Short answer: No.
Longer answer: Look at the chart, which comes from the Financial Crisis Inquiry Commission report, page 124.
In the years that the credit bubble was distending, Fannie and Freddie together never represented a majority of the demand for securities made up of "subprime" mortgages.
Nor did either of these two "GSEs" (government-sponsored enterprises) ever comprise a majority of the demand for "Alt-A" mortgage securities -- often, investments backed by mortgages for people with good credit who still couldn't afford the house they were buying. (If I'm making $75,000 a year and have great credit, I can afford a house; I can't afford an $800,000 house. Hence, an Alt-A mortgage, complete with "teaser rate," etc. (If you are confused about these mortgages, go to your local library and ask for a lifestyle section from any newspaper circa 2005, with the obligatory feature about how you, too, can afford to live like millionaire, through the magic of no-down-payment, low-interest mortgages.)
Fannie and Freddie, in fact, struggled to keep up and compete with the other buyers who wanted to buy these supposedly risk-free, AAA-rated, mortgage-backed securities circa 2005 or so. All through the mid-2000s, European investors, in particular, couldn't get enough of these things. (I know this definitely; when I worked for Thomson (now ThomsonReuters), I talked to enough of 'em to get a feel for "market sentiment.")
It's important to make a distinction: Fannie and Freddie, like many others, acted negligently in not understanding what the heck they were buying, and they thus blew themselves up during the course of the crisis.
Furthermore, the twin mortgage giants' willful ignorance about what they were buying and disinterest in delving into the details of "safe" securities helped contributed to the bubble.
Moreover, Washington's lax attitude toward Fannie and Freddie's safety and soundness -- the firms held barely any actual cash back during the good years to absorb potential losses -- accelerated their downfall.
This laxity, though, was a symptom of the broader problem, not the problem itself. Washington and the financial industry thought that they could perfectly predict which kind of investments were safe and which weren't. They thought, too, that if they were wrong about these calibrations, together, armed with black cars and Blackberries, they could control any problems before they got out of hand.
A big firm (or two) can contribute to a bubble and bust, and magnify effects of a crash on the economy, without having caused it. Similarly, a big firm can fail (absent government support) in a crisis without having caused the crisis.
The now three-year-old fight over whether Fannie and Freddie were cause or effect, or somewhere in the middle, gets annoying, but it is important. If Fannie and Freddie caused the crisis, then you just get rid of them (this may still be a good idea, but that is irrelevant to this discussion).
If they didn't cause it, then you have to think about how to fix other things, including:
- a derivatives market that allowed financial-market participants to incur hundreds of billions of dollars in potential liabilities with no cash cushion for potential losses;
- synthetic securities that magnified the results of any one investment, including a mortgage-related-investment, going wrong, thus amplifying bubble mania and bust panic;
- a "repo" securities market that invites "runs" on the global financial system and attendant bailouts;
- dependence on ratings agencies' determinations of risk that encourages everyone to make the same mistake all at once;
- and other stuff, all detailed in the FCIC book, complete with case studies to illustrate the problems.
Fannie and Freddie are a problem, but not the problem.
Nicole Gelinas is contributing editor to the Manhattan Institute's City Journal and author of After The Fall.