Political Animal


December 26, 2011 11:50 AM Playing the blame game poorly

By Steve Benen

Identifying the culprits for global financial industry collapses can be challenging. When it comes to explaining who caused the Great Depression, for example, there are still some spirited debates among legitimate experts.

That said, it’s generally easier to understand what didn’t cause a crash. And when it comes to the 2008 crisis and the ensuing Great Recession, it’s imperative to understand just how wrong Republicans are.

The GOP line, especially among the party’s presidential hopefuls, is pretty straightforward: blame government. Candidates like Mitt Romney and Newt Gingrich are convinced — or at least pretend to be convinced for the sake of political appearances — federal housing policy and regulations produced the crash. If Americans want someone to blame, they say, start with Washington in general, and Fannie Mae and Freddie Mac in specific.

Bloomberg reported last week that the Republican line has been rejected “by the chairman of the Federal Reserve, many economists and even three of the four Republicans on the government commission that investigated the meltdown,” but Romney & Co. don’t care about facts; they care about convincing voters to believe ideologically-satisfying nonsense. Sure, the evidence points to a lack of regulations, but since when does evidence matter?

For his part, the New York Times’ Joe Nocera appears to be sick of it. Over the weekend, he labeled the Republican line “the Big Lie,” and explained how thoroughly it’s been embraced by Republican policymakers, conservative think tanks, and GOP-friendly media outlets.

Central to [the argument espoused by Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission] is that the government’s effort to encourage homeownership among low- and moderate-income Americans is what led to the crisis. Fannie and Freddie, which were required by law to meet certain “affordable housing mandates,” were the primary instruments of that government policy; their need to meet those mandates, says Wallison, is what caused them to dive so heavily into those “risky” mortgages. And because they were powerful forces in the housing market, their entry into subprime dragged along the rest of the mortgage industry.

But the S.E.C. complaint makes almost no mention of affordable housing mandates. Instead, it charges that the executives were motivated to begin buying subprime mortgages — belatedly, contrary to the Big Lie — because they were trying to reclaim lost market share, and thus maximize their bonuses.

As Karen Petrou, a well-regarded bank analyst, puts it: “The S.E.C.’s facts paint a picture in which it wasn’t high-minded government mandates that did [Fannie and Freddie] wrong, but rather the monomaniacal focus of top management on market share.” As I wrote on Tuesday, Fannie and Freddie, rather than leading the housing industry astray, got into riskier mortgages only after the horse was out of the barn. They were becoming irrelevant in the most profitable segment of the market — subprime. And that they couldn’t abide.

Paul Krugman, referencing Nocera’s column, added, “[W]hat’s going on in the discussion of economic affairs (and other matters, like justifications for war) isn’t just a case where different people look at the same facts but reach different conclusions. Instead, we’re looking at a situation in which one side of the debate just isn’t interested in the truth, in which alleged scholarship is actually just propaganda.”

It’s worth emphasizing a couple of other relevant angles. First, responsibility matters. When this subject comes up, some on the right prefer to say the “blame game” isn’t worth playing (except when they’re blaming federal regulations), but it’s worth knowing exactly what happened if we’re going to be able to prevent it from happening again. Accountability and responsibility matter, too, especially when the leading Republican presidential candidates are promising to remove safeguards and regulations starting in 2013.

Second, it’s also worth realizing that for much of the right, they don’t have much of a choice — they have to blame government, even if Fannie and Freddie weren’t to blame, because the alternative would be to accept the intellectual bankruptcy of their worldview. Wall Street and the major financial industry institutions were responsible for the 2008 crash, but for Republicans to accept that fact would lead them to conclusions they’re just not comfortable with: the need for federal regulations that limit recklessness and prevent catastrophes.

In other words, Republicans have to blame government whether the argument is ridiculous or not — their ideology demands it.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.


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  • mellowjohn on December 26, 2011 11:59 AM:

    "...the government’s effort to encourage homeownership among low- and moderate-income Americans is what led to the crisis."

    i thought the government’s effort to encourage homeownership among low- and moderate-income Americans was part of the bush administration's attempt to build an "ownership society" and turn all those low- and moderate-income americans into republicans.

  • kevo on December 26, 2011 12:02 PM:

    Surely we can't blame the private firms who were masterfully using their relationship with Fanny Mae and Freddy Mac as a beard for easy money, profit and wealth with nary a concern about the Ponzi nature of their facial hair!

    No, nothing to see here people. Move along and continue blaming the government for corporate malfeasance as we move your attention to the next faux cultural outrage!

