The Financial Crisis: Government as Hero and Villain

The $700 billion bailout package for the ailing U.S. financial system is one of the largest and most extensive government interventions since the Great Depression.

Hobbled by billions of dollars in toxic mortgages, the nation's financial system - as well as that of the world at large - appeared on the verge of collapsing as President Bush signed off on the massive rescue package. But recent reports suggest that the government bailout is a response to a crisis that is partly of President Bush's own making.

There is no shortage of villains in the abuses that led to the global financial crisis, including lenders who gave mortgages to anyone with a pulse, irresponsible consumers who borrowed far beyond their means, and Wall Street investment bankers who purchased billions in complex mortgage-backed securities. The New York Times, however, after interviewing dozens of current and former Bush administration officials, found another villain: the Bush administration itself.

During his presidency, Bush repeatedly pushed his vision of what he called "the Ownership Society," rooted in the idea that home ownership is best for all Americans. This was coupled with his belief that markets work best when left to operate free from government interference. He supported this by filling federal regulatory agencies with appointees who were interested in fewer rules and less oversight.

The Times reported that as the Bush administration became increasingly occupied with terrorism and the wars in Iraq and Afghanistan, the housing market became a bright spot in the U.S. economy. Housing prices soared, and administration policies designed to make it easier for low-income and first-time buyers to buy homes led to a huge increase in so-called subprime lending. According to the Times, the head of one of the nation's largest subprime lenders, Ameriquest, was one of Bush's top campaign donors.

The Times went on to report that even as the housing bubble appeared ready to burst, administration officials ignored warning signs as early as 2006, saying only that the economy was in "a rough patch" and convinced that things would improve in no time. Instead, they grew worse; meanwhile an administration driven toward less oversight, missed repeated opportunities for action. The result: the government-sponsored entities Fannie Mae and Freddie Mac became insolvent, several leading investment banks collapsed, the economy began shedding jobs by the hundreds of thousands, and the government rushed in with a rescue package that could cost taxpayers trillions of dollars in the long run.