New Narration

Given our continuing economic troubles, it's no surprise that the "New Narrative" (that the crisis was caused by stupid minority homeowners and Democratic-allied Fannie and Freddie) is sticking around a bit longer than the other desperate Republican talking-points-of-the-week. Which is why I have an opportunity to laugh at Byron York of the National Review as he gets completely exposed by freelance writer Matt Taibbi:

B.Y.: [O]n the financial meltdown in particular, if you're suggesting that that is a Republican creation, or even more specifically a McCain creation, I think you're on pretty shaky ground.

M.T.: You don't think the unregulated CDS market was a major factor in the current crisis? Were you watching when AIG almost went under? Were you watching the Lehman collapse?

B.Y.: I think that Fannie Mae and Freddie Mac were also major factors. And I believe that many of the problems in the mortgage area can be attributed to the confluence of Democratic and Republican priorities: the Democrats' desire to give mortgages to people, particularly minorities, who could not afford them, and the Republicans' desire to achieve an "ownership society," in part by giving mortgages to people who could not afford them. Again, I believe that if you are suggesting that the financial crisis is a Republican creation, or even more specifically a McCain creation, I think you're on pretty shaky ground.

M.T.: Oh, come on. Tell me you're not ashamed to put this gigantic international financial Krakatoa at the feet of a bunch of poor black people who missed their mortgage payments. The CDS market, this market for credit default swaps that was created in 2000 by Phil Gramm's Commodities Future Modernization Act, this is now a $62 trillion market, up from $900 billion in 2000. That's like five times the size of the holdings in the NYSE. And it's all speculation by Wall Street traders. It's a classic bubble/Ponzi scheme. The effort of people like you to pin this whole thing on minorities, when in fact this whole thing has been caused by greedy traders dealing in unregulated markets, is despicable.

B.Y.: I was struck by the recent Senate testimony of James Lockhart, who is head of the Federal Housing Finance Agency, about the sheer recklessness of Fannie in recent years. Despite "repeated warnings about credit risk," Lockhart testified, Fannie became more reckless in 2006 and 2007 than they had been in the scandal-ridden tenure of Franklin Raines (who departed in 2004). In 2005, Lockhart said, 14 percent of Fannie's new business was in risky loans. In the first half of 2007, it was 33 percent. So something terribly wrong was going on there, and it became a significant part of the present problem.

M.T.: What a surprise that you mention Franklin Raines. Do you even know how a CDS works? Can you explain your conception of how these derivatives work? Because I get the feeling you don't understand. Or do you actually think that it was a few tiny homeowner defaults that sank gigantic companies like AIG and Lehman and Bear Stearns? Explain to me how these default swaps work, I'm interested to hear.

Because what we're talking about here is the difference between one homeowner defaulting and forty, four hundred, four thousand traders betting back and forth on the viability of his loan. Which do you think has a bigger effect on the economy?

B.Y.: Are you suggesting that critics of Fannie and Freddie are talking about the default of a single homeowner?

M.T.: No. That is what you call a figure of speech. I'm saying that you're talking about individual homeowners defaulting. But these massive companies aren't going under because of individual homeowner defaults. They're going under because of the myriad derivatives trades that go on in connection with each piece of debt, whether it be a homeowner loan or a corporate bond. I'm still waiting to hear what your idea is of how these trades work. I'm guessing you've never even heard of them.

I mean really. You honestly think a company like AIG tanks because a bunch of minorities couldn't pay off their mortgages?

B.Y.: When you refer to "Phil Gramm's Commodities Future Modernization Act," are you referring to S.3283, co-sponsored by Gramm, along with Senators Tom Harkin and Tim Johnson?

M.T.: In point of fact I'm talking about the 262-page amendment Gramm tacked on to that bill that deregulated the trade of credit default swaps.

Tick tick tick. Hilarious sitting here while you frantically search the Internet to learn about the cause of the financial crisis — in the middle of a live chat interview.

B.Y.: Look, you can keep trying to make this a specifically partisan and specifically Gramm-McCain thing, but it simply isn't. We've gone on for fifteen minutes longer than scheduled, and that's enough. Thanks.

Wow. Byron York, the conservative writer, obviously has utterly no idea what the #!$@ he's talking about. Which in and of itself is fine; very few people really understand all the issues of the financial crisis. But Byron York, in spite of not knowing what's going on, has gone ahead and blamed Fannie, Freddie, and minorities for the whole thing anyway.

How do you think Byron York reached his conclusion? He made a mental list of people and institutions who were in some way involved with the crisis, ordered the list from "people I like most" to "people I like least," and then blamed the whole thing on the people at the bottom of the list. Which is exactly how conservative writers, talk show hosts, and campaign officials - the whole conservative idea machine - came up with this New Narrative. People We Like; People We Don't Like. It must be the fault of the People We Don't Like. Duh.

Which all goes to show a fundamental problem with political ideologies: they turn into tribes in the end.