We try to read the editorial pages with an open mind, but sometimes it’s more than we can stomach to have to imbibe opinion pieces at all. For instance, there was this repellent headline atop the Wall Street Journal‘s op-ed page yesterday: “The Fed Didn’t Cause the Housing Bubble.”  Can you guess who the author was?  None other than Alan Greenspan, who during his tenure made a point of referring to inflated home values as “wealth.”  He also apparently never met and adjustable rate mortgage he didn’t like, probably because they were a key factor in making homes “affordable” for those who could not really afford them. Under the circumstances, for Mr. Greenspan to deny the Fed caused the housing bubble shows real chutzpah, a yiddish term for brazen effrontery. It’s like Michael Corleone testifying that he knew nothing about the deaths of Sollozzo, Tattaglia, Cuneo and Barzini because he was too busy selling olive oil.

Mr. Greenspan trots out a novel argument in this latest effort to gain exculpation. He asserts that mortgage rates had a mind of their own, and that the easing of administered rates by the Fed did not directly cause them to fall. While this may have been be true in the narrowest technical sense, it is undeniable that Fed-controlled rates set the pace for all types of credit. Moreover, when the Fed charted a course of easing, it created an environment in which financiers grew increasingly confident, if not to say cocksure, about borrowing short to lend long. More dangerous than the easing itself , however, was the Fed’s role in legitimizing and promoting the notion that the country’s obvious borrowing binge was healthy and normal. In plain fact, the borrowing grew promiscuously, because it was tied to home values that were rising much more steeply than U.S. incomes.

We’ve Learned Nothing

Unfortunately, bailout-mania makes clear that we have failed to learn any important lessons from the housing bust. Here’s a letter from one Michael Harrington to editor of the Wall Street Journal that explains why with perfect clarity:

“In New York Governor David Paterson’s defense of the president’s housing plan in ‘Obama’s Mortgage Plan Is What We Need’ (op-ed, March 7), we read a lot about reversing ‘the decline in property values,’ but nowhere is there a discussion about how to determine what the true value of homes is. Let’s get cause and effect in order here. Our financial crisis is rooted, not in the decline in values, but in the original distortion of prices.

“Gov. Paterson’s argument that we must save existing property values or else we all suffer is an oft-quoted canard. It assumes that current values are correct and must be maintained with subsidies. This is just more of the same bad housing policy that got us into this mess — another indication that the political class is not up to the task of formulating economic policy.”

Entrenched Foolishness

Just so. But the foolishness is an entrenched political fact at this point, and there is therefore no escaping its consequences. President Obama’s plan would purport to “rescue” about 11% of all homeowners. Our guess is that at least three times that many homeowners are underwater, and there is no reason to think that even that scary number will not eventually climb much higher.