Federal subsidies created the housing bubble that triggered the financial crisis, four Republican members of the Financial Crisis Inquiry Commission (FCIC) report in a ‘financial crisis primer‘ issued Wednesday. The report was released ahead of the FCIC's official report to Congress and President Obama, which will be made public next month.
The FCIC, which was established under the Fraud Enforcement and Recovery Act of 2009, has interviewed more than 700 witnesses during its more than year-long investigation into the causes of the financial crisis. The four Republican commissioners – former Rep. Bill Thomas, Keith Hennessey, Douglas Holtz-Eakin, and Peter Wallison – note that their report does not constitute the FCIC's official report, but rather, ‘is an effort to reflect the clear intention of our enabling legislation.’
Affordable-housing goals supported by the Clinton and Bush administrations outgrew government-sponsored enterprises Fannie Mae and Freddie Mac, leading the GSEs to invest in mortgages of increasingly lower quality, the commissioners write.
‘[T]rying to get something for nothing – to subsidize homeownership without increasing the budget deficit – was a recipe for a crisis,’ the report states. ‘The government, in effect, encouraged the GSEs to run two enormous monoline hedge funds that invested exclusively in mortgages and were implicitly backed by the U.S. taxpayer.’
House Speaker-designate John Boehner, R-Ohio, lauded the commissioners' decision to issue their independent report.
"This eye-opening report details how government mortgage companies played a pivotal role in the financial meltdown by handing out high-risk loans to families who couldn't afford them’ Boehner said in a statement.
SOURCES: FCIC, Office of Rep. John Boehner