The May issue of the conservative magazine American Spectator features The True Story of the Financial Crisis by Peter J. Wallison, [Email him]an American Enterprise Institute fellow and one of the ten members of Congressâs Financial Crisis Inquiry Commission, which reported in late January. Wallison dissented [PDF] from the final report. His article demonstrates the strengths and weaknesses of mainstream conservatism in the Obama Era
Wallison explanation for his dissent is all too credible:
âThere was no alternative. The Commission's managementâparticularly its chairman, Philip Angelides, a former Democratic treasurer of California and unsuccessful gubernatorial candidateâwould not allow the staff to pursue any theories about the causes of the financial crisis other than those embodied in the standard left-wing narrative. And in the end a majority of the commissionersânever having been presented with any contrary evidenceâsigned on to a report that said the financial crisis could have been avoided if there had been better regulation of the private sector.â
Wallison notes acidly:
âThe question I have been most frequently asked about the Commission is why Congress bothered to authorize it at all. Without waiting for the Commission's report, Congress passed and the president signed the Dodd-Frank Act (DFA), far-reaching and highly consequential regulatory legislation that I believe will have a strong adverse effect on U.S. economic growth in the future. In enacting the DFA, Congress and the president acted without seeking to understand the true causes of the wrenching events of 2008, perhaps following the precept of the President's chief of staffââNever let a good crisis go to waste.ââ
The Obama Administration is now suing more banks for not lending enough to minoritiesâinevitably weakening credit standards in the process, which was exactly the mistake that both Wallison and I believe led to the Crash of 2008. As a member of the Establishment Beltway Right, Wallison could be an important voice in opposing this farcical, but apparently inevitable, rerun of history.
But, unfortunately, Wallison wimps out on explaining exactly what these âhousing policiesâ were about: getting more mortgage money into the hands of blacks and Hispanics. What the U.S. had in 2007-2008 was a âMinority Mortgage Meltdownâ, and it precipitated our first âDiversity Recessionâ. Wallison cannot bring himself to be so frank.
Overall, Wallison puts forward an argument similar to what Iâve been making since subprime mortgages went south in early August 2007: the cause was the degradation of traditional mortgage credit standards. Traditional credit standards were overridden on the grounds that they were just excuses for racial discrimination (although VDARE.com Editor Peter Brimelow and Leslie Spencer had exploded the Boston Fedâs alleged proof of this discrimination in Forbes Magazine back in 1993, to no applause).
Wallison writes:
âSo, for example, while one in 200 mortgages involved a down payment of 3 percent or less in 1990, by 2007 it was one in less than three. Other credit standards had also declined.â
As we saw in newspaper headlines at the time, bad mortgages led to the 2008 crash. A domino effect ran from dubious mortgages, primarily in the four Sand States, to the whole world through the newly-invented mechanism of financial derivatives. Wallison recounts:
âThe inquiry has to begin with what everyone agrees was the trigger for the crisis -- the so-called mortgage meltdown that occurred in 2007. That was the relatively sudden outbreak of delinquencies and defaults among mortgages, primarily in a few states -- California, Arizona, Nevada, and Floridaâ¦â
Unfortunately, Wallison puts too much confidence in the good faith of liberal pundits when he continues:
âNo one disputes that the losses on these mortgages and the decline in housing values that resulted from the ensuing foreclosures weakened financial institutions in the U.S. and around the world and were the precipitating cause of the crisis.â
Actually liberal pundits like Paul Krugman or Brad DeLong quite commonly do dispute exactly that, when challenged about the impact of federal interference in the mortgage markets. They imply that the worldwide spread of the crisis means that the history we watched unfold didnât really happen.
Itâs pettifoggery as ridiculous as somebody arguing that because the worst fighting during World War I was in France and Belgium, then what could the assassination of the Archduke Franz Ferdinand in Sarajevo have to do with starting the war? But it often works on the gullible.
There are three main differences between my analysis and Wallisonâs:
First, in Wallisonâs 3200-word American Spectator article, he never mentions the words âminorityâ, âdiversityâ, âblackâ, âHispanicâ, or so forth. As we know, âdiversityâ gave the big boys an excuse to try to make a killing by debauching credit standards.
In Wallisonâs retelling, however, the Community Reinvestment Act and the Fannie Mae and Freddie Mac quotas were solely about making mortgages more available to âlow-incomeâ borrowers.
Thatâs an airbrushing of the history thatâs readily available to anybody with a web browser and a search engine. But itâs characteristic of cowardly mainstream Republican thinking in the Obama Era.
Second, Wallison pushes his own argument beyond the bounds of plausibility by claiming ânothing elseâ but federal housing policies caused the 2008 collapse.
Wallison is certainly right to direct attention to the baneful impact of the feds in initiating the disaster. Nevertheless, why does he feel the need to make the unlikely assertion that nothing else was responsible? Thatâs like saying that the assassination of the Archduke Franz Ferdinand and nothing else was responsible for World War I, or that Pearl Harbor was the sole cause of American involvement in World War II.
With events of this historic magnitude, there are always going to be multiple roots. Yet itâs fair to say that Pearl Harbor was the direct cause of America going to war.
And without overstating the role of Pearl Harbor, America learned a crucial lesson from it: donât allow sneak attacks.
When I think back on my life, itâs striking how much of the energies of people close to me were devoted to preventing another Pearl Harbor. My uncle spent much of WWII as a weatherman in the godforsaken Aleutian Islands keeping an eye out to make sure the Japanese fleet didnât follow a storm front across the North Pacific as they had in December 1941. Four decades later, my brother-in-law was in even more remote Thule, Greenland watching radar monitors of big Soviet Bear bombers playing games over the Arctic. My father worked for years on the Lockheed F-104, a minimalist âmissile with a man in itâ fighter designed to intercept these Soviet nuclear bombers.