    Now that fits the Republican strategy like a glove! Will the American electorate fall for it in 2012? -Kevo

  • c u n d gulag on December 26, 2011 12:13 PM:

    You forgot that it was also clearly all the fault of Obama.

    The very thought of him running for President apparently created enough "uncertainty" in the global economy to crash the markets.

    Oh, if only Little Boots could have served a 3rd term, all of this "uncertainty" could have 'certainly' been avoided with 'certainty!'

    And the only solution now is to vote in Conservative Republicans, whose intellectual bankruptcy will lead to investment and the free markets will lose their 'uncertainty," and we will all 'certainly' prosper with great 'certainty.'

    Or, some sh*t like that...

  • LL on December 26, 2011 12:31 PM:

    In other words, Republicans have to blame government whether the argument is ridiculous or not — their ideology demands it.

    And therein lies a fundamental problem. When politics becomes like unto religion, those who indulge such politics cannot be trusted to mop a floor properly, let alone run anything.

  • Ron Byers on December 26, 2011 12:34 PM:

    mellowjohn is absolutely right, GWBush was trying to move the poor into their own homes. Whether they did it for the reasons mellowjohn stated, the noble reasons GWB professed, or to pump the bubble Phil Graham and friends successfully created is irrelevant. The truth is home ownership was Republican and hence government policy from 2000 through 2008.

  • barkleyg on December 26, 2011 12:36 PM:

    This is a memory from 3 or 4 years ago, so I can't "guarantee" the exact numbers.

    At the height of the sub-prime mortgage frenzy, Freddie and Fannie only had 2 of the top 28 sub-prime lenders under their pervue.

    Remember, this was a period of new financial "instruments(bundling mortgages)", and most of it was done in new, unregulated areas of financial markets. I remember reading of one private mortgage lender who wanted a minimum of a 75% ACCEPTANCE rate from his mortgage brokers; just get me mortgages to bundle!

    And mellowjohn is correct in his remembering of King George
    wanting more Americans owning their own homes. King George just didn't tell them that once they bought homes they couldn't afford, from crooked mortgage brokers, it would be his Banker buddies who would eventually own all of them!

  • Danp on December 26, 2011 12:47 PM:

    The question I have for those who thing F &F were the major cause of the financial collapse is, "what would have happened differently had F&F not existed?" The originating and investment banks would have had to find someone else to buy these bad mortgages. But most of these loans had already been made. The damage was done before F&F got heavily involved. Whatever F&F's motives, their role was little more than to extend the shelf-life of this debt pyramid.

  • flyonthewall on December 26, 2011 12:49 PM:

    The American Dream Downpayment Initiative (ADDI) was signed into law on December 16, 2003. The program was created to assist low-income first-time homebuyers in purchasing single-family homes by providing funds for downpayment, closing costs, and rehabilitation carried out in conjunction with the assisted home purchase.


  • nkv on December 26, 2011 12:54 PM:

    The unstated assumption of MSM is that the Republican candidates are in reality moderates, but are saying extremist things to please the base. As the self-styled "truth discoverer", MSM then attempts to portray the true moderation of GOP candidates by being soft on their extremist statements.

  • tomb on December 26, 2011 1:05 PM:

    Your conclusion "Republicans have to blame government whether the argument is ridiculous or not — their ideology demands it," is exactly right. And this devotion to ideology is what drives almost all Republican policy. It's also what drives the reactive responses that whatever Obama is for, they're against and vice versa. And this ideology is pandered to by Fox TV and talk radio and it has been a commercially successful media strategy which perpetuates mythology.

  • Crissa on December 26, 2011 1:18 PM:

    Even if we take their (obviously wrong) conclusion that Fannie and Freddie did it... How does their solution, "Less regulation!" solve the problem of the bubble and Republican-approved bailouts for bankers?

    It's like saying the house is too pale so I'm going to paint it with more of the same white paint.

  • nerd on December 26, 2011 1:30 PM:

    The articles I've read today and over the weekend really point out that the election in 2012 will be about the choice of what the government is: is it as Lincoln said, "a government by the people, of the people, and for the people", or will it be a government for the haves? It is pretty clear what each party is for. The question is will the GOP have the same success it has had to get people to vote against their own interests?

  • jjm on December 26, 2011 1:38 PM:

    I instinctively felt from the first Bush announcement of his 'ownership society' that he was setting up a massive, classical land fraud scheme: where people are encouraged to borrow more than they can afford for property and ultimately default; the banks repossess the homes to sell them again in the very same way. The other phrase I recall using at the time, was that "Bush was going to Argentina us" --

    It was pretty patent from the start where his policies were going to go. And guess what? They did.

