Home Ownership

Some thoughts toward what will become chapter 15.

The Republican Party contains within it elements that do understand what happened in 2007-08. I speak especially of those who reacted enthusiastically to Ron Paul's rather quixotic primary campaign that year. They understood what was happening as it was happening. They understood that the Federal Reserve cherapened credit in order to rescue the U.S. from the relatively mild recession of 2000-2002 and that the lending supported by that cheapening was bound to put money into the hands of people who didn't know what to do with it. That is always what such a cheapening does.

The party is what explains the hangover.

Though Paul's supporters deserve the credit for insight here, they were and remain outsiders.

The orthodox view the Republican Party seems to have developed is different, it is one that routinely overstates the role of the government sponsored entities (GSEs) in the housing boom and bust of 2007-08. Yes, the GSEs did play a role, but they were never the force driving events, and the efforts to Republicans -- those more sentral to the party hierarchy tnan Paul's small faction -- to make them seem so have come across as an ignoble quest to blame the powerless.

Came December 2010, this view had hardened into dogma, championed by Peter Wallison, a member of the Financial Crisis Inquiry Commission, the bipartisan panel that was supposed to issue a report soon explaining what did happen in 2007-08 and why. Wallison explains blows with Joe Nocera in a way that exposed his (Wallison's) own vacuity, and the continued special-pleading of his party.

Joe Nocera co-wrote, with Bethany McLean, a fine book presenting their own wel-researched take on the crisis, "All the Devils are Here." The title is a reference to Shakespeare's "The Tempest," and Nocera/McLean use it to suggest 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 were not leading the devilish pack, as Wallison would have preferred.

Well before Wednesday, December 15, 2010, reports were in circulation that the FCIC, under the chairmaship of Phil Angelides, a Democrat and the former state treasurer of California, harbored tensions that would make a single unified report impossible.

On that Wednesday, the Republicans on the committee, under Wallison's leadership, put out a statement of their own view of what had happened three and two years before. This was, so to speak, a dissenting opinion timed so as to precede the commission's report proper: saying "we disagree" before there was anything on the table whence to dissent.

Their view was this: "The GSE's easily met the affordable housing goals during the 1990s, but these goals were incrementally increased as part of a new housing policy agenda that began during the mid-1990s under President Bill Clinton and continued throiugh the 2000s under President George W. Bush....trying to get something for nothing -- to subsidize homeownership without increasing the budget deficit -- was a recipe for a crisis."

It was, they meant to say, the recipe for this crisis.

Nocera wrote in his column on December 17 that, as any reader of the Nocera/McLean book would have understood, he agreed that "Fannie and Freddie need fixing." In the two years and three months since the worst of the crisis they had "cost the taxpayer around $150 billion in losses, far more than, say, the American International Group."

Nocera also believed, though, that excessive focus on the GSE was a way to "tread lightly over the culpability of other nongovernmental culprits like the credit ratings agencies and Wall Street itself."

The exchange gets more intriguing....