"The reason is that lenders to the GSE’s assumed—it turned out, correctly—that the US government would guarantee these loans. "

From Cafe Hayek, a link to an excellent post by David Henderson:

"The reason is that lenders to the GSE’s assumed—it turned out, correctly—that the US government would guarantee these loans. The term economists use to describe what happened is “moral hazard.”

Because lenders to the GSE’s did not bear much risk in case the GSE’s bore large losses, they had little incentive to be careful in their lending, and the GSE’s had little incentive to be careful in their financial decisions."

My argument here is that the implicit guarantees were much wider than GSE's.

"Now, though the US government has put itself even more in the role of central planner of credit markets, do not be surprised if the financial crisis lasts for years rather than for the few months it likely would have lasted had the Feds stayed out."

Even if I agreed with this, which I don't, again, mainly because going against market and investor expectations is damned hard to do, I believe this which I posted as a comment:

The real problem was the implicit government guarantee that it would intervene in a financial disaster. This did not force anyone to invest anything, but it led them to risk more than they would have in other circumstances.

However, if you believe that these implicit, in my mind explicit, guarantees were in place, causing people to invest differently than they would have otherwise, then you are bound to helping these investors in the current situation. That's the nature of a guarantee.

Going forward, these guarantees need to be either explicitly rejected or explicitly determined.