In this week’s New Repub­lic, Joshua Rosner raises a good ques­tion vis-à-vis the mort­gage crisis: “Did so many people need to own homes in the first place?” He writes,

The dream of home own­er­ship has long been part of the Amer­i­can expe­ri­ence, but, as the fed­eral gov­ern­ment steps in to arti­fi­cially sup­port bor­row­ers and lenders with tax cred­its that encour­age more spend­ing or with public spend­ing that keeps over-​indebted bor­row­ers in unaf­ford­able homes, we ought to con­sider whether it’s time to wake up from that dream.

Indeed, we ought to con­sider what role the fed­eral gov­ern­ment has played in cre­at­ing this mess. By stim­u­lat­ing home own­er­ship while fail­ing to account for the rea­sons home own­er­ship is valu­able to soci­ety, Wash­ing­ton has simply sought to buy our votes with our own debt.

One thing Rosner doesn’t do in the arti­cle is to look at why the gov­ern­ment was so inter­ested in pro­mot­ing home own­er­ship. I have to believe that a large part of that answer has to do with Wall Street’s appetite for mort­gage debt. As Michael Lewis nar­rated in Liar’s Poker, the boom in mort­gage lend­ing in the 1980s was almost single-​handedly engi­neered by Salomon Brothers’ Lewis Ranieri, but it prob­a­bly never would have taken off were it not for a tax break that Con­gress passed on Sept. 30, 1981, which sav­ings and loans could take advan­tage of only by sell­ing their mort­gages. As Lewis writes, “It amounted to a mas­sive sub­sidy to Wall Street from Con­gress. Long live moth­er­hood and home ownership!”

But there’s another, odder reason why cer­tain people in the gov­ern­ment might have been eager to pro­mote home own­er­ship. The key evi­dence for this comes from Alan Greenspan’s memoir, The Age of Turbulence:

I believed then, as now, that the ben­e­fits of broad­ened home own­er­ship are worth the risk. Pro­tec­tion of prop­erty rights, so crit­i­cal to a market econ­omy, requires a crit­i­cal mass of owners to sus­tain polit­i­cal support.

For a dis­cus­sion of just how bizarre this rea­son­ing is, see my analy­sis here.

Kudos to Paul Krug­man for rec­og­niz­ing how silly it was for Hillary Clin­ton to sug­gest bring­ing Alan Greenspan back to address the cur­rent crisis. After his column ear­lier this week I’d begun to wonder if he’d ever allow him­self a word against her. Appar­ently so:

OK, this is pretty dumb. Hillary Clin­ton wants a high-​level com­mis­sion to ana­lyze ways to resolve the mort­gage crisis — includ­ing Alan Greenspan.

Yes, I know people still listen when Greenspan speaks — and John McCain once joked about taking Greenspan’s advice even if he’s dead. But for those in the know, AG is a key vil­lain in the whole affair.

I mean, why not add Charles Prince, Stan­ley O’Neal, and Angelo Mozilo to the commission?

1/ From “Is the ‘Surge’ Work­ing? Some New Facts” by Michael Greenstone:

Data from world finan­cial mar­kets can be used to shed light on the cen­tral ques­tion of whether the Surge has increased or dimin­ished the prospect of today’s Iraq sur­viv­ing into the future…. After the Surge, there was a sharp decline in the price of [Iraqi state] bonds, rel­a­tive to alter­na­tive bonds. This decline sig­nals a 40% increase in the market’s expec­ta­tion that Iraq will default. This find­ing sug­gests that, to date, the Surge is fail­ing to pave the way toward a stable Iraq and may in fact be under­min­ing it.

2/ From “It’s the Oil” by Jim Holt in the London Review of Books:

The occu­pa­tion may seem hor­ri­bly botched on the face of it, but the Bush administration’s cav­a­lier atti­tude towards ‘nation-​building’ has all but ensured that Iraq will end up as an Amer­i­can pro­tec­torate for the next few decades—a nec­es­sary con­di­tion for the extrac­tion of its oil wealth. If the US had man­aged to create a strong, demo­c­ra­tic gov­ern­ment in an Iraq effec­tively secured by its own army and police force, and had then departed, what would have stopped that gov­ern­ment from taking con­trol of its own oil, like every other regime in the Middle East? On the assump­tion that the Bush-​Cheney strat­egy is oil-​centred, the tactics—dissolving the army, de-​Baathification, a final ‘surge’ that has has­tened inter­nal migration—could scarcely have been more effective.

(Photo: A Google Maps pho­to­graph of Balad Air Base, one of four per­ma­nent “superbases” the U.S. is build­ing in Iraq.)

(P.S. Holt’s arti­cle also includes this quo­ta­tion from Alan Greenspan’s new memoir The Age of Tur­bu­lence: “I am sad­dened that it is polit­i­cally incon­ve­nient to acknowl­edge what every­one knows: the Iraq war is largely about oil.”)

Conventional wisdom is quickly con­geal­ing around the idea that Alan Greenspan, pre­sid­ing genius of the dot-​conomy, is to blame for the sub­prime mort­gage mess. The argu­ment, artic­u­lated by Steve Forbes and others, goes like this: by low­er­ing short-​term inter­est rates to near-​zero in the early years of this decade, Greenspan encour­aged the spread of adjustable-​rate mort­gages (with low ini­tial “teaser” rates that rise after three, five, or seven years) and ill-​advised lend­ing practices.

In his new book The Age of Tur­bu­lence, Greenspan offers this defense against these critics:

I believed then, as now, that the ben­e­fits of broad­ened home own­er­ship are worth the risk. Pro­tec­tion of prop­erty rights, so crit­i­cal to a market econ­omy, requires a crit­i­cal mass of owners to sus­tain polit­i­cal support.

It’s hard to care much about the Forbes/Greenspan fight, but Greenspan’s response is intrigu­ing on its own.

What’s inter­est­ing is that Greenspan gives a polit­i­cal defense, not an eco­nomic one, for encour­ag­ing home own­er­ship.