Fannie, Freddie, Joey and Petey

A controversy involving Joe Nocera and Peter Wallison draws my attention, because it has a good deal to do with how we understand the crisis of 2007-08.

Joe Nocera is a long-time business journalist, the co-author with Bethany McLean of a newly published book, "All the Devils are Here." As the Shakespearean title suggests, McLean/Nocera's theory is that the crisis had a lot of causes, plenty of "devils." The government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, play a role in their story, but only a supporting role. They are not leading the devilish pack.

Peter Wallison is a member of the Financial Crisis Inquiry Commission, the bipartisan panel that is supposed to issue a report soon explaining what did happen in 2007-08 and why. Wallison, it is fair to say, wants to give Fannie and Freddie a larger share of the blame than Nocera does. Okay --everybody agrees the GSEs get some blame, and how much sounds like an appropriate subject for debate. So ... have at it, guys!

The problem, though, is that this is the US in the early 21st century and it is amongst us always easier to tell someone to shut up than it is to discuss substantive differences. Besides, "shut up" is so much snappier a thing to say. THAT is probably the worst of our devils. But I digress....

On December 17, Nocera wrote in his column that he had spoken to Wallison about their differences and that Wallison claimed to have seen still-secret papers. (What? not on Wikileaks yet?) here.

"Mr. Wallison said he had seen documents, not yet made public, as part of his work with the financial crisis commission that would prove that he’s right and I’m wrong. Well, we’ll see," writes Nocera.

Nocera makes his point without reference to anything secret. The GSEs, in his view, struggled to keep up with the private market operations like Ameriquest and Countrywide, fearing that they would become irrelevant, and politically vulnerable, if they didn't act in line with those practices.

Wallison has replied. He confirms here the sentiments that Nocera attributed to him about those secret documents.

"I told him this was wrong—that as part of the Commission’s work I have seen internal documents from Fannie and Freddie that show this particular mantra of the left to be a myth. For a reporter, that would have been a signal to hold his fire—a warning that there were facts out there of which he was unaware. I was telling him he should wait and see what I might write in connection with the Commission’s report. But he repeated his own dogma immediately thereafter."


This strikes me as fundamentally the wrong attitude to take. Wallison is saying that Nocera should "hold his fire" until he becomes aware of facts that will sooner or later become available. Well ... no. Every rational human being is entitled to form an opinion based on such facts as are available to that person. One should hold and express one's opinions with a consciousness of fallibility, but the idea that one should "hold one's fire" because there might yet be other facts is a demand for a lifetime of silence. It will always be the case that there might yet be more facts out there! So what?? If Nocera were writing about the causes of the outbreak of the American Revolution in 1775 it might be the case that there are still as yet unknown documents somewhere. That is not a signal to "hold one's fire." Indeed, it should be an incentive to fire away -- it may help in smoking out the new stuff.

Nocera should keep expressing the views that he forms on the basis of facts known to him, and if and when Wallison feels free to make further facts known, he should do so.

In the meantime, the rest of us are entitled to suspect that this talk about "internal documents" about which Wallison will write in the future is a tad too convenient. Felix Salmon puts it well.

So much for the ethos of debate.

On the underlying dispute, I would say (subject to being disproven by any "internal documents" that become external down the road) that the real cause of the bubble was monetary policy, not micro-economic factors, not regulatory shenanigans, and not the GSEs. Greenspan created the Housing bubble in order to get us out of the recession of 2000-02, which was caused by the busting of the previous (dotcom) bubble, which was also largely caused by monetary policy. In order to get off this merry-go-round, we need sound money.

Given all that, though, I am inclined to think that the Republicans do overstate the GSE role. It gives them a government target to shoot at, and a target that seems smaller and safer than shooting at the Federal Reserve. Ron Paul, of course, is the honorable exception. He targets the elephant.