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Suspending Reality in the Housing Crisis

March 3, 2010

Adam Fowler for Adam Fowler’s Opinion Blog:

Given that one major source of the country’s current economic situation was nefarious activity in housing and mortgage lending, it’s not much of a surprise that one of the government-sponsored mortgage backers, Fannie Mae, recently reported a $72 billion loss for last year. It’s companion company, Freddie Mac, also posted a loss ($21.6 billion), though significantly less than Fannie. Part of that is simply because Freddie is smaller.

Both companies played a key part in encouraging risky home loans to those who, in the end, could not afford them. Over several years, government promoted the notion of home ownership and the availability of “affordable housing” for those who couldn’t really afford such a hefty long-term financial obligation. Many politicians touted home ownership to the detriment of reason — and despite the warnings of others. (Take for example this Fox News report from 2008 recapping the lead up to the sub-prime mortgage crisis.)

The result of this campaign for more home ownership was a host of foreclosures, a housing bubble accompanied by a burst and a crisis in the credit market that gave government another excuse to meddle in the economy to“solve” a problem it actually helped create. [More]

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