Covering those high risk loans ate up their lending capital. Since then even many of their sound loans have lost them money because of the huge drop in housing prices and high unemployment.
Fanny today is back asking the government for money. They need another 5.1 billon to cover last quarter's losses. That will put the government out over 100 billion and counting just with Fanny.
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The history of finance shows this to be untrue, perfectly normal sensible banks and people get caught up in bubbles and make dumb decisions regardless of the existance of Freddie and Fanny.