The Congressional Democrats were warned again and again, but did nothing. John Fund lays it out:
We will look back on the failure of Congress to reform the government-sponsored enterprises at the heart of the mortgage meltdown as one of the most expensive derelictions of its duty ever. Fannie Mae and Freddie Mac used their lobbying clout, political contributions and even charitable largesse to charm or bully anyone demanding reform in their lending practices.
The Bush administration certainly didn't cover itself in glory either, for example issuing news releases in 2005 touting the introduction of "zero down-payment " mortgages through federal housing programs designed to encourage home ownership.
But the administration at least tried to warn Congress that the Government Sponsored Enterprises (GSEs) should be reined in. Gateway Pundit notes that President Bush publicly called for GSE reform 17 times this year before Congress finally passed a bill increasing oversight of Fannie and Freddie — though by then it was too late.
Indeed, the White House's list calls for GSE reform is a long one, stretching as far back as April 2001. At that time, the administration's first budget declared that Fannie Mae and Freddie Mac's growing dominance of the mortgage market was "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity."
In 2003, after both Fannie and Freddie were found to have cooked their accounting books, then-Treasury Secretary John Snow urged Congress to "create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate capital requirements.
Two years later, Mr. Snow again called for GSE reform, noting that recent events "reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform.... Half-measures will only exacerbate the risks to our financial system."
The response? Rep. Barney Frank, who now vilifies Republican House members for questioning a policy of throwing another $700 billion on the bonfire, insisted to the New York Times during the 2003 accounting scandal: "These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."