I will say though that there’s not a great deal of benefit to be gained from blaming almost every citizen, as it does nothing help assist determining what can be done to improve things in the future. So I suppose it would be more helpful to blame, say, the education system, or even the prevalence of fundamentalist religion, etc. - areas that could in principle be improved by a government actually concerned about its citizens’ ability to participate in a working democracy.

And why is that “the trouble”? If they do a bad job of it, voters chuck ‘em out and demand new leadership. On that basis, a fair amount of the blame should actually fall on American voters for consistently choosing such obvious bad leaders.

The only feasible ways to provide housing to the vast majority of the poor who can’t borrow on the ordinary open market is either by conventional publicly funded housing or by a government-funded or guaranteed scheme to make housing loans available to these “subprime” borrowers.

I would argue that building very small houses might be the answer, and concentrate on the use of economical materials (neither of which happened in this case, maybe someone would like a crack at explaining why).

I’m sure they were “Third Way” exponents like Clinton, Blair, Keating etc, because it’s a political philosophy that aspires to calculatedly achieving social ends through capitalist market means. I don’t regard this as “left” in any meaningful sense, just as I don’t see myself as “left” in any meaningful sense (the above description simplistically describes my own orientation as well, but I prefer to self-label as a slightly wet classical liberal).

If you look at early American libertarian theory, they did see the free market as achieving social ends, or at very least not stuffing up any worse than existing systems (and the monarchs and churches of Europe had consistently demonstrated that centralised power reliably leaves the poor stacked in filthy slums while slurping the wealth into itself to produce massive palaces and cathedrals). They also saw liberty as a social end in itself, how much freedom should you be willing to sacrifice for comfort? The trouble with the “Third Way” was that the leaders decided that they were going to instruct the free market as to what they decided was an appropriate social end (different fishkettle).

As I’ve said elsewhere, I do believe in libertarian principles, I also believe that the government should provide some basic safety-net provisions at the very bottom end of the market. Also, direct non-monetary charity is the most efficient for government to provide — if they think the poor should have houses, then build houses, not complicated financial schemes. But never forget the bigger picture — government houses built for the poor, should be houses fit for the poor, and give the free market plenty of scope working on bigger and better houses for those who are not poor.

I don’t know what fraud has contributed, at this stage, either - do you have any specific examples?

As for the extent to which “deregulation” was to blame, I think I’ve already posted quite enough articles backing that position up. And given governments from virtually every nation involved in the crisis have agreed to strengthen regulation in response, by your logic, they are all living in “complete denial of reality”.

And banking regulation is incredibly complex and volumnious in general.

It is appropriate to speak of regulatory arbitrage, since that indeed was the root of the problem. It is doubtlessly also appropriate to speak of poor regulation or of regulatory failure. But to blame deregulation is to give free rein to ideological fantasies in complete denial of any reality. It is like the socialists on uni (I am back this week, and the little A4 posters haven’t changed!), forever announcing: ‘How socialism can solve [insert last week's event here]?’ and ’system in crisis, is capitalism to blame and is there a socialist way out?’.

This meme has been pretty thougrally debunked. There is a general explanation here http://www.mcclatchydc.com/251/story/53802.html

Short version:

1. CRA is 30 years old and does not affect prudential standards, it’s just a scoring system that looks at whether lenders are using credit standards to judge borrowers or prejudicial criteria such as “they live in a black neighbourhood”

2. CRA applies only to deposit takers (banks and thrifts) as deposits are only guaranteed by the FDIC if the institution complies with CRA - bad CRA score, no deposit guarantee. That’s how it works.

3. The lenders who wrote the vast majority of sub-prime (brokers etc such as CountryWide) did *not* take deposits. Therefore they not only didn’t give two hoots about CRA, there was no reason for them to bother at all as they weren’t required to

4. The default rate for CRA compliant lenders is *lower* than for the non-CRA variety (eg CountryWide et al). So whatever caused the widespread increase in mortgage default it wasn’t lending to the feckless and undeserving urban poor (aka ‘blacks’)

5. Freddie and Fannie only got into subprime in mid 2007 as a result of an attempt to rescue the market *after* the catastrophe was well underway, and didn’t have a significant share of it.

6. The failure of lenders (guarantors really) like Freddie and Fannie had a lot more to do with complex derivatives (and apparently more than a little fraud) than sub-prime lending

The whole story is bogus.

Taking up Rog’s point, one of the reasons why non-white households were not well placed re home ownership and the capacity to support loans can be traced to the ground that was lost, especially the gutting of the negro family, by the Great Society programs of the 1970s. See Charles Murray “Losing Ground”.

If you can stand the slow pace (and the slow download on some machines) this audio gives some history, plus an insiders view (seven years in the Fed followed by working in Freddie May through the ’90s) and a thumbnail on the roots of the problem in “leverage” and “derivatives” plus a sympathetic take on the bailout.

Not sure if I’ve posted this link previously, but it gives a good overview of the various pressures Fannie Mae faced:

http://www.nytimes.com/2008/10/05/business/05fannie.html?em=&pagewanted=all

I think South Australia used to have a type of Right to Buy scheme and initially the $ earnt went back into rental housing to keep up the stock. But at some stage they stoped using teh $ to build public housing and the stock decreased.

Actually I understand that in 2005 or 2006 a Senate Committee drafted a bill that would have made resulted in public reporting of the degree of exposure to sub-prime lloans on the part of Fannie and Freddy. However the Democrats on the committee stood in the way and the bill did not get to the house.

Extracts from the piece:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Maybe the subprime label stuck before further analysis identified the high failure rate of other loans when the market ceased to escalate and the speculator bailed out.

Ken, in view of the manifest role of government failure in this episode I don’t know why you find my position so far out. The failure took two forms, one being the pressure to lending bodies to take insane risks (as someone noted, not real mortgages at all) and the second form of failure was the expectation created by the Savings and Loans bailout in the 1980s that the cowboys in the industry could do what they liked and the taxpayers would end up footing the bill.

I hope as a result of this learning experience that you will be more suspicious of government interventions in future, however worthy and well-meaning they appear to be:)

The second bulwark against deflation in the United States, and the one that will be the focus of my remarks today, is the Federal Reserve System itself. The Congress has given the Fed the responsibility of preserving price stability (among other objectives), which most definitely implies avoiding deflation as well as inflation. I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief.

…What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

I’m sure they were “Third Way” exponents like Clinton, Blair, Keating etc, because it’s a political philosophy that aspires to calculatedly achieving social ends through capitalist market means. I don’t regard this as “left” in any meaningful sense, just as I don’t see myself as “left” in any meaningful sense (the above description simplistically describes my own orientation as well, but I prefer to self-label as a slightly wet classical liberal). No-one that I would label as “left” would embrace any such idea as sub-prime mortgage markets substituting for public housing. However, if I’d dreamed up some idea like inducing the market to construct a scheme to fund borrowers who the market until then wouldn’t advance money to at any price (for very good reasons), I would hope I would have been a little more discriminating and less credulous about the scheme the market then developed.