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To Be Frank, Krugman’s History is Careless

Here’s a letter that I sent back in June to the New York Times:

Paul Krugman asserts that the housing-market meltdown was caused by Reagan-era deregulation. This policy change, Krugman argues, encouraged injudicious lending to people who should never have gotten mortgages (“Reagan Did It,” June 1).

Mr. Krugman is careless in doing history. Among the facts that he overlooks are the many steps, both before and after Reagan, taken by the White House and Congress to push mortgage lenders to extend home loans to low-income Americans. As recently as 2003, for example, Rep. Barney Frank – hardly a free-marketeer – opposed efforts to pressure Fannie Mae and Freddie Mac to stop buoying the market for subprime mortgages. Mr. Frank declared that critics of Fannie and Freddie “exaggerate a threat of safety and soundness” and “conjure up the possibility of serious financial losses to the Treasury, which I do not see…. The more pressure there is there, then the less I think we see in terms of affordable housing.”*

Donald J. Boudreaux

* See this YouTube video (The Frank quotation starts near the 1:38 mark.)