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



Housing Bust Fuels Blame Game
Democrats Seize On Opponents’ Role;
Bipartisan Failures
WSJ, February 27, 2008; Page A1

Free version



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


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What's been said:

Discussions found on the web:
  1. mappo commented on Mar 19

    The Wall Street Journal? Taking a Republican slant? I am shocked. Shocked! :)

  2. me commented on Mar 19

    They say the truth has a liberal slant.

  3. Winston Munn commented on Mar 19

    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.

  4. Joe Klein’s conscience commented on Mar 19

    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.

  5. Nathan commented on Mar 19

    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.

  6. Ross commented on Mar 19

    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.

  7. Terence Burns commented on Mar 19

    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.

  8. cfsteak commented on Mar 19

    If only Greenspan would have stuck with the saxaphone instead of sucking up with Ayn Rand,

  9. jag commented on Mar 19

    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).

  10. blin commented on Mar 19

    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:

    Oh, if only Spitzer had the chance to try to take down Bush…it sure would have been interesting !!!

  11. Subprime Democrats commented on Mar 19

    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).

  12. NiNM commented on Mar 19

    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!

  13. Peter Davis commented on Mar 19


    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.

  14. maximo commented on Mar 19


    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.

  15. Neal commented on Mar 19

    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.

  16. AGG commented on Mar 19

    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.

  17. ramstone commented on Mar 19

    I blame the media. And bloggers.

  18. larster commented on Mar 19

    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!

  19. Subprime Democrats commented on Mar 19

    “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”).

  20. Douglas Watts commented on Mar 19

    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.”

  21. decius commented on Mar 19

    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?

  22. Michael Donnelly commented on Mar 19

    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”

  23. roger commented on Mar 19

    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.

  24. Douglas Watts commented on Mar 19

    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).

    Posted by: Subprime Democrats | Mar 19, 2008 12:53:43 PM

    Your racist meme is noted and not appreciated. It has been long established well past any measure of substantive evidence that lending practices by many banks have been racially tainted via redlining as well as through restrictive deed covenants. This is not an issue that normal, thinking people debate.

  25. Mr. Obvious commented on Mar 19


    June 2002

    President Reiterates Goal on Homeownership

    THE PRESIDENT: Well, thank you all very much for that kind welcome. I’m here for a couple of reasons. First, I want to thank you all for your service to the greatest nation on the face of the Earth. (Applause.) I’m here to celebrate National Homeownership Month, because I believe owning a home is an essential part of economic security. And I’m concerned about the security of America. (Applause.)

    — snip —

    Let me first talk about how to make sure America is secure from a group of killers, people who hate — you know what they hate? They hate the idea that somebody can go buy a home. They hate freedom; that’s what they hate. They hate the fact that we worship freely. They don’t like the thought of Christian, Jew and Muslim living side by side in peace. They don’t like that at all. And therefore, they — since they resent our freedoms, they feel like they should take out their resentment by destroying innocent lives. And this country will do everything we can possibly do to protect America. (Applause.)

    — snip —

    We are here in Washington, D.C. to address problems. So I’ve set this goal for the country. We want 5.5 million more homeowners by 2010 — million more minority homeowners by 2010. (Applause.) Five-and-a-half million families by 2010 will own a home. That is our goal. It is a realistic goal. But it’s going to mean we’re going to have to work hard to achieve the goal, all of us. And by all of us, I mean not only the federal government, but the private sector, as well.

    And so I want to, one, encourage you to do everything you can to work in a realistic, smart way to get this done. I repeat, we’re here for a reason. And part of the reason is to make this dream extend everywhere.

    I’m going to do my part by setting the goal, by reminding people of the goal, by heralding the goal, and by calling people into action, both the federal level, state level, local level, and in the private sector. (Applause.)

    And so what are the barriers that we can deal with here in Washington? Well, probably the single barrier to first-time homeownership is high down payments. People take a look at the down payment, they say that’s too high, I’m not buying. They may have the desire to buy, but they don’t have the wherewithal to handle the down payment. We can deal with that. And so I’ve asked Congress to fully fund an American Dream down payment fund which will help a low-income family to qualify to buy, to buy. (Applause.)

