At CNBC’s GOP debate last night, Mitt Romney showed that he, like Michael Bloomberg, buys into the Big Lie of the financial crisis, one that’s unfortunately become conventional wisdom on the right: That the private sector only made hundreds of billions of dollars worth of toxic loans (and then made more than a hundred billion dollars worth of fake toxic loans because it couldn’t get enough toxic product) because the government made it.
And the reason we have the housing crises we have is that the federal government played too heavy a role in our markets. The federal government came in with Fannie Mae and Freddie Mac, and Barney Frank and Chris Dodd told banks they had to give loans to people who couldn’t afford to pay them back.
This is flat false, as anyone who’s taken a cursory and intellectually half-honest look at the crisis knows. So how did the press cover it?
Pretty darn good, actually.
The Wall Street Journal quotes Romney in its piece and then all but says he’s empirically wrong (emphasis mine):
“Markets work. When you have government play its heavy hand, markets blow up and people get hurt,” Mr. Romney said, blaming Democrats for rules that he said force banks to make ill-advised loans.
Some conservative academics have said that Fannie Mae and Freddie Mac fueled the financial crisis because they had to meet federal quotas to finance low- and moderate-income homeowners.
But academic research has shown that those mandates didn’t spur the types of exotic lending at the heart of the subprime-loan crisis. Many of the worst mortgage lenders weren’t banks and weren’t subject to federal regulation.
The New York Times is even better, running a fact-check sidebar along with its main debate story, and it gives readers five full paragraphs on why these assertions are false. Here are three of them:
Several candidates made the argument at the debate that the government forced mortgage lenders to make bad loans. But in reality, most subprime loans were made by companies that were not subject to any kind of federal regulation.
Furthermore, there was no need to force anyone to make the loans. Financial companies jumped into the market. The major investment banks lined up to purchase subprime lenders, the major retail banks created subprime lending divisions, and a generation of upstart subprime lenders like Ameriquest and Countrywide were briefly celebrated as rising stars of American business.
No executive of a major mortgage company said at the time that the government was forcing them to make subprime loans. They said they did it because they thought they would make money. And even now, after the crash of the housing market, with all the temptation to point fingers, it is awfully hard to find a mortgage executive who echoes the argument of the Republican candidates.
And the Times debunks the “Fannie and Freddie Did It” meme to boot.
CNN issues a “false” ruling, though it perhaps relies too heavily on the Financial Crisis Inquiry Commission report’s finding.
I can’t even criticize it for being he said-she said. It just ignores the falsehood.
At least the paper ran Barry Ritholtz’s good column on “What caused the financial crisis? The Big Lie goes viral” last week.
Mostly good work by the press here, I’m happy to say.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at firstname.lastname@example.org. Follow him on Twitter at @ryanchittum. Tags: fact checking, he-said she-said, Housing, Mitt Romney, Republicans