Media Conservatives Absolve Wall Street, Falsely Blame Barney Frank For Housing Crisis
Conservatives in the media have used the occasion of Rep. Barney Frank's retirement announcement to rehash old theories of how he, through his support for Fannie Mae and Freddie Mac, caused the subprime bubble and subsequent meltdown. In fact, Wall Street -- not affordable housing programs -- was the primary cause of the financial crisis.
Conservative Media Use Frank's Retirement As Pretext To Blame Him For Crisis
Hoft: "Frank's Fingerprints Were All Over The 2008 Financial Crisis." From Jim Hoft's Gateway Pundit, in a post headlined "Barney Frank -- Politician Behind Financial Crisis -- Will Not Seek Re-election":
Barney Frank will not seek re-election.
The Political Ticker reported:
Massachusetts Congressman Barney Frank, a 16-term Democrat, will announce Monday he does not intend to seek re-election in 2012, according to a statement from Frank's office.
Frank's fingerprints were all over the 2008 financial crisis.
Last month Newt Gingrich suggested that prison would be a good place for Barney. [Gateway Pundit, 11/28/11 ]
Big Government's Pollak Calls "Housing Crisis" One Of Frank's "Most Damaging Legacies." From a post by Breitbart.com editor-in-chief Joel B. Pollak at Andrew Breitbart's Big Government:
Frank finally apologized for his role in the housing bubble that led to the financial crisis of 2007-8 and set the stage for the worst recession since the Great Depression. Frank had shielded Fannie Mae and Freddie Mac from regulation, which in turn encouraged banks and buyers to embrace unstable mortgages. These were repackaged and sold as securities whose instability was masked due to their implicit government guarantees.
That's not actually what happened today, though it is what should have happened long ago.
Barney Frank is also a quick wit--all too rare on the left--and will be remembered well for being the first openly gay member of Congress, among other achievements. Yet his most damaging legacies--the housing crisis, the financial "reform" that bears his name, and the hyper-partisanship to which he eagerly contributed--outweigh Frank's positive contributions. How unfortunate that his constituents did not eject him much sooner. [Big Government, 11/28/11 ]
Hot Air's Allahpundit Calls Frank "Man Who Helped Destroy Economy." From a Hot Air post by Allahpundit headlined "Video: Man who helped destroy economy moving on to better things":
Of all the losers to have passed through Congress, how many can say they played a major role in precipitating a global economic catastrophe? It'll take a lot of media whitewash to obscure that legacy, but I'm sure they're game: The ratio of political eulogies today that mention his wit and intellect to those flagging his boosterism for Fannie and Freddie is running about five to one from what I've seen. As Ted Kennedy's career so beautifully illustrates, if you're a sharp-tongued fightin' liberal from deep blue Massachusetts, there's no wrong so terrible that it can't be forgiven. Carte blanche, Elizabeth Warren. [Hot Air, 11/28/11 ]
Fox's Stephen Hayes: "Housing Crisis" Will Be "First Line" In Frank's "Political Epitaph." From Fox News' Special Report with Bret Baier:
CHRIS WALLACE (guest host): Frank's admirers said he was brilliant, obviously as you can see there funny, sharp, did a lot of good things, according to them. His critics say that he contributed especially I think to the terrible problems with the mortgage -- failed mortgage giants Fannie Mae and Freddie Mac, and he addressed that criticism today. Let's take a look.
FRANK (video clip): Since Paulson used the powers that were in the bill that I initiated and put them into conservatorship, there have been no losses. The losses that you read about are payments for things that happened before that, and since 2008 they have done a pretty good job on housing and have not caused any losses. So yes, I was late in recognizing the problem, but it was when I was in the minority.
WALLACE: Is he being too easy on himself?
HAYES: Well, certainly he is. I mean, he was not only late in recognizing the problem, he did many things, perhaps with good intentions, to help create the problem. He was pushing lax lending standards. He was doing all the kinds of things that set the stage for private entities to try to come in and try to compete with Fannie and Freddie in a way that I think led to the financial crisis of 2008. There's a moment in Gretchen Morgenson's book Reckless Endangerment where she describes a reporter going up to Barney Frank after a speech in March of 2005 and asking the questions, you know, what about the possibility that you may be pushing people into mortgages that they can't afford and what would the consequences be, and he said rather flippantly, as he was wont to do, we'll deal with that problem if it happens. Well, this is the kind of legislating with the best of intentions and not thinking of the long-term consequences that will make the first line in Barney Frank's political epitaph be the housing crisis. [Fox News, Special Report with Bret Baier, 11/28/11 ]
Investors, Economists, And Government Agencies Agree: Fannie And Freddie Did Not Cause Financial Crisis
Investor Barry Ritholz: Narrative That Fannie/Freddie Caused The Crisis Is "The Big Lie" Of Financial Crisis. From The Washington Post:
Wall Street has its own version: Its Big Lie is that banks and investment houses are merely victims of the crash. You see, the entire boom and bust was caused by misguided government policies. It was not irresponsible lending or derivative or excess leverage or misguided compensation packages, but rather long-standing housing policies that were at fault.
Indeed, the arguments these folks make fail to withstand even casual scrutiny. But that has not stopped people who should know better from repeating them.
