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Systemic Risk And The Extreme Republican Philosophy

On the heels of the AIG bailout, Joseph Stiglitz's article yesterday is important reading:

The new low in the financial crisis, which has prompted comparisons with the 1929 Wall Street crash, is the fruit of a pattern of dishonesty on the part of financial institutions, and incompetence on the part of policymakers.

We had become accustomed to the hypocrisy. The banks reject any suggestion they should face regulation, rebuff any move towards anti-trust measures - yet when trouble strikes, all of a sudden they demand state intervention: they must be bailed out; they are too big, too important to be allowed to fail.

. . . The big question always centres on systemic risk: to what extent does the collapse of an institution imperil the financial system as a whole? Wall Street has always been quick to overstate systemic risk . . . but loth to allow examination of their own dealings. . . .

(Emphasis supplied.) More . . .

Republicans always complain about government involvement and regulation. Today's financial crisis is a product of a philosophy the Republicans embrace, even today - get government off the backs of businesses. It may even be a defensible philosophy - if government did not have to step in now. I wish McCain and the Republicans would have the courage of their convictions and denounce any government bailouts and say this is the natural functioning of the free market economy they champion so much. Tell the truth - this is part of the free market. And, in the words of Phil Gramm, the American People should stop whining. At least then we could respect their honesty.

Imagine what the Republican reaction would have been if say, 3 years ago, a Democrat would have proposed this:

As venerable American financial institutions topple like dominoes, the concept of “too big to fail” is being sorely tested. Bear Stearns gets help. Lehman Brothers does not. The Federal Reserve and the Treasury Department are acting like insurance claims adjusters, selectively providing assistance when a company’s failure seems too much for the financial markets to withstand.

Why not make investment banks and other companies pay premiums for this catastrophic risk insurance? The government already provides flood, bank and crop insurance. Unlike participants in those programs, however, the companies that qualify for “too big to fail” insurance do not pay for the privilege.

The chances of Republicans supporting this would be a negative 100. And yet, this government bailout is not being attacked. Why? Because Republicans are hypocrites, that's why. In the end, they do not believe in the free market capitalism they claim to espouse. But make no mistake, as Bill Clinton said at the Democratic Convention:

[O]n the two great questions of this election -- how to rebuild the American dream and how to restore America's leadership in the world -- [John McCain] still embraces the extreme philosophy that has defined his party for more than 25 years.

it's a philosophy the American people never actually had a chance to see in action fully until 2001, when the Republicans finally gained control of both the White House and the Congress. Then we saw what would happen to America if the policies they had talked about for decades actually were implemented. And look what happened.

They took us from record surpluses to an exploding debt; from over 22 million new jobs to just 5 million; from increasing working families' incomes to nearly $7,500 a year to a decline of more than $2,000 a year; from almost 8 million Americans lifted out of poverty to more than 5.5 million driven into poverty; and millions more losing their health insurance.

Now, in spite of all this evidence, their candidate is actually promising more of the same. Think about it: more tax cuts for the wealthiest Americans that will swell the deficit, increase inequality, and weaken the economy; more Band-Aids for health care that will enrich insurance companies, impoverish families, and increase the number of uninsured; more going it alone in the world, instead of building the shared responsibilities and shared opportunities necessary to advance our security and restore our influence.

They actually want us to reward them for the last eight years by giving them four more. Now, let's send them a message that will echo from the Rockies all across America, a simple message: Thanks, but no thanks.

Today's financial crisis is a part of the Republican record and a result of the Republican philosophy. Honest Republicans would defend it and tell us why it is good for the country.

By Big Tent Democrat, speaking for me only

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  • Display: Sort:
    Is this a purely partisan point of view (5.00 / 1) (#1)
    by Polkan on Wed Sep 17, 2008 at 07:50:43 AM EST
    or an attempt of objective analysis? As always, Democrats and Republicans blame each other for this (election year!!) and as far as I'm concerned both should share the blame.

    HotAir, for instance, with just as much conviction, points to the proposal to overhaul housing finance industry, which Barney Frank rejected because he thought Republicans "exaggerated" the problems and wanted to hurt financing for low-income borrowers.

    NYTimes, five years go:

    The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

    Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

    The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

    The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

    Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

    "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

    I'm sorry but what we have here is the typical election year blame game, that takes place every single election. And, as every election cycle, we also have typical posturing full of platitudes from both candidates.

    Hilarious (5.00 / 3) (#2)
    by Big Tent Democrat on Wed Sep 17, 2008 at 07:53:35 AM EST
    Is it YOUR view that it is NOT an objective fact that Republicans deplore government regulation and involvement and extol the virtues of tooth and claw capitalism is some kind of partisan line from me?

    I have no idea of the specifics of the article you write, but your denial of my undeniable point makes me think you probably are not to be relied upon on the subject. I will take a look.

    Parent

    And I was right (5.00 / 3) (#10)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:05:51 AM EST
    What was at the heart of this dispute? Was it what you cited? No. Let's look at the part of the article you left out:

    The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

    The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates. "There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises," Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.

    . . . The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws.

    After the hearing, Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration's proposal. Industry executives said Congress could complete action on legislation before leaving for recess in the fall.

    So what was this about? Taking control of Fannie Mae and Freddie Mac from the Congress and giving it to the President. BTW, this was a GOP Congress in 2003. What happened to the legislation? Did it pass? More.

    "The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises," Mr. Oxley said at the hearing. "We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight," the independent agency that now regulates the companies. "These irregularities, which have been going on for several years, should have been detected earlier by the regulator," he added.

    Fair enough. And what happened after 2003? Anybody know? And what was Barney Frank's objection?

    "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." Representative Melvin L. Watt, Democrat of North Carolina, agreed.

    Frank and Watt were concerned that this change was going to be used as a pretext to undermine Fannie and Freddie's mission to expand the homeownership market to less well off persons. That is, they were worried about the undermining of the mission statement.

    But beyond that, what did the Republican Congress and the Republican President DO? Can you report back on that for us? I assure you Barney Frank did not have the power to stop GOP legislation.  

    ''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

    Parent

    Certainly the Republicans deserve (5.00 / 1) (#95)
    by frankly0 on Wed Sep 17, 2008 at 12:38:01 PM EST
    blame for a general desire to deregulate.

    But I think an important point of the article is that Democrats like Frank had themselves a strong interest in not constraining Freddie and Fannie either: because it would make it harder for those who didn't own homes to get mortgages.

    In short, both sides wanted to pretend that the bubble would never end: the Republicans because all those corporate fat cats got fatter, and Democrats because they wanted their constituents to have access to easy credit.

    And why is this surprising? Bubbles tend to make everybody better off -- so long as they don't pop. Who wants to be the party pooper who would stand in the way of the good times rolling on? No politician wants any part of that, Democrat or Republican.

    My guess is that Democrats will have the better of the political argument in this case, but, given what this article reports, it's hard to see Democrats as having played the role of the sober, responsible, prudent party here.

    Parent

    From Congress (none / 0) (#14)
    by Polkan on Wed Sep 17, 2008 at 08:11:50 AM EST
    to a dedicated regulatory body, in response to pretty bad audit findings and without the repeal of government subsidies.

    How is that "tooth and claw" capitalism that you point out? How is that not "better oversight" that Democrats want?

