Was the mortgage meltdown the fault of Republicans or Democrats? Was it caused by the ideology of deregulation or of regulation?
Questions like that are fun to debate because they follow the usual fault lines that divide the country into fairly equal and thus intensely rivalrous halves.
But let’s think about the Housing Bubble from a more general standpoint for a moment. Is it terribly likely that a disaster that long gestated and then ran amok in plain sight for over three years (from 2004 into early 2007) would turn out to be overwhelmingly the fault of a single party or ideology?
Why wouldn’t the opposition have sounded the alarm? Don’t the Republicans and Democrats, as well as the free marketers and the leftists, all have well-oiled publicity machines for pointing out the shortcomings of their enemies?
Isn’t it more plausible that a vast, slow-motion catastrophe would be the result of a noncontroversial bipartisan consensus?
In particular, the more everyone agrees that dissent on a particular topic is unspeakably evil, if not unthinkably unimaginable, the more likely the country is to stumble over exactly that blind spot.
When everybody tells you, “Pay no attention to that man behind the curtain,” you really, truly need to start paying attention.
In recent decades, “diversity” has become one of America’s sacred mantras, propagandized relentlessly in the schools and the press. Expressing skepticism about the diverse within internal business communications has become, in effect, a civil offense, punishable in anti-discrimination lawsuits.
Not surprisingly, self-interested manipulators learned to play the race card to justify their machinations.
Thus, the universally-endorsed societal necessity of lending more money to minority homebuyers was used to justify both regulation (such as the Community Reinvestment Act) and deregulation (such as the hands-off approach to subprime bucket shops). Any practice positioned as helping minorities achieve their fair share of the American Dream had the wind at its back.
Consider, for example, three huge Southern California originators of dubious debt—Ameriquest, New Century, and Countrywide—all of which collapsed in recent years when Wall Street and the big banks finally wised up to the mortgage-backed securities they peddled.
Yet, on the retail side, these were not new-fangled scams. As Elvis Costello pointed out, there’s no such thing as an original sin. They operated old-fashioned boiler rooms employing high-pressure salesmen to talk people who had no business being homeowners into taking out huge high-interest loans. ...
We’ve been down this path of fishy finance before. That’s why most states have usury and other laws on the books to prevent lenders from targeting marginal borrowers. Whether these laws are kept up to date and whether they are enforced are different questions, however.
It doesn’t matter whether you call them anti-predatory lending laws or pro-prudent lending laws. The point is that loans that are unlikely to be paid off hurt everybody. Wise public policy attempts to balance off Type I errors of excessive credulity versus Type II errors of excessive skepticism.
So, surely, the rise and fall of the subprime peddlers demonstrates the iniquity of the rightwing ideology of deregulation? We needed more regulation, not less!
Wrong! Please notice that minority lending regulations primarily pushed in what turned out to be the wrong direction: too much gullibility. When it came to mortgage lending to minorities, as regulated by the Community Reinvestment Act and other anti-discrimination laws, excessive skepticism was made illegal. Lenders and investors were only allowed to err in one direction.
Not surprisingly, excessive credulity came to dominate the system.
By no means were all the subprime peddlers sincere believers in the dogmas of multiculturalism. Instead, they knew they could wield political correctness like a club to scare off regulators.
Thus, to avoid inconvenient investigations, the owners of subprime mortgage originators tended to present themselves to politicians and the press as financial statesmen, moral leaders in the war on bigotry against minority borrowers.
March 1, 2009
My new VDARE.column: