By the logic of rising prices, housing was a fail-safe investment. Homeowners would reap huge profits from higher values. Lenders would earn interest and, in case of default, be protected against losses by increased prices. These ideas created a "collective self-fulfilling mania," argue Willen, Foote and Gerardi. Credit standards were eased; permissive practices — sloppy, reckless and sometimes illegal — grew. But they were more consequence than cause of the housing boom, which lay in the mass psychology of prolonged prosperity.
This is a subversive theory, because it implicates millions of Americans and deprives us all of a self-righteous sense of victimization. Good events conditioned us to have bad expectations.
Until the bubble burst, few understood what was happening. Fed Chairman Ben Bernanke recently admitted that he was caught completely off guard by the crisis. But the Obama administration holds S&P to a higher standard. There must be villains, and they must be punished. Someday this case may be settled. But for now S&P is a scapegoat, and the Department of Justice has become the Department of Blame.
Robert J. Samuelson is a Washington Post columnist.
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