Who is to Blame?

Over at TPM Cafe there is a great write-up over by Dean Baker what is going on in the housing bubble and who is to blame. The article is called The Recession: It's the Housing Bubble, Not the War. He writes -

The collapse of the housing bubble is a momentous event. We are seeing $8 trillion in housing wealth vanish before our eyes. This is the reason that Ben Bernanke and the folks at the Fed are running around like chickens with their heads cut off screaming about credit crunches. Falling house prices have led to massive amounts of bad debts, which in turn are forcing Merill Lynch, Citigroup and other major financial institutions to write off hundreds of billions in losses.

The collapse of the bubble has lead to a huge contraction of the housing market with sales down 40 percent from their bubble peaks and housing starts down by more than 50 percent. More importantly, homeowners are being forced to cut back their consumption as they realize that they have much less equity in their homes than they thought, and many no longer have any equity in their home to borrow against. The collapse of the housing market coupled with the downturn in consumption are the factors that are pushing the economy into what is likely to be the worst recession since World War II.

...The villains in this story are the economists who somehow couldn't see an $8 trillion housing bubble, the banks that fueled the bubble with bad and often predatory loans, the regulatory institutions that did nothing to prevent the growth of the bubble and the spread of predatory loans, and most of all, Alan Greenspan and the Fed who blessed the whole thing.

We have to hold these folks responsible for their bubble economics. The best place to start would be to remove them from positions where they are still making economic policy.

A great analysis and synopsis of the cause of the mess. It is nice to see someone laying the blame without focusing on the people who received the liar loans. The people giving the loans called them liar loans and encouraged people to take them.