Spokane7
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July 5, 2011 in Opinion
Crash history needed repair
History will be kind to me for I intend to write it. – Winston Churchill
There is history – a chronicle of human events – and then there is perceived history. So often, the two are wildly at odds.
In 1963, a popular Democratic president was assassinated by a Marxist named Oswald, who had actually defected to the Soviet Union and returned to the U.S. with a Soviet wife, was an active member of the Fair Play for Cuba Committee and had attempted to assassinate a right-wing general named Edwin Walker earlier in the year.
Yet those who write history found these facts inconvenient. They created a different history in which the “atmosphere of hate” in the Southern city of Dallas led to the terrible political violence. In other words, it was political conservatism that led to John F. Kennedy’s assassination. This perceived history was recycled as recently as the shooting of Rep. Gabrielle Giffords. ABC’s Christiane Amanpour, interviewing Jean Kennedy Smith, noted that the Kennedy assassination was “eerily relevant” and asked Kennedy to evaluate the “political atmosphere” in the country today.
Starting just a few years after the Kennedy assassination, American liberals began to consider anti-communism a kind of mental disorder. Hostility to communism was akin to racism, sexism and other character flaws. Reagan’s description of the Soviet Union as an “evil empire” cemented liberal suspicions that Reagan was a dangerous buffoon. Yet starting in 1989, when the Berlin Wall fell, liberals began to find their anti-anti-communism embarrassing. And so they created a perceived history – one in which the Cold War was a time of consensus, a time when, as former Sen. Bill Bradley put it, “We knew where we stood on foreign policy.”
More recently we’ve witnessed the creation of new historical narrative about the financial crisis of 2008. The perceived history, eagerly peddled by liberals and Democrats, is that the crash of 2008 was the result of Wall Street greed. It was unregulated capitalism that brought us to the brink of financial meltdown, the Democrats insisted. And they codified their manufactured history in a law, the Dodd-Frank Act, that completely avoided the true problem.
It’s both surprising and gratifying, therefore, to report that a great revisionist history has just been published by none other than a New York Times reporter, Gretchen Morgenson, and a financial analyst, Joshua Rosner.
In “Reckless Endangerment,” Morgenson and Rosner offer considerable censure for reckless bankers, lax rating agencies, captured regulators and unscrupulous businessmen. But the greatest responsibility for the collapse of the housing market and the near-“Armageddon” of the American economy belongs to Fannie Mae and Freddie Mac and to the politicians who created and protected them. With a couple of prominent exceptions, the politicians were Democrats claiming to do good for the poor. Along the way, they enriched themselves and their friends, stuffed their campaign coffers and resisted all attempts to enforce market discipline. When the inevitable collapse arrived, the entire economy suffered, but no one more than the poor.
Jim Johnson, adviser to Walter Mondale and John Kerry, amassed a personal fortune estimated at $100 million during his nine years as CEO of Fannie Mae. “Under Johnson,” Morgenson and Rosner write, “Fannie Mae led the way in encouraging loose lending practices among the banks whose loans the company bought. A Pied Piper of the financial sector, Johnson led both the private and public sectors down a path that led directly to the credit crisis of 2008.”
Fannie Mae lied about its profits, intimidated adversaries, bought off members of Congress with lavish contributions, hired (and thereby co-opted) academics, purchased political ads (through its foundation) and stacked congressional hearings with friendly bankers, community activists and advocacy groups (including ACORN). Fannie Mae also hired the friends and relations of key members of Congress (including Rep. Barney Frank’s partner).
“Reckless Endangerment” includes the Clinton administration’s contribution to the homeownership catastrophe. Clinton had claimed that dramatically increasing homeownership would boost the economy; instead “in just a few short years, all of the venerable rules governing the relationship between borrower and lender went out the window, starting with … the requirement that a borrower put down a substantial amount of cash in a property, verify his income, and demonstrate an ability to service his debts.”
“Reckless Endangerment” utterly deflates the perceived history of the 2008 crash. Yes, there was greed – when is there not? But it was government distortions of markets, not “unregulated capitalism,” that led the economy to disaster.
