Posted by
Always To The Right on Saturday, February 07, 2009 5:30:46 PM
Did deregulation during the Bush administration create the housing
bubble and the following economic collapse? Not hardly, according to Barrons, the venerable finance periodical, unless one counts Sarbanes-Oxley and a thousand new pages of laws on financial transactions deregulation (h/t: HA reader Nancy B):
CONTRARY TO A VIEW POPULARIZED DURING THE 2008
presidential election season, the current economic crisis was not the
result of deregulation.
The Bush administration made many mistakes, but deregulation was not one of them.
Not only was there no major deregulation passed during the past
eight years, but the Bush administration and a Republican Congress
approved the most sweeping financial-market regulation in decades.
The bipartisan Sarbanes-Oxley Act was enacted in 2002 to prevent
corporate fraud and restore investor confidence after the collapse of
Enron and WorldCom. It failed to prevent the accounting fraud and
influence-peddling scandals at Fannie Mae and Freddie Mac. And even
after those scandals were widely understood, regulators sent Fannie and
Freddie back into the market to continue buying subprime loans, lending
and borrowing with implied taxpayer backing.
Across the government, the Bush administration supported new
regulations that added almost 1,000 pages a year to the Federal
Register, nearly a record. If this is insufficient regulation, it’s
hard to imagine a scope that would be effective.
So what did cause the economic crash of 2008? Hot Air readers already know the answer, but it’s worth repeating:
Today’s problems have their roots in programs and
financial instruments that shifted the locus of moral responsibility
away from private individuals and institutions to wider circles that
were understood to end with a government guarantee. Heads of the top
banks and financial institutions could approve substandard
home-mortgage underwriting — prone to increased default — because those
loans could be securitized by Wall Street and sold off to investors or
to government-sponsored enterprises (GSEs), with no likely recourse to
the financial institution of origin.
Our present crisis began in the 1970s, during the Carter
administration, with passage of the Community Reinvestment Act to stem
bank redlining and liberalize lending in order to extend home ownership
in lower-income communities. Then in the 1990s, the Department of
Housing and Urban Development took a fateful step by getting the GSEs
to accept subprime mortgages. With Fannie and Freddie easing credit
requirements on loans they would purchase from lenders, banks could
greatly increase lending to borrowers unqualified for conventional
loans. In the name of extending affordable housing, this broadened the
acceptability of risky loans throughout the financial system.
Unfortunately, Scott Powell turns a little too optimistic:
The collapse and government seizure of Fannie and
Freddie in September 2008 ended the experiment in partial socialization
of the U.S. housing sector.
Has it? The stimulus package passed by the Democrats in the House
included billions of dollars to support ACORN and other
low-income-housing efforts. Barney Frank and Chris Dodd continue to
deny that their “partial socialization” had any role in the collapse,
and so far the mainstream media has yet to correct the record. They’re
running with the “deregulation” meme that Powell expertly refutes.
Only when Frank, Dodd, and the housing socialists get correctly
discredited for their damage will we be able to breathe freely on
housing again. I suspect we’ll have to have another collapse before
people finally admit the failure of those policies. After all, we’re
about to repeat all of the worst aspects of the New Deal and
Keynsianism without much pushback. And that, more than any other
reason, is why this is everyone’s fault, and will be when it happens
again.