Sometimes the best headlines are the simplest ones. In Brad Plumer’s case you can’t get more definitive than “Barney Frank didn’t cause the housing crisis.” Today’s announcement by Rep. Barney Frank that he won’t seek reelection has brought out the ‘best‘ in what some call the industrial conservative media complex. Even coming from what should be somewhat-authoritative institutions, this piece by Peter J. Wallison exemplifies the ‘intelligent’ critique that actually comes from conservative think tanks (my emphasis in bold):
Still, his career was marred by excessive partisanship, defensiveness, and an intellectual arrogance that prevented him from recognizing his errors until it was too late to save Fannie and Freddie or prevent the 2008 financial catastrophe in which they played the primary role.
Hmmm….now where have I read about this particular point before? It’s clear that Wallison accepts as fact that the crisis was primarily instigated by the United States government. Thus he can deftly ascribes complicity and fault to Rep. Frank in the global financial crisis of 2008. Yet there are actually two implications being flouted in this instance by critics.
- Rep. Frank was inadequately diligent of practices at Fannie Mae and Freddie Mac in his capacity as member of the House Financial Services Committee.
- Rep. Frank, along with other Democrats, created the housing crisis by promoting government policies that encouraged home ownership.
On the first charge, Brad Plumer:
First, it’s true that Frank was hardly Fannie and Freddie’s biggest critic. Nor did he spot the housing bubble. Back in 2003, as the Examiner’s Philip Klein points out, Frank said that the government-sponsored entities were not in any sort of crisis. “The more people exaggerate these problems,” Frank told the New York Times, “the more pressure there is on these companies, the less we will see in terms of affordable housing.” Not the most prescient of comments.
….And yet, for the bulk of this period, Democrats in Congress were in the minority. Even if Frank wanted to help out Fannie and Freddie, he wasn’t in a position to lead these efforts until 2007. (In 2005, when Frank helped sponsor a bipartisan House bill to create an independent regulator for Fannie and Freddie, it died in the Senate.)
I think this can be a legitimate criticism. But only if voiced in such a way as to not over-attribute the power of a committee member who spent most of the time as a minority member of said committee. It’s unrealistic to attribute such a large amount of blame to an individual who didn’t have an equal capability for effecting change (for better or worse). The idea that Rep. Frank would garner more complicity than an Alan Greenspan or a Hank Paulson relegates Wallison’s and others criticisms to the annals of arguments worth a good chuckle and permanent dismissal. And that is the criticism I might deem legitimate under different circumstances. The other implication? Again, Plumer:
The broader argument, meanwhile, is that Democrats like Barney Frank actually helped create the crisis by pushing the government to expand its affordable-housing programs.
…But it’s not true.
Why is it not true? Because, generally speaking, if you posit an explanation not supported by the data then most reasonable people consider it an untrue explanation.
First, note that the housing bubble was global. As McKinsey Quarterly has shown, countries such as Belgium, Ireland, Spain, the United Kingdom, Australian, Norway and Canada all had massive run-ups in housing prices from 2000 to 2007.
…But what if we focus solely on the United States? As it turns out, not only were Fannie and Freddie late in getting into the subprime game, but they remained a bit player in the whole affair. According to a Federal Reserve study, more than 84 percent of the subprime mortgages in 2006 were issued by private lenders
…What’s more, only one of the top 25 subprime lenders in 2006 was subject to affordable-housing laws.
Let me be even more clear. The data does not support the explanation that government polices caused the global financial crisis or the United States housing crisis. Which would by default leave the complicity factor attributable to Rep. Barney Frank as negligible.