[quote=briansd1]The GSEs hardly CAUSED the crisis. The privately issued mortgages CAUSED the crisis.[/quote] I agree that the GSEs’ share of the market dropped during the peak of the bubble, so the GSEs can’t be said to be the sole cause of the crisis. I never said they were the sole cause; but they were part of a system with perverse incentives that ultimately created the housing bubble and subsequent financial crisis.

In any case, a drop in market share from 70% to 40% meant that still $0.40 out of each $1.00 of MBS were issued by the GSEs (at the peak). So, while not the sole cause of the crisis, they had a hand in it. Also, note that house prices started to inflate since at least 2001, if not earlier (the GSEs share of MBS issuance had been increasing since the housing market last bottomed in 1997).

That’s why I wrote earlier that there were two sides: the GSEs, and the privately issued MBSs. The latter needed the rating agencies to give A+ ratings to the senior tranches of bundles of subprime loans. The former only needed Uncle Sam’s implicit guarantee.