Did deregulation during the Bush administration create the housing bubble and the following economic collapse? Not hardly, according to Barrons, the venerable finance periodical, unless one counts Sarbanes-Oxley and a thousand new pages of laws on financial transactions deregulation (h/t: HA reader Nancy B):
CONTRARY TO A VIEW POPULARIZED DURING THE 2008 presidential election season, the current economic crisis was not the result of deregulation.
The Bush administration made many mistakes, but deregulation was not one of them.
Not only was there no major deregulation passed during the past eight years, but the Bush administration and a Republican Congress approved the most sweeping financial-market regulation in decades.
The bipartisan Sarbanes-Oxley Act was enacted in 2002 to prevent corporate fraud and restore investor confidence after the collapse of Enron and WorldCom. It failed to prevent the accounting fraud and influence-peddling scandals at Fannie Mae and Freddie Mac. And even after those scandals were widely understood, regulators sent Fannie and Freddie back into the market to continue buying subprime loans, lending and borrowing with implied taxpayer backing.
Across the government, the Bush administration supported new regulations that added almost 1,000 pages a year to the Federal Register, nearly a record. If this is insufficient regulation, it’s hard to imagine a scope that would be effective.
So what did cause the economic crash of 2008? Hot Air readers already know the answer, but it’s worth repeating:
Today’s problems have their roots in programs and financial instruments that shifted the locus of moral responsibility away from private individuals and institutions to wider circles that were understood to end with a government guarantee. Heads of the top banks and financial institutions could approve substandard home-mortgage underwriting — prone to increased default — because those loans could be securitized by Wall Street and sold off to investors or to government-sponsored enterprises (GSEs), with no likely recourse to the financial institution of origin.
Our present crisis began in the 1970s, during the Carter administration, with passage of the Community Reinvestment Act to stem bank redlining and liberalize lending in order to extend home ownership in lower-income communities. Then in the 1990s, the Department of Housing and Urban Development took a fateful step by getting the GSEs to accept subprime mortgages. With Fannie and Freddie easing credit requirements on loans they would purchase from lenders, banks could greatly increase lending to borrowers unqualified for conventional loans. In the name of extending affordable housing, this broadened the acceptability of risky loans throughout the financial system.
Unfortunately, Scott Powell turns a little too optimistic:
The collapse and government seizure of Fannie and Freddie in September 2008 ended the experiment in partial socialization of the U.S. housing sector.
Has it? The stimulus package passed by the Democrats in the House included billions of dollars to support ACORN and other low-income-housing efforts. Barney Frank and Chris Dodd continue to deny that their “partial socialization” had any role in the collapse, and so far the mainstream media has yet to correct the record. They’re running with the “deregulation” meme that Powell expertly refutes.
Only when Frank, Dodd, and the housing socialists get correctly discredited for their damage will we be able to breathe freely on housing again. I suspect we’ll have to have another collapse before people finally admit the failure of those policies. After all, we’re about to repeat all of the worst aspects of the New Deal and Keynsianism without much pushback. And that, more than any other reason, is why this is everyone’s fault, and will be when it happens again.