During the late and now unlamented campaign of Mitt Romney, the candidate was urged by other Republicans to affect a “separation” from the policies of George W. Bush. They were said by Democrats to have brought on the financial crisis and the “mess” inherited by Barack Obama, which he has been unable thus far to clean up.
They might have done better had they moved years earlier to detach the Bush policies from the cause of the meltdown, since there was little relation between the two. The crash of late 2008 was caused not by Republican dogma, but by efforts going back many years on the part of both parties to facilitate homeownership on behalf of poor people. It seemed like the right thing to do. It pleased both liberals, who wanted to help the downtrodden, and conservatives, who took to heart the old Jack Kemp adage that rental cars rarely get washed.
In 1995, President Clinton launched his “National Homeownership Strategy” (Bush continued it as part of his “ownership society”), designed to increase mortgage lending to low-income Americans by requiring bankers to make loans to people with poor or nonexistent credit ratings. This drew in people who were unable to pay off their debts, and speculators, who were betting housing prices would keep rising forever. In retrospect, we can see it was bound to implode, and it did.
Clinton and Bush were both smart politicians, but there was one thing that both men got wrong. As Glenn Reynolds explained, they tried to expand the middle class by subsidizing things owned by middle-class people — like college educations and homes — assuming that middle-class status would come along with them. But in fact, homeownership was a result of middle-class values — of being willing and able to save, and to defer gratification — and not the cause of them. Instead of expanding the middle class, dodgy home loans for people with no past record of saving merely led to unfunded investments and debt. And to speculation. “All of us participated in the destructive behavior — government, lenders, borrowers, the media, rating agencies,” said Warren Buffett. “At the core of the folly was the almost universal belief that the value of houses was bound to increase.”