Well, if we’re wearing those red-tinted glasses that screens out everything except what would make the GOP happy, we might—but even then it’s a stretch. Did the President do something eight years ago that set us on the track of crisis? Sure—every President does that with every major decision made. Theoretically one of his successors would be competent enough to catch things before there is a significant chance of that crisis actually occurring. When you’re driving a car, if there’s an obstacle ahead of you, you either change direction or put on the brakes. Or, if you’re the Bush Administration, you get distracted by something else, crash the car, and then say that the car should never have been started when it was clearly on a collision course with an object eight years away.
Terry Jones, who wrote this article, disagrees. Now, I don’t actually know who Jones is—but he doesn’t do a very good job disguising his agenda. For example, he writes that Fannie Mae “made loans to large Democratic voting blocs.” Translation: they made loans to black people. You know—those people who even today aren’t treated equally when seeking a loan, even after you take income and credit history into account.
But the real reason I’m quarrelling with this article is that I’m not convinced that either Clinton or Bush’s efforts to expand home ownership were ill-conceived. Homeownership has huge positive externalities. It improves communities. It contributes to stability. It increases incentives to minimize crime. It gives people more ability to control their lives. And, as Clinton hoped, it was a way of expanding the middle class.
Yet the critics suggest that the rampant irresponsibility on the part of the banks came from the “implicit” promise that their debts would be guaranteed. Here’s the thing about implicit government promises: they aren’t real promises. Now, they’re also not nothing. The government will probably do what the banks inferred it would do, so long as the banks didn’t abuse this understanding. And when it became clear a few years back that the banks were abusing the understanding, the promise should have been explicitly limited or withdrawn.
Even a heap of bad loans would not cause the crisis we have today. The problem isn’t that people aren’t paying their mortgages—it’s that people bundled those mortgages together to create these mortgage-backed securities and pretended that all these bad loans were actually good loans. If people had paid attention to what everybody knew or should have known all along we would not have a crisis. Bad loans are made all the time—and should be valued accordingly. Worse yet, many of the subprime loans were designed to fail. They were made to poor people who relied on their loan officers representations about their ability to refinance the loans. Suddenly we have loans stuffed full of prepayment penalties and baloon payments. The face value of the loan is way, way higher than anybody expects the borrower to pay back. But it looks like a lot of money if you ignore that the guy you’re fleecing the money from doesn’t have it. We only get collapse when people hide or ignore the probability that these loans will ever be repaid.
The returns on real-estate backed investments were too high to be true. I knew that. Everybody knew that. But people got greedy and thought they could pass them on before the whole thing collapsed. It is a case study in how lack of oversight and a focus on short-term gains at the expense of long-term stability can cause a disaster. And there’s enough blame to go around. Or, since it makes us feel better, we could just blame the minorities. The goal of increasing homeownership was and is a good one. It’s still a good one, even if it costs the government a bit. The problem came about when a bunch of corporate-types decided that they were going to feed out of the government trough too—and the administration turned a blind eye.