As the saying goes, you are entitled to your own opinion, but not your own facts. The instant historical revisionism by Karl Rove in today’s WSJ — mythmaking writ large — contains an egregious combination of false statements, crucial omissions and misleading assertions.

A few thoughts are required to correct Rove’s attempt to create a false and deceptive narrative. Consider these few corrections:

1. “Fannie Mae and Freddie Mac were among the principal culprits of the housing crisis” Wrong. Fannie and Freddie were cogs in the giant mortgage machine, but they had nothing to do with the abdication of lending standards from 2002-07. That was a function of the Lend-to-Securitize business model of the sub-prime mortgage originators. THAT was the primary cause of the housing boom and bust, along with Ultra-low rates and a lack of Fed regulation of these sub-prime lenders.

2. “Fannie and Freddie were too large and overleveraged” True. This had been pointed out by many people, before Bush and afterwards, that Fannie was a problem. Chief amongst the Fannie critics was Fed Governor William Poole. He deserves credit for his many early warnings about Fannie Mae and the GSEs. He was ignored by Alan Greenspan. Also ignored was Fed Governor Edward Gramlich, whose early warnings about subprime and predatory lending and were both timely and prescient.

3. Democrats controlled the Congressional Debate on GSEs: Rove somehow fails to note the GOP controlled Congress from 1994-2006, including the first 6 years of the Bush Presidency. If the President wanted to rein in the GSEs, he needed only make it a major priority, and not a footnote in the 2001 budget.

4. “largely unreported story is that to fend off regulation, the GSEs engaged in a lobbying frenzy.” WTF? This has been widely reported in the media for sometime now.

5. GSEs bought $ trillion of subprime debt and “liar loans,” almost all bought between 2005 and 2007. This bulk-up in risky paper made it possible for banks to lend imprudently on a massive scale. Facts are correct, conclusion is wrong. By 2005, the die was set. The GSEs were very late to the party, buying sub-prime at the top of the market. The peak of homes sales (units) were August 2005, and the peak in prices were in 2006, just a few months later. From there, it was all downhill. By the time the GSE’s were buying sub-prime debt, it was all over but the crying.

6. OMISSION: Bush thwarted attempts to make lenders behave responsibly: Gee, somehow Mr. Rove forgot this one. Bank regulators had proposed new guidelines for writing risky loans. These were internal administrative rules; had they been enacted, the worst of the housing and credit crisis might have been avoided. The Bush administration backed away from proposed crackdowns on the subprime, no-money down, interest-only mortgages that were critical contributors to the credit and housing crisis. According to the Associated Press, pressure from banks (many of whom have since failed) was the reason:

“Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way. ‘These mortgages have been considered more safe and sound for portfolio lenders than many fixed-rate mortgages,’ David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.”

What was so damning was these proposals were all stripped from the final administrative rules by the Bush White House. None required congressional approval; they did not even require the president’s signature.

Note — these rules were proposed in 2005 — the same year as FNM/FRE began buying subprime mortgages. If that was, as Rove asserts, the cause, than why wasn’t this a primary cause as well?

I am passionate about getting the factual cause of the current housing and credit crisis correct. If we don’t understand how this all came about, we cannot possibly cure it. In attempting to save the President’s legacy and clear his own name, Mr. Rove does the nation a terrible disservice.

I usually don’t bother fisking WSJ Op-Ed pages, as their respect for such things as objective fact or “Truth” can be lacking But this one was so egregious, it demanded an answer.


President Bush Tried to Rein In Fan and Fred
Karl Rove
WSJ, JANUARY 7, 2009, 11:35 P.M. ET

US diluted loan rules before crash
AP, December 1, 2008

Category: Bailouts, Credit, Politics, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

52 Responses to “Karl Rove’s Factually Challenged Housing Revisionism”

  1. sinful mistress says:

    Regulations are like sex, if you don’t like it you’re probably not good at it.

  2. Marcus Aurelius says:

    Good rebuttal of of the slimiest of liars. Thanks, BR.