    We believe when this fund is fully funded and properly administered, which it will be under the Bush administration, that over 40,000 families a year — 40,000 families a year — will be able to realize the dream we want them to be able to realize, and that’s owning their own home. (Applause.)

    The second barrier to ownership is the lack of affordable housing. There are neighborhoods in America where you just can’t find a house that’s affordable to purchase, and we need to deal with that problem. The best way to do so, I think, is to set up a single family affordable housing tax credit to the tune of $2.4 billion over the next five years to encourage affordable single family housing in inner-city America. (Applause.)

    The third problem is the fact that the rules are too complex. People get discouraged by the fine print on the contracts. They take a look and say, well, I’m not so sure I want to sign this. There’s too many words. (Laughter.) There’s too many pitfalls. So one of the things that the Secretary is going to do is he’s going to simplify the closing documents and all the documents that have to deal with homeownership.

    It is essential that we make it easier for people to buy a home, not harder.

  26. Lord commented on Mar 19

    Blaming California and the states is a bit off. Attempts by them to reign in these practices were actively rebuffed by the Feds who preempted local legislation.

  27. algernon commented on Mar 19

    To be fair, Barry, you should add to your list foreign central bankers, esp. PBoC, who significantly contributed to the artificially low mortgage rates

  28. Joe Klein’s conscience commented on Mar 19

    Peter Davis:
    Thank you for answering my question. It would be interesting to see what Democrats in Congress voted to repeal Glass-Steagall. And it proves one maxim right. Clinton was the best Republican president since Eisenhower. ;-)

  29. Marcus Aurelius commented on Mar 19

    The order of blame:

    1. Mortgage brokers, working hand in ahnd with,
    2. The lenders, who took a cue from
    3. Alan Greenspan, who met, on a weekly basis during the bubble with,
    4. George Bush, who doesn’t really have a brain of his own, so the blame must, by extension, fall on,
    5. The Neocon Cabal, who count on the mindless trust of,
    6. the lower 50 percentile – in terms of IQ – who, trusted GWB (see 4), because he talks to,
    7. God.

    God did it.

    God shorted his good buddy, GWB.

  30. Peter Davis commented on Mar 19


    My comments on Glass-Steagall have nothing to do with partisanship. I’ve voted for both Republicans and Democrats and, quite frankly, don’t trust any politicians. I think they’re all a bunch of morons.

    I was simply trying to make the point that the repeal of this act was a tremendous mistake because it significantly enabled excessive risk taking by allowing banks to engage in both underwritings and consumer lending, both of which the mortgage mess now straddles.

    I am also not trying to absolve the many responsible parties from blame. I believe that many bear the burden for this; it is the characteristic of a bubble that pretty much everyone throws caution to the wind and acts recklessly, believing that “this time it’s different”. Including in my list of those at fault are:

    1. The Fed for irresponsible and asymmetric monetary policies and for failing to even attempt to regulate the lending industry.

    2. Mortgage lenders for deceptive, predatory and downright foolish lending practices.

    3. Homebuilders for the excessive building up of inventory.

    4. Investment banks for both knowingly and, more importantly, unknowingly securitizing and selling this junk. The scariest part is that most of these clowns actually thought this was a good idea, hence their third mistake: the excessive use of leverage.

    5. Retail banks for also levering up to the gills, extending credit to anyone with a pulse and then moving all of their liabilities onto off-balance sheet vehicles in order to circumvent reserve requirements. Way to go, fellas.

    6. Regulators, for apparently being comatose.

    7. Consumers, for apparently being stupid. I realize that many homebuyers are not financially sophisticated and were manipulated by lenders, by I firmly believe that if you sign your name on the dotted line, your are responsible. Also, when did buying a house whose value is 12 times your income, with no money down and a rate that would quickly reset to a level somewhere in the stratosphere become a good idea? And when did doing all of this while you were massively in debt become a better idea?

    In sum, there is no shortage of blame to go around. Much of this can be chalked up to human nature – in bubbles, people are stupid. That’s why they’re people. My point is simply that the wheels were greased by the likes of the repeal of Glass-Steagall as well as by E-Z Al and his buddies at the Fed.

    Christ, I miss the Cold War.

