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The Crisis Was Caused by [Insert Pet Peeve Here]

Posted By Barry Ritholtz On January 26, 2011 @ 11:08 am In Bailouts,Credit,Regulation | Comments Disabled

One of the stranger aspects of human nature — or is it just people with intense affiliations with ideologies? — is the tendency to see the entire world through a distorted lens.

The origins of the financial crisis are no different. It seems that all too many people are willing to use any event to pursue their own agendas, regardless of evidence or proof.

Hence, we have a steady parade of people who seek to blame or exonerate the precise wrong factors which nonetheless fit their preconceived notions.


Mish blames the crisis on 3 factors. While we agree about Ultra Low rates, his other two elements are simply incorrect. “Fractional lending” is his #2 cause. Never mind that this form of credit creation has been around for centuries, he is a vociferous critic of it. Naturally, it was the cause of the crisis. (See: Financial Crisis Brewing Already [1]) Deficits are his #3 cause, which quite bluntly, is beyond my comprehension as a cause of the credit crisis.

Edward Pinto, under the theory of keep throwing shit against the wall until something sticks, has a series of peeves he blames the crisis on (all acronyms) including ACORN, HUD, CRA, and GSEs. (See, Acorn and the Housing Bubble [2], Yes, the CRA Is Toxic [3], The Future of Housing Finance [4], etc.)

Peter Wallison was co-director of AEI’s Financial Deregulation Project (since renamed [5]). What are the odds he is going to find that deregulation had anything to do with it? Instead, his pet peeves about the GSEs are his pre-clusion [6].  (See Why is AEI Scrubbing Wallison’s Name From AEI’s Financial Deregulation Project? [7])

• The usually astute Gretchen Morgenson of the NYT got the GSE factor wrong, as she began one Sunday column with the sentence: :”DECIDING what to do with Fannie Mae and Freddie Mac, the taxpayer-owned mortgage giants that helped set the financial crisis in motion, will be a huge job for Congress next year. ” Hey Josh, stop ruining our best reporters!  (See The Nerve to Say No [8])

James Pethokoukis blames the Mortgage Interest Deduction  (Reuters [9])

• The Atlantic’s Megan McCardle occasionally flails about in her defenses of corporate America. For example, in a critique of Matt Taibbi, she bizarrely wrote that “financial meltdowns don’t offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.” Ahem . . . The FCIC begs to differ. (See: Matt Taibbi Gets His Sarah Palin On [10]; Contra: No Financial Villains . . . ? [11])• Michelle Malkin claims Illegal immigration caused the mortgage mess [12].

Michelle Malkin blames the crisis on illegal immigration [12].

3 of the 4 GOP appointees of the FCIC dissented, writing: “Our views have been shaped, in part, by our knowledge of economics and financial markets generally.” And that’s the problem — your views of Efficient markets, rational actors,  and self-regulation have been proven to be  nonsense, bad theories that you slavish stick with for matters unbeknownst to thinking people.  (See 10 Questions for GOP Members of Financial Crisis Inquiry [13])

Of course, any group that sought to ban the phrases “phrases “Wall Street,” “shadow banking,” “interconnection,” and “deregulation” from the final report is not to be trusted in the first place.

The bottom line for most of these folks is that their own intense emotional attachments to their pet peeves, theories and ideologies prevent them from seeing reality as it is. (As investors, we know what that does to your returns).

In terms of getting to a place where you understand the actual, empirically demonstrable, provable causes?


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2011/01/the-crisis-was-caused-by-insert-pet-peeve-here/

URLs in this post:

[1] Financial Crisis Brewing Already: http://globaleconomicanalysis.blogspot.com/2011/01/fcic-investigation-misses-big-picture.html

[2] Acorn and the Housing Bubble: http://online.wsj.com/article/SB10001424052748703298004574459763052141456.html

[3] Yes, the CRA Is Toxic: http://www.city-journal.org/2009/19_4_snd-cra.html

[4] The Future of Housing Finance: http://online.wsj.com/article/SB10001424052748704407804575425231311880538.html

[5] renamed: http://www.reg-markets.org/pages/index.php?id=37

[6] pre-clusion: http://www.aei.org/issue/12235

[7] Why is AEI Scrubbing Wallison’s Name From AEI’s Financial Deregulation Project?: http://www.ritholtz.com/blog/2010/12/aei-scrubbing-wallisons-fin-dereg-project/

[8] The Nerve to Say No: http://www.nytimes.com/2010/12/12/business/12gret.html

[9] Reuters: http://blogs.reuters.com/james-pethokoukis/2009/09/25/yes-washington-did-help-cause-the-financial-crisis/

[10] Matt Taibbi Gets His Sarah Palin On: http://www.theatlantic.com/business/archive/2009/07/matt-taibbi-gets-his-sarah-palin-on/21085/

[11] No Financial Villains . . . ?: http://www.ritholtz.com/blog../2009/07/no-financial-villians/

[12] Illegal immigration caused the mortgage mess: http://michellemalkin.com/2008/09/24/illegal-immigration-and-the-mortgage-mess/

[13] 10 Questions for GOP Members of Financial Crisis Inquiry: http://www.ritholtz.com/blog/2010/12/10-questions-for-gop-members-of-financial-crisis-inquiry/

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