Chipping Away at the Narrative
By Arnold Kling
Russ Roberts has a long narrative of the financial crisis. One excerpt:
An unpleasant but unavoidable conclusion of this paper is that Wall Street was (and remains) a giant government-sanctioned Ponzi scheme. Homebuyers borrowed money from lenders who got their money from Fannie Mae, Freddie Mac, and banks that borrowed money from investors who expected to be reimbursed by the politicians who took that money from taxpayers. Almost everyone made money from this deal except the group left holding the bag–the taxpayers. There is an old saying in poker: If you don’t know who the sucker is at the table, it’s probably you. We are the suckers. And most of us didn’t even know we were sitting at the table.
Theories on the crisis tend to break Insider-Outsider more than they break left-right. One narrative of the right, that this was all due to pressure on banks to provide mortgages to minorities, never got much traction. The left is much more strongly united in its main narrative–that the problem was all private-sector greed turned loose by free-market ideology.
But there are Outsiders who do not fit into this narrative structure. Simon Johnson and James Kwak are examples. I am another. And Russ Roberts is another. The Outsider narratives all stress the symbiotic relationship between Big Finance and government.
The Insider-Left narrative is suspect because the policy response is so much at variance with the diagnosis.
The diagnosis is that financial innovation was harmful, and in my commentary hosted by the NYT web site, I conceded that point. Yet it is the Insider-Left that most wants to preserve securitization, while Roberts and I both argue for leaving its fate to the private market place, where we expect that it would die.
The diagnosis is that Wall Street greed ran amuck, yet it is the Insider-Left that defends the bailouts. Roberts and I wish that the bailouts had not taken place.
My conclusion is that the goal of the Insiders is to preserve the status quo as much as possible, and the “financial reform” is a thinly-disguised effort to accomplish that objective. The more radical reforms come from Outsiders, including Johnson and Kwak, and Roberts and myself.
Roberts tries to focus attention on what policy makers do, as opposed to what they say. What the Insiders have done in response to the financial crisis does not square with their narrative of how it took place.