Mona Charen is a columnist for Creators Syndicate.
Trudy Rubin: Egyptians say no to Islamists 
JBlim on July 05 at 7:07 a.m.
The old holy grail of Republicans is tax cuts will solve all our problems. So why haven’t the Bush tax cuts brought us salvation? All it brought was an Armageddon economy that we are only now pulling out of.
Mona says ““Fannie Mae led the way in encouraging loose lending practices . . .”
Barney Frank and the privatized Fannie and Freddie forced Washington Mutual, Countrywide, Bank of America and all the other banks to make loads of no-doc loans. Yeah, Fannie and Freddie forced all those conservative bankers to quit verifying employment. No it wasn’t greed. Oh no. No, it wasn’t greed that let all those bankers to make loans to any fool that walked in the door because they knew they would just securitize and sell the loans. Not greed, oh no. The Barney Frank Devil made them do it. Who knew little Barney Frank, in the minority party, could single-handedly destroy America.
hawken on July 05 at 7:23 a.m.
I have been saying for months,,,, on this web site,,,
Dodd-Frank created the massive housing bubble that brought down our house of cards in 2008.
Liberals are doing the same thing again with $800 Billion bailouts that didn’t work (failed, liberal, Keynesian Economic Theory), accompanied by a total unwillingness to make significant cuts in glutenous, liberal, big government spending.
All that Obama and the liberals are doing is propping up a false economy, another bubble that will in time burst. The longer we falsely prop up the economy, the bigger and louder the burst when it comes. And it will come.
Accurate and outstanding article.
JBlim on July 05 at 7:31 a.m.
hawken says: “Liberals are doing the same thing again with $800 Billion bailouts that didn’t work”
Well, as you know that was bi-partisan, remember Hank Paulsen, Bush’s treasury secretary, with the frantic one-page, no accountability bailout plan? Trying to rewrite history, doctor?
Seems to me the bailout did work, we’re no longer falling off the edge of the abyss. Thinks are slowly get back to normal. Had we not done the bailout, we probably would still be in the crash-nightmare scenario that Bush, Greenspan, and Republican “leadership” and created.
DickAdams on July 05 at 7:35 a.m.
Excellent story. Tells it like it is. Some people don`t know what their talking about when they talk about Washington Mutual. Blim you don`t have a clue, yet mention stuff that is absolutely rubbish. The Spokesman Review covered up the WM story. Doug Floyd was one of those guys that looked the other way when it was called to his attention.
hawken on July 05 at 8:06 a.m.
Blim:
Little difference between the Bush, Keynesian Bailout and the Obama Keynesian stimulus. Both are failures.
Maybe, you haven’t noticed that are economy is in worse shape since Obama took office. He has increased government spending 25% in his 30 months as president.
Chronic unemployment highest since Great Depression
Our Debt/GDP ratio is now worse than the Great Depression.
What were you were saying??? … the “Bailouts” brought us back from the edge of the Abyss?
richard on July 05 at 8:18 a.m.
It has long been the custom of liberals - witht he assistance of media - to write and re-write history to suit the agenda of liberalism, socialism and Marxism.
All one needs to do is read the Frankfurt School “intellectuals”, Saul Alinsky and and other Marxist social revolutionaries and you will find “instructions” on how to subvert society to instill their governmental control over nearly every aspect of life.
“History” is a tool to the left and they are very adept at using it for evry advantage they can garner.
The economic meltdown is merely the latest and by reading the views of the uninformed letter-writers and bloggers it is clear they must “alter” the facts behind the crash or the whole agenda of Obama is at risk.
Just as the breadth and scope of LBJ’s War on Poverty and the Great society created more poverty - not less - the program of providing “affordable housing” through Fannie and Freddie hurt no one more than the poor who were supposed to be the beneficiaries.
In both instances, the poor and the urban minorites were the victims. And the taxpayers are still paying for the devastating “social programs”.
If Chris Dodd had been a Republican, there is no doubt he would be in prioson today.
