Lucky Duckies redux

Daniel Gross considers the Right Wing/WSJ Op=ed meme that somehow the "good intentions" of Carter, Clinton, and the Community Reinvestment Act are responsible for the economic meltdown and...crushes it like the nasty bug that it is.

On the other hand, lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Brothers, or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity. And, here, again, it's difficult to imagine how Jimmy Carter could be responsible for the supremely poor decision-making seen in the financial system. I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33:1, that instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients money, and that required its septuagenarian CEO to play bridgewhile his company ran into trouble. Perhaps Neil Cavuto knows which CRA clause required Lehman Brothers to borrow hundreds of billions of dollars in short-term debt in the capital markets and then buy tens of billions of dollars of commercial real estate at the top of the market. I can't find it. Did AIG plunge into the credit-default swaps business with abandon because ACORN members picketed its offices? Please. How about the hundreds of billions of dollars of leveraged loans—loans banks committed to private equity firms that wanted to conduct leveraged buyouts of retailers, restaurant companies, and industrial firms? Many of those are going bad now, too. Is that Bill Clinton's fault?

Look. There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb lending virus originated in Greenwich, Ct., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them—frequently using borrowed capital.