Myths/Bill Clinton helped cause the 2008 mortgage crisis

Overview

A 1999 article in the New York Times (NYT) has been widely cited by Republican sympathizers as evidence that Bill Clinton helped cause the 2008 mortgage crisis, which was a contributing factor to the 2008 financial meltdown, and that therefore Clinton (and Democratic economic policy) bears responsibility for the mortgage crisis and the subsequent meltdown.

The basic argument seems to be that Clinton put pressure on Fannie Mae and Freddie Mac (FM/FM) to expand mortgage loans among low and moderate income people, which led to an increased number of risky loans, thus increasing the number of eventual foreclosures – a problem which was at the heart of the 2008 mortgage crisis.

A 2008 article in the Wall Street Journal (WSJ) is frequently cited as supporting evidence, although it does not mention Clinton at all and assigns blame primarily to the Democrats for failing to support a 2005 Senate Banking Committee reform bill, as well as some events in 2003-4 (FM/FM "accounting scandals") which might arguably have had their roots in events during the Clinton administration, but there doesn't seem to be any connection between those scandals and the claim that Clinton put pressure on FM/FM to accept more loans.

One of the authors of the WSJ article, Peter Wallison (a resident fellow at the American Enterprise Institute) is quoted in the 1999 article as warning that "If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry." In this, he seems to have been quite accurate, though in context it's not clear if he was talking about FM/FM specifically or subprime loans in general.

A 2008-09-25 interview with Clinton on the Today Show has been interpreted as Clinton admitting the blame as accused.

Citations were especially heavy during the closing weeks of the 2008 US presidential race, where criticism of Clinton (and his administration) was being used as criticism of Democratic policies and, by implication, of Barack Obama.

Links

Citations

• 2008-09-18 Analysis: Reckless Mortgages Brought Financial Market to Its Knees (John R. Lott, Jr., FOX News): cites 1998 research by University of Texas at Dallas economics professor Stan J. Liebowitz and fellow UTex prof Ted Day which argues that evidence of discrimination in lending is due to data irregularities and that "currently fashionable" lending practices intended to counter such discrimination "may have the unintended consequences of increasing defaults for the 'beneficiaries' of these policies". (Whether or not its argument holds up under examination, this seems to be a good piece of reporting worth further investigation and analysis. Lott, however, is a controversial character, and any assertions he makes should be checked carefully.)
• 2008-09-19 Guess again who's to blame for U.S. mortgage meltdown (WorldNetDaily): cites an upcoming book by University of Texas at Dallas economics professor Stan J. Liebowitz, a 1999 LA Times article praising the rise in minority home ownership, Lott's 9/18 FOX News op-ed, and the 1999 NYT article
  • 2008-09-20 discussion, with additional references
• 2008-09-21 The Roots of the Subprime Mortgage Mess Have Clinton All Over Them (@The Sundry Shack)
  • Appears to be an original observiation; its citations (2004 USA Today, 1993 White House, 2000 City Journal) aren't found in any of the earlier pieces.
• 2008-09-23
  • 2008-09-23 Blame Fannie Mae and Congress For the Credit Mess, Wall Street Journal op-ed by Charles W. Calomiris and Peter J. Wallison
    • does not mention Clinton, but rather assigns blame to some events in 2003-2005 for which they hold Democrats and Barack Obama partly responsible
    • also defends deregulation and claims that it is not responsible for the problem (so what was that 2005 reform bill supposed to do, if not improve regulation?)... just ignore those trillion$ of derivatives investments...
  • Flashback to 1999: Origins of the Credit Crisis (CARPE DIEM blog, Mark J. Perry, University of Michigan): cites 1999 NYT, 2008 WSJ
    • Technorati
  • [http://www.coyoteblog.com/coyote_blog/2008/09/im-sure-this-is.html I�m Sure This Is Not In Any Way Relevant To Recent Events] (Coyote Blog) cites Carpe Diem
  • A bit on Fannie May from the New York Times (Synthstuff) cites Carpe Diem
• 2009-09-24 Yes, politicians really did create the mortgage meltdown (Disloyal Opposition blog by J.D. Tuccille) cites 1999 NYT, Carpe Diem, Coyote Blog, and 2008 WSJ
• 2008-09-25
  • Wall Street Journal explains the bailout crisis (possibly retracted as of 2009-05-23), referring to 2008 WSJ and Carpe Diem
  • The Subprime Mortgage Mess and the Folly of Bailouts (The Crimson Blog): main article, posted 2008-04-14, argues against bailouts for beneficiaries of subprime loans, but a comment on 09-25 gives the anti-Clinton argument in somewhat hysterical tones
• 2008-09-30 Sergeant Pepper and Housing (MrSwing)
• 2008-10-03 How Government Stoked the Mania: again the WSJ...
• 2008-10-09 EVIDENCE FOUND!!! Clinton administration's "BANK AFFIRMATIVE ACTION" They forced banks to make BAD LOANS and ACORN and Obama's tie to all of it!!! (video): seems to be introducing additional evidence, but my audio isn't working at the moment