    – Pete

  31. Taylor commented on Mar 19

    Clearly “a Democratic President signed off on repeal of Glass-Steagall” was the first talking point on the memo sent out on Monday.

    Kudlow clearly got the memo.

  32. AGG commented on Mar 19

    decius and Douglas Watts are RIGHT! We need more americans that believe all humans are on the same team instead of acting like a bunch of cannibalistic squabbling idiots.

  33. maximo commented on Mar 19

    subprime Democrat said: “Hello! This is America. English is an official language here.”

    Hey, thanks for pointing that out, sport. I didn’t know English was the official language. But try telling that to Miami Cubans.

    This is not about lefting politics..its about unethical behavior. This people were targeted by banks in South Florida. Period! They went after them,some mortgage companies went as far as knocking on people’s doors offering loans. Have you ever been to Miami? (and no, South Beach doesn’t count)Do you know how things work down there? It’s Latin America with the benefits of ATMs and clean drinking water. The problem is that the institutions were acting like Argentinian and Panamanian banks. But since those loans were not staying on their books, who cares, right? Let the next idio worry about it.

    Leftwing wing poltics? Who are the one practicing corporate socialism? Man, communist commisars had more sense of accountability than this.

  34. blin commented on Mar 19

    That’s right Mr. Obvious…

    … like I said, it’s Bush stupid !

  35. Mr. Obvious commented on Mar 19


    In a bid to boost minority homeownership, President Bush will ask Congress for authority to eliminate the down-payment requirement for Federal Housing Administration loans.

    In announcing the plan Monday at a home builders show in Las Vegas, Federal Housing Commissioner John Weicher called the proposal the “most significant FHA initiative in more than a decade.” It would lead to 150,000 first-time owners annually, he said.

    Nothing-down options are available on the private mortgage market, but, in general, they require the borrower to have pristine credit. Bush’s proposed change would extend the nothing-down option to borrowers with blemished credit.

  36. rexl commented on Mar 19

    I am trying to corner the next bubble market in pitchforks and torches.

  37. Mr. Obvious commented on Mar 19

    blin, what irks me are righties that are trying to pin this on the lefties. The friggin pubs have been in control for 7 years, and Bush has been touting his ownership society since he took office.

    If you want to take the credit, then take the blame, too.

    And personally, I like BR’s list…there is enough blame to go around for everyone, including the borrowers who tried to beat the system.

  38. maximo commented on Mar 19

    @Subprime Democrat:
    I don’t care what race you are…I just think you use the language of a sorry human being who has no friends but his trading monitors. How is that for equal opportunity offense?

  39. AGG commented on Mar 19

    And the elephant in the room is?
    Do we have enough money?
    Are we running a deficit?
    Are wages keeping up with inflation?
    Have we, perhaps, spent about 500 billion (so far) on “something” besides infrastructure, alternative technology R&D, tayloring college and vocational education to match future generations with available jobs, pollution cleanup (a real growth industry these days), monetary incentives to people who benefit our country through a healthy, frugal, and environmentally conscious life style?
    Maybe it’s just too much fun to kill people regardless of whether it bankrupts a country or not.
    It’s the WAR, stupid.

  40. ron commented on Mar 19

    AGG. excellent comments.

  41. ac commented on Mar 19

    It was Bush.

    It was Bush who convinced the Anglo-Corporate crowd to side with him even though the majority voted Gore during the 00 election.

    Bush’s need to overexpand credit and cause a massive bubble was quite evident early on. The republicans inability to handle him and letting him loose was a BAD sin as they were the majority party.

    Thus, the Democrats and their weaknesses aren’t that important.

  42. AGG commented on Mar 19

    Don’t bother argueing with the “I made it so screw everyone else” subprime types. I had a boss like that once. He was well connected and exuded independence. When he was caught embezzling $160,000, the judge forced him to pay back the money and he was given diversion instead of prison. His connections saved his ass but not his reputation. He’s poor now.

  43. rexl commented on Mar 19

    the pollution cleanup follows the gold, copper, palladium, coal and other mines around the country.
    Private corporations get the mining profits and the public gets to pay for the cleanup.
    now let’s see what does that remind me of,…but I am not sure which political party they belong to.

