[Cross-posted at Crooks and Liars.]
Probably the greatest blunder of the Obama White House over the past
two years has been its abject failure to make certain the public
understood that it was
conservative misgovernance
that was at the root of the great economic meltdown of 2008 --
especially because it was that very downturn that propelled him into
office.
That failure has functionally given conservatives -- the architects
of the disaster -- the ability to cover their tracks by erecting a
narrative in which the blame was instead laid at the doorstep of Fannie
Mae and Freddie Mac and minority-lending programs. And that narrative is
now widely believed by over half the country.
Now the Washington Times is trying to muddy the water even further,
running a bizarre and thinly sourced piece claiming that perhaps
terrorism -- maybe even
Chinese terrorists, colluding with radical Islamists, perhaps? -- were actually behind the meltdown.
Here's the piece.
Evidence outlined in a Pentagon contractor report suggests that
financial subversion carried out by unknown parties, such as terrorists
or hostile nations, contributed to the 2008 economic crash by covertly
using vulnerabilities in the U.S. financial system.
The unclassified 2009 report “Economic Warfare: Risks and Responses”
by financial analyst Kevin D. Freeman, a copy of which was obtained by
The Washington Times, states that “a three-phased attack was planned and
is in the process against the United States economy.”
But as you can see from reading the piece, Freeman presents no
evidence other than the economic catastrophes themselves that these were
terrorist attacks. Indeed, it's nothing but unadulterated wild
speculation from start to finish.
Nonetheless, Megyn Kelly invited Freeman onto her Fox News yesterday
and treated it as if it were potentially the biggest story in the whole
wide world. She was duly wowed -- even though, as you can see, Freeman
couldn't even tell her whether these were Chinese terrorists or Islamic
radicals, or mebbe they were working in collusion! (As if!)
No wonder everyone involved in analyzing the markets is
pretty much laughing at Freeman and the reporters who gobbled up this nonsense so gullibly.
Then, of course, Kelly capped it all off with the classic "minority
lending programs did it" narrative as the safe story everyone believes:
KELLY: But how could they have done it? Because, you know, I think the
conventional wisdom in this country is, uh, you know, you had Fannie and
Freddie giving out tons of mortgages that never should have been given
out, then you had the Wall Street folks trading these so-called credit
default swaps, basically doubling down on the bad investments, and
ultimately things just started to implode in a way where, you know, we
had to step in, the government bailed out those banks, and we all know
the history that happened after there.
That's a pretty remarkably dense thicket of lies that have little or
no relationship to reality whatsoever.
Let's try to unpack it a little:
-- Fannie and Freddie's role in the economic crash was so minor as to be nearly farcical. As
McClatchy explained at the time:
As the economy worsens and Election Day approaches, a
conservative campaign that blames the global financial crisis on a
government push to make housing more affordable to lower-class Americans
has taken off on talk radio and e-mail.
Commentators say that's what triggered the stock market meltdown and
the freeze on credit. They've specifically targeted the mortgage finance
giants Fannie Mae and Freddie Mac, which the federal government seized
on Sept. 6, contending that lending to poor and minority Americans
caused Fannie's and Freddie's financial problems.
Federal housing data reveal that the charges aren't true, and that
the private sector, not the government or government-backed companies,
was behind the soaring subprime lending at the core of the crisis.
Subprime lending offered high-cost loans to the weakest borrowers
during the housing boom that lasted from 2001 to 2007. Subprime lending
was at its height from 2004 to 2006.
Federal Reserve Board data show that:
* More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
* Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
* Only one of the top 25 subprime lenders in 2006 was directly
subject to the housing law that's being lambasted by conservative
critics.
The "turmoil in financial markets clearly was triggered by a dramatic
weakening of underwriting standards for U.S. subprime mortgages,
beginning in late 2004 and extending into 2007," the President's Working
Group on Financial Markets reported Friday.
Conservative critics claim that the Clinton administration pushed
Fannie Mae and Freddie Mac to make home ownership more available to
riskier borrowers with little concern for their ability to pay the
mortgages.
"I don't remember a clarion call that said Fannie and Freddie are a
disaster. Loaning to minorities and risky folks is a disaster," said
Neil Cavuto of Fox News.
Fannie, the Federal National Mortgage Association, and Freddie, the
Federal Home Loan Mortgage Corp., don't lend money, to minorities or
anyone else, however. They purchase loans from the private lenders who
actually underwrite the loans.
It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more.
This much is true. In an effort to promote affordable home ownership
for minorities and rural whites, the Department of Housing and Urban
Development set targets for Fannie and Freddie in 1992 to purchase
low-income loans for sale into the secondary market that eventually
reached this number: 52 percent of loans given to low-to moderate-income
families.
To be sure, encouraging lower-income Americans to become homeowners
gave unsophisticated borrowers and unscrupulous lenders and mortgage
brokers more chances to turn dreams of homeownership in nightmares.
But these loans, and those to low- and moderate-income families
represent a small portion of overall lending. And at the height of the
housing boom in 2005 and 2006, Republicans and their party's standard
bearer, President Bush, didn't criticize any sort of lending, frequently
boasting that they were presiding over the highest-ever rates of U.S.
homeownership.
The "Fannie and Freddie did it" narrative has been ridiculed from
a number of
market and economic experts. As Barry Riholtz put it:
Some people (especially the political hacks) are focusing their
energies in the wrong places. According to a recent investigation by
Barron’s, Fannie’s biggest problem was not the subprime mortgages they
bought — it was the better quality Alt A mortgages that caused their
demise ...
The folks who want to place the entire crisis at FNM/FRE ‘s doorstep
miss the point — and let me hasten to add that I was never a fan of the
company, and we were short FNM from over a year ago, at $42+ — these
people seem to miss all of the big picture issues, and are focsing on
minor factor and outright irrelevancies.
... While I understand that reducing the complexities of economic
history into bumper sticker phrases is politically expedient, it does
not help us understand the root cause of the problems. And, it gets in
the way of helping us fashion a solution for the future. Hence, why I
hold the weasels who are attempting to obscure reality and rewrite
history in such disdain.
For the non-partisan, non hacks amongst you, for the policy makers
and academics and economists who are truly interested in how this came
to pass, and what we can do to fix it, the bottom line remains: The CRA
was irrelevant to the current crisis, and Fannie Mae and Freddie Mac
were mere cogs in a very complex financial machine, with many moving
parts.
But the primary cause of the mess? Not even close . . .
Ritholtz -- like hundreds of other economists and market
experts who understand what happened -- says the primary cause, in fact,
were "a nonfeasant Fed, that ignored lending standards, and ultra-low
rates."
This nonfeasance under Greenspan allowed banks, thrifts,
and mortgage originators to engage in all manner of lending standard
abrogations. We have detailed many times the I/O, 2/28, Piggy back, and
Ninja type loans here. These never should have been permitted to
proliferate the way they did.
The fact that they
did proliferate as they did, in fact, can
be laid directly at the doorstep of conservative ideologues, whose
mania for deregulation -- particularly in the financial-services sector
-- is what led directly to the policies creating, condoning and even
encouraging such dubious financial instruments.
Though one might argue, in fact, that this kind of depredation
committed by the oligarchical class, with working-class people taking
the hit, and with little if any consequence whatsoever to the wealthy,
is a kind of terrorism -- economic terrorism against working Americans.
But don't expect the experts and anchors at Fox News to ever let you
hear that.
-- Oh, and about those bailouts:
Not only were they a success, they also wound up being a lot cheaper than everyone expected. That seems to be a bit of the "history" that never makes it onto Fox News, either.