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enlarge Good mornin’! Let’s get started: Republicans on the financial crisis investigation commission reached new levels of insanity yesterday when they chose to adopt a blame-it-on-ACORN narrative to the causes of the financial crisis: The four Republicans appointed to the commission investigating the root causes of the financial crisis plan to bypass the bipartisan panel and release their own report Wednesday, according to people familiar with the commission’s work. The Republicans, led by the commission’s vice chairman, former congressman and chair of the House Ways and Means Committee Bill Thomas, will likely focus their report on the explosive growth of subprime mortgages and the heavy role played by the federal government in pushing mortgage giants Fannie Mae and Freddie Mac to purchase and insure them. They’ll also likely focus on the Community Reinvestment Act, a 1977 law that encourages banks to lend to underserved communities, these people said. The Republicans’ report is expected to conclude that government policy helped inflate the housing bubble and that prices weren’t expected to crash because the government pushed homeownership so aggressively. This cute little narrative — which I called the “We didn’t want to give houses to all those swarthy poor people, the government made us, WAAAAAAAH!” narrative — has absolutely no basis in reality. This chart from Barry Ritholz tells you everything you need to know (click to enlarge): enlarge As you can see this housing bubble was global in nature . And looking at the chart you can see that the U.S. actually had things relatively good compared to Ireland, Spain and the UK. And I’ll let you in on a little secret: The Community Reinvestment Act did not force Irish, Spanish or British banks to make no-doc mortgages. The reason so many banks made so many crappy loans over the years is the simplest of all reasons: Because the securitization process made it profitable for them to do so. The incentives within the system were such that the original lender never had to live with the consequences of making a crappy loan because he would just fork it off to Wall Street, which was hungry for loans to bundle up into CDOs. Ratings agencies had no incentives to point out that these CDOs were full of crappy loans because they were being paid by the banks to rate their products favorably. For good measure, add in the fact that the Fed kept interest rates low during the buildup of the bubble and gave banks lots of easy money to play with. And finally, when banks started issued synthetic CDOs backed primarily by unregulated credit derivatives, well, you have a recipe for a massively over-leveraged financial system where everybody is basically making money out of thin air. Heidi Moore has a more-nuanced take over at DealBook that makes roughly the same points: The government-sponsored enterprises fueled bad lending but it was the investment banks’ packaging of the same bad mortgages over and over again into toxic collateralized debt obligation bundles that created billions of dollars in losses. If every mortgage could only be securitized once, the losses would have been bad but not horrible. But because fancy Wall Street chicanery reproduced those mortgages and mirrored them in bundles of increasing size, the investment banks took far bigger losses than they would have otherwise. As those losses grew, the banks struggled to find enough cash to stay well capitalized. Investors grew scared that the banks would not be able to, and the government had to step in to bolster the banks’ capital with the Troubled Asset Relief Program and other bailout programs. (Incidentally, people like Dean Baker were writing about this way back in 2004 when nobody else was talking about it. But for some reason people like Dean Baker never get appointed to key government positions. Only people who couldn’t see a multi-trillion dollar housing bubble get that sort of work.) We’ve been on a “happy news roll” for the past couple of days and I think this qualifies : The Obama administration has selected Ohio Attorney General Richard Cordray, a vocal critic of the banking industry, to head the enforcement division of the new Consumer Financial Protection Bureau, according to a Treasury official. Cordray, a Democrat, has been a leader among state attorneys general in the probe into mortgage foreclosure practices. The probe is examining whether banks submitted faulty legal documents in foreclosure proceedings. This has “Elizabeth Warren lobbying” written all over it. To which I say, “Thank God!” If Obama had taken more advice from Warren over the past two years and less from the Geithner-Summers tag team, he wouldn’t be in the predicament he’s in today. Let’s hope this is the start of a trend (though I’m cynical enough to know it isn’t). Another data point you can use against Glen Beck fans you know who are screaming “ZOMG TEH INFLATION!!!!” The cost of living in the U.S. rose less than forecast in November, indicating higher prices for commodities such as fuel aren’t filtering through into other goods and services. The consumer-price index increased 0.1 percent after a 0.2 percent rise the prior month, the Labor Department said today in Washington. The median estimate of economists in a Bloomberg News survey called for a gain of 0.2 percent. The so-called core measure, which excludes more volatile food and energy costs, also rose 0.1 percent, matching the median forecast. I’m much more worried about 10% unemployment and a massive foreclosure crisis than I am about inflation at this point in time. In fact, I would gladly trade some inflation if it meant people were getting back to work and demand for goods started rising. Ireland’s parliament voted to pass the Permanent Servitude to the Eurocrats Bill €85 billion EU-IMF bailout package today. This bit tickled me: Minister for Finance Brian Lenihan said it mystified him that anybody in the Dáil could oppose the measure. “The suggestion that the Opposition could negotiate a better interest rate from the IMF is, frankly, laughable,” he added. “The rate of interest charged by the IMF is calculated using the standard formula which it applies to all countries.” Another way of putting this is: “The Opposition tells you they could have given you a crap sandwich with wholewheat bread, lettuce and tomatoes. Balderdash! We know the IMF only serves its crap sandwiches on Wonder Bread with no vegetables! There’s only one party that will get you the best deal on crap sandwiches and that’s Fianna Fáil!” And finally, I’d be remiss if I didn’t express happiness at the House voting overwhelmingly to repeal Don’t Ask, Don’t Tell yesterday. Now it goes back to the Senate where it should get done… but this is the Senate… they have been known to pull stuff like this in the past: But, uh, let’s hope the Senate is more competent than the Washington Redskins. Gulp.