This falsehood has taken hold on a big chunk of the right, which is fighting a rearguard action against the notion that markets can have catastrophic failures. Fundamentalism is kind of a problem when facts on the ground clearly disagree with ideology. Does…not… compute.
This story is in the vein of the coverage I praised in The Wall Street Journal, The New York Times, and CNN, which all called out Romney’s whopper in a November debate. In that debate, Gingrich, who thinks presidents should be able to ignore Supreme Court rulings they don’t like, said Barney Frank and Chris Dodd, for unexplained reasons, should be thrown in jail for the crisis, as Bloomberg notes here. But this piece is a little uneven.
Bloomberg focuses solely on current poll leaders Mitt Romney and Newt Gingrich, when basically all the other GOP presidential candidates are wrong on this too.
Michele Bachmann, in the above-mentioned debate, said this:
I think if you look at the problem with the economic meltdown, you can trace it right back to the federal government, because it was the federal government that demanded that banks and mortgage companies lower platinum level lending standards to new lows.
Here’s Rick Perry’s position:
However, the current economic and financial crises prove that more than anything else, the federally guaranteed and taxpayer-backed Fannie/Freddie business model succeeded only in creating horrible investment incentives that led directly to the mortgage and housing meltdown.
Ron Paul, currently leading in Iowa in some polls, has been saying for nearly a decade that Fannie and Freddie would cause/did cause a housing bubble.
Bloomberg, in news-ese, is saying as politely as it can in this piece that Romney and Gingrich are full of it. It notes that there were contemporaneous housing bubbles in countries like the UK, France, and Australia, that are beyond the reach of Fannie, Freddie, and the Community Reinvestment Act. It points to the gigantic commercial real estate bubble that inflated at the same time as the housing bubble, with no government aid, and collapsed worse than housing. And it flags that three of the four Republicans on the Financial Crisis Inquiry Commission disagreed with this thesis. Peter Wallison, who has led the charge on the government-did-it thesis, was the lone dissenter.
The CRA thing is particularly funny since the Federal Reserve, of all bank-friendly places, found that “areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending.”
Blaming the GSEs is seriously problematic too. While they certainly contributed to the size of the bubble, it was on the margins of a private-securitization-driven bubble. Frannie-bought loans were also far better than private-sector loans, defaulting at about half the rate of private-sector loans.
Bloomberg misses with this quote of Ben Bernanke, though:
“We are aware of such claims but have not seen any empirical evidence presented to support them,” Fed Chairman Ben S. Bernanke wrote on Nov. 25, 2008.
Bernanke was talking about the CRA there, not Fannie and Freddie, but Bloomberg implies that he was talking about claims about a broader government role. That’s misleading.
The whole story doesn’t do a great job at clearly talking about separate issues. Here’s all it gives us on what Gingrich, who’s in the headline, thinks about who caused the crisis:
Gingrich has suggested jailing Frank, the former chairman of the House Financial Services Committee, and Dodd, who headed the Senate Banking Committee until his retirement earlier this year.
That was before Bloomberg News reported on Nov. 16 that the former speaker had privately been paid $1.6 million to $1.8 million as a consultant for Freddie Mac.
The second graph is a zinger, but it doesn’t really follow the first. Presumably Gingrich was referring to Dodd-Frank financial reform rather than their support of Fannie and Freddie.