Housing Bust Blame Game
Back in August of 2007, we looked at the The Ongoing Impact of the Housing Sector.
At the time, I had assigned blame for all of the problems in the credit market to a variety of institutions and people. The blame went as follows:
* Federal Reserve (FOMC)
* Borrowers
* Mortgage brokers
* Appraisers
* Federal Government
* Fannie Mae
* Lending banks
* Wall Street firms
* CDO Managers
* Credit agencies
* Hedge funds
* Institutional Investors (pensions, insurance firms, banks, etc.)
* And back to regulatory role of the Federal Reserve
Today's WSJ has a front page article looking at the same issue: Housing Bust Fuels Blame Game. However, they assess blame somewhat differently, with a bit of a political slant:
Democrats are quick to blame Republicans, who were in power during the housing bubble and subprime lending frenzy. For years, America's leaders failed to restrain the markets, companies, investors and consumers from the missteps that led to the most pervasive financial crisis in decades.
But in hindsight, the failure stretches across government and across party lines. At bottom are two strong currents. From the Republican president to urban Democratic congressmen, homeownership was pushed as an overriding and unquestioned goal. And many significant attempts at regulation were obstructed by the prevailing belief that the economy did best when financial markets operated as freely as possible.
While the headline writer tries to call this a "Bipartisan Failure," the bulk of the actual article is find less kind to the GOP. The Journal blamed:
* The Bush administration for cheerleading homeownership and pressuring government-sponsored mortgage lenders Fannie Mae and Freddie Mac to provide funding for riskier mortgages.
* Congress for allowing Fannie and Freddie to invest heavily in securities backed by subprime loans.
* While Democratic congressmen pushed federal law to restrain sub-prime lending practices Republicans (with some Democratic allies) blocked or countered with weaker versions;
* Federal Reserve, Chairman Alan Greenspan, revered for not using the Fed's authority to more aggressively regulate lender behavior.
* California -- where the country's subprime lenders where -- saw Democratic state lawmakers refusing to impose tougher regulations on a prized local industry.
Perhaps its bias on my part, but that list looks a little one sided to me . . .
graphic courtesy of the WSJ
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Source:
Housing Bust Fuels Blame Game
Democrats Seize On Opponents' Role;
Bipartisan Failures
GREG IP, JAMES R. HAGERTY and JONATHAN KARP
WSJ, February 27, 2008; Page A1
http://online.wsj.com/article/SB120406115972594515.html
Free version
http://online.wsj.com/public/article/SB120406115972594515.html?mod=blog
>
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Formula for a Housing Bust
A White House push to encourage higher levels of home ownership and oversight failures at all levels of government appear in hindsight to have spawned the current housing crisis. (See related article.)
click thru for WSJ interactive chart
Wednesday, March 19, 2008 | 11:45 AM | Permalink
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The Wall Street Journal? Taking a Republican slant? I am shocked. Shocked! :)
Posted by: mappo | Mar 19, 2008 11:53:47 AM
They say the truth has a liberal slant.
Posted by: me | Mar 19, 2008 11:59:47 AM
Although there is much blame to spread, there is obviously only o-n-e solution: More Leverage!
The AP reports: "The Office of Federal Housing Enterprise Oversight, which oversees the government-sponsored companies, said the mandatory cash cushion for Fannie and Freddie -- now nearly $20 billion for the two -- will be reduced by a third under the new plan. The freed-up money will go toward buying mortgages of struggling homeowners, enabling them to refinance into more affordable loans."
It will be interesting to see if the rest of the world who owns about 60% of all GSE paper agrees that less is better.
Posted by: Winston Munn | Mar 19, 2008 12:04:51 PM
BR:
Did the repeal of Glass-Steagall have anything to do with it? If so, there is blame to be laid at Bill Clinton's feet because he signed it into law.
Posted by: Joe Klein's conscience | Mar 19, 2008 12:14:53 PM
It was bipartisan failure in the sense that Republicans blocked the needed reforms, and Democrats weren't politically strong enough to push them through despite Republican opposition.
Posted by: Nathan | Mar 19, 2008 12:16:01 PM
Wasn't just a housing problem, chilrin. Twas an internation financial bubble.
Throw more gas on the fire. Sure way to put her out.
Praise the Lord and pass the sugar.
Posted by: Ross | Mar 19, 2008 12:23:52 PM
The beauty - or the shame - of the current situation is that very few of the participants - from Main Street to Wall Street, from the STate House to the White House, and from one end of Pennsylvania Ave to the other - are blameless. With just a handful of individual exceptions, everyone was in thrall to greed, venality, ambition, cupidity, and thoughtlessness.
