The Financial Crisis Inquiry Commission, under Phil Angelides who had a testy, partisan, op-ed in The Washington Post yesterday, in its report sought to blame Wall Street for leading the way to the housing bubble, not government policy as mediated through the likes of Fannie Mae.
Gretchen Morgenson of The New York Times has begged to differ, and Steven Malanga provides a timely and sympathetic review of a new book she co-authored which uncovers a major impetus to the housing bubble in the administration of none other than Bill Clinton, who took a weaker form of liberalism under George Herbert Walker Bush and ran with it:
Reckless Endangerment locates the origins of the crisis in the ironically named Federal Housing Enterprises Financial Safety and Soundness Act of 1992, which was supposed to protect taxpayers from big losses by Fannie and Freddie. That law pushed the institutions into affordable housing lending and prompted Fannie in particular to adopt a strategy to disarm critics by continually arguing that efforts to rein in the company's operations, such as requiring it to back its mortgage purchases with more capital, would only hurt the goal of expanding home ownership. "You should rejoice in Fannie Mae and Freddie Mac rather than fight them," Fannie's chief executive, James Johnson, told the New York Times.
In the wake of the 1992 legislation, Fannie Mae created the Housing Impact Advisory Council, an assembly consisting of low-income housing advocacy groups and mortgage lenders. Fannie Mae also began supplying grants to the housing groups, like ACORN, which a few years earlier had criticized the GSEs in the press as "strictly by-the-book" interpreters of underwriting standards whose young underwriters, "are not sensitized to the existence of redlining, be it racial or geographic." Now Fannie was singing a different, more cooperative tune, and its new council, Morgenson and Rosner write, evolved into "the centerpiece" of President Clinton's 1994 National Partners in Homeownership program, a "disastrous homeownership policy" that played a crucial role in inflating the housing bubble.
With The Nation pinning financial deregulation on Bill Clinton in recent days, liberalism's not having a good start to the summer.
If Bill Clinton were smart, he'd respond to all this by blaming Bush, or hope people still have enough money left to go to the beach and read trashy novels instead.
