The Six Government Mistakes That Led to the Meltdown

One thing our liberal friends seem to be determined to do is to turn their faces away from the truth of the Great Recession.

No, Virginia and New York Times readers, it wasn't greedy bankers or even stupid borrowers. That is mixing up the symptoms for the cause. The cause of the Great Meltdown was government. In fact there were six, count 'em, six different government mistakes, according to Mark J. Perry and Robert Dell in The American.

1. Bank misregulation "incentivized (not merely “allowed”) the creation and highly-leveraged systemic accumulation of the highest yielding AAA- and AA-rated securities among banks globally. Mostly, these banks acquired securitized US mortgages."
2. Continually increasing leverage. "Creditors with the lowest cost of capital generally drive underwriting and leverage standards within the segment in which they compete. In the residential mortgage market, with government entities [Fannie and Freddie] historically being the low-cost providers of capital and the dominant purchasers and guarantors of loans and securities, it is reasonable to hold government accountable for system-wide leverage."
3. Abandonment of proven credit standards and the "enlargement of the riskier subprime and Alt-A mortgage markets by Fannie and Freddie." Government was forcing banks to make high-risk loans.
4. Creditor bailouts by "FDIC, Federal Reserve, Treasury Department, and Congress" starting in the 1980s. Creditors normally control business lending through a variety of devices. But when they are protected by, e.g., deposit insurance, they don't bother.
5. The increase in deposit insurance. It was not just FDIC but the "unchecked expansion of coverage up to $50 million under the Certificate of Deposit Account Registry Service beginning in 2003."
6. Low interest rates from 2001 to 2005. This encouraged the teaser rates on Alt-A and subprime mortgages that made "the rollover or refinancing of short-term instruments all the more precarious" in 2006 and 2007.

The rhetorical problem for conservatives is to boil this sophisticated analysis down into a sound bite. Because we really need to create a meme and a national consensus that government was to blame for the Great Meltdown. It needs to go something like this. Look, you can't fool me. Greedy bankers are always greedy bankers. The problem here is that greedy politicians encouraged greedy bankers and borrowers to become stupid greedy bankers and borrowers. "Government turned greedy bankers into stupid greedy bankers. And that's no error."

And there is no excuse for that.