This was a vast potential market and Fannie Mae proved you could get away with serving it, the sky didn't fall for a number of years.
So other banks jumped on board. Are you saying they would have taken on this risk if the federal government hadn't moved first? I think there is a clear cause and affect.
If they'd taken the same risks that Fannie and Freddie took, they'd have had similar results, and the market may well have gone on functioning as it had before. "Similarly, the total credit losses incurred by the GSEs are about one-fourth those incurred about by private label mortgage securitizations, which are packaged and sold by Wall Street." [0]
The private banks took greater risks and wound up with worse performance.
So other banks jumped on board. Are you saying they would have taken on this risk if the federal government hadn't moved first? I think there is a clear cause and affect.