One of the stranger aspects of human nature — or is it just people with intense affiliations with ideologies? — is the tendency to see the entire world through a distorted lens.
The origins of the financial crisis are no different. It seems that all too many people are willing to use any event to pursue their own agendas, regardless of evidence or proof.
Hence, we have a steady parade of people who seek to blame or exonerate the precise wrong factors which nonetheless fit their preconceived notions.
Examples?
"¢ Mish blames the crisis on 3 factors. While we agree about Ultra Low rates, his other two elements are simply incorrect. “Fractional lending” is his #2 cause. Never mind that this form of credit creation has been around for centuries, he is a vociferous critic of it. Naturally, it was the cause of the crisis. (See: Financial Crisis Brewing Already) Deficits are his #3 cause, which quite bluntly, is beyond my comprehension as a cause of the credit crisis.
"¢ Edward Pinto, under the theory of keep throwing shit against the wall until something sticks, has a series of peeves he blames the crisis on (all acronyms) including ACORN, HUD, CRA, and GSEs. (See, Acorn and the Housing Bubble, Yes, the CRA Is Toxic, The Future of Housing Finance, etc.)
"¢ Peter Wallison was co-director of AEI’s Financial Deregulation Project (since renamed). What are the odds he is going to find that deregulation had anything to do with it? Instead, his pet peeves about the GSEs are his pre-clusion. (See Why is AEI Scrubbing Wallison's Name From AEI's Financial Deregulation Project?)
"¢ The usually astute Gretchen Morgenson of the NYT got the GSE factor wrong, as she began one Sunday column with the sentence: :"DECIDING what to do with Fannie Mae and Freddie Mac, the taxpayer-owned mortgage giants that helped set the financial crisis in motion, will be a huge job for Congress next year. " Hey Josh, stop ruining our best reporters! (See The Nerve to Say No)
"¢ The Atlantic’s Megan McCardle occasionally flails about in her defenses of corporate America. For example, in a critique of Matt Taibbi, she bizarrely wrote that “financial meltdowns don’t offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.” Ahem . . . The FCIC begs to differ. (See: Matt Taibbi Gets His Sarah Palin On; Contra: No Financial Villains . . . ?)
"¢ James Pethokoukis blames the Mortgage Interest Deduction (Reuters)
"¢3 of the 4 GOP appointees of the FCIC dissented, writing: “Our views have been shaped, in part, by our knowledge of economics and financial markets generally.” And that’s the problem — your views of Efficient markets, rational actors, and self-regulation have been proven to be nonsense, bad theories that you slavish stick with for matters unbeknownst to thinking people. (See 10 Questions for GOP Members of Financial Crisis Inquiry)
The bottom line for most of these folks is that their own intense emotional attachments to their pet peeves, theories and ideologies prevent them from seeing reality as it is. (As investors, we know what that does to your returns).
In terms of getting to a place where you understand the actual, empirically demonstrable, provable causes?
Fail.
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
And on cue. Here’s one:
budhak0n Says:
January 26th, 2011 at 11:05 am There was a crime committed. Pray Tell. We did away with the concept of Debtor's prison many many moons ago.
The only "crime" is in that a guy like me who pays their creditors has to live amongst a group of deadbeats constantly running around whining whilst they pork their own.
Not exactly a felony.
Don’t forget about the evil public unions, BR. According to Lou Mish, they’re to blame for everything.
You got it as usual, Barry. Please stop scaring me with that picture of Jerry Stiller every time I check the blog!!
I haven’t been paying attention ever since business picked up in 2010.
What’s the best medium-length summary out there of what actually frickin did happen, and what the core causes were? (If this is a softball for BR to promote himself, well, you’re welcome). I think I understand the basics on a 30,000 foot level, but I’d like to dig into some details.
PS Isn’t Gretchen Morgenson dreamy?
Never mind; I’ve found e.g. this morning’s post. Something to chew on for awhile.
#1…. Intoxicating desire.
#2…. Collective, intentional negligence.
#3…. FRAUD…!
BR,
You claim these people fail to adapt their positions to new information.
Why then would you want a similar collection of people creating regulations?
Is there some group of politicians out there that is immune to the problem?
Have any among the present government demonstrated clear thinking or judicious use of power?
~~~
BR: You have this precisely backwards: For 70 years, regulations in place prevented the US from having a major credit crisis.
We first deregulated the S&Ls (how did that work out?)
Then came the radical de-regulators who bankers left to their own devices to blow everyone up. (how did that work out?)
Can’t pity the banksters:
http://content.usatoday.net/dist/custom/gci/InsidePage.aspx?cId=newsleader&sParam=35626073.story
Here is a perfect example of the
Reality Checks: 10 Economic Benchmarks for the State of the Union and GOP Response
The president gives his State of the Union address, followed by the Republican response from Rep. Paul Ryan. There’ll be a lot of talk about the economy: jobs, taxes, deficits, and the state of American business. If you find that your mind’s getting lost in vagaries and theories, here are 10 “reality checks” to bring you back to earth, benchmarks that provide context for tonight’s speeches:
"Fractional lending" is [Mish's] #2 cause. Never mind that this form of credit creation has been around for centuries, he is a vociferous critic of it. Naturally, it was the cause of the crisis.’
Right, fractional lending has been around since the Renaissance. Only in 1994, though, did the idiotic Greenspan introduce de facto reserve-free lending, via the subterfuge of overnight sweeps. This had a lot to do with the TMT Bubble I.
In Bubble II, CDOs became the vehicle of choice for reserve-free lending. Effectively the lower-rated tranches were supposed to serve a quasi-reserve role. But in the global scheme of things, the real estate finance bubble was mostly funded through reserve-free securitization, or — in the case of Fannie and Freddie — ludicrously low equity on the order of 1 to 2% of assets.
It’s axiomatic that an infinitely-leveraged, zero-reserve Bubble is gonna crash. And Greenspan’s sleazy overnight sweeps are still on the books. That’s one reason excess reserves are so high — because required reserves are so preposterously, imprudently low.
Abolish the Fed … indict the bernank.
~~~
BR: Excellent point! It was not fractional lending, it was reserve-free lending, via the Greenie’s sweep exemption. 1994 is somewhat attenuated, but it started the bank leverage madness.
Barry:
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