It is not surprising, however, that the minions and the “true believers” accept the lies hook, line and sinker. They easily become - as Herbert Marcusse predicted - the “useful idiots” for the statism that forms the core for a socialist economy.
And it isn’t always Democrat vs. Republican; there are many, many Progressives (the preferred name for socialists these days) in the Republican Party as well. They too have sold out the future for votes.
Thus it is that the grassroots’ response these days is the Tea Party - formed not to aquire power as a political party - but rather to return this nation to a foundation of sound economics.
Is it stupidity, pure ideology or simply a desire for the free lunches that propel the kool-aid drinkers to become “good soldiers” in the march to ubvert the most successful nation and economy in history?
JB? do you know the answer to that question?
johnclarke on July 05 at 9:46 a.m.
Must be a slow news day, so the right wing mouthpiece Mona Charen decides to ink a fantasy piece. I’m happy to see the usual suspects lapping up this nonsense like slobbering dogs. Try as you might, but it’s a little difficult to distract even a simpleton from the very recent history of the lost decade known as the Bush years. I must admire the right wing attack squad, they lit our house on fire and blame the “liberals” for not putting out the fire fast enough. Listen, doggies - after you massive tax welfare program for the rich, a couple unfunded wars coupled with Medicare part D, the TARP oh and add in the deregulation that led to the mess…gee I guess all that is the fault of “liberals”. You guys crack me up, talk about an alternate universe. This is the bizarro thinking that leads to corporate jet tax loopholes. Idiots, every last one of you.
johnclarke on July 05 at 10:27 a.m.
http://www.nytimes.com/2011/07/05/opinion/05brooks.html?_r=1
Here is a great opinion article, one that I happen to totally agree with. Please enjoy this article as opposed to the wacky, really odd attack piece from Charen.
gmorton on July 05 at 12:03 p.m.
Heh.
I posted a link to an interview with Morgensen and Rosner (in the Opinion forum) a couple of weeks ago. Nice to see Mona giving them some ink.
Johnclarke wrote,
“Must be a slow news day, so the right wing mouthpiece Mona Charen decides to ink a fantasy piece.”
Ah. “Fantasy,” is it? Why don’t you debunk its “fantasies” for us?
johnclarke on July 05 at 1:36 p.m.
What is there to debunk? There are no facts printed in her story, just your basic right wing crap. Clinton caused the housing bubble because of CRA (proven to be false), she fails to mention the Bush “ownership society” where the bubble actually occurred and the zero down payment scam started.
http://www.newsweek.com/2008/10/10/end-of-the-ownership-society.html
I don’t have any interest in the rest of Charen’s crap.
SMARTGUY on July 05 at 1:38 p.m.
If the conservatives hate communism so strongly, why did they sell out all our jobs to the lowest bidder, communist China? Oh thats right, they figured out they could make more money utilizing cheap communist slave labor, then building weapons to fight them. The word traitor comes to mind.
MrNatural on July 05 at 3:33 p.m.
Boy…what scummy right-wing propaganda just after Independence Day Moan-er…is this the new right-wing tactic…blame the left for the rewrite and bias interpretation of history…that’s ironic as all get out…had to put on hip waders to read this one through…
Dang Spokesman can any so called journalist pull stuff out of their rear end and count on you to print it or is that just reserved for conservatives?
JBlim on July 05 at 6:47 p.m.
haken says: “Maybe, you haven’t noticed that are economy is in worse shape since Obama took office.”
Huh?
Stock market Bush: 8281
Obama: 12569
That’s up 52%, doctor. What planet do you live on anyway? Seems to me things are looking up.
Paul Krugman (he’s smarter than you are) says:
“Ask yourself: What major new federal programs have started up since Mr. Obama took office? Health care reform, for the most part, hasn’t kicked in yet, so that can’t be it. So are there giant infrastructure projects under way? No. Are there huge new benefits for low-income workers or the poor? No. Where’s all that spending we keep hearing about? It never happened. . . .
