Bogus Talking Point # 1

Fannie Mae and Freddie Mac caused the recession.
In this Business Week article the author refers to a Federal Reserve report that lists 5 causes of the crash. None of those causes were action by Fannie Mae and Freddie Mac. As the housing bubble grew, their position in the market became smaller and smaller. Most of the market was going to private institutions. It seems that the loans being generated failed to meet Fannie and Freddie standards. They can't take subprime loans by law. As they watched their market share fall they eventually began to play follow the leader by relaxing their requirements where they could. And in the end they were forced by market pressure to take loans that never should have been taken by anyone.

Without common sense regulation it is the nature of markets to have boom and bust cycles. The root cause is the human factor in that any manager who acts responsibly while the competition appears to be making huge profits as it heads toward a cliff finds himself without a job. In our system, profits are rewarded and prudence is usually punished.