Sen. Phil Gramm is seeking, in a WSJ article Friday, Feb. 20, to resurrect the conservative argument that the current financial crisis isn't due to deregulation but rather is the fault of regulators pressuring banks into make bad loans to low and moderate income people.
His arguments sound persuasive, but I suspect he's playing fast and loose with the historical facts. However, I lack the background knowledge to know or refute him and people who may quote him to me. Could someone here at Daily Kos provide some counterpoint.
Here's the link to the article.
Loose money and mortgage politicization
http://online.wsj.com/...
Key points after the jump:
- The Community Reinvestment Act (CRA) requirements led regulators to foster looser underwriting and encouraged the making of more and more marginal loans
- The government set quotas for Fannie and Freddie requiring that a high percentage of loans be subprime, legally forcing them to make bad loans. (He never explains how this affects private sector banks and pressures them to make such loans)
- Claims it's never been explained how deregulation caused the crisis and then says deregulation never even really happened.
- Regulators had plenty of power, they just didn't act because they didn't see the problem
- Credit default swaps haven't been part of the problem, the market for them is functioning great
- The way that the crisis unfolded suggests it wasn't deregulation (Some very large logical leaps in this section)
UPDATE: Larry Kudlow is also pushing this line in a piece on CNBC, and Wikipedia's timeline on the subprime crisis seems to support some of the argument.
Subprime timeline
Kudlow argument