In the spirit of this blog post from Megan (which may be my favorite of the entire economic crisis), here are two readings for the day. For the first is for every left-liberal who thinks the housing crisis was entirely the result of wicked Republicans (and quisling Democrats) who deregulated the hell out of the American economy in the name of cowboy capitalism; it's a month-hold interview with Warren Buffett (via Tyler Cowen), in which he talks about Fannie, Freddie, and the limits of regulation:

QUICK: If you imagine where things will go with Fannie and Freddie, and you think about the regulators, where were the regulators for what was happening, and can something like this be prevented from happening again?

Mr. BUFFETT: Well, it's really an incredible case study in regulation because something called OFHEO was set up in 1992 by Congress, and the sole job of OFHEO was to watch over Fannie and Freddie, someone to watch over them. And they were there to evaluate the soundness and the accounting and all of that. Two companies were all they had to regulate. OFHEO has over 200 employees now. They have a budget now that's $65 million a year, and all they have to do is look at two companies. I mean, you know, I look at more than two companies.

QUICK: Mm-hmm.

Mr. BUFFETT: And they sat there, made reports to the Congress, you can get them on the Internet, every year. And, in fact, they reported to Sarbanes and Oxley every year. And they went--wrote 100 page reports, and they said, 'We've looked at these people and their standards are fine and their directors are fine and everything was fine.' And then all of a sudden you had two of the greatest accounting misstatements in history. You had all kinds of management malfeasance, and it all came out. And, of course, the classic thing was that after it all came out, OFHEO wrote a 350--340 page report examining what went wrong, and they blamed the management, they blamed the directors, they blamed the audit committee. They didn't have a word in there about themselves, and they're the ones that 200 people were going to work every day with just two companies to think about. It just shows the problems of regulation.

QUICK: That sounds like an argument against regulation, though. Is that what you're saying?

Mr. BUFFETT: It's an argument explaining--it's an argument that managing complex financial institutions where the management wants to deceive you can be very, very difficult.

The second is for any free-market conservative who thinks that the only thing that matters in this whole story is government's distortion of the market - the long bipartisan push to increase homeownership by any means necessary, that is - and that capitalism's tendency to encourage greed-addled shortsightedness has nothing to do with it. It's an interview N+1 did with a hedge fund manager nine months ago:

... There were people at the firm, say, at the middle of last year [2006], who were not mortgage experts, who were saying, you know, "I see the run-up in housing prices in some of these geographies, and I just don't really get it. I go down to Florida and see the forest of cranes, and I just really wonder, who's going to be in all those apartments? And I hear about all sorts of friends who are getting loans to buy apartments or houses speculatively and who are lying about the fact that it's not a primary residence, and I see these commercials on TV, you know, about low-doc, no-doc mortgages--and there is no way, there is no way that this is not going to end badly. And I see that these mortgages are being created by this massive demand for CDO paper, by this robotic bid, and this is the perfect example of a bubble--and we should be short, we should be short sub-prime paper."

n+1: This is what guys do? They travel around Florida, they watch TV?

HFM: Just in your normal life, I mean, like me, I trade a different market, I don't trade subprime, but, you know, I travel for other reasons, and some of my partners do the same thing. And we all, a number of us thought, "This is just crazy. We should be short. This is a bubble waiting to be popped." But the person who was the expert [at the fund], the person who ran the sub-prime business, who traded subprime paper and issued the CDOs, he was a true believer in the paradigm: "In 2003, people said that the credit quality of the average subprime mortgage was deteriorating, and now look, those mortgages have performed fine. The subprime market works." And, hey, he was the expert--you defer to the expert.

Via Keith Gessen. (They did a follow-up interview, after the Bear Stearns fiasco, that's also worth your time.)

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