Were the republicans or democrats most responsible for approving sub prime interest rates by Freddie Mac and Fannie Mae thus causing financial collapse?

Answer 1

It is not the sub-prime interest rates which are key here, but the qualifications of the borrowers. I used to work in real estate, and, in order to buy a house, your credit history, your job stability, and your verifiable income were key issues in order to obtain a loan.

During the end of the Clinton administration, these qualifications were relaxed considerably where people could simply state what their income was and, if they were first-time buyers or minorities, they could get a home loan with shaky credit

Also, a down payment requirement was waved in many cases. I had tenants who were on section 8 housing (the government paid the bulk of their rent for them). The government then offered to match whatever they had paid me, and allow them to use this money to purchase a home. So, without saving money, the government pretended that they saved money and gave it to them to buy a house with.

During the Bush administration, the housing market soared, which had a lot to do with the powerful economy under George Bush. Of course, as a million or more new homeowners came into the market suddenly, this drove housing prices sky high. So, as an example, a house might be selling for $100,000 but then there are suddenly 10 people who want to purchase this house. Some of them are going to offer more than $100,000.

As more and more people became aware of these loans and how easy they were to obtain, more flooded the market, and this sent housing prices through the roof.

At the same time, many homeowners saw that their house was now worth twice what they paid for it, so they refinanced their house and took money from the closing and spent it, also driving the economy.

So, President Bush could have stepped in and said, "People of the United States, this great boom time we are in could end at any time, because this is all based upon artificially high housing prices, which will crash." He did not do this. Remember, all of this meant additional revenues for the government and a strong Stock Market. So everyone was happy with the economy.

Bush did go to Congress and questioned the stability of FNMA and FHLMC (Fannie Mae and Freddie Mac), and he was told in no uncertain terms, by Democrats running these institutions, that everything was fine.

So, the lion's share of the blame is to be placed on Democratic policies which started this bubble off; with a reasonable amount of blame to the Bush administration for not stopping it. However, can you imagine what would have happened if President George Bush said, "I know we are in great economic times right now, but I want to stop it, and we are going to experience some economic pain as a result"? I venture to say that few politicians would have been willing to be that honest with the people of the United States.