Stupidity is truly bipartisan.
Posted by: Terence Burns | Mar 19, 2008 12:24:53 PM
In related news, I disliked the article called "The anti-bailout hypocrites" over at the OC Register's Mortgage Insider.
Posted by: odograph | Mar 19, 2008 12:28:52 PM
If only Greenspan would have stuck with the saxaphone instead of sucking up with Ayn Rand,
Posted by: cfsteak | Mar 19, 2008 12:33:22 PM
this is funny as shit:
http://tinyurl.com/2jsa6e
Posted by: rexl | Mar 19, 2008 12:37:19 PM
No one put a gun to the head of any individual to buy a home or get a mortgage.
Yes, the lending got stupid if not criminally negligent. But if the lesson to this whole debacle isn't a reaffirmation of "Buyer Beware" then it won't have served any purpose (regardless of future regulatory efforts).
Posted by: jag | Mar 19, 2008 12:45:42 PM
It's Bush stupid!
Below is an excerpt regarding the partial theory for Spitzer's downfall.
Spitzer had become increasingly public in his blaming the Bush Administration for the nation's current financial and economic disaster. He testified in Washington in mid-February before the US House of Representatives Financial Services subcommittee on the problems in New York-based specialized insurance companies, known as "monoline" insurers. In a national CNBC TV interview the same day, he laid blame for the crisis and its broader economic fallout on the Bush Administration.
On February 14, Spitzer published a signed article in the influential Washington Post titled, "Predatory Lenders' Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers."
In his article Spitzer charged, "Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which he federal government was turning a blind eye." Bush, said Spitzer right in the headline, was the "Predator Lenders' Partner in Crime." The President, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet. Spitzer wrote, "When history tells the story of the sub-prime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favourably."
Full article:
http://www.321gold.com/editorials/engdahl/engdahl031808.html
Oh, if only Spitzer had the chance to try to take down Bush...it sure would have been interesting !!!
Posted by: blin | Mar 19, 2008 12:51:11 PM
Common Barry, what about the democrats? You have forgotten to add to the list the DEMOCRATS – they have been complaining about and pushing for more of sub-prime poor minorities homeowners (citing a bunch of bogus studies in support of their agenda and propaganda).
~~~
BR: I don't care about blahblahblah -- show me legislation that was passed or thwarted. Show me something that substantially changed the lending game.
I want substantive details (i.e, the example I cited, the Cali fDems not regulating homegrown predatory mortgage firms).
Posted by: Subprime Democrats | Mar 19, 2008 12:53:43 PM
I *knew* it was all California's fault! After all, could Idaho or Michigan have pulled off a disaster of this magnitude? Imagine the little bitty stinker of a Vermont-generated financial crisis. Hah!
Posted by: NiNM | Mar 19, 2008 12:54:55 PM
Barry,
I find it wonderfully amusing - or is it incredibly infuriating - that the Dems are so quick to blame the Republicans for this mess. I was not the least bit surprised to hear both Obama and Hillary bash Bush for the economy. But lest we forget, it was Bill Clinton who signed into law - after a Republican Congress passed it - what may go down as one of the most shortsighted and foolish decisions in history: the repeal of the Glass-Steagall Act.
The Dems can yap all they want about the Republicans being beholden to Wall Street, but it was a Democratic president who caved, officially repealed Glass-Steagall and paved the way for the mess we are currently in.
While there is much blame to go around - and I would stick the Fed right at the top of that list - the repeal of this law opened the floodgates by allowing banks to get back into the investment and securitization racket. Bank of America, Citigroup and JP Morgan Chase, among others, would simply not be able to do what they have done had this law not been repealed. B of A would have been prohibited from acquiring an investment banking arm; Citi would not have been able to do likewise; banks like HSBC, UBS, ING, etc. would not have been able to get into CDO's.
This simple fact is often overlooked but has had a tremendous impact on our present situation. Of course, you'll never hear the pols complain about because they signed the damned thing.
Posted by: Peter Davis | Mar 19, 2008 12:56:18 PM
Barry,
I agree with your list, but some borrowers were victims as well. My father is lawyer in Miami (working for people of modest means pro bono)and he tells me that a lot of people were duped into taking these loans. Some of these people were not sophisticated folks, and for the most part they had very little understanding as to how these mortgages worked. Institutions took advantage of them. Now, they have lost everything. These were not housing speculators buying a second or third home like so many did in South Florida, and the last thing they wanted to do was default on their loan. Some did not even speak English and I know some people have very little or no symphathy for these people, but I think this sort of practice by banking and lending institutions needs to be pointed out if we are to distribute blame accordingly.