  • DisgustedWithItAll on December 26, 2011 2:59 PM:

    Actually, it's Barry Ritholz who's dubbed it "The Big Lie," and has had several columns on it in the Washington Post. You can also find it in his blog, The Big Picture. He gives a detailed analysis of the causes of The Great Recession in his book, "Bailout Nation."

  • Rick B on December 26, 2011 3:02 PM:

    There was more to the story than just the bubble and money-making. Wall street wanted power and they had to elect a Republican President. They had the libertarian Republican Alan Greenspan to help them.

    The most certain predicter of which party will win the White House is whether the economy is good or bad during the year before the election. So Alan Greenspan raised interest rates as high as he could in 2000 to shut down the economy and to elect George Bush. Then he lowered them as much as possible prior to 2004 to get him reelected.

    That lowering of the rates was to pump up the weak economy by way of feeding the housing boom. But it had to last through the 2004 election. Then after the election, Greenspan started notching up the rates by 1/4 % per month for the next 17 months to shut down the bubble - which is did. By late 2007 CountryWide Mortgage, the largest subprime lender, was in real trouble with its default rate and the Great Recession was pretty much a sure thing.

    Since 2008 we've seen the Great Recession prevented from becoming Great Depression II largely by Federal Reserve manipulation of the interest rates under the Depression I scholar, Bernanke. Greenspan was playing with fire for political reasons and was one of the key players who created the current economic conditions.

    It wasn't just his libertarian views that kept Greenspan from regulating mortgage banks as he should have. It was clearly politics also. He wanted a Republican President to be elected so he manipulated the economy to be more favorable to Bush at the date of the elections.

    That's only part of the story, of course, but it's a large part.

  • Kane on December 26, 2011 3:42 PM:

    The GOP line, especially among the party’s presidential hopefuls, is pretty straightforward: blame government.

    This blame government meme goes well beyond the financial collapse. Every challenge we face is portrayed as the fault of government. And much of the media seems more than willing to paint with broad strokes all the blame on government and/or Washington rather than delve into which political party shares the bulk of the blame.

    It wasn't so long ago when the Democratic congress received a 40 percent approval rating. Nothing to write home about, but it's fantastic compared to the 9 percent rating the Republican congress is now receiving.

  • Rick B on December 26, 2011 3:49 PM:

    It seems reasonable that the Republicans want to blame the government for the current (Republican caused) bad economic conditions. They have to stop the government from successfully improving things for most Americans if they are possibly going to be put back into control of the government, so their current ideology has to justify their total obstructionism.

    Elect Romney President and suddenly the Wall Street banks / government partnership will be the only way to rebuild the economy. Government will, of course, be the junior partner while the Wall street bankers collect the profits and bonuses.

    The flip-flop in propaganda is a Republican way of life.

  • barkleyg on December 26, 2011 4:11 PM:

    nerd on December 26, 2011 1:30 PM: So close, butt...

    "is it as Lincoln said, "a government by the people, of the people, and for the people"" or as MITTENS says: A government
    for the people(CORPORATIONS), by the people(Corporations), for the CORPORATIONS!

    Screw the People; it is the Corporations that are the REAL Americans! LOL

  • Rich on December 26, 2011 5:05 PM:

    That it's taken forever to "expose" the obvious is a problem with mainstream as well as liberal journos and bloggers.

  • DRN0001 on December 27, 2011 12:33 AM:

    Kevin Drum concurs with Benen & Nocera, and adds a graph!

  • rea on December 27, 2011 7:41 AM:

    I remember reading of one private mortgage lender who wanted a minimum of a 75% ACCEPTANCE rate from his mortgage brokers; just get me mortgages to bundle!

    I actually had a mortgage executive from one of the big lenders on the witness stand in one of my cases. His testimony was that the company did not care whether the borower (on a $1 million+ home) was likely to be able to repay the loan--all they cared about was whether the loan met minimum requirements for resale. Thus, finding that the borrower had earlier bought the property for $750,000 and could or would not explain where he got the money, they waited until one year expired, so that they no longer had to ask the question. Of course, what they missed was an as-yet unrecorded senior mortgage . . .

  • The Oracle on December 27, 2011 7:53 PM:

    Corporations = People.

    Soylent Green = People.


    Corporations = Soylent Green.


    Eat the Corporations.

    Republicans = Corporations.


    Eat the Republicans.

    (Hey, they're cannibalizing America, so fair is fair. I'd suggest a nice red wine).