During the late and now unlamented campaign of Mitt Romney, the candidate was urged by other Republicans to affect a "separation" from the policies of George W. Bush. They were said by Democrats to have brought on the financial crisis and the "mess" inherited by Barack Obama, which he has been unable thus far to clean up.
They might have done better had they moved years earlier to detach the Bush policies from the cause of the meltdown, since there was little relation between the two. The crash of late 2008 was caused not by Republican dogma, but by efforts going back many years on the part of both parties to facilitate homeownership on behalf of poor people. It seemed like the right thing to do. It pleased both liberals, who wanted to help the downtrodden, and conservatives, who took to heart the old Jack Kemp adage that rental cars rarely get washed.
In 1995, President Clinton launched his "National Homeownership Strategy" (Bush continued it as part of his "ownership society"), designed to increase mortgage lending to low-income Americans by requiring bankers to make loans to people with poor or nonexistent credit ratings. This drew in people who were unable to pay off their debts, and speculators, who were betting housing prices would keep rising forever. In retrospect, we can see it was bound to implode, and it did.
Clinton and Bush were both smart politicians, but there was one thing that both men got wrong. As Glenn Reynolds explained, they tried to expand the middle class by subsidizing things owned by middle-class people -- like college educations and homes -- assuming that middle-class status would come along with them. But in fact, homeownership was a result of middle-class values -- of being willing and able to save, and to defer gratification -- and not the cause of them. Instead of expanding the middle class, dodgy home loans for people with no past record of saving merely led to unfunded investments and debt. And to speculation. "All of us participated in the destructive behavior -- government, lenders, borrowers, the media, rating agencies," said Warren Buffett. "At the core of the folly was the almost universal belief that the value of houses was bound to increase."
Twice, Bush tried to rein in Fannie Mae and Freddie Mac, and twice Democrats (Obama included) moved in to stop him. Especially culpable were Barney Frank and Chris Dodd. Dodd claimed that the institutions were "fundamentally strong," and Frank said he wanted to "roll the dice a little bit more in his situation" rather than impose stricter regulation on Fannie and Freddie. He did roll those dice, and they came up snake eyes at the end of the Bush years. The same could have just as easily happened in the Gore or Kerry administrations, had they existed, and it would not have been due to their policies, either. It was due to bad sense, bad judgment, greed and a lot of misguided good will.
Bush didn't create the conditions that led to the crash; he inherited them from Bill Clinton, and a large cast of thousands all played their own parts. Republican policies had no role in the crash; and the Democrats' policies would have had no role, either.
This was not a case of free markets run wild; it was a case of government policy distorting the markets by removing their built-in restraints. This case has been made by a handful of columnists and two serious books -- "Reckless Endangerment" by Gretchen Morgenson and Joshua Rosner, and "Fannie Mae & Freddie Mac" by Oonagh McDonald -- but not yet by the silent and clueless Republican Party. How many more times must it lose till it does?
Examiner Columnist Noemie Emery is contributing editor to The Weekly Standard and author of "Great Expectations: The Troubled Lives of Political Families."