I meant to quote this passage from Lost Decades: The Making of America’s Debt Crisis and the Long Recovery in honor of Barney Frank’s retirement since I think it’s the ultimate refutation of the “Blame Fannie Mae” theory of the financial crisis. It’s made all the more powerful for the fact that it doesn’t even mention Fannie or Freddie:
Irish borrowing turned the country into a major financial center and created a housing bubble that put all others to shame. Between 1997 and 2007 the average house price in Dublin shot up from $115,000 to $550,000. This was remarkable for a medium-size city in a small country with an ample supply of buildable land. By 2007, the average house in Dublin cost two and a half times as much as the median house in America’s metropolitan areas, and substantially more than the median house in the New York metropolitan area. Most of this housing bubble was financed abroad—the net indebtedness of Irish banks to the rest of the world went from 10 percent of GDP in 2003 to 60 percent in early 2008.40 And it was accomplished without any unusual financial developments—no subprime mortgages, no novel approach to securitization. It was just an old-fashioned housing bubble, fueled by old-fashioned foreign borrowing.
The point is that while a lot of stuff happened in the vicinity of the house price boom, you don’t need anything other than the boom itself to explain things. Both borrowers and lenders perceived the land to have become a lot more valuable and were thus willing to engage in a lot of additional borrowing and lending. Everything else is more or less gravy.