Nouriel Roubini, the economist who earned the nickname Dr Doom for his prediction that the crisis was about to hit, blames Bush. Obama "inherited a mess", Roubini has said. "We're lucky that this Great Recession is not turning into another Great Depression."
(the rest is also worth reading)
The blame game is not terribly honest on either side. However, in terms of underwriting powers on which the housing crisis was generated, the Democrats have a lot to answer for. Some bullet points to keep in mind:
1) Freddie and Fannie Mae are GSEs (Government Sponsored Enterprises), not publicly or privately owned banks per se.
2) The authority to underwrite derivatives in the housing market was only possibly under the auspices of GSEs.
3) All the usual regulations banking regulations, that all other banks where subject to, did not apply to these GSEs. This includes being exempt from the Glass-Steagal Act of 1933, the Securities Exchange Act of 1934, or the Sarbanes–Oxley Act of 2002.
4) The Bush administration warned that these GSEs where a "potential problem" in 2001 (2002 budget request), and upgraded that a "systemic risk" in 2003.
5) After these GSEs were called out for financial misconduct by FHFA (Federal Housing Finance Agency) the Democrats stonewalled a Republican attempt at regulating these GSEs.
http://www.youtube.com/watch?v=A_2D4mK95NQNow, was everything stated here true? Yes. Was everything stated completely fair? Maybe not entirely... In particular, consider Frank Raines quote from the above video:
These assets are so riskless that their capital for holding them should be under 2%.
That lack of capital backing of course had catastrophic consequences. However, this claim was predicated on, among other things, an equation that won a Nobel Prize in economics. Called the Black-Scholes equation. There was absolutely nothing wrong with the equation itself, but the price setting mechanism described depending on setting derivative values based on the trade value of the underlying stock. Only the underwriting, through GSEs and the implied government backing that entailed, became such a hot commodity that there was no underlying stock available for trade. They ALL went into producing these derivatives, which were now setting their own market inflated value due to the false sense of security the financial instrument seemed to promise. Hence their value well exceeded any reasonable value of the underlying stock.
Of course it was made even more complex than even this, with even more promises of even low risk. To understand this side of the issue the best resource I know of is to watch a show aired by the Research Channel by the University of Washington called:
Are Mathematical Models the Cause for Financial Crisis in the Global Economy?http://www.youtube.com/watch?v=DhX0PGG-baIIt's fairly long but such is the price of remedying ignorance.
I may not not agree completely with Andrew W. Lo's outtake at the end, but if there is any point to take from all this it's that's this blame game, in and around politics, is just so much BS. Had someone had the foreknowledge and the power to put a stop to this before the actual crash, and actually done so, they would have been the scapegoat of this blame game, period. And there would have been NO, zero, evidence that the problems the fix created wasn't worse than the as yet nonexistent crash it prevented. If that was you, would you have payed the price of being the most hated person in the world to dish out hardships in order to ameliorate damages that had never occurred to date?
