Lies from the Right about the Economic Meltdown

I've seen a troubling — ok, entirely false — assertion being made in a couple of right-leaning or right-wing blogs about the roots of our current meltdown the last few days. An argument only right-wing ideologues could love or propagate, one that tries to lay the blame for our current mess on the desire (of liberals, naturally) to increase rates of home ownership.

The argument goes like this:

The great national experiment in attempting to
push the home ownership rate above 65 percent has ended in disaster.
Future homebuyers will be held to higher standards of
creditworthiness—and will have to put more money down.

This from David Frum, former Bush speechwriter, who lays the blame for our current woes at the doorstep of lower-middle class and the poor who tried to buy homes (and who were given loans by folks like Countrywide and others).

Here is right-leaning blogger Megan McCardle on the crisis:

This was not some criminal activity that the Bush administration should
have been investigating more thoroughly; it was a thorough, massive, systemic
mispricing of the risk attendant on lending to people with bad credit
(These are, mind you, the same people that five years ago the Democrats
wanted to help enjoy the many booms of homeownership.)

Emphasis mine.

There is no doubt that banks made bad loans, to people who couldn't afford them, and that that is a part of this crisis. But as many (smarter) commentators have pointed out, if crisis was just limited to subprime loans, it would be a much smaller, and more manageable, problem than the one we face now. One more in line with the scope of the S&L crisis.

The scope, depth, extremity of this crisis is a result of our near total reliance on a consumption driven economy these past eight years.  We went from earning more than we spent in 2001 to spending more than we earned by 2007.

And our national binge was encouraged by policymakers (Republicans running all branches of goverment), and fueled by credit card debt, second mortgages and an avalanche of supposedly "free money." All those loans to us were then repackaged by banks and Wall Street, sold to one another, generating enormous fees and profits.

So, if you encounter someone like Frum or McCardle who peddle this nonsense, get equipped with the facts. Here are three quick resources:

A good discussion of this in the Freakonomics blog today

An excellent overview in Time by Andy Serwer and Allan Sloan

And "The Trillion Dollar Meltdown" — I wrote about it here.


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