Wasn't it both though? I see those CDO's of bundled subprimes as akin to fraud. That's what sent the investment banks under.
Yes, the investment Banks weren't blameless, but without Governments unprecedented intervention we never would have had a Subprime mortgage crisis.
This intervention included co-opting the GSEs into purchasing Subprime loans
The Clinton administration fist declared that the decades old standards used by Banks to vet the ability of a borrower to pay back their loan were inherently racist.
Banks that refused to lower their standards were targeted by the DoJ, HUD and Community activist groups like ACORN.
Janet Reno bragged about suing lenders in 1998 in a speech she gave before the Community Reinvestment Coalition and counted 13 successful DOJ lawsuites and vowed to target more lenders.
And the DOJ wasn't the only one suing Banks. HUD sued Banks and so did groups like ACORN. Obama, when he was a Chicago Plaintiffs attorney sued CitiBank for " discriminatory lending practices ".
Banks HAD to make a certain amount of risky loans or else
The GSEs purchased these subprime loans and then turned them into MBSs that were sold off to investment Banks and Capital markets all over the world as " AAA " rated securities
Since US Treasuries had a " AAA " rating at the time so did Agency debt. People think Banks created the majority of these MBSs.
Not so, Fannie and Freddie were the primary issuers of MBSs backed by Subprime loans and the primary consumer of lower tranche MBSs and essentially created demand for a toxic product that made its way out to Capital markets all over the world
In 1999, Fannie Mae started its partnership with CountryWide Financial when CountryWide created a loan process exclusively for Fanie Mae called the " Fast and EZ " loan
In 2000, Fannie Mae started using " Desktop Underwriter", which was their new automated underwriting software
In 2004 Fannie Mae was buying up close to 50 % of all of Country Wide financials no doc loans. These loams were being bundled and sold off as " AAA " rated agency securities. And the GSEs weren't just buying Country Wides trash loans.
In 2008 the GSEs were declared insolvent holding over 5 Trillion dollars in Securities and Subprime loans. Thats just what they had on their books.
That doesn't include all of the GSE " AAA " rated MBSs that had made its way out to Capital markets and investor portfolios
In 2011, the SEC started a investigation into unprecedented securities fraud at the GSEs. Prior to 2004, the GSEs were exempt from SEC quarterly fillings laws. All publicly traded Corporations have to submit their quarterly reports to the SEC.
As a consequence of the 2004 SEC investigation into Fannie Maes corrupt accounting, the GSEs, as a show of good faith agreed to start submitting their reports to the SEC
According to the 2011SEC filings, from 2004-2008 both Fannie and Freddie ommited hundreds of Billions of dollars in worthless Subprime debt for their reports.
Hundreds of Billions of dollars in No-doc loans were simply left out of their SEC reports. This is while the two agencies were the primary consumer and issuer of MBSs