The recriminations and scapegoating that follow the bursting of an asset bubble are as much a part of the process as the wild price increases before the bubbles pop. Now that the housing and mortgage markets have cratered, the fingerpointing has intensified to the point where even the FBI is getting blamed. This is as silly as blaming the SEC for the 2000 market bust.
The main charge against the FBI? The agency knew what was coming and failed to prevent it. (LA Times):
“It has the potential to be an epidemic,” Chris Swecker, the FBI official in charge of criminal investigations, told reporters in September 2004 [referring to mortgage fraud.] But, he added reassuringly, the FBI was on the case. “We think we can prevent a problem that could have as much impact as the S&L crisis,” he said.
The FBI, of course, didn’t prevent anything, in part because so many agents were put to work on anti-terrorism efforts. The agency is playing catch-up now, after the horse has been stolen, which is always the way it works (recall the beefing up of the SEC after the stock market crashed in 2000).
But the FBI didn’t cause–or even fail to prevent–the housing bubble, any more than the SEC caused the 1990s stock-market boom. There was fraud around the edges, of course, as there always is (easy pickings when everyone has persuaded themselves that prices can only go up), but everyone who participated in the boom bears some responsibility for the bust:
- mortgage lenders who made dumb-arse loans
- homeowners who took out loans they couldn’t afford
- mortgage brokers who steered clients into loans they couldn’t afford
- mortgage securitizers and buyers who didn’t know what they were buying and selling,
Everywhere you point the finger, you’ll find folks who could have done their jobs differently–and likely would have, with the benefit of hindsight. But bearing some responsibility is different than than “causing” or “failing to prevent” an economic pattern that has happened since the dawn of time. So the sooner the finger-pointing stops, the better.
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