28th April 2010
Here is what really happened: there was a bubble in housing prices. The bubble was mostly the result of government policy–loose money, combined with pressure on banks to make bad loans to unqualified home buyers. It all worked for a while because Fannie Mae and Freddy Mac, under the leadership of Congressman Barney Frank and others, created a secondary market for shaky mortgages. Goldman Sachs participated in this market, downstream, along with many other players. But the whole thing wasn’t an accident or a conspiracy, it was government policy. The home price bubble could have only one possible result. All bubbles burst–there is nothing else they can do–and the bursting of a bubble is always painful. The whole disaster that began in 2008 was the inevitable result of government policy, which is why Senators are so anxious to pass the buck to Goldman Sachs.
I’m not a particular fan of either Goldman Sachs or Congress, but today’s hearing confirms that, given a choice, I’d rather have Goldman Sachs regulating Congress than Congress regulating Goldman Sachs. Goldman’s employees are much smarter, considerably more honest, and far more likely to have my interests at heart.