  44. stapleton commented on Mar 19

    Great post AGG. I was thinking the same thing. It astonishes me how much people underestimate the toll this war has taken on this country.

  45. ron commented on Mar 19

    The leverage unwind that is affecting the financial markets has finally began to impact the wealthy. It was OK to export those jobs, shut down factories and move distribution centers to low cost states.
    How about that slick advertising that hooked the lower and middle class into the designer society. Remake your life, vacations,new cars, bigger houses, designer this and that and all financed by leveraged debt. The consumer luxury economy were everybody is a winner!
    But now the bottom of the financial pyramid is crumbling away and taking out big slices of the wealthy ponzi players with it and the crying is just beginning.

  46. AGG commented on Mar 19

    Marcus Aurelius,
    You have a tremendous gift for incisive irony. I salute and admire you.
    And thanks for the compliment to ron. It’s nice to know that serious people are thinking.

  47. Barry Ritholtz commented on Mar 19

    Blaming “sub-prime poor minorities homeowners” for the entire housing debacle is simply absurd. And, it reveals a lack of familiarity with the actual data on foreclosures.

    Look at all of the non-sub prime mortgages — Alt-A and Prime — that are defaulting and falling into foreclosure in record numbers. How do you explain that?

    Its obvious to us in the reality based community that this was a broad deep systemic failure with poor judgement, lax standards, errors and missed opportunities thoughout the whole process.

  48. stapleton commented on Mar 19

    left-wing liberal smear knee-jerk response

    left-wing = liberal (i’m guessing redundancy is used because labeling is just so much fun. or it could just be that redundancy is fun given that this phrase is used twice within a few sentences).

    smear (always a sign of an intellectual debate when party A criticizes party B for doing exactly what party A is currently doing).

    one thing’s for sure, whoever it is babbling this phrase listens to a lot of conservative radio, and loves it.

  49. decius commented on Mar 19

    Peter, thanks for your well thought out response. There is obviously a lot of blame to go around. It wasn’t obvious to me in 1999 that we were going to have a housing crisis. It was, however, a subject of widespread discussion in the spring of 2005. Intuitively it seemed clear that there were people out there buying these adjustable rate mortgages who weren’t going to be able to afford to make payments when the rates inevitably rose. There was an opportunity at that point to identify the problem and address it, but nothing was done. In fact, in the middle of last year we were still sailing blissfully along with the mere observation that One risk to the outlook is that the ongoing housing correction might prove larger than anticipated, with possible spillovers onto consumer spending. The real question is who isn’t to blame? Who was warning about this and pushing for policy changes? I don’t know the answer to that.

  50. Portland Refugee commented on Mar 19

    Barry is right. Many Prime and ATL-A borrowers are falling into trouble because of nothing more than short sightedness. Everyone said “let’s just take the 5/1 ARM. It’s cool. In 5 years, I’ll just refi. I mean, how much can rates really go up? Furthermore, my realtor has told me this place has never ever gone down in value”.

    For such a capable demographic, where information is so widely available, its rather ironic to see so much intelligence ignored.

    P.s Yo, Marcus A. I agree with AGG comments. I’ve read your comments all over, you do have a talent. Kudos

  51. Brian commented on Mar 19

    “Gramm-Leach-Bliley Act passes the Senate 90-8 and the House 362-57”. With those numbers, there was no choice but to sign it since there was only 40 Dems in the Senate at the time and most voted for it. So if Clinton had opposed it (and I doubt he did), then it would have taken a huge amount of arm-twisting to get the veto to stand. Plus, we were in a period of obsession with deregulation. The question is would many of those same senators vote the same way now that deregulation seems to have failed on many fronts. So don’t blame Clinton, but I’m fairly certain Sen. Clinton would have signed it as well.

  52. Subprime Democrats commented on Mar 19

    Barry Ritholtz: Blaming “sub-prime poor minorities homeowners” for the entire housing debacle is simply absurd.


    Subprime Democrats: “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”

    I rest my case…

    Barry, shame on you! Why are you distorting what was said? Where did you see me blaming the “sub-prime poor minorities homeowners”?!?!?! A reading comprehension problem Barry?

    I was blaming the DEMOCRATS not the “sub-prime poor minorities homeowners”.
    Now, please read what was said and try again.