    Parent

    Hmm (5.00 / 2) (#22)
    by Steve M on Wed Sep 17, 2008 at 08:21:38 AM EST
    Are you seriously under the impression that a "dedicated regulatory body" automatically represents better oversight?  The financial industry has been regulated by the Bush Administration for the last 8 years, how's that working out?

    Yesterday we watched in amazement as John McCain, the same man who said "I'm always for less regulation" back in March, tried to reinvent himself as a candidate who will get tough on Wall Street with a whole host of new rules.  Today it seems the right wing is trying to reinvent the entire Republican Party, based upon this single example of a Bush Administration proposal that supposedly would have worked miracles if only the Democratic minority hadn't opposed it.  True silliness.

    Fannie and Freddie, of course, have always been quasi-public entities even after they were "privatized" under LBJ.  Try to find an example where the GOP sought to impose tougher regulations on truly private business.  If your point that both sides are to blame has any validity, you shouldn't have trouble finding one.

    Parent

    It depends on (none / 0) (#23)
    by Polkan on Wed Sep 17, 2008 at 08:23:13 AM EST
    whether you want to take facts and make them fit your ideological position or not.

    Parent
    The discussion is about how (5.00 / 2) (#33)
    by inclusiveheart on Wed Sep 17, 2008 at 08:36:15 AM EST
    Republicans took institutions and facts and fit them into their ideological position and what a massive failure that created as a result.

    Just because I oppose their approach, does not mean that they did not have a pretty clear and well articulated ideology where it came to deregulation of financial institutions specifically and business in general.  

    This call for deregulation has been the GOP's mantra for about 30 years - now that they've achieved their free-form business framework - businesses are failing and they are all for government intervention to save those businesses - those corporate persons - from themselves.

    That's pretty ironic coming from such hardline non-interventionists.

    Parent

    Look in the mirror (none / 0) (#27)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:27:21 AM EST
    dude.

    You have tried to deflect the issue of the stated Republican ideology in this entire thread. And you want to talk about facts? No, you do not.

    Parent

    Really? (5.00 / 1) (#32)
    by Polkan on Wed Sep 17, 2008 at 08:32:47 AM EST
    Here's what you said:

    Republicans always complain about government involvement and regulation. Today's financial crisis is a product of a philosophy the Republicans embrace, even today - get government off the backs of businesses.

    The meaning of this is clear - you specifically blame the financial crisis on the Republicans and their ideology in one fell swoop.

    All I'm saying is that it's convenient for partisan purposes, but we want to be honest with each other we will admit that the reality is more complicated than that.

    And I'm not even or have ever been a Republican.

    Parent

    That's where you're wrong. (5.00 / 1) (#34)
    by rooge04 on Wed Sep 17, 2008 at 08:36:25 AM EST
    It really IS that simple. Republican ideology at work for the past 8 years.  It's NOT more complicated than that actually.

    Parent
    Inigo Montoya seems appropriate here (none / 0) (#36)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:39:43 AM EST
    Do you know what the word "embrace" means?

    Parent
    Do you then (none / 0) (#59)
    by Faust on Wed Sep 17, 2008 at 09:58:05 AM EST
    have no ideology? Your thesis is that people arrange facts based on their ideology, their presupositions. Ok that's right in line with cognitive schema theory. So what is YOUR ideology? What facts are YOU cutting to suit your purposes? Or are you the only objective fellow in the room? Perhaps the reason this conversation is "going nowhere" is that you have yet to establish the presupositions that you are arguing from other than the general "both parties are equally responsible" Naderism.

    Parent
    Non-responsive (none / 0) (#28)
    by Steve M on Wed Sep 17, 2008 at 08:28:18 AM EST
    You seem to know nothing about the actual issue; all you have is a cut-and-paste gotcha from a right-wing blog.  I'm not going to waste any more time on you.

    Parent
    Since (none / 0) (#16)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:15:00 AM EST
    Freddie and Fannie were perceived as government backed institutions (which they now have basically become de facto) it is rather not to the point.

    Indeed, the fact that the Republican Congress did a bad job of oversight of Freddie and Fannie is irrelevant to the failings of Republican ideology.

    But please answer some of my questions.

    Parent

    Frankly, I'm amused (none / 0) (#20)
    by Polkan on Wed Sep 17, 2008 at 08:19:54 AM EST
    by the irony of the fact that you seem to be criticizing Republicans for proposing more regulation that was designed to prevent balooning loans.

    Parent
    The notion (5.00 / 3) (#26)
    by Steve M on Wed Sep 17, 2008 at 08:26:32 AM EST
    that the Republicans were interested in reining in the housing bubble circa 2003 is a bad joke.

    They had a million different ways to propose tougher regulation of the private mortgage lending industry if that was their true objective.

    Parent

    It is amusing to me (5.00 / 2) (#29)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:28:46 AM EST
    That you think I am criticizing Republicans for proposing more regulation.

    IF regulation was good enough for Freddie Mac and Fannie Mae, what about for Wall Street?

    You simply want to ignore what the Republicans have said.

    You have been called on it repeatedly and have no response. Which seems about right frankly.

    Parent

    BTD (5.00 / 1) (#38)
    by Polkan on Wed Sep 17, 2008 at 08:48:31 AM EST
    This is going nowhere.

    I understand your position to be that Republicans got the opportunity to implement their idelogy into practice and that gave us the financial crisis.

    I have a lot of respect for you and always read your posts, but I simply cannot accept an assumption that once GOP got the majority, the Democrats just rolled over and let them do whatever they wanted without fight, compromise, negotiations, objections and back-and-forth.

    It's not possible for any party to implement "pure" version of their ideology. It has never been possible. Every piece of legislation or regulation is a product negotiation. What about control of Congress during the Clinton years?

    So, while I agree with your point about the Republican ideology in principle, I don't agree that the real life is just as black and white.

    Parent

    Heh (5.00 / 1) (#43)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:58:17 AM EST
    This is just too funny:

    I simply cannot accept an assumption that once GOP got the majority, the Democrats just rolled over and let them do whatever they wanted without fight, compromise, negotiations, objections and back-and-forth.

    Have you watched THIS DEMOCRATIC Congress in action?

    Thanks for the laugh.

    Parent

    Yes I did (5.00 / 1) (#51)
    by Polkan on Wed Sep 17, 2008 at 09:14:06 AM EST
    including the manipulations on yesterday's energy bill.

    But my bigger point is this: why would any political party have such an "extreme" ideology that, if ever implemented, would put it out of power forever because of the damage inflicted on the country and the voters?

    This beliefe only makes sense from a partisan point of view.

    I understand the practical value of partisanship in any election year, but I don't think it's truly honest intellectually.

    I don't support Republicans because I don't agree with many of their positions, not because I think they are "extremists" out to destroy.

    And I think the responsibility for the current financial crisis sits with both parties, because an incumbent party can never govern alone.

    Parent

    holy cow, that's just too (none / 0) (#78)
    by cpinva on Wed Sep 17, 2008 at 11:03:34 AM EST
    f*ing funny!

