Several of the GOP’s presidential contenders have called for the repeal of the Dodd-Frank financial reform law, with candidates such as Rep. Michele Bachmann (R-MN) and Newt Gingrich lamenting that the law is “killing the banking industry” (even as banks pull in record profits). The deregulatory zeal that has gripped the GOP has led to many tortured explanations for how the 2008 financial crisis occurred that don’t implicate Wall Street.
Former GOP Sen. Rick Santorum (PA) was the latest to hop on this train last night, telling MSNBC’s Ed Schultz that is was “government regulation” — spurred by government-backed mortgage giants Fannie Mae and Freddie Mac — that caused the financial crisis. “It wasn’t deregulation,” he said:
SANTORUM: We had record low rates of unemployment for quite some time in this country until we had the catastrophe that was caused, in large part, by the housing industry and Fannie and Freddie.
SCHULTZ: Which was deregulation. Which is what the Republicans push a lot of.
SANTORUM: No, it wasn’t deregulation. No, no, no, it wasn’t deregulation at all. It was Fannie and Freddie holding all of these assets they shouldn’t have been holding, that we actually needed to have less being held by these folks. […] Part of it was government regulation and government markets that caused the bubble.
No matter how many times it gets debunked, Republicans continue to claim that it was Fannie and Freddie that spurred the housing bubble. While the mortgage giants were no angels, Federal Reserve data shows that it was private mortgage brokers who drove the subprime housing bubble:
— 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.
As this chart shows, the spike in issuances of mortgage backed securities that occurred between 2003 and 2007 was almost exclusively driven by private enterprises:
Wall Street firms divvied up the junk loans from subprime dealers and sold them all around the world, setting the state for the 2008 financial crisis. But Republicans (though not all of them) continue to cling to a story that the data doesn’t tell, in order to blame the government for the private sector’s sins.