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Tuesday, July 05, 2011

"We Do Not Blame CRA"

An email from one of the authors of Reckless Endangerment, Josh Rosner, pushes back against my post on the book and how it is being used by conservatives to try to blame the financial crisis on Fannie, Freddie, the CRA, and Democrats:

I was a little disappointed to read your blog. Having been a housing and mortgage finance analyst since the early 1990's I have lived through build-up and crisis, having made warnings all along the way.
If you read my book with Gretchen you will realize we do not blame CRA. Also, if you read the book you might have a different view than you would by reading partisan reviews of it.
It is not a partisan book, rather the Dems want to pretend the GSE's had no part of it just as Repubs want to say it was all the GSE's. We don't take either stance.

Let me make several points in response.

First, I didn't mention the CRA when I was talking about the book -- I was careful not to. When the book is discussed, I only talk about Fannie, Freddie, and Democrats (see the quote below, for example). I did bring up the CRA and discussed why the notion that the CRA caused the crisis is at odds with the evidence, but only after trying to turn the discussion toward the more general story the right is trying to sell to the public. It wasn't meant to be connected to the book.

Second, with that said, I think I could have done a better job of introducing the topic. I wrote:

That’s why I was so disappointed to see the new book by Gretchen Morgenson and Josh Rosner, Reckless Endangerment, being blaming the financial crisis on Fannie, Freddie, and Democrats. The book has been highlighted recently by George Will and David Brooks, and it joins a chorus of conservative voices promoting the idea that government policies to encourage home ownership among middle and low income households is at the heart of the financial crisis.

I might have said:

That’s why I was so disappointed to see the new book by Gretchen Morgenson and Josh Rosner, Reckless Endangerment, being used by George Will, David Brooks, and others to revive the argument that government policies to encourage home ownership among middle and low income households is at the heart of the financial crisis. This argument, in essence, blames the crisis on "low-income families, who just happened to be disproportionately non-white and immigrant".

Third, and most importantly, if they "don't take either stance," then I hope that the authors are pushing back just as hard, or harder, against the way the book is being used by those on the right trying to sell the idea that Fannie and Freddie, and yes, the CRA, caused the crisis. When George Will wrote:

The book’s subtitle could be: “Cry ‘Compassion’ and Let Slip the Dogs of Cupidity.” Or: “How James Johnson and Others (Mostly Democrats) Made the Great Recession.” The book is another cautionary tale about government’s terrifying self-confidence. It is, the authors say, “a story of what happens when Washington decides, in its infinite wisdom, that every living, breathing citizen should own a home.”
The 1977 Community Reinvestment Act pressured banks to relax lending standards to dispense mortgages more broadly across communities. In 1992, the Federal Reserve Bank of Boston purported to identify racial discrimination in the application of traditional lending standards to those, Morgenson and Rosner write, “whose incomes, assets, or abilities to pay fell far below the traditional homeowner spectrum.”

Did he get an email? I was careful not to say the authors blamed the CRA, but I don't see the same care in the two paragraphs above. The CRA and the authors are discussed as though the authors are making this argument. Have they asked for a correction from the Washington Post? Have they demanded that others pulling the same tricks rescind their words? I don't know if they have or not, if they have, great -- I encourage you to get more aggressive and public in your protests against the book being used for these purposes. But if not, I would ask why I got an email, but others didn't.

Finally, we seem to agree that it wasn't the CRA. What we disagree about is the role of Fannie and Freddie. I expected the authors would disagree with my view that Fannie and Freddie did not play an important role in causing the crisis. After all, as noted above, the book disagrees with Democrats who "pretend" that the GSEs did not play an important role. That's why I presented a fact based argument (as opposed to pretending) as to why I think this points a finger in the wrong direction.

Update: Here are a few more recent references on this:

Joe Stiglitz and Barney Frank respond to the book's "allegations" (this is one of the reasons I said the book blames Democrats):

Joseph Stiglitz, Barney Frank Respond to 'Reckless Endangerment' Allegations

And here are two posts from Richard Green, the Director of the USC Lusk Center for Real Estate. Richard holds the Lusk Chair in Real Estate in the School of Policy, Planning, and Development and the Marshall School of Business, and he is the former principal economist and director of financial strategy and policy analysis at Freddie Mac (along with his other credentials):

Mark Thoma and Dean Baker are correct: Fannie Mae and Freddie Mac did not start the crisis
Kurt Paulson adds more evidence that FF were not leaders into the crisis

The last link addresses the charge made in the book and elsewhere that Fannie and Freddie led a decline in lending standards.

    Posted by on Tuesday, July 5, 2011 at 03:06 PM in Economics, Financial System, Housing, Politics | Permalink  Comments (58)


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