  3. Brad says:

    Barry appreciate the diligence here. Do you have any comments or controlled ability to check on whether or not troubled banks or their brokerage arms had commissioned opening of subsidiary corporations that were involved with originating loans during 2001-2006.

  4. losfunkytown says:

    No doubt he’s a liar, but even if regulation were perfect on housing, the mess would have only been smaller. Moreover, with all that liquidity flooding through the system thanks to Sir Greenspan’s massive liquidity injections, the system would have created some other Frankenstein segment of the economy, equally phony and dependent on ever easier money and credit, and thus doomed to collapse.

    Keep that in mind with Obama and his New Deal II… Ripping real stores of wealth from the productive economy through inflation (of money and credit) and taxation is more akin to eating one’s seedcorn vs. some sort of economic heroism. Just when we need all this phony economic activity to be cleansed, teh authorities are doing their utmost — extraordinary means — to keep the functionally dead patient on life support, all at expense of real producers whose dollars are actually backed by production and service vs. credit and money invented out of thin air


    BR: If regulations & enforcement were appropriate, trillions in loans to unqualified borrowers would not have been made . . .

  5. florida bear says:

    Barry, Rove is history. I heard a few minutes of Obama’s CNBC interview last night. To me, it seems painfully obvious that Obama does not have the solution to the housing problem. He was a U.S. Senator & had campaigned for two years. Yet, he still has no idea. His #1 objective is to STOP foreclosures. This will only accerbate the problem (housing values are TOO high). What do you think if he offers any household going through foreclosure: fully cooperate with lender, maintain the home (do not trash….), & the U.S. govt. will provide $10,000 & will assist in finding suitable, alternative housing? Further, for new mortgages, REO/short-sales should NOT be used as sales comps. The U.S. govt will provide lenders with default insurance.

  6. Machiavelli999 says:


    First of all, if you look at how government is financing the stimilus, it is not through higher taxation but mostly through debt. But the debt will be eagerly bought up by private citizens under no coercion from the government.

    Second of all, Mr. Austrian I am still waiting for my hyper-inflation. How do you explain deflation right now despite all these bailouts, Mr. Austrian? And how will you explain in 10 years, why our inflation rate will average about 1% annually.

    Third, this “phony economic activity” is being cleansed, the problem is its dragging the productive parts of the economy down with it.

  7. weinerdog43 says:

    Excellent post Barry.

    We won’t be able to move forward until there has been some sort of accounting of the Bush failures. And they have been MASSIVE failures.

  8. grumpyoldvet says:

    Barry….just keep up the good fight pointing out the obvious to those who can’t see the things that are right before their lying eyes.

  9. larster says:

    The fact that Rove wrote this is proof that they know where the majority of the problem lies. This is the Bush/Rove playbook. Spread enough bs and everyone forgets the truth and begins to believe the lie. WMD, a Plan for Victory, etc come to mind.

  10. crack says:

    Don’t forget former Rep Mike Oxley (R – OH) on how much Bush helped with the 2005 fannie freddie reform bill:
    “All the handwringing and bedwetting is going on without remembering how the House stepped up on this,” he says. “What did we get from the White House? We got a one-finger salute.”

  11. Second of all, Mr. Austrian I am still waiting for my hyper-inflation. How do you explain deflation right now despite all these bailouts, Mr. Austrian? And how will you explain in 10 years, why our inflation rate will average about 1% annually.

    Because people are keeping their wallets shut. Companies have to lower prices to make sales. Also, as should be obvious, people feel better about buying US debt than they do about buying stocks right now. Considering how much in the red our government is in, that ought to tell people something about the stock market as well.

