Our guest blogger is Tim Westrich, a Research Associate at the Center for American Progress Action Fund.
On the Wall Street Journal’s opinion page today (“How Government Stoked the Mania”), Professor Russell Roberts is the latest on the conservative bandwagon blaming the Community Reinvestment Act, Fannie Mae, and Freddie Mac for the subprime mortgage mess, a claim that is simply not true. Roberts seems to be shoveling numbers to conservative pundits who have been making the case on TV, radio, and in columns.
Here is my piece in the WSJ on government’s role in the mess. It’s a work in progress. I am working on getting more data to see if the case is sturdy or just suggestive. And of course this is an ex post narrative. I tried to be careful to say that it is part of the story and perhaps the essential part. The people who are saying it ISN’T Fannie and Freddie, or it isn’t the CRA or it isn’t the Taxpayer Relief Act of 1997 or Greenspan’s role in cutting interest rates are probably right. No one of these is THE cause. But I think the combined effects are potentially as compelling once I dig up all the numbers. And I certainly prefer the combined effects to the one cause explanation of greed or markets failed.
Of course, his blog post — where Roberts is careful to say the case is “a work in progress” — will be seen by a lot fewer people than his opinion piece in the WSJ’s print and online versions, where Roberts is much more certain about his facts.
The root cause of the financial mess is the failure of Bush administration officials to take action when they saw what was happening in the U.S. housing market and the overall economy to prevent disasters from happening. They need to accept the fact that their cries for less government persuaded regulators they appointed to their posts to turn the other way as lending abuses piled up in the subprime mortgage market.