    But my bigger point is this: why would any political party have such an "extreme" ideology that, if ever implemented, would put it out of power forever because of the damage inflicted on the country and the voters?

    that's just exactly what the bush II admin. did, with the complicity of a republican majority congress, during it's first 4 years in office, or were you living in a cave somewhere?

    and yet, in spite of the obvious damage to the average american's financial situation, they convinced enough of them that "terrorism" was the greater immediate threat to their personal security, and that only they could deal with it effectively. the media went along with this nonsense. guess who owns the media?

    amazingly (according to your premise), the managed to win in 2004. go figure.

    since at least the reagan administration, the republican party mantra has been "the only good regulation of business is no regulation of business. oh, and by the way, pass the taxpayer's money along to us when we screw up."

    for you to even argue that it's bipartisan, in any meaninful way, demonstrates your complete lack of knowledge of the issue.

    Parent

    Well, then (none / 0) (#83)
    by Polkan on Wed Sep 17, 2008 at 11:17:28 AM EST
    I guess you are one of those Kos foot soldiers who think they live in a country where people are very stupid because they allow Obama and McCain to be essentially tied in the polls.

    Oh, if only they could knew what you know... et al.

    Parent

    No. My view is (none / 0) (#8)
    by Polkan on Wed Sep 17, 2008 at 08:03:02 AM EST
    the definition of "objective fact" changes depending on the political leanings.

    From Reason, a "tooth and claw capitalism" libertarian magainze, on the 2008 Republican platform:

    Far from shrinking the federal government, the Republicans want to enlarge it, providing "aid to those hurt by the housing crisis," solving "the energy crisis" (undeterred by the Carteresque connotations of that phrase), "expanding access to higher education," seeking "a major expansion of support" for certain kinds of stem cell research, even "returning Americans to the moon as a step toward a mission to Mars." The platform does not explain how these initiatives qualify as "legitimate constitutional functions."

    Are we honestly looking for "tooth and claw" capitalism proponents, or are we looking for a nice angle on which we can campaign?

    Parent

    The "obejctive fact" of (5.00 / 4) (#11)
    by rooge04 on Wed Sep 17, 2008 at 08:09:08 AM EST
    Republican ideology is not arguable. It's what they stand for. It's the entire BASIS of their platform. Whether they lie and cheat and go back and forth on it is one thing. But the objective facts it that Republicans stand for little to no regulation.  Your argument is not sound. At all.

    Parent
    You evade my question (5.00 / 2) (#12)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:10:45 AM EST
    and then cite a Libertarian who actually makes my point - that Republicans are hypocrites.

    You clearly do NOT want to discuss facts,. You want to make the Naderite argument that Dems and Republicans are the same.

    I do not see what you think you are doing. Why not address my points. I'll address yours - thanks for citing an article that agrees with me.

    Parent

    I did (none / 0) (#17)
    by Polkan on Wed Sep 17, 2008 at 08:15:18 AM EST
    it's downthread.

    Parent
    BTW (5.00 / 1) (#35)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:38:04 AM EST
    Here is Barney Frank expounding on the Democratic view of government regulation:

    Why America needs a little less laissez-faire

    As we prepare for this autumn's election, the results are in on America's 30-year experiment with radical economic deregulation. Income inequality has risen to levels not seen since the 1920s and the collapse of the unregulated portion of the mortgage and secondary markets threatens the health of the overall economy.

    These two economic failures will be major issues in the forthcoming presidential election, and, importantly, there is an emerging Democratic consensus standing in sharp contrast to the laisser faire Republican approach.

    There are two central elements of this consensus. Democrats believe that government's role as regulator is essential in maintaining confidence in the integrity and fairness of markets, and we believe that economic growth alone is not enough to reverse unacceptable levels of income inequality. In the wake of the subprime mortgage crisis, credit markets round the world contracted sharply in response to concerns among market participants about the value of exotic and opaque securities being offered in largely unregulated secondary markets. This staggering implosion and its damaging and widespread reverberations make it clear that a mature capitalist economy is as likely to suffer from too little regulation as from too much.

    With respect to income inequality, since the end of the last recession - a period of steady economic growth - average earnings for the vast majority of workers have fallen in real terms. During this period, after-tax incomes of the top 1 per cent nearly doubled.

    Whether because of globalisation, technology or other factors, it is clear that market forces have produced too much inequality and government has not adequately used its capacity to mitigate the impact of these forces.

    Conservatives have long argued that government efforts to address these issues would damage the economy. They are, of course, the same people who predicted that there would be an economic disaster after Bill Clinton and the Democratic Congress raised marginal tax rates in 1993, and who opposed other tax increases on upper-income people. Economic growth in the ensuing years was among the strongest in the postwar era. It is now clear that growth in the private sector is consistent with a far greater variation in many aspects of public policy - including taxation and regulation - than conservatives claim. In fact, appropriate intervention with respect to prudential market regulation is necessary to promote growth, and its absence - as we have learned - can retard it.

    As recently as a year ago, one often heard the argument that US financial activity would migrate offshore unless we moved to further deregulate markets. There is little evidence to support this claim. In fact, it is now clear that what has been migrating to the rest of the world are the problems associated with securities based on bad loans - often originated by unregulated institutions in the US. Banks in the UK and Germany were forced to close, either as a result of holding large portfolios of these securities or because they could not roll over debt backed by them.

    Widespread securitisation, and use of the "originate to distribute" model, has turned out to be far less than the unmitigated boon it had once appeared.

    The market did its job with great efficiency in exploiting the benefits of securitisation but government failed to make good on its responsibilities. The failure of regulation to keep pace with innovation left us with no replacement for the discipline provided by the lender-borrower relationship that securitisation dissolves. Increasing and largely unregulated leverage multiplies the corrosive effect of this change.

    In response to the current crisis, it appears that the regulatory tide may, at long last, be turning.

    In 1994 a Democratic Congress - the last before the Republican takeover marked the arrival of the deregulators - passed the homeowners equity protection act, giving the Federal Reserve the power to regulate all home mortgage loans. The avatar of deregulation, Alan Greenspan, then Fed chairman, flatly refused to use any of that authority.

    In contrast, today's Fed will soon issue rules using that authority. That represents a significant repudiation of the previous view. While the proposals made by the Democratic presidential candidates differ in detail, they are to a substantial extent consistent with the argument I have made here. Their Republican counterparts continue to advocate the hands-off approach pursued by the Bush administration. As a result, we are likely to have a healthy debate about the role of government in supporting a robust capitalist economy in the 21st century. It is important to note that this debate is not about policy details but represents fundamentally different views about the nature of our modern economy.

    I believe the American people will decide that we should enact policies that seek to curb growing inequality and provide some check on market excesses.

    And you deny this idoeological divide.

    You clearly are not serious.

    Parent

    No you did not (none / 0) (#30)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:29:06 AM EST
    You are right, objective fact may stem from (none / 0) (#97)
    by vicndabx on Wed Sep 17, 2008 at 12:57:30 PM EST
    political leanings.  However that's not the point of the thread, or the question posed.  You would agree the party in power controls the agenda, no?  You would agree the minority party basically has to go along to get along, albeit w/some minor concessions so that there's no gridlock?  If these are true, then to put it in perspective, the dems only recently were on the ascendance, thus the policies/regulation we've implemented (or lack thereof) have largely been biased toward a free-market (usually Republican) perspective/starting point.  I.e. we've basically done things the way republicans wanted things done.  Who's fault this is, or whether dems pushed back enough or went along is irrelevant.  The point is, the policies don't have a dem party starting point.  So, if that's the case, the question is, at what point do we say the republican economy experiment, i.e. policy viewpoint, has failed?

