Sunday, October 12, 2008

The St. Petersburg Times offers its take on the subprime mortgage crisis

I've had a number of opportunities to bat around Robert Farley and Angie Drobnic Holan based on their work for the PolitiFact project, but the duo produced a surprisingly even-handed account of the subprime mortgage crisis ("What caused economic crisis? No one thing"). An excerpt:

Here's the McCain version: "One of the real catalysts, really the match that lit this fire, was Fannie Mae and Freddie Mac. I'll bet you, you may never even have heard of them before this crisis. But you know, they're the ones that, with the encouragement of Sen. Obama and his cronies and his friends in Washington, that went out and made all these risky loans, gave them to people that could never afford to pay back."

Obama's side: "Let's, first of all, understand that the biggest problem in this whole process was the deregulation of the financial system. Sen. McCain, as recently as March, bragged about the fact that he is a deregulator."

In reality, the crisis was caused by a "perfect storm" of economic factors with lots of blame to go around, both in the private sector and government quarters.

The story acknowledges the role of the federal government in growing the housing bubble by encouraging risky loans. It also acknowledges Sen. McCain's past efforts to reign in Fannie Mae and Freddie Mac, though at the same time suggesting that the legislation McCain backed would not have ultimately addressed the present problem. Importantly, Sen. Obama's claim that the problem was caused by deregulation is punctured.

On the downside, the authors claim--without any substantiation--banks were in favor of making high risk loans.

Elected officials encouraged the relaxation of mortgage standards, motivated by the noble goal of trying to get all Americans into homes — even low- and moderate-income people with poor credit histories. The effort increased the number of home buyers, goosing housing demand.

But investment banks loved what the government was doing and encouraged it. Worldwide savings were soaring, and international investors were hungry for a safe place to park their money.

But that claim fails to acknowledge the concentrated effort by the Clinton administration to encourage high-risk loans. Housing and Urban Development Secretary Andrew Cuomo demonstrated that lenders would be aggressively penalized for not participating adequately in risky loans. The following YouTube video contains sufficient proof of that, even discounting the sometimes heavy-handed editorial commentary.

Perhaps the Times did not have enough room for that kind of detail.

But for the Times, I consider this piece overall a sturdy attempt at good journalism. I fully expected worse from these two writers. If I'm willing to pan their work at least I'm willing to offer credit where it's due. I would recommend this story with relatively minor caveats.

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