Tyler Cowen writes,

Wherever there are problems, people look for villains. The subprime mortgage crisis is a case in point.

…But financial markets rarely fit into simple moral narratives, and much as these stories may comfort many of us, they are not a good guide to understanding financial policy.

I think he is correct to question the narrative that says that the lenders are villains. He might go on to question the narrative that says that the borrowers are victims. I am sure there is a grain of truth in both narratives, but people are disposed to give victim-villain stories more credence than they deserve. I wrote about this in The Moses Complex.

If you want to write popular fiction, you need to include a diabolical villain. Having an innocent victim helps, too.

The job of the economist is often to dissipate this sort of dramatic tension. Sometimes, there are positive-sum games, with neither villains nor victims. Often, adverse outcomes result from incentives embedded in complex systems, so that blaming a villain is nothing but an attribution error.

In attempting to do his job, Cowen is fighting against a sort of Gresham’s Law. Bad (in the sense of innacurate) stories of villains and victims tend to drive out good (accurate) economic analysis.