Michael Bloomberg says Congress, not the banks, caused the financial crisis by somehow forcing innocent banks to make irresponsible loans to poor people. Paul Krugman is outraged, and Mike Konczal brings the lengthy refutation.
Bloomberg’s entire career, obviously, is catering to the financial services industry. That’s his company and it’s also part of his vision of responsible leadership of New York City government, a place where excess profits on Wall Street turn into tax revenue. But I think the reasonable alternative here is to blame neither banks for somehow forcing people to take loans, nor Congress for somehow forcing the banks to issue them. We recall, right, that house prices appreciated massively during the 1998–2005 period? But you can’t eat a house. Or drive it to work. Or watch television on it. People who own suddenly valuable assets want to do things that allow them to raise their living standard. That means either borrowing money against the value of the house, or else selling the house to get money to someone else who’s borrowing funds against the value of the house in order to buy it. It was a perfectly mutual transaction and nobody forced anyone to do anything. Bankers, being the alleged professionals at the “what is and isn’t a reasonable lending proposition” game, seem to me to be the more blameworthy party in some sense, but the underlying issue was the speculative boom in land prices that drove the lending on both sides.
Maybe you have to be young enough to have been renting that whole time to remember it. But if you didn’t own property during the boom years, you had this problem. You had a job and it paid you money. Other people who did own property also had jobs that paid money. But atop that job, they had this great investment they’d made X Years Ago in buying a house. The investment could be turned into consumption directly or could provide a psychological cushion against the need for other savings.