NYT: Blaming Bush for the Wrong Things

The Sunday New York Times has a front page article more or less blaming Bush for the housing and credit crisis. Its part of their “The Reckoning” series, and it is in some ways, off base. The long article (written by 3 people) comes close to some real truths, but it veers off, focusing on some minor and irrelevant elements.

One side note: Critics of newspapers never seem to understand that headlines are not by the article’s author(s), but by an editor.  Hence, why the headline focus is sometimes misplaced or emphasizes the wrong issue.

This discussion is very nuanced, so if you get most of your news and information from talk radio or any of the Faux channels, well, you shouldn’t bother reading any further. Pursuing this will only hurt make your brain hurt, or make you angry, or both.

Let’s start out with a brief excerpt from Bailout Nation:

From Reagan to George W. Bush, each President of the past 25 years bears some responsibility for contributing to the belief that we can let markets govern themselves.

Of the four Presidents over that period of time, President George W. Bush is the one with the seemingly greatest culpability. Not just because this crisis happened on his watch — although that is reason enough to give him a fair share of responsibility. More significantly, the basis of his culpability is that he shared Greenspan’s and Gramm’s radical belief system — that markets could police themselves, and that all regulation was inherently bad. This philosophy colored all of the President’s appointments to key supervisory positions, as well as his legislative agenda.

That philosophy, and the executive, administrative and legislative acts, including political appointments, is where we should focus our ire at the soon the be former-President Bush. The belief system that leads to the conclusion that really bad behavior in the corporate world needs no proscribing is where you should look to place blame.

That Bush had as a goal increased home ownership is, quite bluntly, irrelevant. It is a worthy goal, and certainly one that could be achieved without forcing the collapse of the financial system.

Indeed, as the chart at right shows (source: NYT), home ownership has increased every year since 1994. Funny, from that year and for each of the next 10 years, there was no collapse. You have to ask yourself why. No, the 1997 Tax Break, did not, as the NYT implied yesterday, Help Cause Housing Bubble. Home ownership was rising years before that went into effect.

What Bush did differently than prior Presidents was that he genuinely believed that regulations proscribing bad corporate behavior were unnecessary. It was that ruinous belief system, one he shared with other key players, that led to the crisis.

In fairness to Bush, many of the really bad policies that led to the boom and bust of Housing, and the collapse of credit, were in place before he was sworn into office. In particular, the repeal of Glass Steagall (Gramm-Biley-Leach Act), and the Commodities Future Modernization Act (CFMA), were both heavily lobbied for by the industry, sponsored by Phil Gramm, and passed by a Congress that didn’t bother to read them. They were both signed into law by Bill Clinton. That set of legislation is where you begin to find answers to The Reckoning.

Consider:

“Former Presidents Clinton, George H.W. Bush, and Reagan all have some responsibility, but far less. Bush Senior is probably the least culpable. Reagan did not reappoint Fed Chair Paul Volcker, and replaced him with Alan Greenspan. Regardless of other actions, this alone haunts his legacy, and gives the Gipper some degree of responsibility.

While some partisans have tried to paint the crisis a purely Republican debacle, history informs us otherwise. Yes, the GOP did control Congress from 1994 to 2006. However, President Clinton, a Democrat, bears a significant amount of responsibility too. He and his Treasury Secretaries, Robert Rubin and Lawrence Summers, each supported very limited regulation of free markets. Clinton, Rubin and Summers are one step behind W. in the hierarchy of proximate causes of the debacle.” (Bailout Nation)

The requisite Fannie Mae/Freddie Mac discussion in the article is simply silly. Yes, FNM/FRE were cogs in the housing machinery, yes, they were corrupt organizations. No, they were not a proximate cause of the boom/bust/collapse. For those of you who keep asking why I emphasize this, this article is why.

Increasing home ownership in America is a legitimate political goal. Waiving down-payments requirements, dropping lending standards, allowing predatory lenders to flourish — that is what is the underlying cause of boom bust and collapse.

Once again, we relearn that worthy ends do not justify foolish means.

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Previously:
Pricing in a Bush Presidency (July 08, 2008)
http://www.ritholtz.com/blog/2008/07/pricing-in-a-bush-presidency/

Source:
White House Philosophy Stoked Mortgage Bonfire
JO BECKER, SHERYL GAY STOLBERG and STEPHEN LABATON
NYT, December 20, 2008
http://www.nytimes.com/2008/12/21/business/21admin.html