Rebuttals

• 2008-09-30 Conservatives Try To Dodge Responsibility For Crisis By Blaming Poor People

While most economists blame the current crisis on market failure and sparse

regulation, conservatives are attempting to elude responsibility by smearing the victims of predatory lending. As Matt Yglesias points out, "it was conservatives who watched as the housing bubble developed and it was conservatives who blocked any action to try to ensure a soft landing once the bubble popped".It was conservatives who blocked efforts to curb predatory lending and it was conservatives who blocked efforts to investigate fraud

more robustly.

Congress passed the Community Reinvestment Act in 1977; Bush started weakening enforcement in 2004. Which act do you think was more likely to have been the cause of a crisis in 2008?

But stop the presses -- this connection (blaming the 1977 CRA for the current meltdown) was refuted back in *April*:

• 2008-04-07 Did Liberals Cause the Sub-Prime Crisis?

...it is hard to blame CRA for the mortgage meltdown when CRA doesn't even

apply to most of the loans that are behind it. As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA. .. Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous

lending.

The people pushing this meme are not interested in facts, however, knowing that a large chunk -- perhaps a majority -- of voters believe that "you can prove anything with facts".

Queries

Where did the Community Reinvestment Act first get mentioned?

Earlier Analysis

1. What's not clear is why anyone thinks that this would cause a crisis 8 years later, rather than sooner. Also, why such a huge crisis, and so suddenly?
   • Has anyone done a survey of recent mortgage defaults to see if any significant percentage of them seem to be a result of the action described?
   • For that matter, has any kind of survey *at all* been done of those defaults, rather than blaming first and aiming later?
2. How much of a role has the subprime mortgage crisis played in the current situation? My understanding is that the dollar volume involved in the derivatives market (especially credit default swaps) versus mortgages is somewhat as Lake Superior to a farm pond.
   • What about the debt incurred by the largely unnecessary expenditures in Iraq? Just a quick Google comes up with slightly over half a trillion dollars ($559 billion) spent there -- about 70% of the proposed bailout. (This figure would probably not be diminished much by subtracting out the amount Bush claimed it was going to cost, which I suppose one might argue we had all agreed was a worthwhile expenditure and therefore shouldn't be counted, so go ahead and subtract it out if you can find it.)
   • Just looking at the subprime mortgage question: it is possible that this was a bad call by Clinton. However:
     1. Clinton was trying to do a good thing, and as I understand it the indications at the time (aside from what the AEI said) were that it would not be harmful -- unlike many things done by Bush, where everyone (except his circle of misadvisors) was telling him to stop. If Clinton made a mistake on this one, it seems to me he can easily be forgiven because it was a reasonable mistake to make and he got so many other things right. (Like, say, Osama bin Laden being a threat.)
     2. For every default on a loan to a "minority or low income consumer", how many have remained current? (Presumably 9 years isn't enough to expect that very many would be paid off... but perhaps there is a sample of 5- and 10-year loans among those made at the time, where we could actually answer the question of net loss/profit on that group of loans. Is anyone looking into this?)

I'd really like to see some discussion of these questions before the neocons go happily shouting everywhere that Clinton is to blame for the meltdown... but I doubt that will happen, because the only truth they're interested in is whatever they can convince the overwhelmingly misinformed public to believe. --Woozle 23:18, 2 October 2008 (UTC)