  12. VangelV says:

    What a terrible line of thinking. The housing mess was created by a number of factors, all of which were driven by intervention into the market. First, the CRA forced banks to reconsider who they would make loans to; it forced them to extend loans to people with bad credit histories. [BR: This is a patently false statement]

    To offset some of the risks the banks sold loans to Freddie and Fannie, which were pressured by the government to help in its goal of increased home ownership rates, and by selling securities backed by risky loans. Because the accounting standards, which are overseen by the government, permitted all kinds of unreasonable assumptions and because government approved rating agencies said the loans were of higher quality than they actually were the market for these securities exploded. Why did that happen? Well, we had the Fed inflating the money supply and supporting a carry trade that was pushing down yields to levels that were below the true level of inflation. As demand for these securities increased there was a big incentive to make even more loans, regardless of the ability of the borrowers to pay back those loans. Regulated insurers got into the act and created more demand by creating instruments that would pay off in case the loans went bad. As more and more inflation entered the system there was a major acceleration of activity that would not have taken place in an unhampered market where central banks cannot create purchasing power out of thin air, governments don’t have GSE’s to add liquidity every time there is a risk of recession and there are no rules that tell banks that they must lend to people who can’t pay them back because they belong to some low income group or another.

    This is an issue that affects both the Democrats and Republicans alike because both supported housing goals and practices that the federal government is not empowered to do under the US Constitution. With few exceptions most in Congress and the media cheered Greenspan’s incoherent speeches that were based on failed economic ideas that he had rejected in his youth but was more than happy to embrace once he got into the halls of power. Congress and regulators also stood aside even though Fannie and Freddie leveraged their balance sheets to hedge fund levels and there were critical voices pointing out the dangers. The regulators failed and both the Democrats and Republicans cannot shed the blame, no matter how much those on the left or right try to spin the story to blame each other.

  13. sellthekids says:

    has this article been referenced here before:

    some salient quotes:
    “My view is [the Bush] administration said we’ve got four months to remove this thorn in our side,” says Tim Howard, who was Fannie’s chief financial officer from 1990 to 2004. “There will never be another time. We’ve got to do it now.”

    Despite what right-wing critics now charge, however, Fannie and Freddie weren’t big risktakers, even after the 1992 legislation in which Congress also mandated that they had to buy a certain number of mortgages made to people with lower incomes. Critics now charge that this was when Fannie began to engage in risky lending practices. But, in reality, Fannie was extremely careful about the credit risks it took.

    Almost immediately in Raines’s tenure, the criticism of the G.S.E.’s took on a new ferocity. One of the first salvos was fired by the Clinton Treasury Department under Larry Summers, who had replaced Rubin in the summer of 1999.


    as for Bush’s role, just start reading @ Operation “Noriega”.

    interesting spin on the whole deal.

  14. GB says:

    BR the AP article link about Bush is not working for me?

    Careful you might get audited now. Oh wait you should be in the clear Jan 20th.

  15. W T F says:

    As long as we think of the housing issue as “subprime” we will overlook the real cause of this bubble: a confluence of factors that allowed middle class housing prices to double in less than six years in markets like southern and northern California, Phoenix, Las Vegas, and practically the entire state of Florida. This happens when you let markets regulate themselves.

    Did middle class incomes double over that period? Not even close? Was there such a limited supply of housing stock in those areas that led to unrealistic price appreciation? Are you kidding?

    Before you claim that subprime had to be the cause of this just remember: non-prime mortgages accounted for at most 45% of mortgages placed during that time.

    This leads to the real problem: the 55% of home purchasers who obtained prime loans (loans for which they qualified) who now have negative equity in their homes. Most if not all of these folks are current on their mortgage payments and their lenders are scared out of their wits that these folks will at some point walk away.

    How can middle class housing prices double in six years? It happens when you let markets regulate themselves.

    Today Mr. Market asks: how do you like me now?

  16. Moss says:

    Don’t let them lie. This is a perfect example of the elites attempting to insulate themselves from taking responsibility. Just like the war and everything else. The spin is deplorable since the well informed realize it is all an attempt at legacy building.

  17. DeDude says:


    “First, the CRA forced banks to reconsider who they would make loans to; it forced them to extend loans to people with bad credit histories”

    Do you have any evidence that the Bush administration suddenly in 2002-05 began to enforce the 1977 CRA? Because if fear of CRA is responsible for the explosion in subslime loans that began in 2002 then there must at least have been a rush to punish violators that suddenly drove bankers to fear that law. Or are you of the Rowe school where statement don’t have to be connected to facts?

