In an interesting experiment, Andrew Sullivan asked his readers: What caused the financial crash? Specifically, he wondered was Michael Bloomberg correct in blaming Fannie and Freddie?
Nearly 200 of his readers wrote in:
Thanks to the nearly 200 Dishheads who wrote in with feedback, ranging from simple web links to expert analyses into the thousands of words.
The overwhelming consensus from readers and the economic writers they cite is that the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac did not solely cause the financial crisis, contrary to Mayor Bloomberg’s recent assertion. The most cited debunking of Bloomberg was written by Mike Konczal . . .
Sullivan quotes a number of readers who add a great deal of color to the discussion before adding his conclusion:
Dish check conclusion: Fannie and Freddie played at best a marginal role in the crisis, largely by belatedly following the private sector’s reckless innovations in the sub-prime market, from 2006 onwards. They are not beyond criticism, but Bloomberg’s off-the-cuff remarks are baseless. He should withdraw or amend them.
As an aside, I recently heard Ann Coulter describe Sullivan as a liberal – something that is absurd at many levels but makes sense if you accept the notion that reality has a liberal bias and Sullivan is in touch with it.
So that leaves the question of what/who caused the crash.
Sullivan provided a second post:
high-risk loans –> mortgage-backed securities –> collateralized debt obligations –> credit default swaps –> synthetic collateralized debt obligations
Which is nice but . . .
Is it really fair to expect that the poor schlub should have known better than the broker, the underwriter, and the institutional investor? And when the quants and sales desks at the big Wall Street firms created and hyped these financial vehicles of mass destruction, duping ratings agencies and institutional investors alike, is it really fair to say that they were just making markets and all the counter-parties should have known better? In this respect, only AIG rises to the same level of blame as the Wall Street “wizards” – not just for issuing insurance policies on assets they clearly didn’t understand, but for issuing so many for so much. At a certain point, you’ve got to take a closer look.
At a basic level, it’s difficult not to conclude that Wall Street’s denizens thought they knew better and they didn’t. And they have steadfastly refused to face that reality.
In all fairness, I actually expected Sullivan’s readers to offer something different but the facts tell us what they tell us, conservative fantasies that it was all Fannie and Freddie and the CRA notwithstanding.