Earlier today, I talked about how I tend to be a bit more convinced by detailed explanations that vague generalities and empty statistics. While I was preparing that piece, I had one big example in mind — but then didn’t include it. It slipped my mind, but I’m going to pretend that I was actually setting up this followup piece.
Namely, the current economic crisis we might or might not be having.
There’s been a lot of finger-pointing going on over just who ought to get tarred and feathered over this, and so far it’s been a whole lot of smoke and very little fire. Everyone wants to say it was the other people’s fault, and if we’d only listened to them, we’d be OK.
Normally, I don’t go for these kinds of games. This time, though, I’m going to play along. I have a couple of reasons.
First, I’m not entirely convinced that there is a crisis, at least one of sufficient magnitude to set aside normal partisan bickering and ram through some emergency measure.
Second, most of the people doing the yelling are the ones who are also being accused of messing up the whole thing in the first place, so it’s probably a good idea to keep them busy and away from trying to “fix” the real problem.
So, we have two groups of people pointing fingers (or flipping fingers) at each other. How much credibility do they each have?
First up, let’s look at the Democrats. According to them, it’s the Republicans’ fault. After all, they held the majority in Congress for most of the time leading up to this mess, so by definition they should have done something. Also, “deregulation” has been a key element of standard Republican rhetoric, and it seems that a bit more government oversight might have helped. Finally, Phil Gramm — a McCain economic advisor — wrote a law back in 1999
called repealing the Glass- Steagal Act, and that law — which tore down the wall separating commercial and investment banking.
Let’s see how those hold up to some scrutiny — not too much, as I’m no expert on these matters.
First up, the “Republicans owned Congress, so they own this” argument. Sorry, but I don’t exactly recall the Republicans just steamrolling the Democrats higgledy-piggledy for the first six years of the Bush administration. In fact, I recall quite a few times when the Democrats stood up and — even with their minority status — managed to either significantly alter or utterly defeat some of Bush’s plans. Remember the federalizing of the airport security workers? I seem to recall that that was a key argument of the Democrats, opposed by a lot of Republicans and conservatives (and folks with a smidgen of common sense), but it passed anyway. I also recall a lot of fights over Bush’s judicial nominees, leading to some very bruising fights that Bush did not win.
So the idea that the Democrats were utterly powerless for those six years doesn’t hold up.
Second, the mantra that “Republicans are in favor of deregulation” is also flawed. For one, I don’t recall that being given much effort by the GOP. For another, it was Rebublicans who pushed — several times — for increased regulation on Fannie Mae and Freddie Mac, and each and every time the Democrats united behind one of their bigger cash cows (both for their campaigns and personally) to keep things hands-off.
Witness the following video from 2004:
Democrat after Democrat after Democrat arguing against increasing federal supervision of Fannie Mae and Freddie Mac in the strongest terms possible, even saying that questioning the services of Fannie Mae CEO Franklin Raines was racist.
Note that shortly after this, the highly-praised (by Democrats) Raines “retired” in an arranged departure after it was revealed that under his leadership, Fannie Mae had engaged in some grotesque violations of accounting principles and cooked their books to maximize the bonuses Raines and his top people collected — Raines himself took home over $100 million.
How did they do this? Simple. Their bonuses were based on Fannie Mae’s earnings, and they rigged the books to overreport those earnings — by at least $6 BILLION dollars.
Finally, the soon-to-be-infamous-if-Democrats-have-their-way repeal of theGlass-Stegall Act. This, they say, is the REAL culprit. Unfortunately, there are a few problems with that theory.
First up, it passed the Senate by a vote of 90-8, meaning that a LOT of Democrats — including John Kerry and Joe Biden, just to name a couple — voted for repealingit.
Second, it was signed into law by Bill Clinton, who still says that it was a good law, and had nothing to do with the current situation.