  18. Groty says:

    Excellent concise summary, VangelV.

    Had you written a couple of sentences noting the failure of corporate governance in terms of boards creating assymetric incentive structures (heads I win, tails I can’t lose) for management to engage in insanely imprudent risk taking, it would mirror my thinking almost exactly.

  19. Imelda Blahnik says:

    VangelV says: First, the CRA forced banks to reconsider who they would make loans to; it forced them to extend loans to people with bad credit histories.

    Hmmm, time for some disemvowelling, Barry?

  20. Renting in Mass says:

    Great rebuttal Barry. Thanks for doing it.

    VangelV, have you been reading what Barry writes? He’s disproved your argument like five times this month.

  21. Robert says:

    What enabled the abdication of lending standards?

  22. Tom K says:

    @Machiavelli999 Says: “I am still waiting for my hyper-inflation.”

    Are you kidding? Did you really expect to see the inflationary impact of Treasury’s hyperactive printing press overnight? Or do you think the government can just print trillions from thin air with no consequence?

  23. spigzone says:

    So, even eight years later, it was really all Clinton’s fault …

    Poor George, how COULD he have succeeded with that awful Clinton inheritance?

    Who on God’s green earth could have done better?

    … … …

    Well, okay, I’ll give you Terry Schiavo, but who else?

  24. Tom K says:

    So Barry, I know you’re publishing a new book and everything, but when are you going to stop fighting the last battle? We have another economic cluster in the making and the media’s reporting it with amazing nonchalance:

    Obama Warns of Prospect for Trillion-Dollar Deficits

    Just as everyone cowardly acquiesced to Paulson’s request for 700 big ones (or the world is going to come to the end), the ignoramuses in the media are going to help Obama steamroll the public into maxing out Uncle Sam’s credit card.

    I listened to NPR this morning and apparently Obama has also succeeded in training the media to parrot his bastardization of the language: “tax cuts” now means government payments to those who don’t pay taxes, and “investment” has become an acceptable synonym for government spending. I suppose Return-on-Investment means Democratic votes.

  25. jmay says:

    First of all — thank you Barry for continuing to fight the good fight.

    As we all remember, the housing bubble-powered economy was the only thing Bush had going for him in the Post-Katrina phase of of his Presidency. So of course he enabled and encouraged the madness. His “Ownership Society” speeches of that time will end up as ironic PR events, not unilke (though not as famous as) his “Mission Accomplished” stunt on the aircraft carrier.

    But let’s get a couple of things straight. Barry and the rest of us are not Rove’s intended audience, and this is not just about historical revisionism. Rove is speaking to the remaining base of the Republican party, the ones who are very receptive to this version of events because they want an explanation of the financial mess that fits in with their world view.

    In the last couple of months of McCain’s campaign, his actions became very puzzling if you took them at face value. But in the end he wasn’t trying to win the election, or even win any policy arguments on their honest merits. He was trying to dig a moat around a very angry, very entrenched group of people who will shape the narrative of the GOP In Exile. McCain’s campaign themes included a lot of dog-whistle white supremacism and uber-jingoism: his official motto was “America First” and the repeated assertions of his surrogates that Barack Obama did not represent “the real America” went along with that.

    Karl Rove is now filling out the policy theory around this narrative, using what little veneer of respectability Rupert Murdoch’s WSJ has left. The root of the financial problem, the story will go, can be traced back to Fannie and Freddie (in other words, to minority homeowners). Somehow, they will say, the government has been hijacked to serve the needs of these special interests groups who are not real (i.e. white) Americans in the first place.

    We’ve seen this little melodrama before, most notably in the Germany of the 1930s. These nationalist-fascist memes aren’t getting much traction at the moment (beyond the far right), but if we hit hyper-inflation and massive unemployment, as Germany did between the world wars, the drumbeat of hate and bigotry is going to find a much larger number of willing ears.

    So this vigilance of Barry’s is not just academic. We all need to be very diligent in punching this shit in the face whenever it rears its ugly head.

