Pointing One Finger Outward Means Three Are Pointing Back At Yourself

The wingnuts are really ramping up this blame of the Community Reinvestment Act of 1977 (I always like to put the date in there, just to show how ridiculous it all is) for the current financial crisis. It's bunk. What actually happened is that the tech bubble popped and there was a lot of global investment money that needed a place to go, so the financial industry packaged these mortgages and created a demand for them, which led to lax lending regulations, so they could give out more mortgage-backed securities, which led to more demand, etc., to create a new bubble. And now we're seeing this one pop. Despite the complexity of the financial instruments, it's pretty simple. But the wingnuts don't want simple. They want to muddy the waters and reduce the blame to the darkies.

In fact, even if this was about loaning to the "wrong" people the Bush Administration was in the position to stop it. But the "homeownership rates are high" talking point was valuable in a struggling economy with stagnating incomes, and their Wall Street friends were making bank, so they let it happen.

But it wasn't. The CRA has nothing to do with this crisis.

• The CRA was passed in 1977—over 25 years before subprime loans came into vogue. So the timing is wrong.

• The CRA only covers commercial banks and savings-and-loan institutions—not other forms of mortgage-offering enterprises. Fact is, most subprime loans weren’t made by the lenders subject to CRA.

Fannie and Freddie aren't to blame either:

• Fannie and Freddie did not guarantee and securitize subprime loans. Such loans didn’t meet their conforming loan standards. In fact, as the subprime market was building, Fannie and Freddie lost market share because they were under stricter standards. Thus, their participation in the secondary market did not assist in the creation of the subprime market.

• It’s true, however, that Fannie and Freddie were damaged by the subprime crisis because everyone in the housing sector was damaged by falling home prices and, more significantly, the two companies branched out into a broader investment portfolio. In that portfolio were included mortgage-backed securities that hurt all of those who purchased them. Fannie and Freddie weren’t the biggest players in this and, most importantly, started this practice very late in the game. In fact, the subprime market had already started to go bad when they started their purchases (which speaks poorly for Fannie and Freddie’s decision making, but precludes them from responsibility for the crisis).

• Fannie and Freddie were supposed to be more closely supervised than other lenders—with their own regulator, which was supposed to keep a special eye on them because they are important institutions. Those regulators, who were part of the Bush administration, failed along with the rest of the Bush regulatory apparatus to stop the problem.

Of course, it's a lot easier to blame the victims of predatory lending instead of the predators themselves. It's easier to cast blame instead of taking the hard look inward. In this brilliant essay, Thomas Frank says that the GOP instinct for blame-evasion is world class:

This is a movement, after all, that blandly recasts its greatest idols as traitors once their popularity has crashed; that routinely sloughs off responsibility for . . . well . . . anything since, by its logic, conservatism has never really been tried in the first place. Consider in this respect Mitt Romney's remarkable speech to the Republican convention a few weeks ago, in which he rallied his party against Washington -- a place his party has controlled, to one degree or another, for nearly three decades -- by listing the city's various institutions and crying, "It's liberal!"

Or consider the way the House Republicans torpedoed the bailout bill a few days ago. The real reason they did it was almost certainly to evade responsibility for an unpopular measure but the announced reason seemed designed to convince the nation's 7-year-olds -- because Nancy Pelosi said something mean.

On economic questions the standard exculpatory maneuver is even simpler. When some free-market scheme blows up, one needs only find an institution of government in close proximity to the wreckage and commence accusing.

And the reaction to being called on this lie on the right is to stick their fingers in their ears and pretend they never heard it.

It's entirely possible, indeed probable, that nothing proposed is a solution to this crisis we face - if housing values continue to plummet, which they should in a functioning economy to deflate the bubble, all the trickery in the world won't be sufficient. But the key conservative goal here is to elude responsibility, for responsibility might mean having to actually change their practices and have their free-market fundamentalism collapse upon them.