Causes of the financial crisis

Look, Wall Street was definitely a bad actor from 2000-2008. But the idea that they were solely responsible for the crisis has got to go. There were four main factors, in descending order:

a) A huge global savings glut that meant there were vast amounts of cash people were eager to lend out, combined with…

b) Enormous pressures to make use of all that money to increase lending and reduce standards for lower-income and minority households.

This book has some of the story, mostly focusing on the expansion and growing political power of Freddie and Fannie in the 1990s, but it really wasn’t any secret that reducing credit-worthiness (sorry, barriers to homeownership) was an explicit goal of the Clinton and Bush administrations and affiliated banks. Bush gave a long speech on these goals in mid-2002.  Countrywide, led by Angelo Mozilo, pledged $600 billion in loans to low-income and minority homeowners in early 2003. Then, the Bush administration was bragging in late 2004 about the commitments they had elicited from lenders to expand low-income and minority lending by over $1 Trillion.  Then, a few months later, in 2005,  Countrywide, with a former HUD secretary on its board, released a press release bragging that they were going to increase their book of lending to minority and low-income households to $1 Trillion. Looking back on the crisis, liberal sociologists find, unsurprisingly, that subprime lending and the subsequent foreclosures were concentrated in minority households.
c) The efforts to extend massive amounts of credit to non-creditworthy families were abetted by fraud and irresponsible borrowing by those same households. See, for example, Atif Mian’s papers on widespread fraud in mortgage applications.
d) Bad actions by Wall Street (Inside Job is probably a good version of this.)

The idea that only d matters is just nuts.

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