It is a rare thing indeed to criticize Paul Krugman for being overly optimistic, but his contention in a blog post today that the ongoing implosion in the commercial real estate sector once and for all refutes the argument that all our economic ills can be blamed on Fannie and Freddie and the Community Reinvestment Act, is too hopeful.
One of the enduring myths of the financial crisis has been the claim that it was the result of (a) Fannie and Freddie (b) the Community Reinvestment Act, which forced poor, helpless bankers to make loans to you-know-who. It's a myth that won't go away -- I get asked about it almost every time I give a public lecture -- even though it has been extensively debunked. (See, e.g., here.)
But reading this scary piece about commercial real estate, I realized that CRE offers yet another debunking. After all, there was no federal act driving banks to lend money for office parks and shopping malls; Fannie and Freddie weren't in the CRE loan business; yet 55 percent -- 55 percent! -- of commercial mortgages that will come due before 2014 are underwater.
The lenders didn't need government urging to dive deep into a property bubble, and drown.
In his haste to pile debunking upon debunking, I think Krugman is missing a crucial link in the right-wing logic chain. I can hear the conservative bloggers typing madly away at their keyboards even as I write these words. The downfall of the commercial real estate sector, they will argue, is a consequence of the financial crisis, which was caused by the subprime mortgage meltdown, which itself was, you guessed it, an inevitable result of the passage of the Community Reinvestment Act in 1977. There's no winning this argument. The best you can do, as with the birthers and 9/11 Truthers, is mock mercilessly, and then move on.