Who’s to Blame: Washington or Wall Street?

It won't help anyone recoup the money lost in the housing bubble or the market crash or the recession, but there's a certain satisfaction in knowing where to put the blame. Pinning it all on CNBC's Jim Cramer, as Jon Stewart attempted to do, made for good television but doesn't offer much guidance in terms of future policy. With that in mind, Intelligence Squared US, which sponsors Oxford-style debates on matters of ethics and public policy, invited six authorities on the financial markets to discuss the proposition "Blame Washington more than Wall Street for the financial crisis."The panelists speaking for the motion were Niall Ferguson, a Harvard and Oxford historian and the author of "The Ascent of Money: A Financial History of the World"; John Steele Gordon, a financial journalist and author of "An Empire of Wealth: The Epic History of American Power"; and Nouriel Roubini, a professor of economics at New York University.

Speaking against the motion were Alex Berenson, an investigative business reporter for The New York Times; Jim Chanos, founder of Kynikos Associates, an investment firm specializing in short selling; and Nell Minow, editor of The Corporate Library, a corporate-governance research firm. The moderator was ABC News correspondent John Donvan. Edited excerpts:

Niall Ferguson: Nothing would be easier than to blame everything on the bankers. I blame them for much of what has gone wrong, but I blame the politician more. It's just too easy to heap opprobrium on Wall Street. And if you noticed, that's exactly what the politicians do. Could it be that they're trying to divert our attention away from Washington's own responsibility for the debacle?

I invite you to consider the roles played by four institutions in bringing about this financial crisis, and I want you to reflect on the location of those institutions. The first is the Federal Reserve Board. Its role has been to allow a housing bubble to inflate, and burst. Between January of 2001 and June of 2003 the Fed cut its federal funds rate from 6.5 percent to 1 percent. Then over three years it very gradually raised rates to 5.25 percent. In that time, house-price inflation rose from 7 percent to 17 percent a year and it stayed above 15 percent a year right until January of 2006.

The second is the Securities and Exchange Commission, which under Christopher Cox allowed the leverage in the banking system to spiral out of control, from 12 to 1 to somewhere in the region of 20 to 30 to 1. My third prime suspect is the Congress that wholly failed to supervise Fannie Mae and Freddie Mac, which on the eve of their destruction were leveraged 65 to 1. And that brings me to the White House. "We want everybody in America to own their own home," declared President George W. Bush, in October of 2002. Everybody in America!

Bankers are nearly always actuated by greed, and so are many ordinary people too. But it's the role of government to strike a balance between market forces and stability, and we should blame Washington more than Wall Street for this crisis. In my view Washington sold itself to Wall Street.

Alex Berenson: The resolution doesn't say we need more regulation going forward; I don't think anyone in this room would disagree with that. And it doesn't say that bankers should all be put on a desert island and forced to make their own society. That would be the Hamptons. It says "Blame Washington." And that is flat wrong.