Personally, I would love to blame the financial meltdown on Bush and the GOP Congress. Unfortunately, Megan McArdle -- who actually knows something about economics -- won't let me. Nor will she let Barack Obama. Excerpt:
What, specifically, should the Bush administration have done, Senator? Don't tell me they should have beefed up SEC enforcement, since this is not a criminal problem (aside from minor lies by Bear execs after the damage was already done). Perhaps he should not have reappointed Greenspan, or appointed Ben Bernanke? Both moves were widely hailed at the time. Moreover, to believe that a Democrat could have done better is to assert that a Democratic president would have found a Fed chair who would pay less attention to unemployment, or a bank regulator who would have tried harder to prevent low-income people from buying homes. Where is this noble creature? And why didn't Barack Obama push for him at the time?Indeed, I ask the Senator to name one significant thing that Bush has done to create this crisis that couldn't also be laid at the feet of St. William of Little Rock. If Democratic policy is so good at protecting the little guy from asset price bubbles, how come the stock market crashed in 2000?
This kind of foolish grandstanding is not the change we need.
More McArdle mythbusting on this crisis here. Stop it, lady, you're stepping on my dreams!
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Simon
And yes, key congressional Democrats have certainly had the power to block any legislation directed against Fannie and Freddie during periods of narrow Republican majorities.
And what legislation would have made them better? They aren't the ones who screwed up.
They bought a bunch of perfectly good loans, exactly as was their entire purpose. They weren't out there buying subprime or Alt-A loans. Their loans were not dangerous ones.
The real estate market then collapsed, and, more to the point, the price of real estate collapsed, and a bunch of loans that, as far as anyone could tell, were perfectly fine, were suddenly not fine at all.
The only way they could have avoided this was to buy less loans over the last decade. Ie.e., not actually done the job they were created to do. Which, of course, legally they couldn't do. (I wonder how many banks actually did say 'Um, these absurdly high house prices, while appearing to be good for us, actually could pose a threat to us if they drop and everyone starts defaulting on these loans.'? Probably not that many.)
Oh, oh, I know. They were sometimes defrauded with loans that actually weren't good loans, and they could have had stricter regulations on the banks to stop that from happening...which I'm sure you'll be able to document that the Republicans pushed for, right?
A lot of the problem goes back to the deregulation of banks but people forget that banks were deregulated because that was the only way to keep them afloat when all the capital was moving to freer markets overseas. Which means that reregulation, unless it is very carefully done, will create another nightmare--serious undercapitalization and then will not be any money do anything.
DavidTC - IIRC, Frannie _weren't_ quite innocent bystanders. Had they simply stuck to their raison d'etre of creating & selling pass-through MBS's on conforming loans, I suspect they'd be fine. (Assuming they quality-controlled the loans in those MBS's - a big if.)
But they didn't just do that; they also exploited their de-facto federal guarantee to borrow at abnormally-low rates & buy up huge portfolios of interest-bearing stuff - mortgages, GSE MBS, private-label sub-prime MBS, etc. - and use the resultant interest-rate spread to pad their profit margins. Of course, this strategy left them vulnerable to default in the event that market jitters left them unable to borrow at those super-low rates. Which, IIRC, is what happened. The market lost confidence in Frannie, agency spreads (vs. Treasuries) exploded, and the writing on the wall began to read "GSEs = Bankrupt".
Even this wouldn't have been problematic had some bipartisan Bright Lights not allowed the GSEs to grow into the multi-trillion-dollar, "too big to fail" range. But GSE protection money (oops, I meant "lobbying & campaign contributions") took care of that particular barrier to entry.
KWL:
I do not appreciate blanket statements, such as, THINK, in order to motivate me to study up on my apparent ignorance of the radical Islamist state, which would not have effected the United States in its extreme fanatical form had we taken the advice of President Carter and slowly weened off our Middle East oil consumption over the past 30 years. However, if you have studied radical Islam in a scholarly sense, I would be glad to hear your insights, but please, patronizing others only leads to broken conversation. If you disagree with my comments, substantiate your point of view. This does not mean I will readily agree with you, but fruitful conversation is one of the primary aims of this blog created by Rod Dreher, not divisive replies such as your own.
There were a lot of "liar loans" with no verification, NINJA loans (no income, no job or assets). If those had been policed earlier, the real estate bubble might have deflated before it got so bad. But no Republican would want to slow the economy before an election like 2004 or 2006. Nor would anyone with a house to sell.
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