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Conservatives Push Absurd Lie that Wall Street Hustlers Were Innocent Victims ... of Poor People

Deregulation allowed Wall Street to build a house of cards on America's mortgage industry, but many conservatives live in a parallel universe in which the banks are blameless.

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Writing in the Washington Post , Dana Milbank offered a corrective with some of the highlights of Greenspan’s congressional testimony at the peak of the housing bubble. In 2005, Greenspan told lawmakers, “A bubble in home prices for the nation as a whole does not appear likely.” He added, “Home price declines . . . were they to occur, likely would not have substantial macroeconomic implications,” and explained that “nationwide banking and widespread securitization of mortgages make it less likely that financial intermediation would be impaired.”

In English, that last bit meant “Banks won’t get into serious trouble even if things do go to hell,” and we know how well that prediction turned out. If Greenspan could be so wrong and the smart people at the Washington Post and the New York Times couldn’t see this huge, dangerously inflated housing bubble, how was your average couple trying to get a place to live or the small investor looking for a few bucks in rental income supposed to make a rational decision about how much debt to take on? That’s not a defense of individuals who got in over their heads; it’s simply an important bit of context. 

The narrative that the real estate crash and the subsequent recession were the fault of borrowers, especially poor and middle-income borrowers—while members of the financial community were innocent victims—is not only revisionism of the worst kind, but it’s an especially egregious lie.

The obvious sin of this claim is that it shifts responsibility for the mess away from those who created it, but what makes it even more disgraceful is that conservatives have long argued that efforts to increase home ownership among low-income families and communities of color was the “free market” thing to do (and have, to some degree, negated the need for a decent social safety net). It was George W. Bush, not Vladimir Lenin, who said in a 2002 speech, “We have a problem here in America . . . a homeownership gap,” and said, “we’ve got to work together to close [the gap] for the good of our country.” This was standard American Enterprise Institute–quality conservative fare.

Blaming individuals is easy—it’s not hard to understand how people could borrow a bunch of cash they were later unable to pay back. The real cause of the housing crash is, of course, a far more complicated tale. And it’s a story that ultimately represents the abject failure of conservative economic mythology.

Clear here for a copy of The Fifteen Biggest Lies about the Economy (And Everything Else the Right Doesn't Want You to Know about Taxes, Jobs, and Corporate America).