You’re going to hear it all week out of Charlotte. The Democrats know that the economy is horrible, and there’s no way they can plausibly claim otherwise. So they’re going to spend three days telling us – in stump speeches and in media interviews – that you can’t blame Barack Obama because he inherited the whole mess.

We know this routine all too well by now: It’s all Bush’s fault.

Except that it’s not, and it never was. One of the worst things about the mortgage market meltdown of 2008 is that so few people understood what really happened. Because it was complicated and hard to understand, people with ideological axes to grind tended to gravitate to whatever suited their preconceived point of view.

For Democrats, it was a poorly regulated Wall Street and fat cat bankers run wild. This was the easiest narrative to sell in 2008, when the public was tired of the Bush administration and the media were only too happy to push the notion that Republicans had spent eight years letting free-market capitalism run wild at the expense of the little guy. So when Obama vowed to “crack down on Wall Street,” much of the public cheered him on.

Now that four years of Obama have not made things better, it only makes sense to ask: If his prescriptions did not solve the problem, did he correctly diagnose the problem in the first place? And the answer is no. He didn’t.

It’s also true, in fairness, that the government-caused-the-whole-thing explanation doesn’t wash, either. It took a lot of cooks to make this horrible broth. But people who say banks were over-leveraged because of lax federal regulation are wrong. Banks had too much riding on toxic assets that would never have existed in the first place if government were not pushing so hard to make homeowners out of people who should not have been.

This was a bipartisan priority. The Clinton administration passed the Community Reinvestment Act to make it easier for people with poor credit to qualify for mortgage loans. The Bush administration – if you want to blame Bush for something – pushed hard on the idea that home ownership would turn directionless people into responsible citizens.

This helped lead to a boom in the housing market. Demand soared. Prices skyrocketed. And that caused a flood of capital into the market, as lenders searched high and low for buyers to lend money to. Why were they so eager to lend to anyone and everyone? Because the federal government eliminated much of the risk through Fannie Mae and Freddie Mac, which would buy up bundled mortgages as soon as the ink was dry on the closing papers.

Simply put, the more you could lend, the more quick money you could make – and that gave rise to the subprime mortgage industry, which would approve people with terrible credit and no money for a down payment. The interest rates on these loans were obscene, but it wasn’t hard to get people without good credit history to make a bad decision and sign off on the mortgages. To them, it was like Christmas. They’d never been able to qualify for anything before, and suddenly they had a house.

It got worse. As the assessed value of homes soared, lenders offered home equity loans against the theoretical value of people’s homes. Someone who bought a house in 1999 for $150,000 using a traditional mortgage was getting a phone call in 2005 from Super Slick Loans and being told their house was now worth $200,000 – and, oh by the way, would they like a $50,000 home equity loan? So lots of people took on more debt, all against the theoretical value of their homes. Once the housing market tanked, and their home values returned to their real, pre-bubble value, they were stuck with the debt and under water on their mortgages.

With all these bad loans on the books, the financial system neared a breaking point and was on the verge of collapse when the Bush administration stepped in with $700 billion in the form of the Trouble Asset Relief Program to shore up the system. Everyone hated it, but Bush had to choose between the bailout and letting the nation’s financial system collapse.

And yet, even with TARP, massive damage was unavoidable and the nation’s economy went into a nosedive, with negative growth of more than 6 percent in the fourth quarter of 2008. It was a complete economic disaster.

Many dumb practices and policies led to this, but few were as egregious as the role of Fannie Mae and Freddie Mac. The Bush administration saw this coming in 2003 and pushed to reform Fannie’s and Freddie’s practices, but they were stymied in Congress – primarily by Democrats Christopher Dodd in the Senate and Barney Frank in the House, who both insisted there was nothing wrong with what Fannie and Freddie were doing.

Did deregulation of financial institutions cause this? No. The idea that Republicans under Bush deregulated like mad is pure fiction. I wish it were the truth! We would all have been a lot better off. The mortgage market collapsed because it was built on a house of cards to begin with, and that house of cards exploited a lot of poor people by encouraging them to take on debt they were not prepared to handle. A lot of them spent thousands on mortgage payments, only to lose their homes in the end because they could not afford their obligations. They ended up with no equity whatsoever. These folks would have been better off living in apartments and paying rent that fit within their budgets.

Perhaps the cruelest irony of all is that the federal government responded to this with an act that tightened the screws on banks – introducing all kinds of new requirements and regulations that did nothing to make things better. And what was this new act called? Dodd-Frank. That’s right. The two Democrats who prevented the reform of Fannie and Freddie back in 2003 got to write the big new law that has predictably made things worse, and even got to put their names on it.

Welcome to Washington.

Unsurprisingly, the Obama administration’s policies have not made things better – in part because Obama has doubled down on the dumb idea of prosperity through debt. Not only has he exploded the federal government’s debt, he continues pushing banks to lend lavishly, encourages students to take on massive education loans (student loan debt is quickly approaching $1 trillion; there’s your next big financial crisis) and pushes the Federal Reserve to keep interest rates artificially low so credit will be easy.

And for people facing foreclosure on homes they never should have purchased in the first place, Obama pressures banks to keep them in the homes. What do you think that’s going to do? It’s going to keep these folks under financial strain while saddling the banks with more high-risk loans – the very thing that led the mortgage market to collapse in 2008. The people would be better off finding more affordable accommodations. The banks would be better off cutting their losses and reselling the homes at realistic prices to more stable buyers. But none of this will happen because Obama refuses to let the market work as it should.

This is what really happened. The blame Bush narrative we are sure to hear in Charlotte is a predictable attempt to mask the real reasons for the meltdown, and to hide the reality of Obama’s failures in dealing with the problem. He has made things worse – not better – because he never understood what happened in the first place and still doesn’t.

Too much capitalism was not the problem. Too little economic rationality was the problem, and that has only gotten worse under the most economically irrational president this nation has ever had.


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