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Faulty Conclusions Based on Shoddy Foundations

Faulty Conclusions Based on Shoddy Foundations

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David Min debunks Peter Wallison's claim, based on flawed data from Edward Pinto, that the federal affordable housing policies caused the financial crisis.
David Min debunks Peter Wallison's claim, based on flawed data from Edward Pinto, that the federal affordable housing policies caused the financial crisis.

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Published by: Center for American Progress on Feb 08, 2011
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07/10/2013

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Faulty Conclusions Basedon Shoddy Foundations
FCIC Commissioner Peter Wallison and Other Commentators Relyon Flawed Data from Edward Pinto to Misplace the Causes of the2008 Financial Crisis
David Min February 2011
 
Faulty Conclusions Based onShoddy Foundations
FCIC Commissioner Peter Wallison and OtherCommentators Rely on Flawed Data from Edward Pintoto Misplace the Causes of the 2008 Financial Crisis
David Min February 2011
 
1ct  a Pgss | uty cuss Bs  Sy uts
Introduction and summary
Te congressionally appoined and biparisan Financial Crisis Inquiry Commissionlas monh released is nal repor on he causes o he U.S. nancial crises inhe rs decade o he 21s cenury.
1
Tis careully researched repor provides a balanced and houghul explanaion o he causes o he recen nancial crisis, blaming a range o policies implemened by boh he Clinon adminisraion andhe Bush adminisraion. Like he previous sa repors issued by he FCIC, hisnal repor is excellen and well worh reading.
2
  Alas, his nal repor was issued only by a majoriy o he FCIC members, as heminoriy members released a dissen ha concluded a narrower se o issues,including ederal aordable housing policies, were he driving cause behind henancial crisis.
3
Noably, FCIC minoriy member Peer Wallison, a senior ellow ahe American Enerprise Insiue, a conservaive hink ank based in Washingon,D.C., issued his own separae dissen.
4
Based on work done by his AEI colleagueEdward Pino, Wallison concludes ederal aordable housing policies werehe driving cause behind he nancial crisis, causing a decline in underwriingsandards ha riggered he U.S. housing bubble.
5
  Wallison’s conclusion ha aordable housing policies were he proximae causeo he nancial crisis is inegrally based on he claim ha “[a]s a resul o [U.S.governmen housing] policies, by he middle o 2007, here were approximaely 27 million subprime and Al-A morgages in he U.S. nancial sysem—hal o allmorgages ousanding—wih an aggregae value o over $4.5 rillion.
6
How doesPino come o hese conclusions? Wallison succincly summarizes Pino’s ndingsin a January 3, 2011, Wall Sree Journal op-ed:
 By 2008 hal o all mortgages in the U.S.—27 million—were subprime and other high-risk loans. … Because o their aordable-housing requirements, [Fannie Maeand Freddie Mac] bore the risk o deault on 12 million o these mortgages. TeFederal Housing Administration (FHA) and other government agencies insuredor held an additional fve million. And banks under the Community Reinvestment  Act, and other mortgage providers under a Department o Housing and Urban

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