Posted by: maximo | Mar 19, 2008 12:57:14 PM
Republicans had complete control of the government from 2000-2006 (the top of the bubble).
I wonder why people bother to vote for Republicans--when they're in charge it is the actions of previous Democrats that control events, or it's the possibility of a Democrat being elected that controls events.
The party of individual responsibility is anything but responsible.
Posted by: Neal | Mar 19, 2008 1:02:09 PM
We can't legislate or even regulate away human greed. This idea of allowing the FHA and Fannie and Freddie to jack up the financing available won't work this time. Why would even a greedy speculator buy an overpriced house if he can't flip it? Why would someone buy a house which will depreciate in value ?(not just price). No matter how fast the Fed inflates, unless they supper charge pension and social security payments with a massive raise and drop withholding for a year on wages, they won't get people to "bet on the come" as to new purchases. Sorry Benny and Paully, funny money walks even more than BS.
Fiscal responsibility begins in government. When we have a serious government, the people will regain confidence in the future.
Posted by: AGG | Mar 19, 2008 1:09:53 PM
I blame the media. And bloggers.
Posted by: ramstone | Mar 19, 2008 1:10:50 PM
More signs of the dumbing down of America as we cannot even get the blame right. I was comforted to find out that the Dick Cheney was fishing with his family aboard the Sultan of Oman's yacht. At least he would have difficulty screwing things up from there. I hope the fish gavbe him our message- Bite me!
Posted by: larster | Mar 19, 2008 1:19:18 PM
"Some did not even speak English"
This leftist victimization makes me sick. I am about to puke just from reading it.
Are you saying that the lawbreakers that came across the border illegally and did not learn English, and received 500K mortgages with zero down payments to buy a house are now "victims" because they did not speak English?
Hello! This is America. English is an official language here!
The victims are the people who came to this country LEGALLY, learned English, working hard, paying taxes (not receiving welfare checks like many of these “not speaking English victims”) and saving to buy their first home, and now are forced by the government to pay for irresponsible home buyers (aka "victims").
Posted by: Subprime Democrats | Mar 19, 2008 1:22:05 PM
No one put a gun to the head of any individual to buy a home or get a mortgage.
Yes, the lending got stupid if not criminally negligent. But if the lesson to this whole debacle isn't a reaffirmation of "Buyer Beware" then it won't have served any purpose (regardless of future regulatory efforts).
---
It's funny how libertarians secretly love that things like baby food and medicine and buildings and bridges are required by law to be safe through those evil, communist, top-down, command and control things called "safety standards."
Posted by: Douglas Watts | Mar 19, 2008 1:23:20 PM
The sermons about the Glass-Steagall act are positively amazing. Here we have a real crisis, that deeply hurts nearly everyone, with a multitude of responsible parties, and here these people have found their talking point - a single factor among many, but one which is directly attributable to their partisan enemy - and they are out in force in the blogosphere focusing the discussing on this single talking point to the exclusion of all other causes.
It would make some sense if it turned out that posters like Peter Davis were taking money from the Republican party, but that seems very unlikely. There are too many of them. This complete partisan allegiance is being offered freely by free thinking people.
Don't you realize that the politicians you are out shilling for don't care about your interests? Don't you think there ought to be real political consequences for people who were in charge when a massive global economic crisis developed? Don't you think it makes sense to face serious matters in a serious way; to set aside partisan bias temporarily and consider the issues objectively? How bad to things have to get before people will put the real problem before their need to score political points?
Posted by: decius | Mar 19, 2008 1:23:49 PM
I really hope BR gets a chance to comment on Fannie and Freddie. It seems insane to allow them to have lower capital requirements exactly when the chance of stuff going bad is rising.
I'm also wondering if they couldn't raise the necessary funds so they TOLD the government "hey either bail us out or reduce what we need"
Posted by: Michael Donnelly | Mar 19, 2008 1:34:45 PM
Nobody put a gun to anybody's head to get a loan.
But - the Fed had to make a loan to JPM, because the meltdown of Bear Stearns put a gun to its head.
Wow. The Dittoheads are right. The problem is gun control laws. The answer to this mess is the same as the answer to the college shootings: everybody should have a gun!
That's a great Republican talking point, sure to resonate in the Red States.
Posted by: roger | Mar 19, 2008 1:35:11 PM
