Who Is to Blame for the Meltdown?

Question: I keep hearing conservatives like Amity Shlaes blaming the meltdown on Fannie and Freddie and CRA, and liberals like Dean Baker and John Cassidy minimizing the role of Fannie/Freddie/CRA. They say it was only 10 percent of the problem, while 90 percent was attributable to mortgages that were issued and securitized by private sector firms, mainly the big banks and brokerages of Wall Street. Could you please clarify these contradictory claims and possibly settle this argument?

Paul Solman: I’ve spent a fair amount of time looking into this, Greg, and have written about it before. As best I can tell, the real culprits were the sleight-of-hand, fly-by-night brokers who issued what I’d call “know-nothing” mortgages: no down payment, no income, no assets — no nothing. To what extent homeowners were also guilty — of collusion, pie-in-the-skyism, fraud — I couldn’t exactly say. But I’ve interviewed homeowners who were clearly taken for a ride.

Fannie Mae and Freddie Mac weren’t in the vanguard of the subprime business; they followed the pack, as Baker and Cassidy, among countless others, assert. They — and the Community Reinvestment Act — were also culpable, in the sense that they promoted home ownership for the poor. But if you want to blame them for the housing crisis, you’d better include the Bushes too — father and son.

I was personally escorted around Houston in 1992 by Secretary of Agriculture Clayton Yeutter, making the case for Bush Sr.‘s economic platform. The campaign chose Yeutter; he chose the locations. And one of them was a housing project, the backdrop for promises as to what the then-President Bush would do to further home ownership for the poor.

Eight years later, economic advisor Larry Lindsey was the appointed Republican guide, Philadelphia was the city, and George W. Bush was the candidate. Lindsey took us to a poor (black) section of Philly to argue the case for — home ownership for the poor.

Our take on this issue can be seen here. Our conclusion: You can blame the global savings glut, naive investors, ruthless bankers, crooked realtors, bought-off regulators, and literally every president since (and including) Herbert Hoover.