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Who’s Really to Blame for the Housing Crisis?

Jodie Allen – Pew Research senior editor

Posted: January 31, 2011 05:55 PM

The nominally bipartisan Financial Crisis Inquiry Commission released its findings last Thursday in tripartite form. One section, the output of the Democratic end of the panel, will focus on the Wall Street and banking sector abuses that contributed to the ongoing crisis. A second take on the troubles, the product of three centrist-leaning Republican panel members, focused on global influences. But the third, by the American Enterprise Institute’s Peter Wallison, repeated the now familiar GOP mantra that the entire blame falls on Democrats and their nurturing of Fannie Mae and its brother-in-housing-market-crime, Freddie Mac.

No doubt Fannie and Freddie have plenty to answer for when it comes to squandering taxpayer dollars. But as New York Times columnist Joe Nocera pointed out last month, Wallison’s views on the two government-backed mortgage guarantors have undergone a strange sea change in the last few years. Back in the pre-crisis years of the Bush administration, Wallison would typically fault Fannie and Freddie not for liberal-leaning efforts to encourage home buying among the financially challenged, but for not doing enough to foster widespread home acquisition. A typical Wallison criticism in 2004: “”Study after study have shown that Fannie Mae and Freddie Mac, despite full-throated claims about trillion-dollar commitments and the like, have failed to lead the private market in assisting the development and financing of affordable housing.”

Nor was Wallison, a lonely voice among his fellow conservative Republicans. Here, for example, is Stephen Moore, president of The Club for Growth, a preeminent supporter of supply-side tax cuts, writing on the subject in his 2004 book, Bullish on Bush. “Homeownership is at the heart of the American dream,” Moore wrote, while applauding “the decline in mortgage rates [that] has spurred a boom in refinancing that allowed many families to tap tens of thousands of dollars in equity, while in many cases still lowering their money payments.” Gee, and here I thought all that refinancing played a big role in creating the housing debacle!

Quite the opposite, Moore assured us: “The result was an economic stimulus that has played a large part, along with Bush’s tax cuts, in fueling the rapid economic growth of the last two years. But the most important impact of lower mortgage rates is that more Americans are for the first time able to own their own homes.” Very touching. So maybe it wasn’t entirely the fault of those mushy-hearted Democrats after all?

In fact, I seem to recall that both Moore and Wallison had far higher-level support for their home-ownership boosterism. Didn’t one George W. Bush, then the nation’s president, spend a fair amount of time on the hustings promoting his “Ownership Society”? Indeed, the very subtitle of Moore’s book asserts that this same Bush plan “will make America stronger.” Well, let’s let the president speak for himself. Here he is at a 2003 dinner in the Wings Over the Rockies Air and Space Museum: “This administration will constantly strive to promote and ownership society in America. We want more people to own their homes. I’m troubled by the fact we have a minority home ownership gap in America…”

None of this is to say that measures aren’t needed to restrain the public as well as the private financial sectors. But it might be somewhat easier to enact sensible reforms if the fingers of blame were pointed in a more equitable direction.

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