Having not seen The Big Short, I don’t know whether the problem originates with the movie or with Providence Journal business editor John Kostrzewa’s review of the movie, but it’s discouraging to observe that the federal government’s role in creating the housing bubble has been airbrushed out of history:

For years, bankers made mortgages that they bundled together, called mortgage backed securities, that they sold on the bond market to investors. The bankers used the proceeds from the bond sales to lend more money to home buyers. Simple, so far.

But the process became corrupted when predatory lenders made mortgages to people who put no money down, had low credit scores and no income, at teaser rates that adjusted sharply upward after a couple of years. The mortgages, called subprime because of the risk, were bundled and then repackaged by Wall Street bankers who collected big fees when they sold the bonds. Corrupted ratings’ agencies gave the bonds high marks.

Notice that this “simple, so far” story makes no attempt to explain why so many investors believed they could leave somebody else holding the bag.  No mention of the role of Fannie Mae and Freddie Mac, with their implicit government backing.  No mention of the federal Community Reinvestment Act, and its push for more and more of these subprime loans.  No mention of Democrat President Bill Clinton and his administration’s elimination of banking regulations that partitioned banking and investment.  Definitely no mention of the reality that the government managed a surplus under Clinton mainly because he essentially privatized the creation of national debt.

We just get a tale of cartoon private-sector villains who brought down the world out of greed.  History of this sort is dangerous because the solutions that seem reasonable after the revision are likely to draw us right back into the arms of the real troublemaker.