The Volokh Conspiracy

No one.

Douthat's whole thesis, and his hook on poor George, is that the Bailey Building and Loan was making loans that weren't financially feasible; the real business model, like all S&Ls then, was to help people save up to a significant downpayment, and then make a partial mortgage to let them buy or build much earlier.

George's problem wasn't that he had mortgages that weren't performing; it was that with the cash missing, he had a liquidity problem, made worse by a run on the bank.

Fannie Mae's problem was that they had been forced for 30 years to make bad loans by political pressure, and had in return applied political pressure to cover up the problem by preventing good audit and financial accounting standards from being imposed, until at last the house of cards fell.

Douthat's problem was finding a hook on which to hang his article, and apparently not quite remembering or understanding the movie himself.

Other than being a bad example, applied to a mistaken assumption, leading to a, well, let's say incongruous result, it's a fine piece.

Re: Fannie Mae's problem was that they had been forced for 30 years to make bad loans by political pressure

This is nonsense. The GSEs (Fannie and freddie) were not "forced" to make loans. In fact they weren't making loans, they were buying loans other lenders were makiing. and therein lay the problem: lenders who could sell the loans they made had little incentive to police their own lending standards. As long as the loans held up for at least six months (that's the usual mandatory repurchase period for a marketed loan) they were in the clear and could laugh all the way to the bank, no matter what happened to the loans later. Of course at the end things got so frenized that many lenders, like the extraordinarily reckless New Century Inc, abandonned even that much prudence and so the default tidal wave began with a flood of loans that failed on their very first payment.

The weirdest part of the Q&A was the Orwellian newspeak proposition by one questioner that the government "living within its means" meant a limitation on tax cuts.

Uh...say what? That's completely backwards, an offense to republicanism, a return to the divine right of kings notion that all wealth belonged properly to the Crown, and was distributed by His Majesty as suited his fancy.

The wealth of the nation belongs to and originates from the labor of the people. Government is an expense on our balance sheet. We are not an expense on government's balance sheet. If we are to live more modestly, then we ought to spend less on government, pare it back to its most necessary functions, and insist even those be achieved more economically.

Only a New Age post-modern post-logic fruitcake could twist the concept of frugality in government around to imply that it means the government ought to raise taxes, take in more of the people's money, and spend more on Noble Causes.