    Parent
    Not responsive (5.00 / 1) (#5)
    by Molly Bloom on Wed Sep 17, 2008 at 08:00:07 AM EST
    The "they did it too" is not responsive.

    DO you or DON'T you agree with either of the two premises presented:

    1. DO you or DON'T you agree that if financial institutions want taxpayer funds, taxpayers are entitled to oversight of those institutions?
    2. DO you or DON'T you agree that as a general proposition Republicans OPPOSE government regulation?

     

    Parent
    Great clarification! (none / 0) (#41)
    by befuddledvoter on Wed Sep 17, 2008 at 08:55:18 AM EST
    thanks

    Parent
    What (none / 0) (#54)
    by Abdul Abulbul Amir on Wed Sep 17, 2008 at 09:23:21 AM EST

    What does a general opposition to regulation that favors special interest groups have to do with Fan and Fred that are government created operations?

    Where is Republican the opposition to regulation of Fan and Fred?  

    Parent

    You are changing the premise (5.00 / 1) (#58)
    by Molly Bloom on Wed Sep 17, 2008 at 09:53:21 AM EST
    of BTD's post.

    Why can't you stay on subject?

    Secondly regulation isn't supposed to favor special interests. What happens is special interests "capture the regulators" by supporting conservative Republicans who appoint people who fundamentally don't believe in the purpose of the administrative agency and propose regs that water down the regulation or just don't enforce them- see Watt, James, or Chao, Elaine, etc. The beauty of this, is you don't have to campaign against regulations most voters would support, and if you are successful you get to claim government doesn't work in general and regulatory agencies don't work in particular.  

    Finally as explained by others, this wasn't an attempt to regulate. If the GOP wanted to regulate FNMA or FHLMC they could have done so during in a variety of ways as BTD points out. Ignoring answers that have already been given because they undercut your argument only works if your audience has a short attention span.

    Parent

    The premise is (none / 0) (#61)
    by Polkan on Wed Sep 17, 2008 at 10:08:02 AM EST
    that the republican ideology is "extreme". That's the only problem with BTD's premise.

    You can brand that ideology in two ways:

    • "Extreme"
    • "Wrong"

    Extreme leads to categorical wholesale dismissal, it's not borne out by longevity of that ideology and is weakened by the reality of our system of government (inevitable bi-partisanship due to lack of overwhelming majorities).

    Wrong leads to a discussion of positions based on their perceived merit relative to each other.

    Parent

    That is not the premise of BTD's post (none / 0) (#64)
    by Molly Bloom on Wed Sep 17, 2008 at 10:33:37 AM EST
    and it is mendacious of you to suggest so.

    His post is about their historic opposition to any government regulation and interference in the so called free market and their hypocrisy on this point.  

    Republicans always complain about government involvement and regulation. Today's financial crisis is a product of a philosophy the Republicans embrace, even today - get government off the backs of businesses.

    The chances of Republicans supporting this would be a negative 100. And yet, this government bailout is not being attacked. Why? Because Republicans are hypocrites, that's why. In the end, they do not believe in the free market capitalism they claim to espouse.

    You either cannot read or you are mendacious. Either way, you have forfeited being taken seriously.

    Parent

    Perhaps you need to look at the title again (none / 0) (#71)
    by Polkan on Wed Sep 17, 2008 at 10:56:46 AM EST
    "Systemic Risk And The Extreme Republican Philosophy"

    I disagree with the title and with the substance. Both are the talking points that have nothing to do with reality. It's impossible to be extremist and politically viable at the same time.

    They do not call for elimination of any government regulation, they call for better efficiency.

    Again, I prefer to argue the merits of both ideologies, but I disagree that one is extremist and the other is pure salvation.

    Parent

    It is both extreme and wrong... (none / 0) (#68)
    by alexei on Wed Sep 17, 2008 at 10:49:40 AM EST
    This is not a bi-polar choice. How is no regulation not an extreme position?  How is let the market do its thing, but, have tax payer bail outs to these corporations not hypocritical?

    Parent
    No regulation is not a position. (none / 0) (#73)
    by Polkan on Wed Sep 17, 2008 at 10:57:39 AM EST
    Huh? (5.00 / 2) (#7)
    by rooge04 on Wed Sep 17, 2008 at 08:02:33 AM EST
    This is Republican ideology. This is what happens when Republicans gained control. It's what they believe and what they enacted. That's a FACT. It's not "election year blaming." Why do you think they had to attack Gore in 2000 with bringing "values" back to the White House? Because they could not blame the economic good times on Bill, could they?

    What's happening now is the perfect example of Republican ideas at work.  Republicans may not try to own Bush now that he's so hated...but he's a perfect conservative for them.  THIS is exactly what happens when they get the reins.  It has nothing to do with election years.

    Parent

    Even though this conservative (5.00 / 2) (#37)
    by inclusiveheart on Wed Sep 17, 2008 at 08:47:31 AM EST
    experiment in alchemy has proved to be a massive failure, there will always be someone who claims that they did manage to make gold.  That's what dedicated alchemists do.

    Parent
    No one will believe (5.00 / 2) (#52)
    by Steve M on Wed Sep 17, 2008 at 09:15:07 AM EST
    that the GOP has been anything other than the party of radical deregulation for the last three decades, except maybe that one guy in this thread.

    Maybe if McCain weren't on record just 6 months ago saying that he "always favors less regulation" and that he is "fundamentally a deregulator" his newest effort to reinvent himself as a Democrat might be more persuasive.

    Parent

    Except (5.00 / 3) (#55)
    by Molly Bloom on Wed Sep 17, 2008 at 09:33:04 AM EST
    Conservatives are good at least two things:  

    1. Convincing themselves that their failures is not  a failure of ideology, rather the conservatives in power weren't really conservative.
    2.Convincing themselves that Congress at all times is made up of a super majority of liberals.

    Thus the failure is never the fault of conservatives.

    The number of voters who think this way is roughly the same as still approve of Bush - its hard to measure, because conservatives now don't think Bush is a true conservative and therefore disapprove of him.

    Parent

    True and there's always the good (5.00 / 1) (#56)
    by inclusiveheart on Wed Sep 17, 2008 at 09:45:33 AM EST
    old "evil speculators" go-to on this economic collapse issue.  The GOP did a pretty good job of convincing a portion of the public that the mortgage crisis was the fault of speculators and arrogant borrowers for a while there.  Totally ignoring the fact that it is the lender's responsibility to properly and fairly assess their risk when they lend money to someone.  If at that point they had allowed Americans to consider the financial institutions' failure to protect themselves properly, they would have had to admit that regulation was called for now that we've seen how frankly stupid these supposed Wall Street geniuses can be.

    Parent
    Sooo true. (5.00 / 3) (#86)
    by rooge04 on Wed Sep 17, 2008 at 11:31:26 AM EST
    I hear from conservatives: "But Bush is not a real conservative!" Well, now that he's awful you don't want him to be.  But he most certainly is. He and his whole tenure have been the perfect Republican mold. And the perfect Republican mold is absolutely awful for the country.  They try to throw Bush back now...now that their ideology has been proven completely wrong.

    Parent
    It is kind of funny really. (5.00 / 1) (#88)
    by inclusiveheart on Wed Sep 17, 2008 at 11:51:33 AM EST
    One can imagine a conversation between some conservative complaining to Bush that he hasn't turned out to be a conservative governor and Bush saying in that whining tone he has, "It's hard work."

    Sure is because if you stick to their ideology in governing stuff like leaving drowning victims in the aftermath of a hurricane people get really super mad at you regardless of how popular your conservative ideology seems to be in theory.

    In theory conservative governance may look good, but when it is put into practice the conservative philosophy is a real train wreck.

    Parent

    LOL. Too true. (none / 0) (#39)
    by rooge04 on Wed Sep 17, 2008 at 08:49:15 AM EST
    "purely partisan" (none / 0) (#79)
    by coigue on Wed Sep 17, 2008 at 11:12:22 AM EST
    assumes there are no real differences between the parties' platforms, and that all this is about is who gets blamed.

    I have a huge problem with that view.

    Parent

    Party platform (none / 0) (#84)
    by hookfan on Wed Sep 17, 2008 at 11:23:37 AM EST
    is one thing. party practice is another. As far as I can tell the Democratic controlled congress hasn't fought against the Bush agenda but has caved to it or been complicit in it regardless of their "platform".

    Parent
    Yes..because 1.5 years (none / 0) (#89)
    by coigue on Wed Sep 17, 2008 at 11:55:28 AM EST
    with a small majority in the House is sooooooo much power for them to push their platform.

    (notice the subtle sarcasm?)

    Parent

    Note to you (none / 0) (#92)
    by hookfan on Wed Sep 17, 2008 at 12:12:48 PM EST
    it wasn't only republicans that joined in not performing what the democrats were elected to do. The democrats themselves prevented it. I hear the howling of the "blue dogs" serviced by Hoyer and pelosi. I know that doesn't fit well with "repubs are extremist" meme. but it is what happened. There is no guarantee with a bigger majority it would be any different-- especially when the "leadership" so called, in actual practice supports the status quo.
      I doubt they (Pelosi, Hoyer, and co.)are the poor victims you describe.  

    Parent
    blue dogs are blue dogs (none / 0) (#96)
    by coigue on Wed Sep 17, 2008 at 12:54:36 PM EST
    but you're stance depends upon the presupposition that culture can be changed overnight. That goes for culture at large AND the culture in Washington. Both have taken a huge goose step to the right and it will take years of inching back to get us back to the center. Bush has completely reemed liberals out of Washington, including federal government civil servants and K street lobbyists. This shoelace is tied in knots with conservatives, and it will take a smart hand and time to untie them.

    Parent
    True (5.00 / 1) (#98)
    by hookfan on Wed Sep 17, 2008 at 01:50:24 PM EST
    and my point is that "culture" includes both dems and repubs, inclusive of both parties' leadership. Having more dems of the same "culture" wont move anything towards the center or left regardless what the platform says. they will continue to do the same  until replaced by those who "do" differently. Lotsa luck with that project as long as big money is involved.
       Second, if both parties are and have been involved in establishing this debacle (regardless of what they say they want), then it's faulty to only ascribe it to republicans. A house cleaning of both parties is warranted. But good luck with that.

    Parent
    They aren't of the same culture (5.00 / 1) (#99)
    by coigue on Wed Sep 17, 2008 at 01:54:51 PM EST
    for the most part. The blue dogs are, yes; many are going along to get along, but they are like sleeper cells....ready for theor moment. If they act too soon, they will lose office. Then there are others who stand and fight. Like with the general population, those are rare and precious.

    So I am more circumspect than cynical, and when "going along" means following the Dem platform, they will.

    Parent

    Sorry Big Tent (5.00 / 2) (#19)
    by coast on Wed Sep 17, 2008 at 08:18:04 AM EST
    But your wrong on this specific subject.  Yes, in general Rublicans believe regulation stymies capitalism, but Fan and Fred the Republicans had it right.  As pointed out in the article posted by Polkan, the administration attempted to fix Fan and Fred, believe it or not through more regulation or "oversight".  However their efforts were repeated rebuffed by Barney Frank and others in Congress who believed that it would limit the avaiablity of funds to those who obtain funds thru Fred and Fan programs.

    As this is an election year, the blame game will continue and nothing will be done.  Unless of course you call empty rehtoric from Obama, Commissions from McCain or more hearings from Pelosi (No Repsonsibility...yeh right) as something getting done.

    No. They tried (none / 0) (#24)
    by rooge04 on Wed Sep 17, 2008 at 08:23:35 AM EST
    to fix Fannie and Freddie by putting Republicans (and their ideology) in charge.  You are completely wrong on this.

    Parent
    If that is true then (5.00 / 2) (#57)
    by Wile ECoyote on Wed Sep 17, 2008 at 09:50:45 AM EST
    why is:
    James A. Johnson - former Fannie Mae CEO and Obama Advisor

    Franklin Raines - former Fannie Mae CEO and Obama Advisor

    Parent

    They did? (none / 0) (#25)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:26:01 AM EST
    They did nothing. What did they get right?

    Link to 2004 article:

    The Senate Bill

    Ever since it opposed a House bill that it characterized as too weak, the Treasury Department had been insisting that the administration had three bottom-line, nonnegotiable demands for any regulator of Fannie Mae and Freddie Mac: (1) the power to adjust the GSEs' capital requirements, including the imposition of a leverage ratio in addition to a minimum level of risk-based capital; (2) the authority to control the GSEs' mission-that is, to approve or disapprove of new activities; and (3) the ability to act as a receiver in the event of a GSE's insolvency, with the usual receiver's power to marshal assets and impose losses on classes of investors and creditors.

    Although unusual in Washington, the administration's position does not appear to have been part of a bargaining process. When the legislation came before the Senate committee, the administration insisted on its minimum demands, and when the bill came out of committee with a weaker receivership provision than it wanted, the Treasury publicly opposed the bill. Fannie was not willing to compromise either. Despite statements by Franklin Raines that Fannie wanted a strong regulator-most recently at an AEI luncheon address in February 2004[1]--the company implacably opposed almost every major provision of the Senate bill. Many observers saw Fannie's position as a product of the close presidential election: because of Fannie's close ties to the Democratic Party, a Kerry victory in November would likely end the threat of tougher regulation for the foreseeable future.

    But in the absence of a Kerry victory, the Senate bill will hang over Fannie and Freddie like a dark cloud, until the extent of the new regulator's authority is determined. Not only was the new regulator given the power to increase minimum and risk-based capital, but under the Senate bill the same regulator would have the power to disapprove new activities if they were not deemed to be in "the public interest." This language would significantly impair the GSEs' ability to enter new activities by pointing to very broad language in their charters. The new regulator would also have receivership powers, but they would be subject to a forty-five-day period during which Congress could overturn the regulator's appointment of a receiver. The weakening of this provision caused the chairman of the committee, Senator Richard Shelby (R-Ala.), and the administration, to disavow the bill in the form that the committee has passed.

