Optimism rather than greed caused the crunch, stupid

The bursting of the US sub-prime bubble and the subsequent economic fallout around the globe was initially put down to greed.

Then towards the end of 2008 Dennis Sewell, writing in the Spectator, put the blame on former US president Bill Clinton who apparently set up several agencies to ensure lenders played ball with his strategy of increasing home ownership for the poor – particularly poor blacks and Hispanics.

According to Sewell, providers bent the rules to lend to those who blatantly couldn’t afford home ownership simply to avoid prosecution and censure.

Now US journalist Barbara Ehrenberg has come up with another explanation. In Smile or Die: How Positive Thinking Fooled America And The World she puts the US penchant for positive thinking in the line of fire, and to prove her point cites the fate of US government official Armando Falcon.

According to Ehrenberg, back in 2003 Falcon warned that Freddie Mac and Fannie Mae were backing too many dodgy mortgages. But instead of tightening regulation his political masters tried to fire him for being negative.

The US government seemed at one with the likes of Joe Gregory, former president of Lehman Brothers, who called himself a feeler and fired anybody with the temerity to be negative.

So with President “yes we can” Obama in the White House, can we hope for a return to rational scepticism in the US? Perhaps if we wish for it to happen very hard, it will.