  26. Concerned American says:

    I am surprised to see people still try to defend this criminal administration. I can only hope and pray some really really really big names go to jail yet.

    Wait they weren’t smoking pot so they are probably safe from prison.

    Hopefully the receive some type of consequences for their actions other than being labeled as the biggest failures in the history of the US.

  27. DeDude says:


    The abdiction of lending standards were enabled by a copple of things:

    1. The incentive structures that allowed those in the trenches to get bonuses for loans and CDO paper as long as they didn’d default before they were signed. So their incentives were to make loans and CDO’s without regards to how responsible the loans were (and often the rewards for irresponsible loans were highter than for regular loans).
    2. The ability to securitize and get AAA ratings on paper based on BBB quality loans. So it was easy to pass the risk to someone else if they believed the rating agencies (who had a compensation structure that rewarded them for lying).
    3. The complete lack of oversight that allowed a CDS market to develop without the type of oversight that all other insurances are under. This allowed portfolio managers to “invest without investigating” because they believed that someone had their back.
    4. The belif that housing prices would continue to increase even though houshold incomes were stagnant. Even those professional involved who realized that the underlying loans were not sustainable in the long run, were convinced that the “default” of the home loaner would only hurt the home loaner (and often it was a great racket where the home loaner came back to refinance again and again with juicy fees harvested each time).

  28. ottovbvs says:

    If ever that old joke:

    How do you know Karl Rove is lying? His lips are moving!

    belonged to anyone it’s Rove. If they ran a poll on his approval rating he’d be at around 25% like his boss. So that 25% which the WSJ ed page is aimed at are going to believe all this bs, the other 75%, who are in any case never going read this, dismiss anything from Rove’s lips as by definition a self serving pack of lies. Nevertheless BR you are performing a public service in pushing back on this tripe as we all need to do when there is egregious re-writing of history which I suspect we are going to see a lot of over the next few years as lipstick is liberally applied to the pig.

  29. Robert says:

    1. The incentive structures that allowed those in the trenches to get bonuses for loans and CDO paper as long as they didn’d default before they were signed.

    To whom were they loans passed off?

  30. riley says:

    NEWS FLASH – Politician tries to rewrite history to their benefit.

    The real news flash would be if a politician (of any political persuasion) let their record stand and did not use 20/20 hindsight to try and rewrite history.

  31. DeDude says:

    Robert, the (subprime) loans were almost all passed off to investment banks that securitized them and then sold that paper to investors (mostly retirement funds).

  32. Machiavelli999 Says:

    “First of all, if you look at how government is financing the stimilus, it is not through higher taxation but mostly through debt. But the debt will be eagerly bought up by private citizens under no coercion from the government.”

    John Maynard Keynes says:

    “What a Government spends the public pay for. There is no such thing as an uncovered deficit.”

  33. DeDude says:

    Curmudgeon; just like the $2 trillion Irak war this $1 trillion stimulus on the credit card will eventually have to be payed back. But if we are not calling the Irak war a tax, then the stimulus package should not be called a tax either. Both are deficit spending and in the terms of economy these types of spending should be judged on what they do to stimulate growth both in the short term and long term (where both are detrimental)

  34. Incidentally, Rove is as full of shit as he’s always been.

    The “but for” cause (as we lawyers like to describe the tortious act that actually led to damages) for the housing bubble was the expansionary monetary policy of the Fed. All the rest of this nonsense about the GSE’s, CRA, Ownership Society, etc., is just a red herring. None of this would have happened without the Fed’s loose-money policy.

    The proper regulation to have prevented it–all of it–would have been a properly regulated supply of money and credit.

    Alas, here we go again. Refi-mania is back (I’m in the business). Apparently the prescription for the mess caused by too-loose credit and too much money is even looser credit and even more money. This country is so ineptly governed until its hard to see how its managed to survive as long as it has.

  35. Robert says:

    Robert, the (subprime) loans were almost all passed off to investment banks that securitized them and then sold that paper to investors (mostly retirement funds).

    Were the securities constructed after the houses, or were the houses constructed after the securities?

