The question of what caused the crisis is obviously still controversial, but a consensus seems to be forming around the following narrative: The federal government, out of an abundance of concern for the plight of the poor and middle class, made it too easy to buy a home. Congress, on a bipartisan basis, set unrealistic affordable-housing goals for Fannie Mae and Freddie Mac.Both Democrats and Republicans are responsible, and so naturally they each blame the other.
President Clinton used those goals to expand access to mortgages to low-income borrowers. Then President George W. Bush, with the approval of Congress, expanded the practice, until way too many low-income or otherwise underqualified Americans owned mortgages they couldn’t afford.
A mixture of greed, idealism, cynicism and stupidity led to the practice of bundling those iffy mortgages into financial instruments that Wall Street didn’t know how to handle and regulators didn’t know how to regulate. As Rep. Barney Frank (D-Mass.) put it in 2003, he wanted to “roll the dice a bit” on regulating subprime mortgages.
When the Washington-abetted housing boom went bust, regulators demanded immediate markdowns of mortgage-backed securities, which required financial institutions to sell them, creating a fire-sale atmosphere that fueled the panic even more.
Some Obama defenders will say that Bush’s deficits made it harder to deal with the crisis. That seems reasonable, even if it’s a red herring in the debate about what caused the crisis. And Obama’s record on deficits hardly gives him much standing.
Wednesday, October 10
What cause the mortgage meltdown and the ensuing Wall Street crisis
Jonah Goldberg on the subprime mortgage crisis: