Marco Rubio lies about the 2008 meltdown

I didn't watch the Rubio response to the SOTU, so I missed the slurp heard 'round the world. But it seems clear that the guy has wedded himself to the undying GOP lie that Fannie and Freddie -- not lack of regulation, not Wall Street greed -- caused the great recession.

This nonsensical claim flies in the face of the evidence presented in a sizable library of books, including Matt Taibbi's Griftopia (the best of the lot) and Stiglitz' Freefall and Sinn's Casino Capitalism and...and and and. One could also mention some great documentaries, like Inside Job and Frontline's Money, Power and Wall Street and Inside the Meltdown and...and and and.

There's really no point in listing more examples, because anyone who blinds himself to the facts would have to be the kind of idiot who also thinks that evolution is "just a theory."

Here's Paul Krugman's response:

Deregulation, the explosive growth of virtually unregulated shadow banking, lax lending standards by loan originators who sold their loans off as soon as they were made, had nothing to do with it — it was all the Community Reinvestment Act, Fannie, and Freddie.

Look, this is one of the most thoroughly researched topics out there, and every piece of the government-did-it thesis has been refuted; see Mike Konczal for a summary. No, the CRA wasn’t responsible for the epidemic of bad lending; no, Fannie and Freddie didn’t cause the housing bubble; no, the “high-risk” loans of the GSEs weren’t remotely as risky as subprime.

This really isn’t about the GSEs, it’s about the BSEs — the Blame Someone Else crowd. Faced with overwhelming, catastrophic evidence that their faith in unregulated financial markets was wrong, they have responded by rewriting history to defend their prejudices.

"GSE" stands for Government Sponsored Enterprises -- that is, Fannie and Freddie. Mike Konczal has written his own excellent response to Rubio; see here.

Another fine long-ish explanation as to why Freddie and Fannie should not be blamed for the disaster can be found in this NYRB article. It was written in response to a book called Reckless Endangerment, which the rightwingers use as the intellectual cornerstone of their pseudoargument.

In fact, as abundant data show, Fannie and Freddie’s affordable lending programs had virtually nothing to do with the recent crisis. The crisis was caused by Wall Street’s bad bets on complex securities based on subprime mortgages. These bets were mostly placed during the mid-2000s.

The right-wingers believe that Bill Clinton's revision of the 1977 Community Reinvestment Act forced Fannie and Freddie to ruin the economy by giving mortgages to undeserving black people. In a 2008 Cannonfire post, we published an excellent rejoinder to this absurdity...

• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?

• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?

• What about "No Money Down" Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?

• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?

• How exactly did legislation force Moody's, S&Ps and Fitch to rate junk paper as Triple AAA?

• What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment -- at the same time?

• Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn't have been: Titled How to Get an "Iffy" loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?)

• The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ?

I doubt that a recitation of these facts will change Republican mythology. People will believe whatever they want to believe -- and if they prefer to blame black people and Bill Clinton, they will twist reality itself into knots.

Perhaps that is to be expected. What bugs me is that the official "inside the beltway" responders to Rubio didn't call him out on his myth-making. But they did talk about that swig of water.

Added note. Konczal offers a "fun fact" which reminds us of some history that Republicans want us to overlook.

Fun fact: These same conservatives sang a different tune before the crash. They argued that the CRA and the GSEs were getting in the way of getting risky subprime mortgages to risky subprime borrowers. See Should CRA Stand for ‘Community Redundancy Act? from Cato in 2000 or AEI’s Peter Wallison in 2004 arguing ”study after study has shown that Fannie Mae and Freddie Mac are failing to do even as much as banks and S&Ls in providing financing for affordable housing, including minority and low income housing.”

Before 2008, the Libertarians were telling us that Fannie and Freddie were not aggressive enough in giving loans to poor people. Now, the Libertarians want to erase from our collective memory the words they wrote then. They want us all to pretend that they said something very different. But the record is the record is the record.