  36. DeDude says:

    Robert, that question is a little bit of a chicken and egg one. Houses were build because they could be sold, and they could be sold because irresponsible loans could be made, and those loans could only be made because they could be passed off via CDO securities. So the house in a specific security was build before that security was created. However, without that crazy securities marked the housing marked would never have expanded the way it did.

  37. Robert says:

    without that crazy securities marked the housing marked would never have expanded the way it did.

    See that is what I don’t get about this line of reasoning. As far as I can tell there are 3 reasons to buy a house.

    1. I need a house to live in.
    2. I want a house to rent out for a cash flow investment.
    3. I want a house to sell for capital appreciation in the near future, since otherwise it is a cash drain.

    How did investment banks in New York cause people to build houses for any of these reasons?

    Of those 3, it seems to me that number 3 is the culprit in our scenario. So what caused speculators to believe house prices were going to increase, excess demand or insufficient supply? Are we dealing with naive trendfollowers? Would speculators buy money at any rate if they think there is no demand for something? Apparently they believed there was excess demand. Only recently was there too much housing supply, as people walked away.

    There is an expression….necessary but not sufficient. Regarding this crisis, I continue to believe that low interest rates were necessary but not sufficient. Likewise with the GSE’s.

  38. DeDude says:

    I actually think that most people wanted to own a house because it is the American dream (for whatever reason). What the investment banks in New York (and all the other enablers I listed) did, was that they created a system that allowed people who really could not afford their dream house to get into and live in it. The investment banks created credit products that put new people into places in the demand chain where they did not belong. Those people were convinced (by their predators), that they could afford it, but really never had a chance of making it, long-term. In some markeds there were also speculators contributing to the boom, but I have not seen any data to support that they were the main purchasers (although part of the sales strategy was that “it is not just a home, but also a good investment”). Remember even in places like Memphis where house prices didn’t go up much, the subprime loans exploded after the investment banks started to securitize (enable) them. Nobody in Memphis ever had reson to believe that they could harvest a doubble digit annual return on an investment in a house.

  39. Willie Chicago says:

    One-third of the Rove article pertains to the bipartisan Congressional protection racket. Why no comment on that? Does everyone agree with KR’s observations?

  40. sinful mistress says:

    Robert, you forgot a 4th reason-

    4. I want a big house to make me feel good about myself and I will appear successful. This is where I will put my flat screen tv and park my SUV.

    People are rationalizing, not rational.

  41. ottovbvs says:

    ” Renting in Mass Says:

    January 8th, 2009 at 11:51 am
    Great rebuttal Barry. Thanks for doing it.

    VangelV, have you been reading what Barry writes? He’s disproved your argument like five times this month.”

    Renting in Mass dear boy, you have to realize that Vangel V doesn’t want a debate about his arguments. He’s not really interested in reality at all he just wants his prejudices and ideas which are picked up from conservative talk radio etc confirmed. This is becoming the besetting sin of conservatives who used to be the party of facts and empirical evidence. No longer. They have a vision of the world that says things like:
    Obama is a communist and a magic negro
    Palin was a great pick for vp
    CRA is responsible for the economic melt down
    Hussein’s WMD’s have been hidden somewhere
    The world is about 10,000 years old
    Regulation of financial markets is over burdensome
    FDR caused the great depression
    Obama and the democrats caused the current recession
    History will prove Bush a great president

    Well I could go on couldn’t I. If you want a perfect example Pethokoukis at World News has a column up suggesting it’s all Obama’s recession with some thirties history re-writing thrown in for good measure. It’s all totally loony and a measure of just how hard it is going to be for these folks to find their way back to the center. They need to for the health of the political system. We probably have to have the GOP civil war for this process to occur.