Finally, it has been used in this current crisis — when Bank of America stepped in and bought out Merrill Lynch. Had it not been for the repeal ofGlass-Steagall, Bank of America (a commercial bank) would have been forbidden to buy Merrill Lynch (an investment bank) without some serious paperwork and red tape and whatnot, and it would have been up to the government to step in — or stand by while it collapsed entirely.
So that’s that, for the Democratic arguments — as far as I can tell. How about the Republicans?
The Republicans have a whole chain of logic that sums up their story. It starts with Jimmy Carter and the Community Reinvestment Act of 1978, the expansion of that program by the Clinton administration in 1998, and the thwarting of Republican plans to rein in Fannie Mae, Freddie Mac, and the whole subprime mortgage field several times in the past few years.
That’s been spelled out enough before, so I won’t repeat the specifics. The only thing new I’ve learned is that there was a “stick” along with the “carrot” to encourage banks to make bad mortgages — that they could be sued for not complying with the CRA sufficiently.
So, in 2003, President Bush put forth a plan to impose MORE regulations on Fannie Mae and Freddie Mac, with his people advising that if nothing was done, they could end up collapsing and taking down a huge chunk of our economic strength and stability with them. The regulations were defeated.
In 2004, the House held hearings on Fannie Mae and Freddie Mac (see the above video) — possibly in connection with the Bush proposal of 2003, I’m not sure — and denounced the proposed regulations as racist, class warfare, mean-spirited, unneeded, harmful, and quite possibly involved in causing the heartbreak of psoriasis. Franklin Raines was singled out by the Democrats for heaps and heaps of praise and strenuous defense — mere months before he just barely beat a criminal indictment and ended up paying millions in fines for accounting frauds.
In 2005, several senators — including John McCain and my own senator, John Sununu, along with Elizabeth Dole and a couple of other Republicans — tried one final time to impose some serious regulations on Fannie Mae and Freddie Mac, warning that the situation with them had grown even worse since the last attempt, and the damage their collapse would trigger would be absolutely devastating to the nation. Once again, the plan went down in flames amid Democratic protests that there was no real problem, and this was all because Republicans hated poor people and wanted to keep them poor.
Now that that has pretty much come to pass, I find myself trying to figure out the Democrats’ take on the Republicans’ predictions coming to pass. So far, it’s a tossup — they keep vacillating between utter denial, saying “nobody could have predicted it” when so many obviously did, and saying that it was these vague Republican ideals of “an ownership society” and “Wall Street Greed” and “the culture of corruption” and “the push for deregulation” that all got together (probably in a smoke-filled room) and plotted the whole thing out.
The notion that their lofty idealism and desires could have blinded them to dire consequences of well-meaning bad ideas. They simply don’t seem to think it possible that their good intentions (which are all that matter, after all) could have been paving the road to fiscal hell.
Looking purely at the record, I’m going to go out on a limb and trust the Republicans to have a better grasp on how to fix the problem. More specifically, Republicans like John McCain and John Sununu. They saw the present mess coming years ago, they tried like hell to head it off, and they warned us all of just what has happened. Since I don’t have enough expertise to have a truly informed opinion, I’ll defer to them.
And I’m saying that as someone whose 401K has already lost almost 8% of its value in the last month. (Whoops, almost 5$ — just had a mini-bounceback from yesterday. Yay, Vanguard!)
One thing I’ve learned from this, though — my long-standing policy of “if you don’t understand an issue, just find out where Barney Frank stands and take the opposite side” still holds true. Frank is on record for years saying that what just happened never will, that Fannie Mae and Freddie Mac are very sound and solid and healthy, and anyone who would even think of looking at them more closely is a horrible human being. Thanks, Barney, for being such a reliable touchstone.
Correction: Gramm didn’t author the Glass-Steagall Act, he authored the bill repealing it. The fact that the act didn’t have Gramm’s name in it should have been a tipoff to me that I had it wrong, but I managed to miss that. Thanks, Rheinman, for correcting me.)