    P.S. It is amazing how one has injected the race, another one has been twisting, taking words out of context and distorting what was said.

    Re: Democrats are also responsible for the subprime mess.
    Do you want me to post Maxine Waters (D), Dianne Feinstein (D) and Barbara Boxer (D) 2004-2005 statements promoting subprime lending here or do you want me to email them to you?

  53. Winston Munn commented on Mar 19

    At least Bush said one thing that was partly right.

    Quote: “The second barrier to ownership is the lack of affordable housing.”

    Here’s a radical idea – how about letting prices fall to affordable levels?

  54. John commented on Mar 19

    BR funny you picked up on this story which seemed to me much more partisan, at least in the headline, than the usual reporting we see see in the WSJ. The Murdoch effect? In fact as you said once you got into the meat it was 99% a Republican problem. The only real charge they could level at the Democrats was that they wanted to expand home ownership which is like saying they were in favor of motherhood and apple pie. The reality is the Democrats repeatedly tried to rein in reckless lending practices and were repeatedly blocked by the Republicans who were in control of the White House and both houses for almost the entire period we’re talking about. It’s like the whole Iraq and foreign policy debacle for which they are trying to spread the blame. We’ve even got Bush and Cheney claiming five years, 4000 US deaths, tens of thousands of Iraqi deaths, a country divided by sectarian warfare, 500 billion smackeroos and a complete collapse of our diplomatic clout, that Iraq is a “successful endeavor.” Amazing, totally amazing. This embrace of reality denial is going to be the death of our great country.

  55. John commented on Mar 19

    The more I watch this, the more I think History itself is to blame.

    These bubble things run in cycles. As the Silent Generation (those who grew up in the Great Depression) were replaced with the Boomers in the halls of power, the attitude of the country changed. Gone was the idea that hard work, frugality and community were how this country was to succeed. Inidivudal success, easy money, consumption as the measure of success and the “I got mine” attitude rose both in policy and in societal expectation. A generation that would have said “That sounds too good to be true” was no longer making decisions. Instead, it was the “Well, I might beneift” generation. Look at the bipartisan support for this nonsense “tax rebate”. What do they want you to do with it? Go on a spending spree!

    But can you blame them? If you grew up in the worst economic crisis in history, you’d be pretty frugal. And if you grew up while the US was thriving and living standards constantly increased, wouldn’t you expect the same for the rest of your life?

    The cycle must repeat. Hard times approach, and the generations growing up now will again take on the mantle of being careful, suspicious and take the time and care to conserve their limited resources instead of spend them. In doing so, they will lay the groundwork for the next increase in prosperity, as money will be used to research fundamental improvements in technology (alternative energy, nano-technology and dozens of others we don’t even know about yet) instead of researching the next version of the iPod or luxury automobile.

    It’s all been done.

  56. maximo commented on Mar 19

    Well said , John! I like your post.

  57. PFT commented on Mar 19

    When you look at it, the housing bubble was popped at the end of 2005 when Greenspan started jacking up interest rates even though CPI said we had no inflation (wink).

    There were 3 triggers for the housing bubble.

    1. The 1988 Basel Accords which set capital requirements on loans, and subsequently encouraged banks to move these loans off their balance sheets by securatizing them and selling them off.

    2. The repeal of the Glass Steagall Act allowing Investment Banks and Commercial Banks to be joined and separated only by flimsy Chinese Walls. One arm makes a dodgy sub-prime loan, the other arm sells the dodgy MBS, CDO, SIV.

    3. Wage deflation due to the phony CPI, which was altered on Clintons watch to understate inflation by 3-4 percentage points. As such, the consumer got hammered by low deposit rates, low COLA’s and low salary increases relative to real inflation.
    This then led to fewer borrowers being eligible for prime loans, and led to the need for sub-primes, since banks make money from creating money, and they create money from loans. No loans, no money. So they needed to replenish the supply of borrowers by lowering loan standards.

    Clinton for his part had his own bubble, lest we forget, it was the Dot com bubble.
    Bursting in his last year of office. In fact, Greenspan had increased the Fed Fund rate 2.5% to 6.75% over the previous year to burst the bubble. Calls to tighten up on margin requirements went unheeded.

