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A Project of The Annenberg Public Policy Center

Angle’s Blame Game, Reprise

GOP candidate Sharron Angle’s latest ad blames rival Sen. Harry Reid for Nevada’s dramatic decline in home value. That’s a real stretch. Angle gets the numbers right, but doesn’t show that Reid is responsible.

In fact, the housing bubble was already starting to deflate by the time Reid became Democratic leader of the Senate.

The ad is another dubious attempt by the Republican tea party enthusiast to pin responsibility for Nevada’s economic woes on the incumbent.

The ad begins with the narrator bemoaning the decline in property values in Nevada since Reid became Senate majority leader. "They’ve fallen more than 50 percent," the narrator exclaims.

Angle ad, "Wipeout": That means if your home was worth $300,000 before, now thanks to Harry Reid’s disastrous economic policies, you’ve lost over $150,000. Wiping out people’s retirement savings overnight.

Angle is right about the drop in the value of Nevada homes: In the first quarter of 2010, they were about half what they were in the first quarter of 2007, when Reid became majority leader, according to statistics from the Federal Housing Finance Agency.

But is that due to Reid’s "disastrous economic policies?"

Experts blame a range of actors for the mortgage crisis. Among them: the Federal Reserve, which slashed interest rates and whose chairman encouraged Americans to take out adjustable-rate mortgages, payments on which are initially low and then can balloon; bankers who increasingly made subprime loans, or loans to home buyers whose credit was questionable; the Federal National Mortgage Association (Fannie Mae) and Federal Home Mortgage Corporation (Freddie Mac), which underwrote those risky loans; Wall Street, which bundled those loans into mortgage-backed securities to sell; and the Bush administration, which failed to regulate all this.

The public bears some responsibility, too, for taking on mortgages they couldn’t afford and continuing to believe that housing prices would keep going up, fast and forever.

Angle’s ad tries to blame Reid, and Reid alone, for the bust. But the fact is that by the time Reid became leader Nevada had already gone through a period of unsustainable inflation in home prices — far worse than in most other states — and the bubble already had begun to deflate. According to the Case-Shiller home price index, home prices peaked in mid-2006. Reid became leader in January, 2007.

Previously, California, Florida, Arizona and Nevada had experienced much higher home price appreciation than the rest of the country, going back several years. The bubble was bigger in those places, and it burst with more force. By 2008, more than a quarter of 2006 subprime mortgage originations in those four states and 18 percent of the 2007 subprime mortgage originations were in default. Nationally, the figures were just 13 and 9 percent.

In fact, pinning the blame for an event that has as many moving parts as the housing crisis on a single individual is a bipartisan tactic — and fallacy. In 2008, we critiqued two ads, one from the liberal MoveOn.org and one from GOP presidential candidate John McCain, each of which tried to blame the economic meltdown on the other party. We said then: "The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation."

We believe that’s still the case.