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Did the Bankers Do It?

NEW DELHI – Few areas of economic activity in the United States are more politicized than housing finance. Yet the intellectual left has gone to great lengths to absolve regulators, government lending mandates, and agencies like Fannie Mae and Freddie Mac of any responsibility for the housing boom and the subsequent bust.

The rationale is clear: if these officials, institutions, and policies were held accountable, the reform agenda would necessarily shift from regulating greedy bankers and their bonuses to asking broader questions. Might government mandates contribute to bad behavior by private players? Can regulators be trusted to make appropriate trade-offs between financial stability and mandates that have wide political support? Indeed, can central bankers be truly independent? Unquestioning acceptance of a greater government role in taming markets would, in short, give way to asking whether that role can sometimes be part of the problem.