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Introduction and summary
Te congressionally appoined and biparisan Financial Crisis Inquiry Commissionlas monh released is nal repor on he causes o he U.S. nancial crises inhe rs decade o he 21s cenury.
Tis careully researched repor provides a balanced and houghul explanaion o he causes o he recen nancial crisis, blaming a range o policies implemened by boh he Clinon adminisraion andhe Bush adminisraion. Like he previous sa repors issued by he FCIC, hisnal repor is excellen and well worh reading.
Alas, his nal repor was issued only by a majoriy o he FCIC members, as heminoriy members released a dissen ha concluded a narrower se o issues,including ederal aordable housing policies, were he driving cause behind henancial crisis.
Noably, FCIC minoriy member Peer Wallison, a senior ellow ahe American Enerprise Insiue, a conservaive hink ank based in Washingon,D.C., issued his own separae dissen.
Based on work done by his AEI colleagueEdward Pino, Wallison concludes ederal aordable housing policies werehe driving cause behind he nancial crisis, causing a decline in underwriingsandards ha riggered he U.S. housing bubble.
Wallison’s conclusion ha aordable housing policies were he proximae causeo he nancial crisis is inegrally based on he claim ha “[a]s a resul o [U.S.governmen housing] policies, by he middle o 2007, here were approximaely 27 million subprime and Al-A morgages in he U.S. nancial sysem—hal o allmorgages ousanding—wih an aggregae value o over $4.5 rillion.”
How doesPino come o hese conclusions? Wallison succincly summarizes Pino’s ndingsin a January 3, 2011, Wall Sree 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 aordable-housing requirements, [Fannie Maeand Freddie Mac] bore the risk o deault 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