Saturday, January 10, 2009

Even the "Good" Republicans Pass Along Bad Memes

The work of David Brooks and David Frum makes for interesting reading on the right. I think they're probably being earnest when they argue that "the old G.O.P. priorities were fine for the 1970s but need to be modernized for new conditions," and that "they cannot continue to insult the sensibilities of the educated class..." 

Nonetheless, Brooks and Frum still pass along blatently misleading information (in many cases hatched in fully-staffed GOP think tanks) that wouldn't get a gentleman's C in a college course.

A classic example is the meme that the mortgage meldown was caused by 1977's Community Reinvestment Act. This right wing argument conveniently blames poor minorities (a staple rightie populist tactic) for problems created by bankers and investors. The baselessness of this argument, as well as its origins in the right wing echo chamber, have been reported in a number of outlets (including the Wall Street Journal). 

Indeed, you can point to a number of specific acts of deregulation and failures of oversight on the part of Alan Greenspan, Phil Gramm, the Bush White House, and the Bush-appointed SEC--acts that are much more recent and relevant. Despite this history (which would be uncovered with minimal research) some reporters at prominent right wing publications are propagating the CRA meme without even knowing the basics of what the bankers did

The argument's transparent flimsiness must have caused some embarassment, because the AEI has stepped in in an attempt to rescue their fellow movement conservatives. Here's David Frum:
[The AEI's] Peter Wallison offers a careful study of the origins of the financial meltdown. I urge you to read the whole thing here, but for those pressed for time, a summary.
The current financial crisis is not—as some have said—a crisis of capitalism. It is in fact the opposite, a shattering demonstration that ill-considered government intervention in the private economy can have devastating consequences. The crisis has its roots in the U.S. government's efforts to increase homeownership, especially among minority and other underserved or low-income groups, and to do so through hidden financial subsidies rather than direct government expenditures. The story is an example, enlarged to an American scale, of the adverse results that flow from the misuse and manipulation of banking and credit by government...

The key question... is the effect of relaxed lending standards on lending standards in non-CRA markets.
In response to Wallison's argument, the (usually) non-political blog Baseline Scenario writes:
One might have hoped that one collateral benefit of the end of the election season would be the end of the attempt to pin the financial crisis on the Community Reinvestment Act, a 1970s law designed to prohibit redlining (the widespread practice of not lending money to people in poor neighborhoods). Unfortunately, Peter Wallison at the American Enterprise Institute... has proven that some people will never give up in their fight to prove that the real source of society's ills is government attempts to help poor people. Regular readers hopefully realize that we almost never raise political topics here, but sometimes I just get too frustrated...

Wallison comes up with a new argument: relaxed lending standards, encouraged by the CRA, caused lending standards to be relaxed in the rest of the housing market. Really, I'm not making this up...

At its core, the argument is that the government forced lenders to make bad loans in one market, so they went and decided to make bad loans in other  markets. Even conceding some of the premises for the sake of argument, this is illogical. Wallison says "it would seem impossible–if down payment or other requirements were being relaxed for loans in minority-populated or other underserved areas–to limit the benefits only to those borrowers." It doesn't seem impossible to me: if you're running a business, you should be able to understand that you have different target markets, and you have different products for those markets. In fact, if you (the bank) truly thought that you were being forced to make bad loans in one market, you would damned well keep those loans out of your other markets. If lenders are as stupid as Wallison's argument implies they are, then the entire premise of the American Enterprise Institute - that government should leave businesses alone - starts to look shaky.
The people at Baseline Scenario must be members of the New Class. Hey guys--haven't you heard? You're either with us or against us.

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