The Obama Depression and the Limits of Partisanship

The New York Times recently pointed out that we're a somewhat partisan nation:

But people who follow politics closely — whether voters, activists or pundits — are often partisans first and ideologues second. Instead of assessing every policy on the merits, we tend to reverse-engineer the arguments required to justify whatever our own side happens to be doing. Our ideological convictions may be real enough, but our deepest conviction is often that the other guys can’t be trusted.

Although the Times was discussing public reaction to TSA's government-imposed strip shows, we see partisanship affecting judgment in other areas.

Whodunnit?

The Times believes that the Obama depression must have been deliberately caused by some evil cabal; they want the miscreants sent to jail.  We believe that there were miscreants who should be jailed, but we and the Times differ a tad on just who caused the depression:

To say there’s been no accountability for the crash is an understatement. In yet another spectacular display of failed bipartisanship last week, the Financial Crisis Inquiry Commission, charged by Congress with unearthing the roots of the financial meltdown, split apart in sectarian warfare. The panel’s Republican members issued their own rump report eliminating all mention of derivatives, executive compensation, failed regulatory agencies and even the words “Wall Street” so the whole debacle could be pinned solely on government (Fannie Mae, Freddie Mac) and deadbeat Americans who took on predatory mortgages.

Congress has to investigate the matter because people want to know what happened.  Democrats and Republicans differ on the causes, of course, and the Times sides with the Democrats.  Their editors must have forgotten their article "Fannie Mae Eases Credit To Aid Mortgage Lending" which the Times published on September 30, 1999, during the Clinton (D) administration.  [emphasis added]  The article starts:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.  [emphasis added]

What triggered the financial crisis?  Subprime loans, that is, loans made to people who couldn't meet normal credit standards.  When the government "eased the credit requirements" for loans it would buy, banks made riskier loans and sold them to the government.  Selling off their loans at a profit gave them money to loan again.  Having loaned money to everybody who qualified for a loan, they sought out riskier and riskier buyers.  The bubble grew until it burst as bubbles always do.

In spite of their earlier article, the Times editors are pretending that government interference in the mortgage market had nothing to do with the crash.  If they admitted the role of Fannie Mae and Freddie Mac, they'd point the finger at Democrats such as Barney Frank who had a rather cavalier attitude towards government-urged risk:

"I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision], I want to roll the dice a little bit more in this situation towards subsidized housing."

- Rep. Barney Frank, September 23, 2003

When Rep. Frank referred to "subsidized housing," he was talking about Fannie Mae and Freddie Mac, the two government agencies which offer low-cost home loans to risky buyers.  The Times would have us believe that government-approved risky loans had nothing to do with the housing market crash; their own articles and Rep. Frank's statements put the lie to that.

The View from Across the Pond

British papers are more honest.  One of our readers posted an article from the Independent "Democrat fingerprints are all over the financial crisis."

Of all the characteristics of a successful politician, none is more essential than bare-faced cheek. Never has this been more evident than in the past fortnight, as senior Democrat members of the US legislature have sought to lay all the blame for the country's financial crisis on the executive arm of Government and Wall Street.

Neither of these two institutions is blameless – far from it. Yet when I see such senior Democrats as Barney Frank, Chairman of the House Financial Services Committee, and Christopher Dodd, Chairman of the Senate's Banking Committee, play the part of avenging angels – well, I can only stand in silent awe at the sheer tight-bottomed nerve of it. These are men with sphincters of steel.

Only an overseas newspaper could be so frank about the crisis; Democrats are a protected species here in the US.  The Independent summed it up:

What is the proximate cause of the collapse of confidence in the world's banks? Millions of improvident loans to American housebuyers. Which organisations were on their own responsible for guaranteeing half of this $12 trillion market? Freddie Mac and Fannie Mae, the so-called Government Sponsored Enterprises which last month were formally nationalised to prevent their immediate and catastrophic collapse. Now, who do you think were among the leading figures blocking all the earlier attempts by President Bush – and other Republicans – to bring these lending behemoths under greater regulatory control? Step forward, Barney Frank and Chris Dodd.  [emphasis added]

The Republicans on the Financial Crisis Inquiry Commission are entirely correct to assign the lion's share of the blame to government entities egged on by Democrats; our media, alas, are, as the Times put it, "partisans first and ideologues second" and committed to "reverse-engineer the arguments required to justify whatever our own side happens to be doing."

Crooks In Government, Crooks Outside Government

There were crooked bankers, of course, a phenomenon we've seen before.  The book The Great Depression: A Diary is a collection of notes made by Benjamin Roth, a lawyer who practiced in Youngstown, Ohio, during the Roosevelt depression.  He noted that some bankers were crooks:

Feb. 25, 1933

Again and again, dishonesty and speculation by bankers with bank funds becomes the subject of newspaper notoriety.  The latest investigation discloses such practices on part of National City Bank of New York.  By manipulation, the officers boosted and unloaded on the public their own stock in National City Bank to the public as high as $650 per share when its value was only $60.  Likewise when the crash came, this same bank sold out collateral of its customers but lent money to its officers to save them from loss.  Other similar practices enriched bank officials at the expense of the depositors and the public.  In spite of this, the vast majority of banks and bankers were honest.  p 93  [emphasis added]

In addition to clear-cut crookedness and insider dealing, there were actions which reeked of corruption:

May 24, 1933

Investigations are the order of the day.  The senate is investigating private banking and in particular J. P. Morgan & Co.  Mr. Morgan was on the witness stand all day yesterday and today.  The evidence shows that his firm made many loans to men now prominent in public affairs. p 114  [emphasis added]

We saw a great many "loans to men prominent in public affairs" when Countrywide Financial, under the direction of Angelo Mozilo, made sweetheart loans to "friends of Angelo."  His list included Sen. Dodd, the legislator who received so many campaign contributions from Fannie and Freddy.  Having made loans and done other favors for men who were prominent enough to head off investigations, Mr. Mozilo made out pretty well, as the Wall Street Journal reports:

Angelo Mozilo, the former head of Countrywide Financial Corp. and the highest-ranking corporate executive to be accused of wrongdoing in the housing crisis, agreed to pay $67.5 million in penalties to settle civil fraud and insider-trading charges.

But most of Mr. Mozilo's financial obligations likely will be paid by Countrywide's current owner, Bank of America Corp., as part of indemnification agreements it has with former officers. Countrywide was sold to BofA as it was collapsing in 2008.

Mr. Mozilo received $250 million in pay from 1998 to 2007 and gained $406 million selling Countrywide stock before his bank crashed.  Having pushed the subprime lending envelope harder than any other bank, Countryside went broke and was acquired by Bank of America.  BofA posted billions in losses on Countrywide's loans and paid a $8.4 billion settlement with state regulators over Countrywide's lending practices.  Under the terms of the agreement BofA signed when acquiring Countrywide, BofA will pay Mr. Mozilo's fine.  Settling the matter won't cost him a cent.

Democrat Fingerprints Everywhere

Mr. Mozilo's "friends of Angelo" most likely received favors beyond sweetheart loans, but as long as the Democrats were in the majority, the Republicans couldn't investigate.  We're waiting to see what the Republicans can turn up now that they can call witnesses.  Although Sen. Dodd and Rep. Frank didn't cause the crash all by themselves, they and the government entities they supported bear major responsibility and should be put on the hot seat under oath.

It will be interesting, and possibly disheartening, to see how long the Times can pretend that Democrats had nothing to do with the Obama Depression.  If a truth falls in the forest and nobody hears, did it really happen?