Final answer:
Yes, Fannie Mae and Freddie Mac played an important role in initiating the 2007-2009 crisis through their involvement in the mortgage market. They lowered lending standards and encouraged subprime mortgage lending, contributing to the housing bubble and subsequent crisis. Their implicit government backing allowed them to take on excessive risk.
Step-by-step explanation:
Yes, I agree with the statement that the government-sponsored enterprises, Fannie Mae and Freddie Mac, played an important role in initiating the 2007-2009 crisis. These two entities were involved in the mortgage market, specifically in purchasing and guaranteeing mortgage-backed securities. They played a major role in promoting home ownership by providing liquidity to the mortgage market, but their practices also contributed to the housing bubble and subsequent crisis.
One argument in support of this statement is that Fannie Mae and Freddie Mac lowered lending standards and encouraged subprime mortgage lending, which led to a proliferation of high-risk loans.
This increased the demand for housing, driving up prices and creating a housing bubble. When the bubble burst, many homeowners defaulted on their mortgages, leading to widespread foreclosures and financial instability.
Another argument is that Fannie Mae and Freddie Mac's implicit government backing gave them access to cheap funding, allowing them to take on more risk than they otherwise would have.
This created a moral hazard, as they could engage in risky practices knowing that they would be bailed out by the government if things went wrong. When the crisis hit, both entities faced massive losses and had to be bailed out by the government.