Hey! Where did all that money go?

If you saw only the headline of this Wall Street Journal story, you’d be forgiven for thinking that the story pinned the blame for the credit crunch mostly if not solely on Fannie Mae and Freddie Mac:

Fannie, Freddie Share Spotlight in Mortgage Mess

Government-Backed Mortgage Giants Are Targets in Political Debate Over What Sparked the Housing Bust

And just to make sure you get the point, here’s the opening sentence:

Fannie Mae and Freddie Mac have become prime suspects in the political debate over who caused the mortgage meltdown.

However, if you actually read through the article, you find something a bit different (albeit sandwiched in between reams of Fannie-and-Freddie-are-evil-socialist-programs stuff):

Fannie and Freddie do share some of the blame for the mortgage and housing bust. They recorded a combined $14 billion of losses in the 12 months ended June 30, largely because they lowered their credit standards and purchased or guaranteed dubious home loans.

But "they weren’t the leaders in lowering credit standards," said Andrew Davidson, a mortgage industry consultant in New York who has done work for Fannie and Freddie and also criticized them for taking excessive risks. He noted that the worst-performing mortgages are those that were originated by subprime lenders and packaged into securities sold by Wall Street, rather than by Fannie and Freddie. And while loans for low-income people — programs championed by Democrats as well as many Republicans — have contributed to Fannie and Freddie’s losses, they aren’t the biggest part of the problem.

Now for some perspective:

Per the Murdoch-owned WSJ article, Fannie and Freddie had $12 billion in losses from July 1, 2007 to June 30, 2008. That is chump change compared to the trillions of dollars of losses incurred from the credit default swaps shell game, as looseheadprop pointed out the other day:

Matt Taibbi schools Byron York on the realities of CD swaps to debunk York’s regurgitation of RNC talking points that somehow the failure of some poor people to pay their mortgages on time could somehow swamp a market as huge as the US economy. CD swaps were bet on ALL kinds of securities not just mortgage backed securities.

The CDS market exploded over the past decade to more than $45 trillion in mid-2007, according to the International Swaps and Derivatives Association. This is roughly twice the size of the U.S. stock market (which is valued at about $22 trillion and falling) and far exceeds the $7.1 trillion mortgage market and $4.4 trillion U.S. treasuries market, notes Harvey Miller, senior partner at Weil, Gotshal & Manges. "

Got that? US Stock Market=approx. $22 trillion, Mortgage market = only $7.1 trillion

Swaps market????? more than $45 trillion. Gee, which of these is more likely to have been able to swamp the entire US economy? The biggish $7 trillion wave or the HUGE $45 Trillion tsunami?

Remember, gang: It takes a thousand billions to make a trillion. Fannie and Freddie didn’t bust the US economy, the credit default swaps did.

And need I remind everyone that when the Cons try to push the Fannie-Freddie Myth, it’s their way of blaming poor black and brown people for things that rich white people did?

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  4. Come Saturday Morning: Argument by Analogy
  5. The Downturn is Over for Wall Street, but Main Street’s is Still Going On