Mark Thoma at Economist's View has fired back at Joshua Rosner, one of the co-authors (with Gretchen Morgenson) of "Reckless Endangerment," over whether or not the book blamed the financial crisis on the Community Reinvestment Act. (I reviewed the book last week here.) This is silliness of a high order. As Thoma points out, he hardly referenced CRA in his review, though he did argue, as did I, that the book, with its intense focus on Fannie Mae and Freddie Mac to the exclusion of broader complexities, did effectively hammer Democrats rather than Republicans. Thoma complains that Rosner does not seem to be criticizing conservative pundits, like George Will, who eagerly use CRA as a proxy for everything that went bad, and who dragged out CRA in reviewing the book. And in his usual methodical way, Thoma concludes by linking to responses to the book from the likes of Joseph Stiglitz, Barney Frank and others.
The real problem here, of course, is that CRA really isn't an issue; it's an overused cliché that has conformed to Republican interests and propensities for many years now. Rosner and Morgenson don't, happily, wave that bloody shirt. But their book, for all its detail on mortgages and government-sponsored enterprises, is still highly tendentious because of its tendency, when it comes to the larger crisis, to reduce everything to those two subjects. They broadly suggest that the primary cause of everything that went wrong in 2007 and 2008 stemmed directly from what Jim Johnson created at Fannie Mae. And for all of Johnson's sins -- and they shouldn't be discounted -- that's a stretch. You inevitably come away from this book either a) believing that Johnson was a figure of Machiavellian genius and evil, or b) accepting that the GSEs were a kind of symbol of what went wrong, much like CRA. In short, the pair replaces CRA with the GSEs, leaving the underlying politics intact.
"Reckless Endangerment" all but invites this kind of rhetorical scrum over what its real point was. The book is a recitation of facts, developments, potted biographies and charges lacking any kind of larger explanation or interpretation except that they led to disaster. In one sense, it's almost an old-fashioned kind of book, because it checks any overt discussion of larger political issues -- notably the role of government -- at the door. But that demonstrates the very fallacy of "objectivity," in that readers have no sense of the larger context, either economic or political. Rosner and Morgenson can thus pretend to be apolitical and simply tellers of factual truths (as Rosner does in his e-mail to Thoma) while their argument is marinated in a certain political viewpoint.
That said, the defenses tossed up by the likes of Frank and Stiglitz seem a little thin and, not surprisingly, defensive (Johnson, as far as I know, hasn't been heard from). The fact is, the private-public nature of the GSEs was a growing problem in the '90s, when they were already arguably too-big-to-fail. The implicit subsidy from the markets was not only self-evident but offered a clear advantage over private institutions. The math on that subsidy and on the "benefit" the GSEs provided for consumers was complex and required study, which too few politicians, policymakers or journalists undertook; generally, the GSEs were viewed as black boxes, a perception the companies encouraged. There was too ready an acceptance in both parties of the power of the GSEs as a force for good, which demonstrates, at the very least, a willingness to believe in questionable means if the ends appear beneficial. The fact that we still have TBTF institutions that resemble the GSEs, and which claim far more questionable societal benefits, should stir skepticism. Indeed, the reform legislation that left those TBTF institutions intact has Frank's named attached to it.
And yet, our still-lingering financial crisis was about far more than just mortgages and a few miscreants in Washington and Wall Street. When you broaden your perspective, some of this reductionism, and most of this silliness, disappears.
Ken deRegt will retire as head of fixed income at Morgan Stanley and be replaced by Michael Heaney and Robert Rooney. For other updates launch today's Movers & shakers slideshow.
Apax Partners offers $1.1 billion for Rue21, the same teenage fashion chain it took public in 2009. More video