Anchor Rising: Deregulation Isn't the Problem; Bailouts Are

October 15, 2012

Deregulation Isn't the Problem; Bailouts Are

Justin Katz

Travis Rowley takes on the talking point that the "Bush tax cuts" and the deregulatory impulse are what (say it with me) got us in this mess in the first place. The core of the argument goes to those government-sponsored enterprises (GSEs) that backed mortgages for lower-income families:

Whenever Democrats cite “the failed policies of the past” in order to refer to Republican promises to loosen up government guidelines placed on private enterprise, they are purposely confusing plans to deregulate the marketplace with the lack of oversight on Fannie Mae and Freddie Mac – government-sponsored agencies (GSEs) that prominent Democrats sought to protect from Republican reforms.

As early as 2001 the Bush administration was warning that the size of Fannie Mae and Freddie Mac was a “potential problem” that could “cause strong repercussions in financial markets.” And Congressman Ron Paul (R) spoke of an existing real-estate bubble, and predicted that it “will burst, as all bubbles do.”

Put differently, it wasn't the deregulation that caused the problem; it was the promise of bailouts if things went wrong. As I've pointed out in various parts, Fannie and Freddie became an alternative to government debt for a safe investment at a time when the stock market was creating more prospective money than even existed in the gross domestic product (GDP). ...

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Comments

Rep. Ron Paul in the House Financial Services Committee, September 10, 2003:
www.lewrockwell.com/paul/paul128.html

Posted by: Dan at October 15, 2012 10:41 AM

"In order to counteract the superior free-market ideas that Republicans have been espousing for the past several years,"

I lol'd there... the vast majority of Republicans have no problem casting aside these "superior free-market ideas" when it suits them, so as a party the R's are no more in love with the free market than D's.

Posted by: jgardner at October 15, 2012 11:22 AM

""We can put light where there's darkness, and hope where there's despondency in this country. And part of it is working together as a nation to encourage folks to OWN THEIR OWN HOME"
George W. Bush, Oct. 15, 2002

Bush pushed hard to expand home ownership, especially among minority folks, who could least afford it. Bush took a lot of pride that home ownership had reached historic highs. . But his housing policies and hands-off approach to regulation encouraged lax lending standards.

Posted by: Sammy in Arizona at October 15, 2012 4:51 PM

Bloomberg Business Week: Bill Clinton's drive to increase homeownership went way too far
www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_drive.html

Time: 25 People to Blame for the Financial Crisis
www.time.com/time/specials/packages/article/0,28804,1877351_1877350_1877322,00.html

OpenMarket.org: Clinton Pressure to Promote Affordable Housing Led to Mortgage Meltdown
www.openmarket.org/2008/09/16/clinton-pressure-to-promote-affordable-housing-led-to-mortgage-meltdown/

… and the best of all:
www.youtube.com/watch?v=WTZIB6Sika4

Posted by: Max D at October 15, 2012 5:48 PM

"Clinton Pressure to Promote Affordable Housing Led to Mortgage Meltdown"

Yup. Community Reinvestment Act. Also signed off on by Republican Senator Phil Graham, lest we pin this exclusively on the Dems.

EVERYONE should own their own home! You can't afford it? Who says??? Ignore them! Undoubtedly, they just hate poor people.

Banks won't risk giving you a mortgage? No problem! We'll just have the US taxpayer step in (involuntarily) and back all of those bad - as it turned out - mortgages!

There ya go! Now you have a home (and a mortgage that you can't pay)! Who says we can't make things fair?!?!

... oh, that also created a housing bubble which burst and collapsed our economy??? Oops, sorry about that ...

Posted by: Monique at October 15, 2012 9:26 PM

Politicians keep confusing cause and effect. Homeowners are, in general, more wealthy, law abiding, responsible and so forth. Thus, our simplistic, brain cell-challenged politicians (see Sheldon as a great example) decide we need everyone to own a home! Problem solved!
Back to the real world where responsible people who obey laws accrue wealth to buy a home... Darn...now we have a different problem.

Same effect, different day with college degrees. People with college degrees make more money, pay more tax, are better citizens. Thus...you fill in the blank.

Posted by: Mike at October 16, 2012 2:43 PM