At the height of the campaign season, House Oversight Committee chair Henry Waxman (D-CA) held a number of hearings on the burgeoning financial meltdown including investigations into the bankruptcy of Lehman Brothers, the bailout of AIG, The Breakdown of Credit Rating Agencies, and The Role of Federal Regulators. The purpose of all of these hearings was to blame deregulation and Wall Street greed for the markets downturn. Not until the election was safely over did Waxman manage to hold a hearing on the role government intervention played in the disaster. But yesterday, that hearing finally happened when the Oversight committee grilled four former executives of Fannie Mae and Freddie Mac. Waxman explained:

The documents make clear that Fannie Mae and Freddie Mac knew what they were doing. The documents make clear that Fannie Mae and Freddie Mac knew what they were doing. Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market. But these warnings were ignored. … Their irresponsible decisions are now costing the taxpayers billions of dollars

But liberals on the committee still have not learned the right lessons from Fannie and Freddie’s failure. The AP reports:

Democrats acknowledged that the government-sponsored companies contributed to the crisis. But they stressed that Wall Street banks, not Fannie and Freddie, led the dramatic decline in lending standards.

This is simply not true. It was Fannie and Freddie that led the market into riskier loans. Witness the success of Fannie’s partnership with Countrywide Financial. For decades Countrywide Financial was a largely unsuccessful firm that was only re-listed on the New York Stock Exchange in 1985. But between 1985 and 2003 Countrywide delivered investors a 23,000% return, exceeding the returns of Washington Mutual, Wal-Mart, and Warren Buffett’s Berkshire Hathaway. How did they do it? This 2000 report by the Fannie Mae Foundation provides a clue:

Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. …

When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs.

In other words, Fannie and Freddie favored lenders like Countrywide that had irresponsible lending practices. In fact, Fannie Mae was Countrywide’s biggest customer. Thanks to its loose lending practices and backing of Fannie Mae, Countrywide became the largest mortgage lender in the country. In 2006, it financed 20% of all mortgages in the United States — 45% of which were subprime. Fannie and Freddie’s subprime business was not isolated to Countrywide.  Fannie and Freddie noth bought subprime securities since 1995, and by 2004 they were purchasing $175 billion worth of such securities a year, or 44% of the entire market. From 2003 through 2006 Fannie and Freddie bough more than a half trillion dollars in subprime securities. That is more than any other purchaser in the entire world.

Unfortunately the left still wants to use Fannie and Freddie to prop up home prices. With the left in power, one wonders why they should bother to continue paying their own mortgage.