    But the bill contains more unwelcome news for Fannie and Freddie. Among other things, it requires them to set aside 5 percent of their pretax earnings in an affordable housing fund, tightens the definition of low-income housing so that it applies to incomes that are 60 percent of median income (instead of 80 percent), and requires the GSEs to lead the market in extending credit to subprime borrowers and the manufactured housing market. All of these mandates will increase risks and reduce profitability. It is again important to note that demands of this kind, which were advanced by the Democrats on the committee and supported by the Republicans, would probably not have been politically possible as recently as last year and were most likely the price the Democrats extracted for their virtually unanimous support of the GSEs' position in opposition to the bill.

    Last I looked, George Bush won the 2004 election. What happened?

    The Privatization Option

    With all these wolves circling just outside their camp, it is no longer possible to dismiss the idea that Fannie and Freddie will opt for privatization. Indeed, in comparison with the other courses available to them--accepting the Senate bill or continuing to oppose it--privatization is beginning to look attractive. If President Bush is reelected, the legislation adopted by the Senate Banking Committee this year will come back again in the next Congress, and probably in a stronger form. The regulatory portions will be difficult enough to accept, but it is almost impossible to imagine that the new affordable and low-income housing provisions--which will have significant adverse effects on the GSEs' profitability--can be eliminated from any new bill that passes Congress.

    If Congress acts, the new law will increase the likelihood of regulatory action to raise the GSEs' capital levels, reduce their ability to expand their activities into new areas of the economy, and require costly support of affordable and low-income housing. If the bill is not passed, its potential impact will continue to depress their stock prices. When the board of directors asks Franklin Raines for the plan that will move the company's stock price out of the doldrums, it is hard to see any strategy that will work. Moreover, if things proceed as they have over the past three months, Fannie and Freddie will continue to look like the Bad News Bears, as government agencies, members of Congress, members of the mortgage industry, affordable and low-income housing groups, a range of independent analysts, their free market critics, and the press pummel them with complaints and charges. Investors, under these circumstances, will continue to build a risk premium into their stock prices that will drive their price-earnings ratios even lower.

    Parent

    The last two grafs (none / 0) (#31)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:31:10 AM EST
    were from the article. Which is apt frankly, because that really was the GOP option - faux privatization of Fannie and Freddie.

    Parent
    Don't stop till you reach the end (5.00 / 1) (#93)
    by coast on Wed Sep 17, 2008 at 12:17:09 PM EST
    You should have read the entire article.  For one please explain theuse of the term "faux privatization".  Seems to me they were in this state already, profit making government entity with shareholders but with the appearance of having the full backing of the US Government.  Secondly, it appears to me that the article supports the fact that the administration wanted to get tough on the GSEs but were blocked by Democratic officials.  The whole point of your initial post was that Rebuplicans were against regulation.  Freddie and Fannie do not support this arguement because they wanted more oversight.  Other issues may support your premise, but not this one.  Lastly, if you read the article further, privitization of the two GSEs may have been the right way to go.  If you read what conditions they would have had to meet to truely be private, they include selling off their holdings of mortgage backed securities as well as winding down their securitazation activities.  These activities are exactly why we are where we are today.

    Parent
    Fannie and Freddie were the (none / 0) (#44)
    by inclusiveheart on Wed Sep 17, 2008 at 09:02:43 AM EST
    sleeper story behind the scenes when the GOP were trying to privatize Social Security.  It was never covered much in the media because the story was too complex and the approach to achieving Fannie and Freddie's full privatization or dismantling (which is probably where they really wanted to take them) was much more subtle - most Americans really probably weren't even aware of the importance of those institutions until this year.  In any case, people like Barney Frank have spent the last eight years trying to essentially hold the line on those institutions - keeping them limping along - until the Dems could get control back of the White House and Congress.  

    Parent
    There is no possible honest answer (5.00 / 1) (#21)
    by inclusiveheart on Wed Sep 17, 2008 at 08:20:05 AM EST
    to why any of these failures are good for the country.

    So instead their candidate claims that the "fundamentals are strong".

    What I'd really like to see is Phil Grahamm standing up in front of all those people working and trading daily on Wall Street and telling THEM that THEY are the WHINERS - why else would we have had such a huge drop in the market on Monday if they weren't wimpy whiners?  If they were tough they would have stayed in the market and not participated in that sell off right?  Sheesh.

    Interesting discussion (5.00 / 2) (#85)
    by Manuel on Wed Sep 17, 2008 at 11:26:51 AM EST
    It is undeniable that Republicans are strongly associated with deregulation, low taxes, and resistane to income redistribution programs.  It is also undeniable that over the last 30 years, these ideas have held prominence in the nation's governance (Isn't that what Obama meant when he said the Republians have been the party of ideas?).  The effect of these policies on the current financial crisis is more debatable.  Certainly these policies have had a role but a case can be made that the financial crisis is due to a fundamental misunderstanding of market risk on the part of market participants.  It isn't clear that more regulation or oversight would have avoided the current crisis or that new regulation and oversight will avoid future problems.  Without coming to grips with the nature of risk in modern markets, we are likely to continue to stumble from one crisis to another.  At least now it is accepted by almost everyone that the government has a leading role to play in stabilizing markets.

    Here is a book I recommend on this subject.

    Rather than defend their policies (4.80 / 5) (#4)
    by Steve M on Wed Sep 17, 2008 at 07:56:31 AM EST
    the McCain campaign seems to prefer whining about how Obama is trying to exploit the Wall Street crisis for political gain.  I've noticed this about Republicans, every time you bring up the actual consequences of their policies they cry like babies.

    Well yeah what choice do they have? (5.00 / 2) (#9)
    by Molly Bloom on Wed Sep 17, 2008 at 08:03:11 AM EST
    Admitting we are right and they are wrong tends to ruin their sales presentation.

    Parent
    Well, what I saw McCain do yesterday (none / 0) (#40)
    by inclusiveheart on Wed Sep 17, 2008 at 08:50:56 AM EST
    was to suddenly transform his sales pitch into an economic populist regulation guy - what they do is just steal the better sales pitch regardless of whether or not they actually intend to deliver on the goods.

    Parent
    BTW, this is not limited to Republicans! (5.00 / 1) (#69)
    by alexei on Wed Sep 17, 2008 at 10:51:50 AM EST
    I guess the choices do include lying (none / 0) (#42)
    by Molly Bloom on Wed Sep 17, 2008 at 08:56:33 AM EST
    Not that a POW would lie.

    Parent
    The media seems (none / 0) (#13)
    by Ga6thDem on Wed Sep 17, 2008 at 08:11:05 AM EST
    to be playing along with this too. On yahoo there are clips of McCain's and Obama's speech. McCain is bascially saying that Obama is trying to take political advantage of the situation (which of course he is) and then a clip of Obama talking about how bad things are. Switch to the reporters who then say Obama's solutin is 15 billion dollars in new spending and then they start talking about an expensive fundraiser with Barbara Streisand.

    This is what irritates me about the media.

    Parent

    ya (none / 0) (#49)
    by connecticut yankee on Wed Sep 17, 2008 at 09:11:23 AM EST
    McCain's entire campaign strategy involves him walking around in diapers crying his eyes out that he's not treated fairly by life.  All while throwing mud as hard as he can.

    It's just bizarre.  

    Parent

    Honest Republican (4.50 / 2) (#6)
    by Lahdee on Wed Sep 17, 2008 at 08:02:10 AM EST
    Now there's a true oxymoron.

