‘The Financial Crisis Was the Result of Government Housing Policy’

The American Enterprise Institute’s Peter Wallison on how government, not greed, was the essential ingredient in the 2008 meltdown.

In January 2011, a bipartisan, 10-member, government-created body called the Financial Crisis Inquiry Commission (FCIC) issued a comprehensive report assigning blame for the 2008 financial meltdown. The main culprits: “widespread failures in financial regulation and supervision,” “dramatic failures of corporate governance and risk management at many systemically important financial institutions,” “a combination of excessive borrowing, risky investments, and lack of transparency,” a government that “was ill prepared for the crisis,” and “a systemic breakdown in accountability and ethics.”

The four Republicans on the FCIC issued two dissents from the commission’s findings, the splashiest of which was a 93-page solo response from American Enterprise Institute (AEI) scholar Peter Wallison. The crisis, Wallison said, was caused mainly by the systemic failures of government housing policy.

Some of the public response to Wallison’s dissent was withering. Stanford University political scientist Francis Fukuyama, in a January interview with the online-only publication The Browser, charged that it “takes what is a very complex crisis that has multiple roots and lays it all at the door of Fannie and Freddie and government intervention. It seems to me transparently designed to exonerate free markets.…But this crisis has proved that financial markets are not self-regulating. To draw from this complex analysis that particular conclusion I just find astonishing.”

Fukuyama was not alone. New York Times columnist Joe Nocera had previously called Wallison’s work “loony” and accused him of helping to concoct “what has since become a Republican meme.” Even the free market George Mason University economist Russ Roberts took Wallison to task for downplaying the role of investment banks.

Wallison, who co-directs AEI’s financial policy studies program, is unrepentant...

Where is the outrage that the aforementioned executives of Freddie and Fannie committed fraud that cost in excess of 823 billion dollars?

I share your ire.

It was, indeed, "the crime of the century" -- a looting of taxpayer funds beyond imagining. It was committed by Democrats...and the Republicans will do nothing to bring them to account.

I hold the GOP responsible, as well. In 2005, they heard testimony from a "whistleblower" at the watchdog agency -- and he claimed that the malfeasance would lead to exactly where it did. The GOP Senate then offered the Financial Reform Bill of 2005, which would've corrected the problem. McCain's floor speech almost perfectly anticipated the debacle.

But the Democrats blocked it with a threatened filibuster. Whereupon, the 'Pubbies threw up their hands and gave up -- never again referencing the impending problem. Some even jumped on the bandwagon of "affordable housing" (e.g., George W. Bush). If the consequences were going to be so dire, they owed it to their country to make a continuing issue out of the Democrats' intransigence...indeed, criminality. Their damn "go along to get along" attitude cost the country dearly.

They knew what was going to happen. And they let it happen anyway!

The Democrats are guilty as sin. But the Republicans are accessories -- both before and after the fact.

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