The first of two weekend topics, this one looking back at what happened, by Jim Grant. "A review of Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again, by Peter J. Wallison. Fannie and Freddie did the deed, according to Peter J. Wallison’s mortgage-centric account of what really caused the Great Recession. No need to go searching for alternative explanations. The federally chartered behemoths are the guilty parties, they and no one else. A former Reagan White House counsel and a longtime critic of the so-called government-sponsored enterprises (GSEs), Wallison has drawn up a double indictment. The first fingers the government. The second assails any who would not blame the government."

"This is a very good, very tendentious book. It maps the road to the quasi-socialization of American housing finance, in which condition we find ourselves today. It tells you where subprime mortgages came from and how they metastasized. It parses accounting controversies, explains how regulators favor and disfavor certain categories of investment assets, and chronicles the unnatural rise in house prices between the late 1990s and the mid-2000s."

"Wallison argues that private actors, while hardly blameless in the events of 2007-09, did not precipitate them. The author rests his case against the government on the fact that, by mid-2008, 'there were at least 31 million nontraditional mortgages (NTMs)—57 percent of all mortgages—in the U.S. financial system,' and that three quarters of these securitized turkeys had alighted on federally chartered balance sheets. The comprehensive, persistent decline in mortgage lending standards wasn’t the doing of private lenders, Wallison demonstrates. You may thank Congress and the Department of Housing and Urban Development for that."

"Between 1991 and 2003, as Wallison relates, Fannie, Freddie, and lesser federal agencies boosted their share of the American housing market to 46.3% from 28.5%. It happened this way. In 1992, the House and Senate directed the GSEs to meet a quota of mortgage loans to low- to middle-income borrowers. Thirty percent, the initial minimum, presently became 42%, then 50%, and finally—in 2008, the year Lehman Brothers failed—56%. Minimum down payments were reduced, too, to nothing at all by 2000."

"Nor did the upper-income reaches of the mortgage market, a segment not directly served by Fannie and Freddie, remain untouched by this federally induced letting down of hair. Before long, well-to-do people were taking out 'interest-only' loans that required no amortization of principal until their maturity date. By 2001, Alan Greenspan—then chairman of the Federal Reserve—was marveling at the 'very substantial buffer of unrealized capital gains, which are being drawn upon through the home-equity market, through cash-outs, and through the turnover of existing homes, which has been, as you know, quite substantial despite the weakness in the economy.' The single-family American house was on the way to becoming an automated teller machine."

"Wallison seems to forget that money isn’t humanity’s best subject. You can satisfy yourself on this point with a simple calculation. One hundred dollars invested continuously at 2% interest since the year of Cleopatra’s death would work out today to $5.3 billion for each of the world’s 7.3 billion people. Of course, the average earthling is worth nothing like that much money. Banks fail, currencies are inflated away, thieves break through and steal."

"Error is endemic in finance—people will buy high, and they will sell low. Given half a chance, they’ll over-borrow, too. The incidence of error is all the greater when the incentives of law and regulation invite it. Wall Street was no Garden of Eden when financial responsibility rested chiefly with individuals—when, for instance, the general partners of Morgan Stanley were personally responsible for the debts of the firm they led. The Street is that much further from paradise since personal responsibility has given way to corporate responsibility—Morgan Stanley became a publicly traded corporation in 1986—and, increasingly, to collective responsibility."

"Once upon a time, the stockholders of a bank were responsible for the solvency of the institution in which they held a fractional interest. To restore the solvency of the biggest banks in 2007-09, the taxpayers had to reach into their own pockets."

"To any who wished to see, it was obvious that house prices were much too high, that the securities fashioned from subprime mortgages were anything but creditworthy, and that some of the biggest Wall Street banks and brokerage houses were wobbling on their high stilts of debt. Grant’s Interest Rate Observer, the financial publication that I own and edit, issued its first cautionary piece on runaway house prices in 2001, its first bearish analysis of subprime mortgage securities in 2006. We were far from alone."

"There was no 'perfect storm,' the author insists, no constellation of causes that form a satisfactory explanation for the calamity of 2008. Those who would argue the multi-causal case confront the insuperable problem of not knowing when to stop listing causes. The more they cite, he insists, 'the less we learn, and the less the theory can serve as a guide for policy makers in the future.'"

"In the Isaiah Berlin world of hedgehogs (those with a single big idea) and foxes (those with many ideas), there was never such a hedgehog as Peter Wallison. His brief is thoroughly researched, clearly written. He anticipates his critics’ likely objections to his mono-causal view of the crisis and attempts to answer each argument in turn. He succeeds to the impressive extent that his point survives his own exaggerated telling of it—barely."