How do we apportion blame for the housing bubble?
"Blame" sounds so petty, but it really boils down to this:
Whenever I engage with my ideological enemies about the 2012 election, the guns swivel toward the Great Recession -- divided into the twin meltdowns of Wall Street on one hand and housing prices on the other. And there's always disagreement about whether the latter was a failure of government or free enterprise.
My basic argument has been that the Democrats, in particular, were pushing mortgages for people who probably couldn't afford them; my opponents say the banks (i.e., capitalist fat cats) are to blame.
What's the right answer? And what credible facts can I use to back this up?
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Answer by Tom Lindholtz
The Community Redevelopment Act got the ball rolling. Carter started it, I believe, Clinton boosted it. That got Fannie and Freddie into the role of underwriting bad mortgages. Bush tried to rein in Fannie and Freddie and got shut down by Barney Frank and Chris Dodd, who were both on the take. Wall Street's role was essentially just that of someone trying to make a bad situation something other than a bad situation. That is, they took bad mortgages and packaged them as hi-risk investments. People who bought them should have done their due diligence but didn't. They paid the inevitable price.
At least, that's my in-a-nutshell take on it.
Ottoman Umpire: Great, pithy answer. Thank you! How about the ratings guys like Standard & Poor's?
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- · February 24, 2012 at 11:22pm
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Tom Lindholtz: A good argument can be made that the ratings agencies were asleep at the switch and thus allowed investors to get into things where the true risk wasn't apparent. OTOH, some of the instruments were probably barely understood, if at all, by even the people who created them. They were totally new concepts. Maybe a little slack is in order.
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- · February 26, 2012 at 2:19am
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Diane Ellis: Good question. I was in an argument with some of my own liberal acquaintances about this very recently.
Ottoman Umpire: Thanks, Diane. I was looking for my copy of The Housing Boom and Bust by Thomas Sowell, but I can't find it. I think there's some data in there.
The Logo: Related conversations:
http://ricochet.com/main-feed/Was-the-crisis-actually-imposed-by-the-government
http://ricochet.com/main-feed/Coffin-Corner/%28comment%29/2470#comment-2470
http://ricochet.com/main-feed/Finally-the-True-Story-of-the-Financial-Crisis-Breaks-Through
Edited on February 20, 2012 at 2:07amJoin Ricochet or Sign In to add your comment.