Who's to blame for all the denial?

Econoblogs are in a tizzy now that one of their own has started pointing fingers in a search for blame in the current housing melt-down. One of the higher echelon dismal thinkers, Alan Blinder, professor of economics at Princeton and former vice chairman of the Federal Reserve points "Six Fingers of Blame in the Mortgage Mess".

In order, they are:

1. Households who borrowed recklessly to buy homes
2. Lenders who sold mortgage products that were inappropriate for customers
3. Bank regulators for not doing a better job of protecting consumers
4. Investors for not paying close attention to what they were buying
5. Investment bankers for creating CDOs and other exotic investment products
6. The rating agencies for failing to properly assess risk

As might be expected, there was nary mention of interest rates that may have been too low for too long, a Federal Reserve chairman with a big "bully pulpit" who encouraged risky behavior, or the decade-long transition of the business of mortgage lending away from regulated banks to the Wild West of Wall Street, aided and abetted by the Fed.

Normally level-headed (for an economist) James Hamilton at Econbrowser places the blame squarely on investors, without whom he says, none of the other fingers would matter:

A dumb borrower requires an even dumber lender. And if there is always an investor to dump the product off on, then of course there is an incentive for someone to originate and then sell off the loan.

Other econo-bloggers offer few no original thoughts of their own, however, some of the comments are interesting.

On Brad Delong's Grasping Reality, J writes:

Sir, We the lemmings have an unfortunate tendency to periodically jump en masse into the ocean (we don't swim). We are also unable to resist "free" mortgages. Knowing that, we elected a government of the soberest lemmings to keep us safe from ourselves. Our government failed to stop us, although later threw us paper to keep us afloat. Then I have to disagree with your finger pointing: we lemmings are built in such a way that not one of our twenty fingers can point toward ourselves. We, Sir, are innocent.

On Mark Thoma's Economist's View, S. Brennan writes:

I'm not following all of the above arguments. Low interest home loans should result from:

1. Low inflation
2. A Generous Fed
3. Excess capitol that needs to find a working home
4. An investment that seems sound.

1a] So the goverment created numbers [core inflation] that said we have no inflation...and Greenspan reported this with vigor.

2a] The Fed Chairman said, inflation is low, so low, I fear deflation...very bad...must lower prime to unheard of lows...deflation...very bad.

3a] Then the Fed Chairman said: "Hey it would be awful if the US continued to pay down it's debt...tax cuts for the wealthy will solve that." and suddenly a group of people who already had enough money had a lot more money every year...hear the sound of dollars sloshing around?

4a] People will always need a place to live and we have a govermental policy that favors homeowners over renters and a growing population.

What went wrong?

1] Greenspan lied 2] Greenspan lied 3] Greenspan lied 4] People are People, just as they always have been.

Why did Greenspan lie? Can you say political hack?

On Greg Mankiw's blog, Greg Mankiw's Blog, one commenter opines, "This article is just an embarrassment" and Daisy Navidson posted a link to the following YouTube video:

Like loyal subordinates to a retiring four-star General who led a military campaign whose disastrous consequences are only beginning to unfold, there is a remarkable absence of blame directed toward the highest level of leadership.