Michael - Interesting theory but I'm not buying it. I suppose you can almost blame the feds for everything on one level... too much regulation here, not enough there. But in the end it was the Fed who created the massive amounts of credit that was made available to the banks which was lower than the rate of inflation..both CPI and the real inflation rate. Any bank not turning that credit into someone else's debt was leaving money on the table. The Japanese did a ton of damage with the carry trade as well..more than our federal gov't IMHO. I have no idea how much 0% credit was laundered in the US that made it's way into subprime mortgages.
I wasn't aware of the community reinvestment act, but surely any gov't fines would be trivial compared to the trillions in mortgages and commercial loans created in the past 6yrs. His numbers on Fanny and Freddy are way off too - $5T+ for their share of the pie..and the entire mortgage market has ballooned bigger than GDP which is at $12T (I think), albeit falling now. To say Fannie and Freddy are quasi gov't orgs and the Fed is not, is debatable as well.
Their big failing though is only talking about M1 and M2, which have been falling in the past 5 years. But M3 which includes the bulk of the credit expansion is ignored. The inflation in currency is also a lagging indicator, which is now gaining speed.
I would say the feds have aggravated the situation with the adding of $4-5T new government debt over the past 7yrs, but that is still a fraction of the overall debt assumed by the people - not just in subprime but credit cards, commercial lending, etc.
my 2 cents. I'd be interested in hearing Phil and Derek's take on this though.
..and Greenspan would make John Law proud