FDRs boondoggles

'Fannie Mae was a child of the Great Depression.

The Federal National Mortgage Association was set up in 1938. A government agency, its job was to buy home loans from mortgage providers.

The mortgage providers would use the money they received from Fannie Mae to make more home loans. Freddie Mac, set up in the late 60s, did the same thing.

But once Fannie and Freddie held all these mortgages on their books they had to do something with them.'

http://news.bbc.co.uk/1/hi/business/8239033.stm

Ok, I'm having a blonde day. From that description, it sounds like mortgage lenders could lend to people at NO RISK TO THEMSELVES. They hand off the responsibility to Fannie & Freddie, and its off to town with the loot. Surely nobody would set up something that stupid? The existence of a mechanism that takes risk OUT of financial dealing for a large, greedy group of people is automatically a risk to the financial system. That it took until 2008 for the birds to come home to roost is a testament to the generally good moral state of America.

'In plain language, these twin pillars of the mortgage market were being nationalised.' Praytell, how do you nationalise a government agency again?

Some people have tried to blame the Community Reinvestment Act (CRA) for the crisis at Freddy/Fannie, but there is no need to go to those lengths. The very concept of removing from lenders the natural risk of default is enough to produce over time a catastrophically large number of unwise loans. After all, the US taxpayer will pick up the tab, right? So thank you, Franklin Delano Roosevelt, for another disastrous, depression-prolonging boondoggle that almost brought down the financial system of America. You are lucky you were on the right side of WWII, or you would be remembered as the economically-challenged socialist you were.