Alex,

Probably worth a post debunking the mythical but burgeoning right wing meme about the financial crisis, eg this-

Democrat fingerprints are all over the financial crisis

http://www.independent.co.uk/opinion/commentators/dominic-lawson/dominic-lawson-democrat-fingerprints-are-all-over-the-financial-crisis-949653.html

and this-

How the Democrats Created the Financial Crisis http://www.bloomberg.com/apps/news?pid=20601039&sid=aSKSoiNbnQY0&refer=columnist_hassett

And, of course, as also indicated by Bill O'Reilly's 'it's a bipartisan problem' attack of Barney Frank. Progressive minded economists need to start taking this thing down to Chinatown, because the narrative is proliferating throughout the right Drudge, blog and RCPosphere (to say nothing of chain mails with links to snazzy You Tube propaganda videos, such as one I've already received), and we know how these things work. How long before we end up seeing it featured in the MSM and finally cemented in the eternally beguling mainstream CW?

As regards subprime of these propagandists arguments- in most cases according to these people, the be all and end all of the crisis is subprime, with a dash of Fannie and Freddie, and extra points for tying yourself in a prezel connecting them- this doc is particularly effective as push back to their talking points: http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf

It is a paper written by the St. Louis Federal Reserve Bank before the crisis Notably, the words, "Community Reinvestment Act", do not make an appearance. Neither does the supposedly central role, according to Bloomberg/AEI hack Hassett, of Fannie Mae and Freddie Mac in subprime. The Fed rather says:

Many factors have contributed to the growth of subprime lending. Most fundamentally, it became legal. The ability to charge high rates and fees to borrowers was not possible until the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) was adopted in 1980. It preempted state interest rate caps. The Alternative Mortgage Transaction Parity Act (AMTPA) in 1982 permitted the use of variable interest rates and balloon payments.

These laws opened the door for the development of a subprime market, but subprime lending would not become a viable large-scale lending alternative until the Tax Reform Act of 1986 (TRA). The TRA increased the demand for mortgage debt because it prohibited the deduction of interest on consumer loans, yet allowed interest deductions on mortgages for a primary residence as well as one additional home. This made even high-cost mortgage debt cheaper than consumer debt for many homeowners. In environments of low and declining interest rates, such as the late 1990s and early 2000s, cash-out refinancing becomes a popular mechanism for homeowners to access the value of their homes. In fact, slightly over one-half of subprime loan originations have been for cash-out refinancing.

In addition to changes in the law, market changes also contributed to the growth and maturation of subprime loans. In 1994, for example, interest rates increased and the volume of originations in the prime market dropped. Mortgage brokers and mortgage companies responded by looking to the subprime market to maintain volume. The growth through the mid-1990s was funded by issuing mortgage-backed securities (MBS, which are sometimes also referred to as private label or as asset-backed securities [ABS]). In addition, subprime loans were originated mostly by nondepository and monoline finance companies.

In other words, it was 80s era banking deregulation and the profit seeking activities of private entities that led directly to the binge in subprime that has played a key role in this crisis (though the abuses were far greater than subprime). Pay particular heed to the last bolded text- this is directly analogous to what happened in 2005 + 2006- the yield curve went flat which caused financial institutions to increase risk on the balance sheet to improve profit margins. Alas, as with other lending abuses in prime and Alt-A residential mortgages, home equity lines, commercial mortgages, auto loans, etc. subprime was not a function of regulations or government sponsored enterprises. It was a pure manifestation of Wall Street excess acquiesced in by a securities industry friendly Bush SEC, (and other of the regulatory bodies in its charge, eg the OCC), and Bush influenced Fed, (they picked Bernanke because they wanted Greenspan and his vaunted Put).

These imbeciles refused to consider regulating some of the excesses of risk intermediation, (credit derivatives, securitization and other 'regulatory arbitrage'), or worse, refused to regulate or punish the credit rating agencies, whose criminal negligence was at the very heart of this crisis, even after it became manifestly obvious after the Enron, Worldcom, etc. debacle, that these organizations were incapable of policing themselves. Moreover, Bush's Treasury and Council of Economic Advisors straight out of the National Review and Heritage Foundation refused to ponder the potentially destabilizing effects of $800 billion dollar current account deficits and attendant official reserve growth and consumer indebtedness. Basically, lack of curiosity and skepticism amongst the Bush administration and Republicans more broadly, as owing to their blind ideology, led us here.

Now that's not a surprise to those in the know, or the astute, or even to those who have noted that the name of the party in power for the last 8 years does not start with a D, but it may come to be if we continue to let the politically motivated myths about this crisis percolate.