The latest CDS salvo had me go read Arnold Kling's testimony from earlier this week (previously, I just went on what I heard, what was spoken for the committee).
Rather than more on CDS today, here is some more confirming evidence that I, a complete outsider, have the right read on key issues at the GSEs:
When I was at Freddie Mac, there was hardly any gap between the suits and the geeks. The Foster-Van Order model of mortgage default was ingrained in the corporate culture. The CEO, CFO, and other key executives understood this model and its implication that mortgage defaults would be much higher for mortgages with low down payments. Moreover, the suits bought into the idea of using a stress test to set capital requirements. Using a stress test methodology, in which mortgages are evaluated according to how well they would survive a downturn in house prices, the capital required to back mortgages with low down payments is prohibitively high.
When a new CEO came to Freddie Mac in 2003 (several years after I had left), a gap apparently opened up between the suits and the geeks. Warnings issued by the Chief Risk Officer and others about low down payment mortgages were ignored by the CEO.
An organizational failure requires an organizational re-design. It doesn't require a ... a whole lot of hand wringing about everything else.
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