"Congresswoman Marcy Kaptur today blamed deregulation of the financial sector for the collapse of the housing market in the United States in 2008 and urged a congressional investigation into the crises at two prominent government-sponsored enterprises, Fannie Mae and Freddie Mac.
"Fannie Mae, known formally as the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corporation, were placed into conservatorship in 2008 during the global financial crisis.
"'Who drove the meltdown in the housing sector?' asked Kaptur, a member of the Budget committee. 'High-risk behavior in America's housing markets began during the early 1990s when deregulation of the private sector, which was pushed by some Members here in Congress, allowed the private sector to turn formerly-prudent loans into bonds, and then to securitize them into the international market in a manner that bore no relationship to their true value or to local real estate markets.'
"She said the two GSEs [Government-Sponsored Enterprise] were 'not the ball carriers in this game of market manipulationthat was Wall Streetbut they were very important receivers in this high-stakes hyperventilation of the mortgage market.'
"She said deregulation, culminating in the Gramm-Leach-Bliley Act, 'unleashed the speculators' that eventually pulled the market under. She is the author of H.R. 1489, the Return to Prudent Banking Act of 2011, that would reinstate the provisions of Glass-Steagall legislation that prohibited banks from engaging in both commercial banking and investment banking.
"'For our nation to dig itself out of the worst housing depression since the Great Depression, we must go back and unwind what happened and restore prudent standards,' she said.
"'I remember when the large commercial banks, and later speculative investment houses, applauded the demise of the staid thrift industry and its conservative mortgage lending practices as they hungrily sought after the housing market as a new national profit center,' Kaptur stated.
"'The private sector soon discovered that home mortgages were sleepy instruments with a 30-year horizon and therefore didn't yield the quick paybacks of commercial loans. So the big banks, along with their minions in the origination, servicing and ratings industries, figure out how to inflate their returns.'
"Looking back, she said, it is hard to understand how the industry could have placed so much faith in an untested private, global marketplace for housing finance. Fannie Mae and Freddie Mac then adopted high-risk practices themselves in becoming key agents to move this mortgage paper into international tranches."