The problem with Obama is a simple one. One association does not a radical make. But in Obama's case, the list of left-wing radical mentors and associates is seemingly endless, (Davis, Ayers, Wright, Khalidi , etc., etc.) with a new revelation practically every day. With that trend, a picture begins to emerge, and that picture is that Obama is as steeped, not in just left-wing political thought, but in radical left-wing economic and race ideology, to the same extent that Pat Robertson was steeped in the ideology of the radical Religious Right. I would not have voted for Pat Robertson for dog catcher, and for similar reasons, I will not vote for Obama.
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In this fluid situation, one thing is predictable: the crisis will produce a cottage industry of academics, journalists, pundits, politicians and bloggers to assess blame. Is former Fed chairman Alan Greenspan responsible for holding interest rates too low and for not imposing tougher regulations on mortgage lending? Would Clinton Treasury Secretary Robert Rubin have spotted the crisis sooner? Did Republican free-market ideologues leave greedy Wall Streets types too unregulated? Was Congress too permissive with Fannie Mae and Freddie Mac?
Some stories are make-believe. After leaving government, Rubin landed at Citigroup as "senior counselor." He failed to identify toxic mortgage securities as a big problem in the bank's own portfolio. It's implausible to think he'd have done so in Washington. As recent investigative stories in The New York Times and The Washington Post show, the Clinton administration broadly supported the financial deregulation that Democrats are now so loudly denouncing.
Greenspan is a harder case. His resistance to tougher regulation of mortgage lending is legitimately criticized, but the story of his low-interest rate policies is more complicated. True, the overnight fed-funds rate dropped to 1 percent in 2003 to offset the effects of the burst tech bubble and 9/11. Still, the Fed started raising rates in mid-2004. Unfortunately and surprisingly, long-term interest rates on mortgages (which are set by the market) didn't follow. That undercut the Fed and is often attributed to a surge of cheap capital from China and Asia.
There's a broader lesson. When things go well, everyone wants to get on the bandwagon. Skeptics are regarded as fools. It's hard for government—or anyone else—to say, "Whoa, cowboys; this won't last." In this respect, the tech bubble and the housing bubble were identical twins.
As the housing boom strengthened, lenders overlent, builders overbuilt and buyers overpaid. Existing home prices rose 50 percent from 2000 to 2006. Lending standards weakened. Investment bankers packaged dubious loans in increasingly opaque securities. But bankers—to their eventual regret—kept many bad loans themselves. Almost everyone assumed that home prices would rise forever, so risks were minimal. Congress was complicit. It allowed Fannie and Freddie to operate with meager capital. They were, in effect, giant hedge funds backed by government. Congress also increased the share of their mortgages that had to go to low- and moderate-income buyers, from 40 percent in 1996 to 52 percent in 2005. This blessed and promoted subprime mortgage lending.
So Grant's thesis is confirmed. We go through cycles of self-delusion, sometimes too giddy and sometimes too glum. The only consolation is that the genesis of the next recovery usually lies in the ruins of the last recession. Optimistic Americans "recognize error and put it behind them," Grant writes in the current Foreign Affairs. The Pew survey reports this contrast: though half of Americans believe there's a recession, almost half also think the economy will improve in the next year.
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