As the saying goes, you are entitled to your own opinion, but not your own facts. The instant historical revisionism by Karl Rove in today’s WSJ — mythmaking writ large — contains an egregious combination of false statements, crucial omissions and misleading assertions.
A few thoughts are required to correct Rove’s attempt to create a false and deceptive narrative. Consider these few corrections:
1. “Fannie Mae and Freddie Mac were among the principal culprits of the housing crisis” Wrong. Fannie and Freddie were cogs in the giant mortgage machine, but they had nothing to do with the abdication of lending standards from 2002-07. That was a function of the Lend-to-Securitize business model of the sub-prime mortgage originators. THAT was the primary cause of the housing boom and bust, along with Ultra-low rates and a lack of Fed regulation of these sub-prime lenders.
2. “Fannie and Freddie were too large and overleveraged” True. This had been pointed out by many people, before Bush and afterwards, that Fannie was a problem. Chief amongst the Fannie critics was Fed Governor William Poole. He deserves credit for his many early warnings about Fannie Mae and the GSEs. He was ignored by Alan Greenspan. Also ignored was Fed Governor Edward Gramlich, whose early warnings about subprime and predatory lending and were both timely and prescient.
3. Democrats controlled the Congressional Debate on GSEs: Rove somehow fails to note the GOP controlled Congress from 1994-2006, including the first 6 years of the Bush Presidency. If the President wanted to rein in the GSEs, he needed only make it a major priority, and not a footnote in the 2001 budget.
4. “largely unreported story is that to fend off regulation, the GSEs engaged in a lobbying frenzy.” WTF? This has been widely reported in the media for sometime now.
5. GSEs bought $ trillion of subprime debt and “liar loans,” almost all bought between 2005 and 2007. This bulk-up in risky paper made it possible for banks to lend imprudently on a massive scale. Facts are correct, conclusion is wrong. By 2005, the die was set. The GSEs were very late to the party, buying sub-prime at the top of the market. The peak of homes sales (units) were August 2005, and the peak in prices were in 2006, just a few months later. From there, it was all downhill. By the time the GSE’s were buying sub-prime debt, it was all over but the crying.
6. OMISSION: Bush thwarted attempts to make lenders behave responsibly: Gee, somehow Mr. Rove forgot this one. Bank regulators had proposed new guidelines for writing risky loans. These were internal administrative rules; had they been enacted, the worst of the housing and credit crisis might have been avoided. The Bush administration backed away from proposed crackdowns on the subprime, no-money down, interest-only mortgages that were critical contributors to the credit and housing crisis. According to the Associated Press, pressure from banks (many of whom have since failed) was the reason:
“Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way. ‘These mortgages have been considered more safe and sound for portfolio lenders than many fixed-rate mortgages,’ David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.”
What was so damning was these proposals were all stripped from the final administrative rules by the Bush White House. None required congressional approval; they did not even require the president’s signature.
Note — these rules were proposed in 2005 — the same year as FNM/FRE began buying subprime mortgages. If that was, as Rove asserts, the cause, than why wasn’t this a primary cause as well?
I am passionate about getting the factual cause of the current housing and credit crisis correct. If we don’t understand how this all came about, we cannot possibly cure it. In attempting to save the President’s legacy and clear his own name, Mr. Rove does the nation a terrible disservice.
I usually don’t bother fisking WSJ Op-Ed pages, as their respect for such things as objective fact or “Truth” can be lacking But this one was so egregious, it demanded an answer.
President Bush Tried to Rein In Fan and Fred
WSJ, JANUARY 7, 2009, 11:35 P.M. ET
US diluted loan rules before crash
AP, December 1, 2008