Here is a fact about the financial crisis that I had missed:
the Federal Home Loan banks supplied almost half the funding for two large private lenders, Countrywide and Indy Mac, that later failed.
This is from Allan H. Meltzer’s chapter in a compendium of papers called The Road Ahead for the Fed.
The Federal Home Loan Banks, or FHLB’s, were known as the “flubs.” They were created in the 1930’s to serve as a lender of last resort for the savings and loans, because the Fed would not do so. When the saving and loan industry fell apart in the 1980’s and their regulation and deposit insurance was taken over by the FDIC around 1990, there was no longer any reason for the flubs to exist. Of course, this being the government, they were not shut down. Instead, looking for something to do, they decided to compete with Freddie and Fannie by playing around in the mortgage market.
As a taxpayer, you really have to resent losing money via the flubs. Just because they could not bear to get rid of some public sector workers, your Congress allowed these people to gamble away gobs of your money.
Good thing we have government to correct all the moral failures of the unfettered market.