The total number of government workers in America has been falling, not rising, under Mr. Obama. A small increase in federal employment was swamped by sharp declines at the state and local level — most notably, by layoffs of schoolteachers. Total government payrolls have fallen by more than 350,000 since January 2009. … ”
https://www.nytimes.com/2010/10/11/opinion/11krugman.html?_r=1&ref=global
Diana on July 05 at 7:04 p.m.
JBlim, the complexity of the crash under Bush and the fix under Obama is too complex for the bagger brain to comprehend.
richard on July 05 at 8:04 p.m.
It is impossible to discuss and debate topics with the likes of Mr. au natural, JB, johnclarke and Diana????
If you aren’t up to it, then please, JB, natural man, johnclarke, smartguy, geez - all we are missing is greenlib and Jeff - how our economy will be “fixed” by duplicating what the Greeks have done for 40 years, the Spanish, the Portuguese, the Brits, the French, etc.
Tell us all how huge debt and big government, a leader who is totally incompetent, and 50 million people on food stamps is going to make this nation an economic power as it once was before the left began dismantling it 40 years ago.
Come on johnclarke; please explain. Mr. Natural; you are always full of bombastic; tell us the economic wisdom of it all. Explain it for us conservatives and believers in freedom and liberty (you will have to keep it simple, however, because we didn’t get affirmative action placements into Harvard (yup, I am a racist).
Prove me wrong and give us your wisdom.
misjustice on July 05 at 8:50 p.m.
I highly doubt that Moaner has read RECKLE$$ ENDANGERMENT. The few blurbs that she used for this, uh hem, opinion piece, can be found on the book’s cover.
greenlibertarian on July 05 at 9:05 p.m.
Rewriting history?
Either Mona hasn’t read the book, or, more likely as she is keen to do, is lying again.
From the book:
“Of all the partners in the homeownership push, no industry contributed more to the corruption of the lending process than Wall Street.”
If mortgage originators like NovaStar or Countrywide Financial were the equivalent of drug pushers hanging around a schoolyard and the ratings agencies were the narcotics cops looking the other way, brokerage firms providing capital to the anything-goes lenders were the overseers of the cartel.
Just as drug lords know that their products pose hazards to their customers, the Wall Street firms packaging and selling mortgage pools to investors knew well before their customers did that the loans inside the securities had begun to go bad.
It was a colossal breakdown in the duty Wall Street owed to its investing customers.
Wall Street is the MOST at fault, according to the authors of the book.
Anyone who has seriously studied the issue know there was culpability all around.
GHWB signed some the earliest legislation on “freeing” up Fanny and Freddie. So he supplied the gun. Clinton, at Wall Street’s and OTHERS bidding loaded the gun and cocked the hammer.
But it was the GWB Crony Capitalists and his “ownership society” who pulled the trigger at point blank range that started the massive bubble, the Wall Street shenanigans run amok with CDOs etc etc which damn near killed the economy which is still on life support, and barely recovering from this head shot wound by GWB.
Nice try spinning it Mona, next time actually READ the book, and not lie about its fundamental premise.
Funny how some of you ignoramus’s believe everything Mona writes, even when she’s been discredited time after time after time.
JBlim on July 05 at 9:37 p.m.
richard writes “It is impossible to discuss and debate topics with the likes of Mr. au natural, JB, johnclarke and Diana????”
So what’s your point? You seem to think that since the right’s goal is small government then the opposite of that must also be true - that the goal of liberals is huge debt and big government. You really don’t have a clue what you’re talking about.
BuRgEoNyT on July 05 at 10:14 p.m.
It’s funny watching the ‘left wing’ and ‘right wing’ blaming each other’s policies for the crash…..as if you aren’t BOTH attached to the same bird! If you ever look at the body of it behind that shield, you will see what I have seen….the top of each ‘wing’ high-fiving and laughing all the way to the bank with our money while they sucker the public into thinking they were juxtaposed. I guess some people still think pro wrestling is real and those guys really are wailing away at each other.
As we (should) know, this crash was engineered and came right on cue. G. Edward Griffin explained how this would unfold after the Gramm-Leach-Bliley Act of 1999 (signed by Clinton, wait, I thought the left and right wings were in opposition like the TV people tell me to believe?)
