Meltdown: The Blame Game

The conservatives' argument that progressives, Fannie and Freddie, and minorities caused the current crisis has no validity, write Eric Alterman and George Zornick.

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The Fannie Mae building in Washington, DC. (Center for American Progress)
The Fannie Mae building in Washington, DC. (Center for American Progress)

Since the collapse of financial markets almost one month ago, the word “Fannie” has appeared in 143 different segments on Fox News—43 more segments than were done on Iraq, and 90 more than Afghanistan.

That’s “Fannie” as in Fannie Mae and Freddie Mac, two companies that conservatives would like us all to believe created the current economic mess—with the help, of course, from progressive politicians, groups like ACORN, and, well, minorities.

Conservatives have gone into overdrive to create a narrative that conveniently places the blame for collapsing financial markets not on the politicians who had their hand on the tiller these past eight years, but rather onto actors—also conveniently connected to progressive politicians and causes—with such minimal culpability that the charges should be laughed out of polite discussion. Once again, these largely unsupportable charges have successfully seeped into mainstream media discussion, leaving many both confused and misinformed about the causes of the current crisis.

The conservatives’ story goes as follows: Jimmy Carter created the Community Reinvestment Act in 1977 to encourage more lending to minorities, but it really just forced irresponsible lending. Fannie Mae and Freddie Mac—protected by progressives in Congress—were the engine behind this unsound financial practice. Since “loaning to minorities and risky folks is a disaster,” as Fox News’ Neil Cavuto said on his show, the loans couldn’t be paid back, and here we are.

Examples of this narrative abound. Brit Hume asserted on the September 24 edition of Fox News’ Special Report that “[m]any financial analysts are saying that if mortgage giants Fannie Mae and Freddie Mac had been effectively regulated years ago, the supercharged subprime mortgage meltdown that led to the current financial mess would either never have happened or would have been nowhere near as severe.”

Charles Krauthammer, in his nationally syndicated column, charged that the Community Reinvestment Act, “led to tremendous pressure on Fannie Mae and Freddie Mac—which in turn pressured banks and other lenders—to extend mortgages to people who were borrowing over their heads. That’s called subprime lending. It lies at the root of our current calamity.”

Cavuto took the same tack, lamenting the fact that nobody was on to progressives’ tricks. “I don’t remember a clarion call that said: Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster.”

Jeff Jacoby, of the Boston Globe, offered up virtually identical charges, writing on September 28 that, “The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to ‘meet the credit needs’ of ‘low-income, minority, and distressed neighborhoods.’ Lenders responded by loosening their underwriting standards and making increasingly shoddy loans.”

During the September 25 edition of The Radio Factor with Bill O’Reilly, guest Jonathan Hoenig asserted that the CRA “makes banks give loans to bad risks.” The right-wing Investors Business Daily said the same.

These deeply misleading arguments have unfortunately been absorbed into mainstream reporting, with many outlets reprinting these charges completely credulously. Daniel Reilly of Politico, for instance, recently quoted one conservative representative as saying, “We are not confronting the 800 pound gorilla in the room…the role of Fannie and Freddie in this debacle,” without offering any context for the accusation.

Believe us, we could go on, but you get the point. Alas, none of these pieces addressed some of the more inconvenient facts about the crisis, many of which were expertly explained by David Goldstein and Kevin G. Hall of McClatchy in an all too uncommon analysis. They point out that Federal Reserve Board data shows the following:

  • More than 84 percent of the subprime mortgages in 2006 were issued by private lending firms
  • Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
  • Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.

Clearly it was private lenders, not the government-backed Fannie and Freddie, which issued the lion’s share of subprime lending overall, and to low- and moderate-income borrowers in particular. In fact, economist Dean Baker notes that Fannie and Freddie “lost market share in the years 2002-2007, as the volume of private issue mortgage backed securities exploded.”

The authors also note that between 2004 and 2006, “private investment banks—not Fannie and Freddie—dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two-thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.”

As for the Community Reinvestment Act, only one of the top 25 subprime lenders was even subject to that law because it applies only to depository institutions—banks and thrifts. A study released earlier this year by a law firm specializing in Community Reinvestment Act compliance estimated that in the 15 most populous metropolitan areas, 84.3 percent of subprime loans in 2006 were made by financial institutions not governed by the CRA.

In fact, the CRA actually created more responsible lending. In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, noted that, “[m]ost of the loans made by depository institutions examined under the CRA have not been higher-priced loans. The CRA has increased the volume of responsible lending to low- and moderate-income households.”

The argument, in other words, has no validity, save as means to turn the victims of the subprime mess into scapegoats for the greed of those at the top by exploiting both policy ignorance and racial animosity. It’s an old trick, and, let’s hope, one that grows less effective with age.

Eric Alterman is a Senior Fellow at the Center for American Progress and a Distinguished Professor of English at Brooklyn College, and a professor of journalism at the CUNY Graduate School of Journalism. His blog, “Altercation,” appears at His seventh book, Why We’re Liberals: A Political Handbook for Post-Bush America, was recently published by Viking.

George Zornick is a freelance writer in New York.

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Eric Alterman

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