The Volokh Conspiracy - Narrative and Counter-Narrative on the Current Financial Troubles:

There's an interesting difference between the financial troubles of today and the Savings and Loan debacle of the late 1980s. In the latter case, the MSM (except for the WSJ editorial page, natch), quickly decided to blame deregulation and not, in any substantial way, the "moral hazard" of federal deposit insurance, which was a prerequisite to the crisis. Given the monopoly power the MSM had in those days, the "deregulation is solely to blame" theory quickly took hold, and helped lead to a backlash against Reagan-era deregulation.

Today there are certainly plenty of voices, within and without the MSM, who want to solely blame "deregulation," or at least "lack of regulation," for the debacle. But given blogs, YouTube, talk radio, and other non-MSM means of communication, a counter-narrative has formed, blaming the situation on government--the Community Reinvestment Act, Fannie and Freddie, Federal Reserve pump-priming, and so on.

Many of those who are pushing the latter theories, especially when primarily blaming the GSEs and the CRA, are being as simplistic as those blaming "deregulation." For example, say what you will about the GSEs and the CRA, my first encounter with the housing bubble was when I lost a house I bid on (by $1,000) to a woman who showed no objective evidence of being able to responsibly manage her money, or to afford the house in question. She apparently had saved virtually no money for a deposit ($1,000), put no money down on her mortgage because she had none, received all her closing costs built into the loan, and received a loan for $580,000, co-signed by her father as a second occupant, with whom she had rather tense relations (all told to us later by the seller, who was her friend) and did not currently live with. The loan was too big for Fannie and Freddie, and I'm pretty sure that no one was holding a CRA gun to the lender's head. I thought at the time, "who in their right mind would lend this person all this money, with negative collateral (a loan for more than the sale price)"?

In any event, I think there is plenty of blame to go around, and both the government (and especially the Fed) and short-sighted market actors (who believed that housing prices couldn't decline nationwide, because they handn't since the '30s--I think they had Greenspan himself as an authority for that one) come out looking pretty badly.

But I think it's interesting that while markets and deregulation shouldered almost all the blame in the 1980s, the government is going to get at least some of its share of the blame this time, thanks to the "new media."

	[David Bernstein, October 1, 2008 at 6:40pm] Trackbacks Narrative and Counter-Narrative on the Current Financial Troubles: There's an interesting difference between the financial troubles of today and the Savings and Loan debacle of the late 1980s. In the latter case, the MSM (except for the WSJ editorial page, natch), quickly decided to blame deregulation and not, in any substantial way, the "moral hazard" of federal deposit insurance, which was a prerequisite to the crisis. Given the monopoly power the MSM had in those days, the "deregulation is solely to blame" theory quickly took hold, and helped lead to a backlash against Reagan-era deregulation. Today there are certainly plenty of voices, within and without the MSM, who want to solely blame "deregulation," or at least "lack of regulation," for the debacle. But given blogs, YouTube, talk radio, and other non-MSM means of communication, a counter-narrative has formed, blaming the situation on government--the Community Reinvestment Act, Fannie and Freddie, Federal Reserve pump-priming, and so on. Many of those who are pushing the latter theories, especially when primarily blaming the GSEs and the CRA, are being as simplistic as those blaming "deregulation." For example, say what you will about the GSEs and the CRA, my first encounter with the housing bubble was when I lost a house I bid on (by $1,000) to a woman who showed no objective evidence of being able to responsibly manage her money, or to afford the house in question. She apparently had saved virtually no money for a deposit ($1,000), put no money down on her mortgage because she had none, received all her closing costs built into the loan, and received a loan for $580,000, co-signed by her father as a second occupant, with whom she had rather tense relations (all told to us later by the seller, who was her friend) and did not currently live with. The loan was too big for Fannie and Freddie, and I'm pretty sure that no one was holding a CRA gun to the lender's head. I thought at the time, "who in their right mind would lend this person all this money, with negative collateral (a loan for more than the sale price)"? In any event, I think there is plenty of blame to go around, and both the government (and especially the Fed) and short-sighted market actors (who believed that housing prices couldn't decline nationwide, because they handn't since the '30s--I think they had Greenspan himself as an authority for that one) come out looking pretty badly. But I think it's interesting that while markets and deregulation shouldered almost all the blame in the 1980s, the government is going to get at least some of its share of the blame this time, thanks to the "new media."