Are we going to go after the people who designed this collapse, or continue to fight over whether the criminals were left or right handed when it’s pretty obvious they are ambidextrous. History proves that, ‘his-story’ however will keep us in the dark.
gmorton on July 05 at 11:17 p.m.
johnckarke wrote,
“What is there to debunk? There are no facts printed in her story, just your basic right wing crap. Clinton caused the housing bubble because of CRA (proven to be false), she fails to mention the Bush “ownership society” where the bubble actually occurred and the zero down payment scam started.”
Hmmm. I seem to recall outlining those facts for you only a few days ago in another thread. Apparently they went in one ear and out the other.
Here they are again:
* The current recession began when the housing bubble burst in early 2008.
* The housing bubble developed beginning in the mid-90s, when the Clinton administration ordered Fannie and Freddie to increase the fraction of “affordable” (i.e., subprime) mortgages in their portfolios to 42% (and in 2000 to 50% then 56% in 2005). (And yes, Bush is as responsible for this debacle as Clinton).
* The rate of home “ownership” increased from the historic 63% to 69% by 2000, with most of these new “homeowners” being persons whose incomes and credit histories would not qualify them for conventional mortgages. They received subprime loans, which the originators immediately peddled to Fannie and Freddie, who packaged them and palmed them off to investors in the form of government-“guaranteed” bonds. Fannie and Freddie ended up holding or guaranteeing $1.5 trillion worth of these crappy loans.
* This surge of new demand drove up housing prices all across the market, resulting in overbuilding and borrowing against this imaginary equity.
* By late 2007 many of these 5-10 million new “homeowners” began to default, as many observers predicted.
* The recession followed.
http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html
http://www.washingtonpost.com/wp-dyn/content/article/2008/08/18/AR2008081802111.html
http://www.frumforum.com/fannie-and-freddies-subprime-loan-purchases-add-up-to-trillions
You might try reading the book, John.
Rand on July 05 at 11:24 p.m.
JB I think your stock market conclusion is disingenuous. The rest of your 6:47 post intrigues me. If all that you say is true then why are we in such deficit. I know that tax revenue is down but that can’t explain all of it. I would just like to hear your explanation.
gmorton on July 05 at 11:56 p.m.
greenlibertarian wrote,
“Wall Street is the MOST at fault, according to the authors of the book.”
Really? Let’s hear from the authors of the book themselves:
http://online.wsj.com/video-center/opinion.html
Go to p. 4, “Making a Mortgage Disaster.”
Jeffrey_Grey on July 06 at 7:04 a.m.
gmorton,
Fannie and Freddie are indeed complicit in the housing bubble and its subsequent collapse. But as usual, you’re only telling half the story and spinning it like it’s the whole story.
GSEs became big money because making those kinds of loans were profitable. And at the beginning at least, they also worked reasonably well at doing what they were meant to do - at least while the risks were recognized and some semblance of reason was applied to the loans.
The problems began to arise when private industry saw the profits to be made. Still, it could have worked out so long as risks continued to be balanced and reason prevailed with respect to who got the loans.
But as is so often the case, reason collided with greed and you can guess who the loser in that collision was. The seeds of the catastrophe were sown when lenders saw the ever greater profits to be made if you lent more and more money to more and more people and disregarded the risks.
The final nail in the coffin was when Fannie and Freddie - at the behest of business friendly Republicans who joined hands with overly liberal Democrats - began to compete with the banks who were in turn competing with them. It was a vicious cycle that was bound to collapse. To compete, you had to make ever more loans. To make ever more loans, you had to worry less and less about risk. In the end, if you could sign the loan application, that was good enough for the lenders.
Of course the lenders - that is; the few of them who could actually comprehend the ever more arcane and convoluted schemes being employed to keep the house of cards standing for a few more hours, because there were still profits to be made! - saw the inevitable approaching. That’s why you had the absurdity of financial institutions going into hock to make insanely risky loans on the one hand, and then actually betting against the success of those loans on the other.
