THERE'S A REASON THE rIGHT BLAMES UPPITY BORROWERS...:

One conservative economist blamed Fannie Mae and Freddie Mac for making it possible for lenders to make "sloppy loans" since they "knew those mortgages could be bundled into securities and sold" to the two quasi-governmental entities. This stance is a popular one among conservatives, but it ignores a rush into housing that was global in nature, and that took place in countries where there was no Fannie or Freddie. After that, it's worth pointing out that housing soared in England even though the mortgage interest deduction was jettisoned there back in the 1980s. Housing boomed in Canada even though it's long been very difficult for borrowers to access home loans there.

Furthermore, the argument ignores the simple truth that a substantial majority of those allegedly "sloppy loans" performed. As Blackstone co-founder Stephen Schwarzman pointed out in his excellent new book, What It Takes, mortgage loan performance was over 90%. That it was is and was a statement of the obvious. Banks, precisely because they're not equity lenders, must issue loans that will be paid back.

They were in trouble not because the loans were generally sloppy, but because even a small percentage of bad loans can render a bank insolvent. Furthermore, it rates stress that even without Fannie and Freddie, demand for bundled mortgages was already extraordinarily high; as in even if Fannie and Freddie hadn't been size buyers of these securities, demand for them well outstripped supply as is. They were seen as safe. Banks and investment banks had lots of exposure to them precisely because they were seen as safe. John Paulson's billions are today evidence of just how safe they were seen to be. It only took a brief change in the perception about loans that largely performed for Paulson to make his fortune. 

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