Wallison explanation for his dissent is all too credible:
âThere was no alternative. The Commission's managementâparticularly its chairman, Philip Angelides, a former Democratic treasurer of California and unsuccessful gubernatorial candidateâwould not allow the staff to pursue any theories about the causes of the financial crisis other than those embodied in the standard left-wing narrative. And in the end a majority of the commissionersânever having been presented with any contrary evidenceâsigned on to a report that said the financial crisis could have been avoided if there had been better regulation of the private sector.â
Wallison notes acidly:
âThe question I have been most frequently asked about the Commission is why Congress bothered to authorize it at all. Without waiting for the Commission's report, Congress passed and the president signed the Dodd-Frank Act (DFA), far-reaching and highly consequential regulatory legislation that I believe will have a strong adverse effect on U.S. economic growth in the future. In enacting the DFA, Congress and the president acted without seeking to understand the true causes of the wrenching events of 2008, perhaps following the precept of the President's chief of staffââNever let a good crisis go to waste.ââ
The Obama Administration is now suing more banks for not lending enough to minoritiesâinevitably weakening credit standards in the process, which was exactly the mistake that both Wallison and I believe led to the Crash of 2008. As a member of the Establishment Beltway Right, Wallison could be an important voice in opposing this farcical, but apparently inevitable, rerun of history.
But, unfortunately, Wallison wimps out on explaining exactly what these âhousing policiesâ were about: getting more mortgage money into the hands of blacks and Hispanics. What the U.S. had in 2007-2008 was a âMinority Mortgage Meltdownâ, and it precipitated our first âDiversity Recessionâ. Wallison cannot bring himself to be so frank.
Overall, Wallison puts forward an argument similar to what Iâve been making since subprime mortgages went south in early August 2007: the cause was the degradation of traditional mortgage credit standards. Traditional credit standards were overridden on the grounds that they were just excuses for racial discrimination (although VDARE.com Editor Peter Brimelow and Leslie Spencer had exploded the Boston Fedâs alleged proof of this discrimination in Forbes Magazine back in 1993, to no applause).
Wallison writes:
âSo, for example, while one in 200 mortgages involved a down payment of 3 percent or less in 1990, by 2007 it was one in less than three. Other credit standards had also declined.â
As we saw in newspaper headlines at the time, bad mortgages led to the 2008 crash. A domino effect ran from dubious mortgages, primarily in the four Sand States, to the whole world through the newly-invented mechanism of financial derivatives. Wallison recounts:
âThe inquiry has to begin with what everyone agrees was the trigger for the crisis -- the so-called mortgage meltdown that occurred in 2007. That was the relatively sudden outbreak of delinquencies and defaults among mortgages, primarily in a few states -- California, Arizona, Nevada, and Floridaâ¦â
Unfortunately, Wallison puts too much confidence in the good faith of liberal pundits when he continues:
âNo one disputes that the losses on these mortgages and the decline in housing values that resulted from the ensuing foreclosures weakened financial institutions in the U.S. and around the world and were the precipitating cause of the crisis.â
Actually liberal pundits like Paul Krugman or Brad DeLong quite commonly do dispute exactly that, when challenged about the impact of federal interference in the mortgage markets. They imply that the worldwide spread of the crisis means that the history we watched unfold didnât really happen.
Itâs pettifoggery as ridiculous as somebody arguing that because the worst fighting during World War I was in France and Belgium, then what could the assassination of the Archduke Franz Ferdinand in Sarajevo have to do with starting the war? But it often works on the gullible.
There are three main differences between my analysis and Wallisonâs:
First, in Wallisonâs 3200-word American Spectator article, he never mentions the words âminorityâ, âdiversityâ, âblackâ, âHispanicâ, or so forth. As we know, âdiversityâ gave the big boys an excuse to try to make a killing by debauching credit standards.
In Wallisonâs retelling, however, the Community Reinvestment Act and the Fannie Mae and Freddie Mac quotas were solely about making mortgages more available to âlow-incomeâ borrowers.
Thatâs an airbrushing of the history thatâs readily available to anybody with a web browser and a search engine. But itâs characteristic of cowardly mainstream Republican thinking in the Obama Era.
Second, Wallison pushes his own argument beyond the bounds of plausibility by claiming ânothing elseâ but federal housing policies caused the 2008 collapse.
Wallison is certainly right to direct attention to the baneful impact of the feds in initiating the disaster. Nevertheless, why does he feel the need to make the unlikely assertion that nothing else was responsible? Thatâs like saying that the assassination of the Archduke Franz Ferdinand and nothing else was responsible for World War I, or that Pearl Harbor was the sole cause of American involvement in World War II.
With events of this historic magnitude, there are always going to be multiple roots. Yet itâs fair to say that Pearl Harbor was the direct cause of America going to war.
And without overstating the role of Pearl Harbor, America learned a crucial lesson from it: donât allow sneak attacks.
When I think back on my life, itâs striking how much of the energies of people close to me were devoted to preventing another Pearl Harbor. My uncle spent much of WWII as a weatherman in the godforsaken Aleutian Islands keeping an eye out to make sure the Japanese fleet didnât follow a storm front across the North Pacific as they had in December 1941. Four decades later, my brother-in-law was in even more remote Thule, Greenland watching radar monitors of big Soviet Bear bombers playing games over the Arctic. My father worked for years on the Lockheed F-104, a minimalist âmissile with a man in itâ fighter designed to intercept these Soviet nuclear bombers.