Fannie and Freddie were indeed partly responsible for the bubble and its subsequent collapse because in the end, they were playing the game along with everyone else. Anyone who tries to say differently is trying to sell something.
Just as anyone who tries - like you - to pin it all on only one actor (and a relatively smaller and late-coming actor at that) is equally pedaling an agenda. One simply not supported by ALL the facts.
See: http://www.theatlantic.com/business/archive/2010/06/did-fannie-and-freddie-cause-the-housing-bubble/57664/ for a very well-balanced and factual analysis of the whole affair
See also: http://mitchellfreedman.blogspot.com/2011/07/unraveling-propaganda-from-reality-in.html for a more slanted analysis, but one still informative for the facts it uses to arrive at some of its conclusions.
JBlim on July 06 at 7:16 a.m.
Rand: “If all that you say is true then why are we in such deficit. I know that tax revenue is down but that can’t explain all of it. I would just like to hear your explanation.”
This isn’t rocket science. George W Bush slashed income tax rates and started two costly wars in Iraq and Afghanistan. War isn’t free. The hype over the debt is mostly a media creation. Nobody cared about it when Bush was president.
JBlim on July 06 at 7:23 a.m.
gmorton:
“…during the important years in the build up to the crisis, from 2002 until late in 2006, Fannie and Freddie were losing subprime market share to private sector firms. For example, as noted by McClatchy News, “More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions,” and “Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.” The loss of market share ended in late 2006, but by then the crisis was already set in motion.
Second, one of the reasons that Fannie and Freddie lost market share is that they faced more restrictions on their activities than firms in the unregulated shadow banking sector. Fannie and Freddie eventually found ways around these restrictions as they moved aggressively to prevent further loss of market share in late 2006, but prior to that time the restrictions were effective. If firms in the shadow banking sector had been subject to similar rules and regulations, and had the rules and regulations been enforced aggressively, things might have turned out very differently.
Third, the targets for home ownership that supposedly led to Fannie and Freddie’s aggressive entry into subprime markets were set in 1992. If these targets were the problem, why didn’t the crisis occur sooner?
Fourth, if Fannie and Freddie had never existed, securitization would have likely happened anyway. As Barry Ritholtz notes, “securitized credit card receivables, auto loans, small biz loans, etc. took place without GSEs. I assume there would likely have been a private sector version for conforming loans, the way there was a private sector securitizing response to the demand for non-conforming (sub-prime) loans.”
http://economistsview.typepad.com/economistsview/2011/07/reckless-endangerment-of-the-truth.html
richard on July 06 at 8:17 a.m.
“Just as anyone who tries - like you - to pin it all on only one actor (and a relatively smaller and late-coming actor at that) is equally pedaling an agenda. One simply not supported by ALL the facts.”
that is like the old question … which came first, the chicken or the egg. Except in this instance we know full-well that the egg (the ultra-liberal policies of universal home ownership by denying sound fiscal policies - debt to income ratio’s) came first.
It is another ultra-liberal policy that paved the way for failure. The Great Society? An utter failure. The War on Poverty?
Worse than a failure; it condemned the urban black population to generational poverty due to single parent child births in exchange for welfare checks and food stamps.
The rate of single-parent births in the black community was tripled over a span of 40 years; and you can trace that phenomena to welfare and food stamps.
If that isn’t a condemnation of policies of dependency then nothing is.
spin the details all you want; the facts are clear for anyone with their eyes open. Socialist, ultra-liberal policies lead to failure and despair. And that has nothing to do with greed by Wall Streeters.
It is amazing how pop media keeps the masses so ignorant.
Jeffrey_Grey on July 06 at 9:11 a.m.
Maybe if you stopped listening to them?
Which came first was the GSEs and their drive to make home ownership affordable to more people. It could have worked if rationality prevailed and the risk inherent in such things was kept in mind. For a little while it was and it did.
But then private lenders saw the money to be made. Considerations of risk were abandoned in favor of greater profits. And as more people saw the profits being made, risks were increasingly ignored. As I say, richard, it got to the point that institutions were taking the risk on one hand and betting against that risk succeeding on the other.