    It’s almost like every 8 term President is required to fuel a bubble that busts on their watch. With Reagan we had the S&L crisis and 1987 stock market crash. Lest we forget, Greenspan was present for the 1987 crash as well. In fact, some say he triggered it with a Fortune interview the week before the crash when he said it was his belief that the dollar was overvalued and would have to be devalued at the rate of 2% a year for some years until it got where he wanted it to be. That essentially trashed the Louvre Accord which provided currency stability and led to the panic.

    These crashes and burst bubbles benefit the Big Boys on Wall Street. When the dust settles, they end up bigger and stronger than ever (eg. JPM eats Bear), with a bit of help from the Fed and the taxpayer, and are well positioned for the next bubble.

    In a time of full employment, with wage inflation, and your productive economy at maximum capacity, which ours has not been in for some time, interest rate increases
    make sense. But I believe we never fully got out of the recession in 2000/2001, our growth since was based on fictitous capital creation. Interest rate increases killed
    that, and the productive economy that used to create productive capital is in decay, at least that which hasn’t been shipped to China and is not related to the military industrial complex.

    Republicans and Democrats are both beholden to the corporate masters. In these days of interlocking directorships, banking, oil, agribusiness, pharma, etc speak essentially one voice, free markets, free trade, globalization. Both parties take money from their masters to get elected, perform the services for which they were paid, and then leave. Sort of like prostitution.

  58. wunsacon commented on Mar 20

    >> We can’t legislate or even regulate away human greed.

    Is that a blanket statement? Most Republicans and many Democrats don’t want to, because they want to:
    – gut enforcement to reduce taxes,
    – repeal old laws that “seem like a relic of a by-gone era”, and
    – “get government off our backs”.

    But, that doesn’t mean we *can’t* regulate human greed with *some* efficacy. If we vote for people who believe regulation *can* accomplish some good, I imagine we’ll improve our fortunes.

    >> I was blaming the DEMOCRATS not the “sub-prime poor minorities homeowners”.
    Now, please read what was said and try again.

    Subprime, please read your *first* post and try again. In that post, it sure looks like you were blaming illegal immigrants.

  59. wunsacon commented on Mar 20

    Make that your second post.

  60. wunsacon commented on Mar 20

    >> “Gramm-Leach-Bliley Act passes the Senate 90-8 and the House 362-57”. With those numbers, there was no choice but to sign it since there was only 40 Dems in the Senate at the time and most voted for it.

    If 40 Dems voted for it, then the Democratic *party* owns the error and not just Clinton alone. That’s a worse criticism. (That’s like Republicans saying “Bush II is really a liberal” as a way to deflect criticism against the party, even though most of the party voted for everything he did.)

    I *can* see the truth of statements like “Clinton was not really a liberal” and “W is not really a conservative”. No one gets the government they want.

  61. wunsacon commented on Mar 20

    Er, “most” voted for it. You did not say “all 40”.

    Two reading errors in a row…good nite.

  62. Braden commented on Mar 20

    Neither party should ever have been involved in the first place. Unfortunately, that’s over everyone’s heads, including the WSJ and their peers. The prescribed solution will be more control, because that’s all anyone knows how to do.

  63. as is commented on Mar 20

    There is no Democrat vs Republican blame in this mess. There were plenty in each party who voted the wrong way.

    What is to blame is an ideology which believes that any regulation is bad regulation. Conservatism is to blame. When politicians fail to act to keep borrowers from defrauding lenders by claiming that can afford more than they can, mortgage brokers defrauding borrowers by misrepresenting the terms of the mortgages, brokers defrauding lenders by lying about the financial standings of borrowers, and ratings agencies defrauding stockholders with bogus assurances.

    Fraud is a crime. It is up to our government to protect its citizens from criminal behavior. Conservatism is an ideology that believes that this is a go it alone, pull yourself up by your own bootstraps world, and that government has no place protecting people who need it. If Democrats voted the wrong way in 2002 and 2006 then they did it by casting conservative votes.

    Don’t get me wrong, I hate red tape as much as the next person. But we have a serious problem when our own government refuses to ferret out criminals and stop them. And that’s exactly what anti-regulation conservatism gets us.

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