[UnderseaLcpl]

The way I understand it is that Fannie Mae was created in 1938 or somewhere thereabouts to help provide housing for those who couldn't afford it by purchasing and offering subprime mortgatges, as a way to give banks an incentive to lend to those of little means. Though it was never profitable on a consistent basis, Fannie Mae continued to provide a market for subprime loans up until the housing market crisis in the late 70's, a smaller version of what we experienced. At that point, people began asking questions about the wisdom of using a government agency to operate in such a fashion in a free market, and Freddie Mac was established as a compromise, expanding the motrgage market but introducing a pinch of capitalism into the mix as a publicly-traded company.

This system wasn't a problem at the time, as the rate of subprime lending was fairly low, and the the Federal lenders could cover shortfalls, but with the influx of immigrants and speculation in the past 10 years, we were set up for a bubble to burst.

I see this as a failure of government, not of the market, as evidenced by the fact that Fannie Mae and Freddie Mac were the first to fall. If there had been no Fannie Mae or Freddie Mac there would be no significant subprime mortgage market and there would have been no house of cards to topple. Blaming the market for the crisis is like blaming electricity for taking the path of least resistance. If you're smart, you can make it work for you, but if you're foolish you'll get shocked.