That’s not spin. Those are the facts, laid out in those articles and the COB investigations that followed the collapse.
But you don’t want that to be true. Those terribly inconvenient facts - that anybody with a little curiosity can easily find for themselves - don’t fit your narrative so of course, they’re not true. They’re just lies, lies damnable lies told by the great liberal media conspiracy - your reply to anything that contradicts your pinhole narrow, inflexible world view.
-shrug- People can listen to your snarling and sneering and endless little pop-media spawned factoids or they can go learn for themselves. I’ve shown a way they can start if they want to.
Jeffrey_Grey on July 06 at 9:12 a.m.
‘CBO’, not ‘COB’. Sorry.
MrNatural on July 06 at 10:41 a.m.
richard…I’m entitled to my opinion so just leave it at that…if you can
gmorton on July 06 at 1:28 p.m.
Jeffrey_Grey wrote,
“Fannie and Freddie are indeed complicit in the housing bubble and its subsequent collapse. But as usual, you’re only telling half the story and spinning it like it’s the whole story.”
Sorry, Jeffrey, but saying that the GSEs were merely “complicit” in the crisis is egregious spin.
Many other players (lenders, borrowers, brokerage houses, etc.) were indeed complicit, as Morgenson and Rosner describe in some detail. But what we really want to know is, Where did this problem begin? Who laid the foundations for this house of cards, and invited (if not conscripted) others to lay courses of brick?
Who decided that increasing home ownership should be a national policy, and that “affordable housing” (i.e., subprime loans) the means of accomplishing it? Who decided that obliging uncreditworthy borrowers to pay 3-4% higher interest rates to finance companies if they wanted loans was “discriminatory” and “unfair,” and that conventional banks should be compelled to make these loans, and the GSEs should be compelled to buy them?
No, Jeffrey. The GSEs were not merely “complicit” in the debacle. They were its linchpins. They were the original and largest consumer of the crappy loans the government solicited, and the largest purveyors of the crappy bonds based on them.
Though many fools, opportunists, and other rats fell into line, the government was the Pied Piper who organized and led the parade.
BTW, your Atlantic piece, while accurate enough, would have been more informative had its graphs shown, not the GSEs’ share of total originations, but their share of subprimes.
greenlibertarian on July 06 at 1:28 p.m.
“Of all the partners in the homeownership push, no industry contributed more to the corruption of the lending process than Wall Street.”
-as written by the authors in their book.
If they’re spinning something differently now to the WSJ video opinion journal, I would say that impugns their credibility.
gmorton on July 06 at 2:24 p.m.
JBlim wrote,
“…during the important years in the build up to the crisis, from 2002 until late in 2006, Fannie and Freddie were losing subprime market share to private sector firms. For example, as noted by McClatchy News, ‘More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions,’ and ‘Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.’ The loss of market share ended in late 2006, but by then the crisis was already set in motion.”
JB, don’t bother us with Krugman cites. He is incapable of telling a story straight; it invariably consists of juxtapositions of irrelevant facts, omissions of relevant ones, and *non sequiturs*, all strung together to bamboozle the naive.
The paragraph above is good example. It doesn’t matter who *issued* (originated) those loans. What matters is who bought them and “guaranteed” them. At the time of the collapse the GSEs held or guaranteed ~$2 trillion in subprimes, about 43% of all such loans outstanding.
http://www.aei.org/docLib/Pinto-Sizing-Total-Exposure.pdf
http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html
gmorton on July 06 at 2:28 p.m.
greenlibertarian wrote,
” …no industry contributed more to the corruption of the lending process than Wall Street.”
That does not contradict their claim that the crisis *originated* in, and was driven by, government policies, i.e., that government was the “prime mover.”
Jeffrey_Grey on July 06 at 6:32 p.m.
Which is just what I said: There’s a lot of culpability to go around. But you only play lip service to that guilt you can’t plausibly hide and then rush off on that same, tired, ‘But the devil made me do it!’ Thus:
What motivated them was GREED, the chance to make a quick buck and the same human failure that your monomania sees blighting every governmental ‘intrusion’ into your life, but which no private institution suffers.