  42. DeDude says:

    At least there are some sensible rebuttals also posted on the WSJ site. I partiucullarly like that from Johntalbs1:

    “While FNM and FRE were certainly contributors to this crash, they were not the primary drivers. The subprime mortgages Rove speaks of started this, and, by definition, subprime mortgages are those that didn’t meet FNM qualifying standards so FNM wouldn’t touch them. FNM and FRE got into trouble with leverage and mis-management in 2003 and had to sit out the next three years and sell off $200 billion of mortgages from their portfolios so they missed most of the subprime boom, which was most defintely driven by for-profit private sector financial firms. The whole idea behind subprime lending in the private sector was to issue a BB mortgage at 8.5% and then put it in a CDO and call it AAA yielding 5% and take out 30% of the mortgage monies as profits up front.”

    “The subprime mortgages that FNM and FRE ended up buying were late in the game and were not issued by FNM. They were bought in the secondary market as a last ditch effort to prop up FNM and FRE.”

    “FNM and FRE, while disasters, still have much lower default rates than the now bankrupt mortgage co’s and private banks. The reason. FNM and FRE had qualifying rules, the most important of which was they couldn’t lend over $417,000 until just recently. That kept them out of the most overpriced housing sectors which happened to be in the most expensive towns, Miami, LA, Boston, Manhattan, SD, SF, etc.”

    “This is the Republicans attempt to say that deregulation was not the problem. Don’t fall for it. Bush deregulated and thieves robbed the store. Rove needs to examine Greenspans efforts at ignoring warnings and continue his push into unregulated markets, somthing he now admits was a huge mistake and resulted from his Ayn Rand mentality that markets don’t need adult supervision.”

    Nothing beats the presentation of undeniable facts by a knowledgable person.

  43. MaxLdaMan says:

    The WSJ is the official bum kisser to the Republican party. It’s not a newspaper, it’s an agenda. I have long failed to understand why anyone would take them seriously

  44. RW says:

    The WSJ editorial and opinion pages have been good for nothing but birdcage liner and fish head wrapper for a long, long time but the news and financial pages have been first rate longer than that are the sole reason the paper is worth reading.

    Stated another way, the main reason I was worried about Murdoch’s News Corp taking over the WSJ had nothing to do with the editorial pages, which could hardly be worsened without risking spontaneous liquidation into compost, and everything to do with the integrity of the news division: The thought of that division being transformed into Fox was, and remains, very troubling.

  45. philipat says:

    Barry, suggestion. Re-write this piece and get it published by the WSJ as an op-ed piece. Even the dirty digger and his editors do need to represent both sides of the debate.
    I agree we must make sure the truth is known so that apprpriate regulatory change can be made (All derivatives to trade on an exchange, no more off-balance sheet cr*p, ratings agencies cannot charge the Company being rated for a rating etc.)

  46. dunnage says:

    Rove and Noonan, obviously their systemics decoupled: Now you know Larry Flynt is right. Send Adult Entertainment Industry $ now.

  47. Mark A. Sadowski says:

    Menzie Chinn has a nice summary of the causes (and non causes) of the housing bubble/credit crisis here:

    He looks at the following factors:
    Fannie and Freddie
    Community Reinvestment Act
    CDO’s and CDS’s
    Global saving glut
    Monetary policy
    Criminal activity and regulatory disarmament
    Tax cuts and fiscal profligacy
    Tax policy

    In his own words: “I’ve already dealt with the first two “betes noire” — favorite villains in the fevered commentary of certain noneconomists….” He also dismisses the global savings glut thesis that has recently been advanced by Hank Paulson. He then proceeds to argue that the main culprits were poor regulatory and tax policy, with monetary policy playing a very minor role. In particular he points out that the mortgage deduction for second homes went into effect in 1997. This coincides with the big runup in housing prices quite nicely, and is not exactly what the advocates of the Fannie, Freddie and CRA thesis want to hear.

  48. Mark A. Sadowski says:

    @ Tom K

    “Are you kidding? Did you really expect to see the inflationary impact of Treasury’s hyperactive printing press overnight? Or do you think the government can just print trillions from thin air with no consequence?”

