There are two competing narratives to explain the housing bubble that led to the financial crisis that in turn brought us the Great Recession. In one version, the culprit was a lack of regulatory oversight that allowed reckless and sometimes illegal conduct on the part of lenders. In the other, the cause is precisely the opposite: too much government involvement, mainly through the enterprises known as Fannie Mae and Freddie Mac, encouraged the excesses that led to calamity.
In the aftermath policymakers from both camps have had the chance to address what they see as underlying causes. We now have a far more rigorous regulatory environment. Underwriting scrutiny, which virtually disappeared during the bubble, has returned with a vengeance. Meanwhile, Fannie and Freddie, both bankrupt, are essentially under house arrest. In previous housing slumps we would have seen an onslaught of new initiatives from them to encourage a recovery.
But this situation is far from a bipartisan success. The result is a severely crippled housing finance system that not only impedes our recovery, but also exacerbates disparities in the distribution of wealth in this country. Factors such as globalization and tax policy may have helped the one percent get ahead, but it should be remembered that the collapse of housing prices hurt the value of the most valuable asset owned by many households in the 99 percent.
In some parts of the Bay Area, housing prices are the lowest in a decade. But taking advantage of this opportunity to encourage home ownership, particularly for low and moderate income families who could actually afford to buy a home now, requires something next to impossible. All of us have to reevaluate our positions on the people and institutions we hold responsible for the debacle from which we are still recovering. Banks need more flexibility and our housing market, built to a large degree on decades of indirect and direct subsidy, needs continued government involvement. But sadly it is more satisfying to say "I told you so," then it is to relent and adopt polices that are practical, rather than ideological.
With a Perspective, this is Paul Staley.