Hell, I’ll grant for the sake of argument that Fannie and Freddie combined together to first cut off… three fingers on your left hand. Yes! They did it. They even started it! I’ll give you that.
But then the private lenders got into it and before the day was done, you’d lost both arms and both legs along with those three fingers.
And you expect us to be persuaded when you nod your chin at the ragged stump of your left arm and whine, ‘I’ve lost three of my fingers! That’s the issue here!”
http://www.businessweek.com/investing/insights/blog/archives/2008/09/fannie_mae_and.html
I’ll say what I said back at the beginning: you’re only telling half the story (at best!) and trying to frame the question so it fits your answer - the same answer that you always try to sell when this question comes up. ‘It was all Fannie and Freddie and the evil, intrusive government! They made me do it!’
Greed and ‘damn the risks, get the profits!’ were the true instigator here, gmorton. The fact that doesn’t leave the government as the ever and always source of all evil doesn’t make it any less true.
JBlim on July 06 at 6:40 p.m.
gmorton says “don’t bother us with Krugman cites”
How typical, when presented with actual facts, you attack the source and ignore the facts.
I don’t know where you get your facts, perhaps you misread them somewhere:
“Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.
During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data… ”
http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html#ixzz1RNZOQApu
Nobody is saying that Fannie and Freddie were any better than the rest of them, but your attempt to blame government is just ideologically driven drivel.
gmorton on July 06 at 7:26 p.m.
Jeffrey_Grey wrote,
“What motivated them was GREED, the chance to make a quick buck . . .”
Hmmm. The chance to make a quick buck is “greed”? Why don’t you explain just what you count as “greed,” and how it is distinguished (if it is, in your mind) from the desire to maximize the return on one’s investments? What do you imagine would motivate bankers, stockbrokers, investors, etc.? A desire to assist the gummint in carrying out some nitwit free lunch scheme? A desire to help pols make good on their campaign promises?
And what motivated who? The banks, storefront mortgage lenders, and brokerage houses? They were not the ones who built this apple cart and pushed it to the top of the hill, Jeffrey. They only jumped aboard for what they saw as a free ride, just as did the borrowers who flocked to the prospect of rent-free housing.
” …and the same human failure that your monomania sees blighting every governmental ‘intrusion’ into your life, but which no private institution suffers.”
Oh, no. The bankers are of course motivated by “greed,” but the pols who baked this turkey had a very different motive – the lust for power and to be loved by everyone to whom they delivered free lunches bought with someone else’s money.
gmorton on July 06 at 7:49 p.m.
JBlim wrote,
“Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percen . . ”
And that piece of trivia – what fraction of subprimes the GSEs held in 2006 – makes no difference whatsoever. What matters is what fraction they *guaranteed*, as well as held, and what fraction of all outstanding subprimes they held or guaranteed. That figure was 43%. (See links above).
“Nobody is saying that Fannie and Freddie were any better than the rest of them, but your attempt to blame government is just ideologically driven drivel.”
Er, JB, who controls Fannie and Freddie? Who commanded them to enter the subprime market? Who invited all the other sharks into the pool, in order to increase homeownership by making mortgage loans more “affordable”?
The government was not primarily to blame merely because its agencies directly participated in the feeding frenzy. It is to blame for throwing the chum into the pond to begin with.
gmorton on July 06 at 7:54 p.m.
JBlim wrote,
“I don’t know where you get your facts, perhaps you misread them somewhere:”
I gave you the sources. But you have to read them.
But of course, I realize you are averse to doing anything like that.
:-)
JBlim on July 06 at 9:53 p.m.
gmorton says “The government was not primarily to blame merely because its agencies directly participated in the feeding frenzy. It is to blame for throwing the chum into the pond to begin with. ”
Hiding behind riddles, I see.
“throwing the chum into the pond” ??
Obviously, you will believe what you want to believe, gmorton.
gmorton on July 07 at 11:10 a.m.
Sorry that one went over your head, JB.