Congress was creating a monster because most people started to believe that home prices increasing 10% or more every year was the new norm and, more importantly, that the risk was all but removed in housing. That's the real crime, creating a perception that the risk was gone.

How do you create a perception that risk is removed? You continuously increase the lending capability of Fannie and Freddie while simultaneously increasing the percentage of subprime loans over a decade. After a while, it becomes normal and expected. Add in congressional leaders including Barney Frank giving speeches that we're not in or creating a housing bubble and you complete the package.

Barney Frank is perhaps the greatest in-office politician, demonstrating extraordinary skill in performing the "Washington two-step" and deflecting blame from him and Congress. He didn't act alone, but he was in leadership, and if we don't learn from this lesson, we are doomed to repeat it.

At the time of publication, the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Robert Weinstein is an active trader focusing on the psychological importance of risk mitigation, emotion and financial behavior of market participants. Robert co-founded the investing blog StockSaints, where he writes a journal about his trading activity and experiences.

In addition to TheStreet, Robert also contributes to Real Money Pro, providing real-time trading ideas for stocks, options and futures.

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