Government intervention is partially to blame

I am torn as to whether or not the government should be getting into this mess. I agree that the plan to buy these bum mortgages off the books of financial institutions will clean up a bit of the mess and get the credit flowing again; but, its hard for me to swallow more government intervention, as it is partially to blame for this whole mess. All the politicians want to put the blame on "greedy" Wall Street, but it was Fannie Mae and Freddie Mac, government created entitities, who packaged these garbage mortgages into securities, with a good credit rating. Wall Street got wrapped up in this by investing in these toxic securities, lacking the foresight to see the housing bubble come caving in later.

On the other hand, they created it, why shouldn't they "bail" out the market? They claimed that EVERYBODY (or at least many many more people) needed to own a home. The government decided that they needed to put their hand somewhere it shouldn't be. This gross invasion of people's private lives has created a giant welfare state, which will continue to tax those who can pay (more and more), and give it to those who are entirely dependent on the United States for their survival. What happens when Big Daddy (not Uncle) Sam defaults?

Read this article, from 1999, which applauds the government's initiatives to put people in houses who couldn't afford it: http://articles.latimes.com/1999/may/31/news/mn-42807 . Very informative.

"Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more."

"In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. It has aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That’s made banks willing to lend to lower-income families they once might have rejected."