    Fan and Fred (none / 0) (#3)
    by Abdul Abulbul Amir on Wed Sep 17, 2008 at 07:55:01 AM EST

    Of course Fan and Fred were even worse at this.  Staffed with political types at multi-million dollar salaries and making big political contributions to the likes of Dodd and BHO, we have in a government sponsored enterprise the worst of the worst.

    And the Bush Administration (none / 0) (#15)
    by Big Tent Democrat on Wed Sep 17, 2008 at 08:12:27 AM EST
    and the Republican Congress failed in their oversight duties regarding Fannie and Freddie, which were implicitly back by the government.

    Proving their incompetence.

    But I am arguing about ideology.

    Parent

    Republican Congress? (none / 0) (#48)
    by Abdul Abulbul Amir on Wed Sep 17, 2008 at 09:11:11 AM EST

    ?

    Parent
    Yep (none / 0) (#53)
    by Big Tent Democrat on Wed Sep 17, 2008 at 09:19:06 AM EST
    Until January 2007.

    Parent
    But isn't this the issue (none / 0) (#66)
    by hookfan on Wed Sep 17, 2008 at 10:38:24 AM EST
    with labeling the extreme capitalism exclusively a "republican" problem? Since the Democratic congress took over, what have they done to fight this pernicious view? Indeed, haven't the "bluedog" Democrats in Pelosi's congress been pandered too? what of Steny Hoyer's k-street projects? And isn't Pelosi and co. the ones who back Obama? and hasn't Obama here-to-fore praised Reagan, attempted to woo republicans? Seems to me that the Democrats in congress mostly have sought to participate in the financial rape of the US while putting on a theatre of saying they oppose it, merely to give themselves cover to blame republicans.
      For me, unless I'm corrected, it really looks like a choice between those who say they oppose this view, but willingly participate in it, and those who espouse it except when it bites them.

    Parent
    Ideology and 'incompetence" (none / 0) (#75)
    by KeysDan on Wed Sep 17, 2008 at 11:00:30 AM EST
    seem interrelated in this case.   If the laws and regulations could not just yet be overturned, then re-invent their implementation. If necessary, the Republicans could hide effectively (as Ed Meese seems to have taught them) behind human frailty. If caught, then, we just have a few bad apples and we can turn the rascals out (not the party, just the rascals).  The section of President Clinton's speech regarding the chance Republicans got in 200l to reverse the 'treasonous' New Deal and Great Society ideas and replace them with their long-held politically genetic ideology, was the part that I felt should become the bedrock of the Obama campaign.  

    Parent
    Stiglitz (none / 0) (#18)
    by Melchizedek on Wed Sep 17, 2008 at 08:15:34 AM EST
    has been one of the Economists for Obama since April. I hope he would get a prominent role in the Obama administration. His work on asymmetrical information can play a crucial role in exposing some of the free-market theology of the right.

    A pattern (none / 0) (#45)
    by Lou Grinzo on Wed Sep 17, 2008 at 09:03:03 AM EST
    This whole financial sector mess has a stunning parallel in the car business.  The Big Three are famous for doing their best to block any and all regulation, including those regarding safety and improved fuel efficiency, then when they get into very serious trouble because they're trying to build and sell product linesups that are wildly out of step with the consumers' desires, they start screaming for $25 to $50 billion in help.

    The problem is that many of these car and financial companies really are "too big to fail".  Let them "get what they deserve" for their bad decisions, and many thousands of innocent people will be harmed, and the overall economy will take a huge hit.

    My .02 (none / 0) (#46)
    by befuddledvoter on Wed Sep 17, 2008 at 09:05:46 AM EST
    from someone who owns very little and watches the economy on the sidelines with no special expertise or training on economic matters:

    1.  Repubs say, and have said, leave business alone; free market results in prosperity and security for all.  So, for the most part this was implemented by Repubs.  No regulation needed or desirable as this will frustrate the free market.

    2.  Huge financial institutions in crisis and failing; government spends our tax dollars to shore up the economy; stocks plummet; businesses fail; people loose jobs; pensions are in jeopardy.

    3.  Dems want to regulate.  Dems blame Repub incompetence on the economy.  Dems get it right.

     

    Errata (none / 0) (#47)
    by befuddledvoter on Wed Sep 17, 2008 at 09:08:11 AM EST
    Dems blame economy on Repub. incompetence.  LOL But the other way sounds equally plausible.

    Parent
    well (none / 0) (#50)
    by connecticut yankee on Wed Sep 17, 2008 at 09:13:16 AM EST
    I've had trouble dealing with AIG in the past so I'm kinda bummed they were bailed out. lol.

    But paying a premium for potential bail out insurance (tied to behavior standards), makes sense.

    I would like to weigh in (none / 0) (#60)
    by Prof G on Wed Sep 17, 2008 at 10:05:01 AM EST
    on Stiglitz' article.  He is a great economist, but I am extremely disappointed in his analysis.

    1.  First and foremost, he completely ignores the upside of financial deregulation and innovation.  The economy has experienced a sustained period of growth, interrupted only by the very mild 2001 recession.  Moreover, there is little evidence as yet that the current crisis, which after all is a year old, has had any important effects on output, employment or productivity.

    2.  He seems to assume that the crisis is a matter of insolvency (assets are worthless and should be eliminated) rather than illiquidity (assets are valuable but are jeopardized by an inability to obtain cash in the short run, i.e., a "credit crunch").  Interventions can be justified to the extent that illiquidity threatens otherwise valuable assets.  

    3.  A big part of the problem is the failure of the market to price assets correctly.  A price bubble leads to inefficient overinvestment in assets (e.g., housing), while a price collapse can lead to inefficient liquidation.  This important dimension of the problem has little to do with regulation or the Bush Administration, but plenty to do with monetary policymakers to the extent that excessive provision of liquidity can feed price bubbles.

    4.  Nearly all observers agree that at least some tightening of regulation is called for.  But I am disheartened, but not surprised, at how the leading explanation for the housing bubble and subsequent collapse, Greenspan's misguided overexpansion of liquidity, has been dropped in favor of vague attacks on financial managers, the Bush Administration and Republicans in general.  Moreover, Stiglitz gives no details as to the kind of regulation he favors.


    Greenspan and Lax Oversight (5.00 / 1) (#91)
    by santarita on Wed Sep 17, 2008 at 12:12:31 PM EST
    I don't forget the role that Greenspan's interest rate actions played in fueling the real estate bubble.  After a while only ostriches with their heads in the sand thought that there would not be a day of reckoning when mortgage rates would start rising to the point that the real estate prices would at best level off.  But there were a lot of ostriches out there.  Perhaps regulators who were interested in making sure that their supervised institutions did deals but also that their risk management practices were sound in theory and in practices might have put some brakes on the irrational exuberance.

    Parent
    my 2 cents (none / 0) (#65)
    by Xclusionary Rule 4ever on Wed Sep 17, 2008 at 10:35:45 AM EST
    The economy has experienced a sustained period of growth, interrupted only by the very mild 2001 recession.  Moreover, there is little evidence as yet that the current crisis, which after all is a year old, has had any important effects on output, employment or productivity.

