It was the distortion of the banking system to achieve political ends that ultimately caused the crisis

From Seeds of subprime review by Nigel Lawson.

It is reassuring to see someone with different views and greater expertise confirm one's own suspicions about complex issues. In this instance, former UK Labour front bencher Oonagh McDonald has written a book being reviewed by Nigel Lawson which accords the bulk of blame for the 2007 financial crisis to government policy facilitated by Fannie Mae and Freddie Mac. That is the tentative conclusion I arrived at some time ago and have scanned new reports for anything that might undermine that conclusion. Instead, McDonald's book seems to affirm the conclusion.

McDonald’s verdict is both well-founded and unsparing: “As pivotal players in the market, Fannie Mae and Freddie Mac must take a large slice of the blame. But above all, it was the distortion of the banking system to achieve political ends that ultimately caused the crisis.” What she does not do is draw any wider lessons. Yet there are, I believe, at least two important lessons to be drawn.

The first is that government-sponsored enterprises, or what in the UK would be called public-private partnerships, are to be avoided like the plague. Designed to secure the best of both worlds, they invariably end up exhibiting, if not the worst of both worlds, the benefits of neither. In particular, they escape both the discipline of effective state (ie Treasury) control and the discipline of the marketplace.

Systemically important banks, considered too important to fail, come very close to being in this category – which is why they need to be as limited in scope and as small a part of the overall banking scene as is practicable.

The second is that the efficacy of financial regulation is strictly limited. Fannie Mae and Freddie Mac, in common with the rest of the US financial sector, were subject to detailed regulation. For reasons well described in this book, it failed completely.

My perspective is that this is yet one further example of good intentions joined with fallible politicians deploying complex solutions to achieve desired outcomes but with virtually no clear comprehension of the inherent complexity of the system being manipulated and no systemic feedback mechanisms to exact accountability.