Unicornomics - Thomas Frank gets it, Andrew Sullivan does not.

Thomas Frank, for the Wall Street Journal no less...

I asked Bill Black, a professor of economics and law at the University of Missouri-Kansas City and an authority on the Savings and Loan debacle of the 1980s, what he thought of the latest blame offensive. He pointed out that, for all their failings, Fannie and Freddie didn't originate any of the bad loans -- that disastrous piece of work was done by purely private, largely unregulated companies, which did it for the usual bubble-logic reason: to make a quick buck.

Most of the mistakes for which we are paying now, Mr. Black told me, were actually made "by four entities that under conservative economic theory should have exercised effective market discipline -- the appraisers, the originators of the mortgages, the rating agencies, and the investment banking firms that packaged the subprime mortgage-backed securities." Instead of "disciplining" the markets, these private actors "served as the four horsemen of the financial apocalypse, aiding the accounting fraud and inflating the housing bubble." It is they, Mr. Black says, who "turned a crisis into a catastrophe."

...

There is no way to measure the number of people who took out mortgages they knew they couldn’t afford, of course, but for what it’s worth, a 2007 report by the Mortgage Bankers Association reports that the FBI estimates “80 percent of all reported fraud losses arise from fraud for profit schemes that involve industry insiders.” That means the lenders, not the borrowers.

Just imagine the flights of fancy that the theory of borrower malevolence and Wall Street victimization requires conservatives to take: All these no-account folks, you see, got together and forced investment banks to engineer subprime mortgages into highly leveraged securities. Then they tricked all manner of hedge funds and pension funds and financial institutions into buying these lousy products. Just for good measure, these struggling homeowners then persuaded bond-rating agencies to misrepresent the risk associated with these securities.

Indeedy. And now, our patient, Andrew Sullivan, taking one of those flights of fancy, except it's really more a noisy tumble down a flight of stairs.

Andrew Sullivan

Finally, George Will puts in a column what I said on Bill Maher. Much if this crisis stems from rank greed and irresponsibility from ordinary Americans on a massive scale, who bought homes they couldn't afford on credit they couldn't repay, or who leveraged their property with loans they had no reason to take out. If this crisis hits Main Street hard, it will also hit a great number of people who also deserve their comeuppance. We need a fix to solve the credit problem. I understand that. But a little delay is important and salutary. And the real, long term fix requires weaning Americans off credit - and giving enough of them a taste of what their greed and recklessness can do.

Gracious me!

Does Sullivan realize the above is actually an indictment of a raft of sacrosanct conservative principles dating back 25 years? Hell, it's an indictment of modern consumer societies. What's more, he misses the actual culprit: Soullessness. That is is surprising given his "expertise" on the subject: The Conservative Soul: How We Lost It, How to Get It Back by Andrew Sullivan.

The last 30+ years of American growth have been predicated on revolving credit, medium-term loans for autos and durables and, yeah, the boutique products of Unicornomics like credit-swaps and various derivatives-based cleverness. AKA: you CAN have it now! That greed is the culprit goes without saying. What Sullivan and others just can't get their heads around is that we keep seeing this movie over and over. It always ends badly, predictably, and Andrew wants us to believe it's the audience's fault the movie got made because, well, because they bought tickets to the spectacle.

Later today, we'll take a look at things through the prism of William James and maybe through that of accidental behavioral economist, Otto Rank...

I mentioned the other today how ticked off I was to hear Republicans say that the Community Reinvestment Act was to blame. Well, I knew CRA. I worked with CRA. I marketed CRA alongside high wealth products, and Andrew, Rush, et al, this is no CRA probem.