    When I see a drop in the value of my home equity, a plunge in my 401k value, and a depressed market for my firm's services, it affects my ability to employ people, my confidence that my hard work is getting me somewhere, and my willingness to trust in financial institutions that control my personal future and my kids' education funds. Growth is fine, but only when the money is spread around.  It seems like only a few have been really making out over the past decade.  I can't pay my mortgage with statistics.

    Parent

    You are referring to (none / 0) (#70)
    by Prof G on Wed Sep 17, 2008 at 10:54:10 AM EST
    the effect of the mortgage crisis (which began in late Summer 2007) on the distribution of income and wealth.  Anecdotal observations notwithstanding, I am not aware of evidence pointing to a significant worsening of income distribution measures (e.g., labor share of income) over this period.  Adverse distributional consequences certainly are a possibility, however.

    Parent
    I have always wanted a nationalized insurance company.  There is no excuse for private insurance companies, who make their money gambling.  I just hope we take over AIG and run it for the benefit of the people instead of bailing them out and leaving them private.

    It's time to intelligently reassess our negative position on nationalizing certain industries.  If private industry was subject to the open records laws and freedom of information act, their image as better managers than the government would be shattered.  Our government runs things very well - witness the armed forces, medicare, air traffic controllers, national parks, Hoover Dam, NASA and interstate highway system.  More things should be run by the government, in the open, for the benefit of the people.  

    Government-run institutions didn't go under this week.  I believe it was three privately owned institutions! NEVER NEVER privatize social security.  

    But Fannie Mae and Freddie Mac (5.00 / 1) (#72)
    by Prof G on Wed Sep 17, 2008 at 10:56:59 AM EST
    did run into trouble.  And don't forget that mismanagement of Japan's financial sector, heavily controlled by government, caused years of poor economic performance.

    Parent
    Fannie Mae and Freddie Mac... (none / 0) (#76)
    by alexei on Wed Sep 17, 2008 at 11:00:43 AM EST
    are not government entities, more like a hybrid (and not in a good way).  

    Parent
    Am I the only one reading the (none / 0) (#63)
    by frankly0 on Wed Sep 17, 2008 at 10:30:44 AM EST
    various accounts above, and who concludes that, on its merits, it's going to be nigh impossible to present a convincing case to the average voter as to who really should shoulder the blame?

    I'd expect that Obama should have by far the better of the argument, just because in most people's minds, I think, the success or failure of the economy is more tied to the policies of the administration of the President than those of Congress.

    The real question is whether he can take advantage of that political opportunity, or, instead, simply squanders it.

    Nah (none / 0) (#67)
    by Steve M on Wed Sep 17, 2008 at 10:40:36 AM EST
    I think people associate the Republicans with deregulation, and I think it's going to be pretty easy to blame the problems on deregulation, considering both Obama and McCain are out there talking about the need for tougher regulation.

    The only question is whether McCain can perform the ju-jitsu necessary to turn himself from a party-line deregulator into the new Teddy Roosevelt.  My guess is no.  But either way, I think people are going to get the idea that we went too far with deregulation.

    Parent

    My guess is that he has a chance... (5.00 / 1) (#74)
    by alexei on Wed Sep 17, 2008 at 10:59:28 AM EST
    with his "maverick" label and Palin's supposed anti-corruption crusade in Alaska. Don't expect any good from the media, even if they do go after McCain, the voters already believe that Obama has the "media darling" status, so, voters won't necessarily believe the media line about McCain.

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    Independent voters don't care (none / 0) (#77)
    by Prof G on Wed Sep 17, 2008 at 11:03:02 AM EST
    about the "blame game".  On this issue it is hard to link McCain to Bush (What specific bad deregulation was Bush responsible for?  Did McCain actually do anything to support Bush on this?).  All that matters is what the candidates propose to do about the crisis.

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    I am unaware (none / 0) (#81)
    by Steve M on Wed Sep 17, 2008 at 11:16:29 AM EST
    of any deregulation effort which McCain has opposed during his entire career in Congress.

    I disagree with you that independent voters care strictly about "what the candidates propose to do" and are incapable of looking at past records to assess which candidates are unlikely to keep their promises.

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    I do need to clarify. (5.00 / 1) (#87)
    by Prof G on Wed Sep 17, 2008 at 11:50:08 AM EST
    I think that blaming the crisis on McCain, and linking McCain to Bush as far as causing the crisis, will not persuade independent voters.  But of course these voters will study the candidates' records as they assess whether what they "propose to do" has any credibility.

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    He did in 2003 (none / 0) (#100)
    by Fitz on Thu Sep 18, 2008 at 03:46:43 PM EST
    In November 2003, John McCain Was Only One Of Three Republicans To Support A Feinstein Amendment That Would Have Closed The So-Called "Enron Loophole." Then-Senator Jon Corzine (D-NJ) Joined McCain To Vote For This Amendment. "Feinstein, D-Calif., amendment no. 2083 that would require the Federal Energy Regulatory Commission to promulgate regulations establishing an electronic information system to facilitate price transparency and participation in markets subject to the agency's jurisdiction. It also would prohibit "round trip" trades, which generate profit without any commodity actually changing hands, and it would increase criminal and civil penalties for violations of the Federal Power Act and general penalties of the Natural Gas Act." (H.R. 2673, CQ Vote #436: Rejected 41-56: R 3-48; D 37-8; I 1-0, 11/5/03. McCain Voted Yea)

    The amendment was aimed at closing what the sponsors called an `Enron loophole' in the three-year-old Commodity Futures Modernization Act."

    This would have curtailed a lot of the excess in the credit default swap market which took down Lehman and necessitated the takeover of AIG.


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    Except (none / 0) (#82)
    by CST on Wed Sep 17, 2008 at 11:16:58 AM EST
    McCain could put himself in hot water here.  If he starts proposing increased regulation, he will be called on it since he did call himself principally a de-regulater very recently.

    So if people decide regulation is what's needed, he could be in trouble not because of any specific Bush-related de-regulation, but because of his own personal statements.


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    McCain pitches himself (none / 0) (#90)
    by Prof G on Wed Sep 17, 2008 at 11:57:32 AM EST
    as a "maverick reformer".  "He pushed campaign finance reform, regulatory reform, etc."  "He attacked lobbyists, CEOs, etc."  The current crisis calls for "more reform".  Talking about his support for deregulation or the "Republican philosophy" probably misses the point of this pitch.

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    Too big to fail => Mandatory breakup (none / 0) (#80)
    by jerry on Wed Sep 17, 2008 at 11:14:56 AM EST
    In my field, we can't let anything become "too big to fail."  Quite the contrary, "Too big to fail" means lousy design with too much centralization, break it up into pieces that can fail and then let them fail, and ensure your failure procedures work smoothly.

    I think the idea of "catastrophic risk insurance" is reasonable, but companies should first be encouraged to break themselves up, or pay the risk insurance, and maybe still get broken up.

    "Too big to fail" should be seen as a national security threat to the American People.

    An Opportunity (none / 0) (#94)
    by santarita on Wed Sep 17, 2008 at 12:22:29 PM EST
    The next President will have functional control over Fannie Mae and Freddie Mac and, unless a knight (or knights) come along, AIG.  He will have the opportunity to make systemic changes in large segments of housing and financial services.  Other than talking about more regulation, more transparency and accountability, which are not really systemic changes, what does the next President want to see?