“Burning Down the House” has been floating around the Internet for a couple of days, a fast-moving slideshow that just comes under the 10-minute diktat of YouTube. It provides an interesting and even a detailed look at how the Community Reinvestment Act (CRA) got used in the late 1990s to push banks into sub-prime mortgages, and how that distorted the market and created the housing bubble:

A few clarifications should be made. This video lays all of the blame on Democrats, which is a natural reaction in an election year, but that lets a lot of Republicans off the hook. In 2003, the Bush administration tried to stop the runaway train of Fannie Mae and Freddie Mac, and Republicans controlled both chambers of Congress.  Democrats alone didn’t stop this.  No one filibustered the Bush administration’s bill in the Senate; it didn’t have the votes to pass anyway.  Likewise in 2006, when Chuck Hagel, John McCain, John Sununu, and Elizabeth Dole attempted to fix Fannie and Freddie, Republicans controlled Congress and did nothing to pass this bill.  Democrats blocked it, but without some help from Republicans, both efforts would have passed easily.

What this video does is show how obvious this problem should have been, especially when noting the price increases in housing as compared to inflation.  Why didn’t this generate more concern?  A lot of us had equity building in our own houses at fast rates, making us look like geniuses, and certainly keeping us too happy to complain about it.   Maybe we were just too happy to look behind the green curtain.

That’s why this isn’t just a Democratic Party problem.  They set the wheels in motion, but all of us should have known better.  Many of us benefited from the bubble, and now the bill has come due.  What we should demand is that the people who got us into this mess — Chris Dodd and Barney Frank in particular — recuse themselves from their committee assignments and stay out of the solution-making process.  And what we must demand is an end to government distortion of lending and investment markets to pick winners and losers.  No more GSEs, no more CRAs — just competent oversight and rational regulation.