Congress did radically deregulate the financial sector, doing away with many of the protections that had worked for decades. Congress allowed Wall Street to self-regulate, and the Fed the turned a blind eye to bank abuses.
The previous Big Lie -- the discredited belief that free markets require no adult supervision -- is the reason people have created a new false narrative. [The Washington Post, 11/5/11 ]
Financial Crisis Inquiry Commission: Fannie, Freddie "Were Not A Primary Cause" Of Crisis. From the majority report by the Financial Crisis Inquiry Commission:
We conclude that these two entities contributed to the crisis, but were not a primary cause. Importantly, GSE [government-sponsored enterprises, i.e., Fannie Mae and Freddie Mac] mortgage securities essentially maintained their value throughout the crisis and did not contribute to the significant financial firm losses that were central to the financial crisis. [Financial Crisis Inquiry Commission, Conclusions Of The Financial Crisis Inquiry Commission, accessed 11/28/11 ]
Former Lehman Brothers CEO Richard Fuld: Fannie And Freddie Played "De Minimis" Role In His Firm's Problems. From Slate:
At Monday's hearing, Rep. John Mica, R-Fla., gamely tried to pin Lehman's demise on Fannie and Freddie. After comparing Lehman's small political contributions with Fannie and Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise. Fuld's response: "De minimis." [Slate, 10/7/08 ]
Economist Greg Mankiw: Fannie And Freddie Were "Only One Element" In Crisis. In a New York Times op-ed, former Bush economic advisor and Harvard professor N. Gregory Mankiw wrote:
Many members of Congress were worried less about financial fragility than about expanding access to homeownership. Moreover, lobbyists from these companies assured Congress that there was no real problem, while the sheer complexity of these institutions made it hard for legislators to appreciate the enormity of the risks.
I recount this story not because Fannie Mae and Freddie Mac were the main cause of the recent financial crisis -- they were only one element -- but because it shows the kind of problem we'll encounter on a larger scale as we reform oversight of the financial system. [The New York Times, 3/28/10 ]
McClatchy: "Federal Housing Data Reveal That Charges" Against Fannie And Freddie "Aren't True." From McClatchy Newspapers:
Commentators say [a government push to make housing more affordable to Americans of more modest means is] what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.
Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.
Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.
Federal Reserve Board data show that:
- More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
- Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
- Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics. [McClatchy, 10/12/08 ]
Why It's False: Private Sector -- Not Fannie Or Freddie -- Led Boom In Subprime Financing
McClatchy: During Bubble Years, "Private Investment Banks -- Not Fannie And Freddie -- Dominated The Mortgage Loans That Were Packaged And Sold." From reporting by McClatchy:
Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.
During those same explosive three years, private investment banks -- not Fannie and Freddie -- dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data. [McClatchy, 10/12/08 ]
Financial Crisis Inquiry Commission: Fannie And Freddie "Followed Rather Than Led Wall Street And Other Lenders In The Rush For Fool's Gold." From the majority report by the Financial Crisis Inquiry Commission:
The GSEs participated in the expansion of subprime and other risky mortgages, but they followed rather than led Wall Street and other lenders in the rush for fool's gold. They purchased the highest rated non-GSE mortgage-backed securities and their participation in this market added helium to the housing balloon, but their purchases never represented a majority of the market. Those purchases represented 10.5% of non-GSE subprime mortgage-backed securities in 2001, with the share rising to 40% in 2004, and falling back to 28% by 2008. They relaxed their underwriting standards to purchase or guarantee riskier loans and related securities in order to meet stock market analysts' and investors' expectations for growth, to regain market share, and to ensure generous compensation for their executives and employees -- justifying their activities on the broad and sustained public policy support for homeownership.
The Commission also probed the performance of the loans purchased or guaranteed by Fannie and Freddie. While they generated substantial losses, delinquency rates for GSE loans were substantially lower than loans securitized by other financial firms. For example, data compiled by the Commission for a subset of borrowers with similar credit scores -- scores below 660 00 show that by the end of 2008 GSE mortgages were far less likely to e seriously delinquent than were non-GSE securitized mortgages: 6.2% versus 28.3% [Financial Crisis Inquiry Commission, Conclusions Of The Financial Crisis Inquiry Commission, accessed 11/28/11 ]
Why It's False: Fannie/Freddie Were Domestic -- Housing Boom Was Global
McKinsey: "Other Economies Around The World Are Feeling The Effects Of Their Own Real-Estate Booms And Busts." McKinsey & Company, a global management consulting firm, published the following chart, showing the run-up in housing prices spanned the entire developed world. From McKinsey Quarterly:
A global view of the housing bubble
Although the current crisis started with the bursting of the US housing bubble, other economies around the world are feeling the effects of their own real-estate booms and busts. From 2000 through 2007, a remarkable run-up in global home prices occurred (see exhibit). But that trend has reversed abruptly. In 2008, the value of US residential real estate fell 10 percent; the global average fared only somewhat better, declining by almost 4 percent. We estimate that falling home prices erased more than $3.4 trillion of household wealth in 2008. And because home prices are slow to correct, the current slide may persist for some time, which could depress global consumption.
[McKinsey Quarterly, 10/09 ]