So who is to blame? There's plenty of blame to go around, and it doesn't fasten only on one party or even mainly on what Washington did or didn't do. As The Economist magazine noted recently, the problem is one of "layered irresponsibility ... with hard-working homeowners and billionaire villains each playing a role." Here's a partial list of those alleged to be at fault:
* The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.
* Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.
* Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
* Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
* The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
* Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
* Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
* Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
* The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
* An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
* Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.
With all the links this thing adds up to a lot to reading, so I'll just try to be as concise as possible. The contradiction which I previously alluded to, concerns the supposed blame which has been designated to the President. In the article they cited, it is said that:
These experts, from both political parties, say Bush's early personnel choices and overarching antipathy toward regulation created a climate that, if it did not trigger the turmoil, almost certainly aggravated it. The president's first two Treasury secretaries, for instance, lacked the kind of Wall Street expertise that might have helped them raise red flags about the use of complex financial instruments at the heart of the crisis.
The article doesn't make clear what exactly does the supposed lack of 'Wall St. expertise' of the first two Treasury secretaries have to do with any 'antipathy towards regulation'. Furthermore, the issue of the President's position on regulation is clearly irrelevant to the current crisis since deregulation wasn't a causal factor in this crisis. This attempt at casting further aspersion upon an already unpopular President is even furthermore contradicted by the very next sentence in the same cited article.
To his credit, Bush accurately foresaw the danger posed by Freddie Mac and Fannie Mae, and began calling as early as 2002 for greater regulation of the mortgage giants
How ironic is it that someone with such a reputation of having such 'antipathy towards regulation', would end up being the first to call for regulation nonetheless. Irony truly is the spice of life I suppose...
Not only does factcheck.org contradict themselves by citing this article which implicitly blames deregulation for the crisis shortly after their own article rules it out as a causal factor in this crisis; but the cited article ends up acknowledging that Bush was in fact pursuing regulation of Freddie and Fannie, all the while the author is trying to cast Bush's affinity for deregulated markets as an actual factor in this crisis! Now I know a lot of folks don't like the guy too much, but fair is fair. Their attempt at factually establishing the culpability of the Bush administration in this is vacuous and asinine.
Could the Bush administration have done more though? I feel he fulfilled his part as far as sounding the alarm on the threat from Freddie and Fannie. However if he intended to avoid having to share blame for this crash, then he probably should have bitten the political bullet of taking as very hard and very public stand against government mandated subprime lending all together. It certainly wouldn't have been politically expedient for him to do so, but when you think about it a bit, it wouldn't have been politically expedient for him to make an executive order to the FAA to implement all the security measures that are currently practiced, pre-9/11.
Factcheck.org's blaming of 'mark to market' accounting rules is an exercise in vanity as well. The value of something your trying to sell is always dictated by what the buyer is willing to pay (i.e the market).
I do applaud their noting that the 'collective delusion' that surrounded this since I feel there's not enough is being said about that matter. They also, wisely, dismissed the farce that derugation somehow caused this.
However if I was to begin to offer a brief defense of Alan Greenspan, I'd start with noting that the article fails to take into account that he too called for more regulation of Freddie and Fannie in 2003. Factcheck.org also fails to make *any* mention of the accounting scandals of Freddie Mac in 2003 and 2004, and how it was that they they managed to wiggle their way out of the consequences. No, instead end the article in the following manner:
The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation. Claiming that a single piece of legislation was responsible for (or could have averted) is just political grandstanding. We have no advice to offer on how best to solve the financial crisis. But these sorts of partisan caricatures can only make the task more difficult.
What happened here is not nearly as complicated as it seems once you've removed the contradictions and inaccurate aspersions which factcheck.org cited as if they were 'facts', and afterwards add the missing link which makes sense of all this. It was the government who initially put pressure on Freddie and Fannie to make these subprime loans. This was a corruption of the market at it's very roots. What else could it have done but fail?
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