    No not overnight. Try never. The CBO just came out with its latest long term forecast. No, hyperinflation is not on the menu:

    In fact as you can see they are forecasting low to no inflation through 2019. Historically this should not be a surprise. In the United States the monetary base went up five fold and M-1 tripled between 1929 and 1944 and yet the price level in 1944 was no higher than in 1929. In Japan the monetary base nearly tripled and M-1 did in fact triple between 1994 and 2006 and yet they have been experiencing deflation ever since, not inflation. During the Great Depression, in Japan’s Lost Decade, and now in the United States today the velocity of money collapsed. There is no huge inflation on the way.

  49. DeDude says:

    Mark A, thank you for some interesting links and new angles/insights to the debate. The tax deductibility of second homes as serious wood to the fire of the housing bubble is an interesting thought.

    I agree that pumping up the money supply cannot create inflation by itself. You have to pump money into the consumer class to get inflation, because no business can raise prises beyond what customers can afford. I don’t see how anymore than a small drip of the current explosion in money supply can reach the consumer class. It’s unfortunate, because what we really need for the next few years is inflation (5-10%) and we are a lot more likely to get deflation.

  50. Mark A. Sadowski says:


    Haha, this is the first time I’ve heard anyone say something favorable about 5% or higher inflation in years! I don’t agree, I think a target of 2% core inflation is reasonable, but it’s refreshing to hear something so contrarian. But nevertheless, you’ve set me off on an proinflation/antideflation rant.

    It is interesting to note that the last time we had a big increase in male median full time earnings was in 1960-1973 and that was a period of rising inflation. Also, lately, John Tamny (another Austrian) has been criticizing the 1970′s for its high inflation and poor stock market performance. But this was the decade when the poverty rate was its lowest (1973) and the proportion without health insurance was its lowest (1974) (not to mention male median full time wages set a record in 1973 that still hasn’t been surpassed). I ought to know, I was there, life wasn’t that bad. Even if all you had was a minimum wage job you could get by pretty well.

    On the other hand I’ve heard some of the Austrians say deflation is good (such as Frank Shostak). But try as I might, I still can’t find even one example of a good deflation. Severe deflations are always associated with extreme hardship and inequality. Take the 1830′s and 1840′s in the United Kingdom (think of any Dickens novel). Or take the period after the Civil War through the end of the recession associated with the Panic of 1873 (1865-1878). This was the time when the words “bum” and “tramp” first came into vogue for the simple reason both were abundant. The best argument I have against deflation is the following. A good source of United States historical macro data is here:

    The period from 1865 through 1895 was predominantly characterized by deflation in the US. On the other hand the US is currently passing though its longest ever continuous inflation on an annual basis in history. It began in 1950 and possibly may end this year. Here is the NBER list of recessions:

    Simple calculations will show you that from 1865-1895 we spent about 52% of our time in recession. From 1950-2008 we spent 15% of our time in recession. Personally I’d rather live in a country where most of the time jobs are plentiful and the economy is growing than in one where most of the time jobs are hard to come by and the economy contracting. Sure overall GDP growth may have been incrementaly higher in the deflationary period, but that was because the population was soaring often at 3% a year. GDP per capita has grown a lot faster during our inflationary time than that deflationary time. And in any case, a better measure of overall living standards is median earnings growth, not GDP growth. As bad as inequality is today in the United States, it was certainly far worse in the Gilded Age.

    Just a little food for thought for someone dares to favor inflation!

  51. DeDude says:

    Mark A,

    Well inflation scares the rich because it is an environment where it is hard for them to remain rich, and they all are familiar with the old “scarecrows” of the Weimar republic etc. So it is not something that they (and their media labdogs) like to discuss as a serious solution to our problems. They also perpetuate myths of it as being a terrible thing for “ordinary” people, to try and prevent that it gets into the public debate. It is in reality a way of redistributing wealth from rich to poor – deflation is the opposite. I see it as the only way out of the current mountain of debt in both public and private sectors. Given the fact that 70% of the GDP is consumption, I am not surprised that inflation is better for overall GDP growth (because it favors the consumer class over the investor class). That is also why I am a lot more scared of the prospect of slipping into deflation than I am of hyperinflation. In an industrialized consumer driven economy as ours deflation could lock us into a spiral of economic contraction.