Who is to Blame for the Mortgage Carnage and Coming Financial Disaster?

A nice, justifiably angry piece from Nouriel Roubini, who has long been predicting the housing collapse while the media kept rolling out salesmen to say all was well.

(Here's a hint as to who Roubini says is to blame - it was not government overregulation...think more along the lines of unbridled Neo-Con Republican Voodoo Darwinian Capitalism at its finest, except that the huge rewards went to a few and now the huge costs will be covered by all of us!)

Given the fallout and real, social and financial costs of this disaster the political blame game will soon start. So it is important to make sure that the self-serving spin game that accompanied the game of those who happily ignored since last summer the looming housing, mortgage and economic mess will not be repeated again. Powerful political and financial interests will spin their self-serving ideological spin on who is to blame for this mess. Specifically be ready for a cabal of supply side voodoo ideologues - from the Wall Street Journal editorial page (and its invited op-ed writers) to hacks* (calling them economists would be an insult to my profession) such as Arthur Laffer, Steve Hanke and other assorted voodoo religion priests - to start spinning a tale blaming government regulation and interference for this disaster that has instead its core in the lack of sensible government regulation, not the existence of such regulation. In the meanwhile powerful financial interests that repeat the mantra – or better the proof-less dogma - of unregulated free markets and do not like any – even sensible – supervision and regulation of the financial system will happily blame government action – rather than their own reckless greed and stupidity - for this disaster while happily demanding and receiving billions in bailout funds from the same government that they so happily disdain. This will be the most appalling form of corporate welfare: privatize the profits in good times and socialize the losses in bad times.

(*He didn't mention Larry Kudlow here, so I will.)

Now, here Ron Paul has a different view...

But capitalism is not to blame for the housing bubble, the Federal Reserve is. Specifically, Fed intervention in the economy-- through the manipulation of interest rates and the creation of money-- caused the artificial boom in mortgage lending.

I think Congressman Paul is right, but so is Roubini - this situation involves a tragic combination of shortsighted government intervention and lack of oversight. Of course, either way, the costs will be socialized, and those who reaped millions on this bubble will be just fine. That's the way these things work.

Update: James Grant, with another view, blames "humanity" and the credit rating agencies. I agree with him too.