Because the Fed didn't foresee where all of this was heading. They could have, at minimum, tightened the money supply if the political will wasn't there to intervene in other ways.

Even the securitization process, as far as I can see, was condoned by politicians from both parties because it was a way for banks to comply with the terms of CRA even when there really weren't many creditworthy customers left in the neighborhoods that they had to meet quotas in (that was one of the CRA policies made by Clinton- the ratings criteria changed so that they had to have quantifiable results rather than just prove that they were marketing to poor neighborhoods and not redlining customers) and to then pass off the risky loans to the investors who bundled them.

IOW, it looks to me like everyone involved decided it was OK to play this hot potato game because that kept the money flowing where they wanted it.

I don't exonerate the banks for also engaging in the other risky loans with higher income customers- not at all. I'm just of the belief that we wouldn't have gotten to that point if the politicians hadn't set up the system in the way that they did (and that the politicians' motivation for that included their desire to keep CRA policies going- along with, of course, the usual politicians' motive of providing fertile ground for their biggest donors to make profits.)

A working paper from the Cleveland Federal Reserve
A working paper from The Bank for International Settlements
Myths and falsehoods about the purported link between affordable housing initiatives and the financial crisis (from Media Matters

Any conservative voices that focus exclusively on CRA or other Democratically fostered government interventions are being disingenuous, but liberals like yourself who won't see those components at all (you use one source who would obviously have a CYA motive to exonerate the govt policies as though this completely settles the question of whether or not CRA policies fed into the crisis) are similarly using tunnel vision..

* Polling shows that Limbaugh is less popular than REVEREND WRIGHT and BILL AYERS.

* Polling shows that more people are likely to oppose a candidate that is endorsed by Limbaugh than support him.

* Polling shows Congressional Democrats approval numbers in the 40's, with Repubs in the 20's.

* We've got Rush Limbaugh bouncing around like an idiot, the head of the RNC crawling on his hands and knees to apologize to him and talk of sacking him going on, and idiots like Michelle Bachman saying “you be da man.”

Anyone who ignore those things and say that the GOP has got its groove back needs to get off the oxycotton.

Our recent analysis of CRA-related lending found no connection between CRA and the subprime mortgage problems.

As far as the conservatives who blame the government…here's the Manhattan Institute, Media Matters showing Fox News trying to help create the meme via Fred Barnes and Charles Krauthammer and their report on Sean Hannity also spreading the falsehood. Then there's the Mises Institute, Krauthammer in writing and the editors of the National Review Online. This doesn't even count the conservative blogs who bought into all of these right wing pundits' arguments.

Even the USA Today is admitting that the real estate crisis is limited to a few states that have very high levels of illegal immigrants and very high levels of foreclosures. The government failed to defend the border, the government failed to prevent identify theft, the government failed to keep banks responsible, and the government insisted that banks give more loans to minorities no matter what. The government also spent recklessly from 2000-2008 and spending even more recklessly now.

If the government had really defened the borders, if the government had insisted that banks be responsible, if the government was more interested in credit worthiness of borrowers instead of their ethnicity, then maybe banks like Washington Mutual would not have collapsed.

I guess blaming something Phil Gramm did a decade ago or blaming Bush makes more sense to Democrats but when the banking system in failing in Iceland and Spain, it is hard to blame Republicans.

Who is this mythical 'they', Jim?

And if anyone agrees with you that it's dishonest to state that our current problems are the result of collective failures of government action and individual's poor decisions, then I'd like to hear them defend that position. Of course it was a collective failure- and people like you who wish to blame exclusively one party, ignoring the contributions of the other political party and ignoring the individual failures to act responsibly with their own finances, are the ones who are failing to accurately diagnose our problems.

CS says that Obama wants us to do things that are opposed to our historical values. Well, I hope so. Because if there is one thing that expresses Republican values more than anything it's a desire to take shelter in the idea that nothing changes and that we can just do things the same old way we did them in the 18th Century now in the 21st Century and it'll be OK because everything that a conservative chooses to believe in is an eternal truth that will never change. Nothing has changed enough in this day of globalization, international corporations, post-industrial society and corporatized medicine enough to justify looking for any new solutions that might not fit in with that which is acceptable to a political philosophy that, as CS has agreed herself, views itself as tasked with the job of standing on the rails of historical change and saying to the train “STOP!”. Of course they never admit that they cause wrecks, either.

Reagan was able to be consistent in calling the economic crisis's severity and its cause, because the remedy was to get government out of the way.

Obama has to one day talk about how dire the situation is, and explain that government actions contributed to it, but then convince people that his government is different and can be trusted to work for our best interests. Reagan just had to remind us of the hazards of trusting big government at all, and asked us to be more reliant on our own individual strengths.

I certainly agree that he's copying Reagan's approach, but for these reasons, I don't believe it will work.

This will change – eventually. By the end of 2009 people will start to see this as Obama's economy and not as the legacy of Bush's. People will look for real results. Is recovery in sight? Are the transformative elements gaining traction, both politically and substantively?

Remember, Ronald Reagan did much the same thing. He used an economic crisis to re-orient the nation on a conservative course. And he did so with reassuring and non-ideological language. There was nothing tricky about it, just as there is nothing tricky about Obama's liberalism. We just have cartoonish images of what a liberal should sound like and Obama didn't fit the bill.

Obama campaigned in part on this- on 'finding the best ideas from both sides of the aisle' yet instead, he uses the economic crisis to push for an overaraching liberal agenda.

Of course his campaigning could also have predicted this, because really he's doing very little that he didn't promise on policy. But there was always cognitive dissonance between his policy statements and his political rhetoric about being postpartisan, and it looks so far as though I was right to assume that the policy statements reflected reality while the rhetoric was just the grease to get him elected and to get the policies passed quickly with as little resistance as possible.