No Lie — Credit Crisis Was Fault Of Gov't, Not Business

Subprime Scandal: The media elite are worried the false narrative they've crafted about Wall Street causing the crisis is starting to crumble. Instead of fessing up, they blame us.

'One group has been especially vocal about shaping a new narrative of the credit crisis and economic collapse," economic pundit Barry Ritholtz wrote in the Washington Post.

He condemned this rogue element for having the temerity to blame Washington. "These people are engaged in an active campaign to rewrite history," he complained. "They are winning."

Ritholtz throws IBD in that camp, citing on his blog our past editorials plus a recent front-page article documenting how banks came under siege by regulators to cut standards and lend more to boost minority homeownership in the crisis run-up.

Ritholtz calls this the "Big Lie." But it is Ritholtz who is intellectually dishonest. In trying to refute government's central role in the mess, he recites the same shopworn arguments about "unregulated financial instrument(s)" and "Wall Street bundling mortgages."

No analysis of the crisis would be complete without mentioning Fannie Mae and Freddie Mac, the toxic twins that by 2008 held or guaranteed almost half the bad mortgages in the system and drove demand for subprime securities. Ritholtz mentions neither.

He also avoids addressing what caused the sudden across-the-board decline in mortgage underwriting standards. Ritholtz makes it sound as if bankers all woke up one day and decided to abandon traditional underwriting rules and rubberstamp mortgages for anybody who could fog a mirror.

That's right. The Clinton administration actually wanted those standards to decline, because it wanted more poor and minorities to own homes.

Standards began to deteriorate substantially in the 1990s, when weakening lending rules became the official policy of the U.S. government. The collapse of those low-quality mortgages is what triggered the financial crisis. In 2006, they began to default. By 2008, the bubble exploded.

The historical record is clear that the government redirected credit toward risky political mortgages. And the government was the buyer or backer of most of the bad loans. The facts are indisputable, but much of the material has never been shown, thanks to a cover-up orchestrated by the White House, Congress and the media.

Ritholtz and other pundits exercising a pro-government, anti-Wall Street agenda would like to keep it that way. But it's getting harder for them to hold back the truth. Now they fret about the Big Shift in opinion, coming as it does during a critical election.