Brad Miller has a post at Huffington Post, Republican Amnesia on the Financial Crisis. The important story is that that during the 2000s conservatives and libertarians hated the CRA and the GSEs because they believed that these institutions blocked or slowed the ability to give loans to poor people. After the crash, the Right did an immediate about-face, blaming these institutions for lending too much.
I’m not making that up. Check out the Miller post. We’ve been documenting this here for a while. As Cato put it in 2003 “…by increasing the costs to banks of doing business in distressed communities, the CRA makes banks likely to deny credit to marginal borrowers that would qualify for credit if costs were not so high.” Bill Black walks through the about-face by Wallison on everything, the GSEs in particular, here and here.
Meanwhile David Frum is reading the FCIC report. Here is his post on the CRA, Did Washington Push Banks to Make Bad Loans?, which ends with the quote: “George Bailey of It’s a Wonderful Life retired from mortgage lending forever. In the new anonymous securitized market, high-flown liberal egalitarian ideals became the material out of which self-interested and consequence-indifferent financial engineers built the biggest economic bomb since World War II.”
Hey! I’m both a liberal egalitarian and a financial engineer. I better respond.
First the FCIC report emphasizes this in passing but not by structure or percentage of content, but we had a credit bubble, and bubbles showed up everywhere, not just housing. Second, I’m actually surprised that the FCIC didn’t cover deregulation and securitization, considering they cover the early 1980s deregulation that gets us to the S&L crisis. The private securitization market was the creation of the early Reagan administration. Particularly the Secondary Mortgage Market Enhancement Act of 1984 (SMMEA) where Congress preempted a variety of state laws that inhibited private home mortgage securitization.
But to the point, we need to distinguish between the idea that a regulator made the financial system do A versus not doing anything while the financial system did A. Regulators didn’t step up when the subprime market, the housing bubble, the CDO market, or the shadow banking system were all growing quickly, in part because they believed these things would regulate themselves. Greenspan was certainly of this belief. Being able to say that you were promoting homeownership was a great tagline for both parties, but that’s a side effect of letting the market spin out of control.
But are “high-flown liberal egalitarian ideals” the reason why regulators turned a blind eye while subprime and homeownership was pushed so hard and got so big in the 2000s ? Let’s look at George W. Bush’s 2004 Ownership Society fact sheet, and what I would characterize as the four-legged stool of The Ownership Society: tax cuts for the wealthy, health savings accounts, privitizing social security, and mass home ownership. Homeownership is a big deal in the fact sheet (“…The President believes that homeownership is the cornerstone of America’s vibrant communities and benefits individual families by building stability and long-term financial security…The President also announced the goal of increasing the number of minority homeowners by at least 5.5 million families before the end of the decade…”).
What he really promoted was homebuyership, not homeownership. But politically, why was this a big deal to the Republicans? Egalitarian concerns? As the historian Rick Perlstein found in a 2005 special Ownership Society edition of the American Enterprise Institute’s magazine, Grover Norquist wrote that:
“Bush’s vision also calls for efforts to increase home ownership. Here’s a hint of what that could mean: in House Speaker Dennis Haster’s Congressional district in Illinois, 75-80 percent of voters own their own homes. In Democratic minority leader Nancy Pelosi’s district in San Francisco, the number is 35 percent…. A transition of great political importance is under way. Fifty years from now the move to an Ownership Society will be recognized as a change to America’s political landscape as dramatic as the move from farms to factories.”
Here’s James Glassman:
“Bush wants more ownership because he wants to change the shape of America. He understands that people who own stocks and real estate–who possess wealth of their own–have a deeper commitment to their community, a more profound sense of family obligation and personal responsibility, a stronger identification with the national fortunes, and a personal interest in our capitalist economy. (They also have a greater propensity to vote Republican.)…
Here’s more from what Perlstein found in that 2005 American Enterprise Institute magazine (my bold):
“The places with the higehst levels of homeownership generally vote Republican…. “Our analysis shows that this connection between homeownership and voting Republican holds broadly at every level–from large regions all the way down to metro areas….more and more of the places offering new homes to young families following their dreams are in the heart of Red America.” Not wanting to own your own home is revealed as downright European; Kotkin singles out Prague’s homeownership rate at “about 12 percent.” No Republicans there! He concludes by calling cities like Fresno, Orlando, Dallas, Houston, Phoenix, Las Vegas, and Atlanta “Our New Cities of Aspiration”–“the de facto headquarters of the American dream.”…
Once more our conservative think tank hammered home the electoral point: “Married couples with families, a key Bush constituency, had the highest rates among all groups: over 83 percent.” No wonder Bush won: “Homeownership momentum continued right up to the election. Sales of new homes rose 4 percent in the fall, to an annual rate of 1.2 million units – the third highest level on record. Sales of previously owned homes also rose to their third highest level.”
Especially bustling? California, where first-time homeowners are said to “head for towns like Tracy, Modesto, and Grass Valley. Along the way, many embark on a journey that ends with them voting Republican.”
They thought getting homeownership rates up to 70%+ would secure a permanent Republican majority, the 2005-era dream of Rove and other thinkers on the Right. They looked at the data and saw that suburban homeowners are more worried about tax issues, crime, and tend to vote more conservative on economic issues, and they thought they could let the financial sector do its thing and turn a critical mass of swing voters into suburban bourgeois tax-haters. There’s an element of the GI Bill and post-war suburbanization in this strategy, which was designed in part by the GOP to get people to the new suburbs and weaken the power of Democratic city bosses.
They actively applauded themselves for attempting this distinctly political project in their magazines. And then they blame poverty programs and the idea of government when it all collapses.