Over the past decade, we have collectively spun a story of the financial crisis. It goes something like this: in the 2000s, government regulation of the financial system loosened as large banks, in collusion with free-market ideologues in government, convinced regulators that risk was a thing of the past. They then took advantage of easy money and lax regulation and began to push mortgages to speculators and low-credit individuals, who bought homes they couldn't afford. Those mortgages were then packaged and used as the fodder for financial derivatives, which turned bad loans into a global crisis. Meanwhile, millions of people lost homes and jobs; the government spent hundreds of billions to bail out the banks, and those millions of citizens were left with shattered credit, no employment, and fractured communities such as Detroit.
There is much that is true in this story. Its basic contours were repeated this week in the Justice Department case against Bank of America over lax lending practices in 2008. And Fannie and Freddie, independent agencies backed by the government, were the linchpins, buying up those mortgages and providing a seemingly endless backstop.
What's missing from the story is crucial, however. Obama alluded to it in his speech, but he buried the details. Often neglected is the degree to which so many felt that they needed to own a home. That wasn't created by banks and government, even though it was encouraged. The "ownership society" had been touted not just by President Bush in the 2000s, but by Clinton, Reagan, and by Americans of all parties and ideologies since the founding of the republic. There is nothing more "Jeffersonian" than owning your own land and home (and slaves...but that is another issue). The United States pulled immigrants in part because of the availability of land and the promise of independence that owning land afforded. Freed slaves after the Civil War were promised -- though not actually granted -- "40 acres and a mule" because having land was seen as a necessary component to liberty and freedom.
After World War II, agencies such as the Federal Housing Administration along with other New Deal creations such as Fannie Mae (the Federal National Mortgage Association) spurred more widespread home ownership, with returning GIs both swarming into colleges and then into vast new housing developments in the suburbs. Freddie Mac (the Federal Home Loan Mortgage Corporation), founded in 1970, was meant to augment that process with even more quasi-government intervention in the mortgage market, with the goal of reducing the risk local banks might incur in making new home loans.