The Blog Formerly Known As Vote '08

The former presidential adviser, in the Wall Street Journal this past week:

“Mythmaking is in full swing as the Bush administration prepares to leave town. Among the more prominent is the assertion that the housing meltdown resulted from unbridled capitalism under a president opposed to all regulation.

Like most myths, this is entertaining but fictional. In reality, Fannie Mae and Freddie Mac were among the principal culprits of the housing crisis, and Mr. Bush wanted to rein them in before things got out of hand.

Rather than a failure of capitalism, the housing meltdown shows what’s likely to happen when government grants special privileges to favored private entities that facilitate bad actors and lousy practices.”

Barry Ritholtz of the economic blog The Big Picture on the last sentence of the 2nd paragraph above:

“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.”

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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.”