One of the Democrats campaign themes is to assert that Republicans will return us to the failed policies of the past. The talking heads on television repeat the theme every day. It’s not unusual for a Party to have a broad generic slogan. What’s odd is that no one seems to ask, “Exactly what failed policies are you talking about?” Not even conservative commentators often ask the question, and Democrats rarely volunteer. It turns out that most of the failed policies were instigated and sustained by Democrats, and others were by the Federal Reserve Board, beyond Bush Administration control. Aside from policies, the mentality of an economic bubble was a product of human nature, not government. The Bush Administration can be faulted for some of it’s weak efforts to clean up the policies they inherited, but they made strong attempts to reform Fannie and Freddie.

First, here are a few basics. The Wikipedia article on the subprime mortgage crisis has a left-leaning bias, but it nonetheless has useful background information and references.… They summarize: "The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005–2006. High default rates on "subprime" and adjustable rate mortgages (ARM), began to increase quickly thereafter. An increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgages in the belief they would be able to quickly refinance at more favorable terms."

Fannie Mae is the popular name for the Federal National Mortgage Association, a "government sponsored enterprise."… It is funded by the government and subject to government regulation, but it has shareholders and remains a quasi-independent status. It is not under the authority of the Executive Branch of the federal government.

The factors leading to the economic meltdown included:

1. The widespread belief that housing prices could not drop substantially, so that investments in housing were safe. This was the bubble mentality. Warren Buffet and Alan Greenspan attribute this as being the most important cause. That was widespread bad judgment, not a government policy.

Billionaire investor Warren Buffett: "It was part of a bubble mentality and that bubble mentality got incorporated into models used not just by rating agencies but by others." … And Buffett admits the agencies failed in their supposed objective wisdom: "They were incapable of thinking at great variance from what everybody else thought."…

Former Fed Chairman Alan Greenspan: "If it weren’t the subprime crisis it would have been something else," he said. That is because an era was ending that had seen "disinflationary forces" from developing countries such as China and a "protracted period" in which there was an "underpricing of risk."… (Greenspan does not speak plain English, but he’s saying the same thing as Buffet.)

Greenspan is criticized for contributing to bubble by keeping interests rates too low, thereby facilitating more borrowing for inflated housing. That was probably a factor, but not much compared to the no-down-payment loans. The Fed is not subject to the control of any Administration, although every Administration cheer-leads for low interest rates.

It would have been great if Bush recognized the pending collapse and made bold speeches warning of it. The nature of a bubble is that very few see it, not even the most savvy financial types like Buffett and Greenspace. With their warnings of the problems of Fannie and Freddie, the Republicans were much closer in their understanding than the Democrats.

2. Repeal of the Glass Steagall Act… that had prevented banks from making risky investments. This was done in 1999 as a policy of the Clinton Administration. Some Republicans supported the repeal, but it was a Clinton policy.

3. The policy of issuing poorly-secured real estate loans underwritten directly or indirectly by Fannie Mae and Freddie Mac. This began with the Clinton Policy embodied in the Community Reinvestment Act changes made in 1995 that required investment in real estate previously thought too risky. The requirement were further stiffened in 1999. An attempt to roll back the the requirements to make risky loans was rejected by the Federal Reserve Board in 2004.…

"In 1999, The New York Times reported that with the corporation’s move towards the subprime market "Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s." Alex Berenson of The New York Times reported in 2003 that Fannie Mae’s risk is much larger than is commonly held. Nassim Taleb wrote in The Black Swan: "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events ‘unlikely’"…

4. That Fannie Mae and Freddie Mac remained under the control of Democrats throughout the Bush years. In 2002, Fannie and Freddie began buying up so-called NINJA (no income, no job) mortgage loans at a furious pace. Compensation of Freddie and Fannie executives was based on the size of the mortgage portfolio, not the quality of the loans. This encouraged the entire mortgage industry to make unsound loans on the grounds that (1) the government endorsed the belief that real estate would not drop, no matter what, and (2) risky loans could always be sold to Freddie and Fannie, as they had an insatiable appetite for them.

If mortgages are granted with a 20% down payment, a leverage of 4 to 1, then about 20% of the loans can fail, and the cash collected will cover the failures. Those putting up 20% are unlikely to default in the first place. Fannie and Freddie ended up being leveraged 140 to 1.

5. That Democrats in Congress blocked attempts to reform Freddie and Fannie. The Bush Administration when to Congress on three separate occasions asking that regulation of Freddie and Fannie be tightened.

"Prominent Democrats ran Fannie Mae, the same government-sponsored enterprise (GSE) that donated campaign cash to top Democrats. … According to an article by Kathleen Day in the Oct. 8, 2003, Washington Post, Frank opposed giving the Bush administration the right to approve or disapprove business activities that "could pose risk to the taxpayers." He told the Post he worried the Treasury Department "would sacrifice activities that are good for consumers in the name of lowering the companies’ market risks."

Just a month before, Frank had aggressively thwarted reform efforts by the Bush administration. He told The New York Times on Sept. 11, 2003, Fannie Mae and Freddie Mac’s problems were "exaggerated," a gross miscalculation some five years later with costs estimated to be in the hundreds of billions.

"These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis," Frank said to the Times. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."…

Democrats took over Congress in 2006 and not only failed to recognize the economic problems rooted in Fannie and Freddie, they completely blocked Bush Administration efforts to regulate these out-of-control institutions.

6. The Bush Administration might have made a greater issue of fragility of the housing bubble, beyond their attempts to regulate Fannie and Freddie. However, failure to create a great enough ruckus is not an economic policy, it is political failing. Democrats had a greater political failing because they blocked reform. If one deems failure to act to be a "policy" then it was the Democrats policy that prevailed, not Bush’s policy.

What caused the recession? A housing bubble fueled by the policies of Democrats and sustained by Democrats who blocked reforms that might have prevented the ultimate collapse.

When Democrats are asked the question rarely asked, about which failed policies, they most often say it was the Bush tax cuts and deficit spending on the wars in Iraq and Afghanistan. Virtually no economist links those policies to the financial collapse. Democrats certify that deficit spending is good for the economy, not bad. Total war spending has been about $900 billion, over a period of eight years. Obama is piling up deficits at the rate of $1.5 trillion per year.

So what would a return to the failed policies of the past entail? Would it be a return to deficits a tenth of what they are now? Voters should ask.