Frank And Dodd Started The Mortgage Crisis, But Not For The Reason You Think

Many conservatives correctly identify Barney Frank and Chris Dodd for their part in the mortgage crisis. Unfortunately, many conservatives also erroneously place the majority of blame for the crisis on the Community Reinvestment Act. I feel that it's my duty to set the record straight.

While Frank and Dodd's tinkering with the CRA forced lending institutions to make a quota of bad loans that certainly contributed to the mortgage crisis, the primary cause of crisis was Frank and Dodd's push to reduce mortgage buying standards at Fannie Mae and Freddie Mac, who provide liquidity to mortgagees by buying the loans they (the mortgagees) make to the public. Before Frank and Dodd were able to pass legislation weakening Fannie and Freddie's buying standards, all mortgages purchased off the primary market by these two Government Sponsored Enterprises adhered to Federal Housing Administration standards, i.e. they were "prime" loans. But Frank, Dodd, and their cohorts "rolled the dice" in regards to subprime lending, and, in effect, drowned Fannie and Freddie with junk mortgage paper. In turn, Fannie and Freddie sold the junk loans to institutional investors, who happily bought them with cheap capital provided by the Fed. Attaching trillions of dollars of derivatives to the junk they bought, these investors (particularly the Big Banks) created a bona fide financial crisis.

Frank and Dodd, who are responsible for much of the economic misery we've been experiencing in this country over the past four years, are still unscathed by the disaster they caused. Dodd is CEO of the Motion Picture Association of America, and Frank is set to retire.

Seth Mason, Charleston SC