Lunching With Peter Wallison:

What You Hear Might Not Be What You Learn
Earlier this week I had lunch with Peter Wallison of the American Enterprise Institute. Actually I was in the company of about 50 or so other people, sitting at round tables of eight while he spoke from a podium.

I went to the lunch expecting to hear a different perspective on the financial crisis from that provided by Sheila Bair two months ago. World’s Second Most Powerful Woman Speaks Unopposed.

I did. But what I heard was not what I learned. Since both were of interest, let’s begin with the former.

Wallison was one of four Republicans who, along with six Democrats, were members of the Financial Crisis Inquiry Commission. He dissented blaming the housing policies of Presidents Clinton and Bush as well as the mortgage purchase activities of FNMA and FreddieMac to a greater degree than the greed of mortgage market participants. The government entities led the race to the bottom by buying or guarantying 75% of the poor quality loans that led to the worldwide market meltdown.

It vastly oversimplifies his point to say that Wallison would prefer larger down payments (10%-20% rather than 0% or sometimes less) and a pullback in efforts to increase the percentage of Americans who own homes. It was 64% before the crisis and it is 64% now, but it topped out at 70%, and that might well have added too many who were unable to repay their loans. Of the bad ones, the government (in one guise or another) owned three out of four.

You can learn more about Wallison’s views in his new book, Bad History, Worse Policy: How A False Narrative About the Financial Crisis Led to the Dodd-Frank Act.

And that leads to what I learned: Narrative. He used the term in his remarks and included it in his title. After the 50 or so others had left, I asked him and two of his assistants how narrative differed from spin.

Since he was still signing books, the assistants had the first crack at the question and neither could see much difference between spin and narrative except that one sounded better than the other. Wallison suggested that it depended who was talking. “If I say it, it is narrative, if my opponent says it, it is spin.”

None of the three suggested a correlation between narrative and truth.

So, the question that remains is “how do you solve anything in government if you are trying to be on the right side of a narrative rather than trying to solve a problem?”

Which sounds better: “Home ownership, the American Dream” or “it is best not to incur debts if you are unlikely to be able repay them”? Yet solving the winning narrative given those two choices had unfortunate consequences.

Narrative is not new. According to a review of Bunker Hill: A City, a Siege, a Revolution in The Economist, “The patriots quickly realised that they had to be the first to get their version of events to Britain, where many were potentially sympathetic to their cause. Whereas Gage sent his account by slowboat, the patriots opted for a fast little schooner that got there 12 days earlier. For almost a fortnight George III’s ministers were unable to refute the patriots’ storyline.”

Perhaps critical thinkers should ask themselves and others whether this action or that is winning the narrative or solving the problem?

Oh, and one other thing. According to Wallison, “today’s Fed actions will cause astonishing problems in the future.”

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