In a post yesterday, I argued that the current economic crisis is a result of the implementation of the Republican ideology of getting the government out of the markets and out of the economy. I questioned if Republicans would oppose government intervention and help. I argued that if Republicans were true to their ideology, they would argue that the current Wall Street meltdown is merely a function of the market at work and that the weeding of inefficiency through the failure of companies like Lehman Brothers and AIG would make us stronger. I must give the John McCain campaign credit. They are running an ad that argues against government. More . . .
It is interesting that McCain uses the imagery of a big government casting a shadow on the country. It is painfully clear that if we had had a big government casting a shadow on Wall Street shenanigans, the current crisis would not have happened. In January, Barney Frank wrote a prescient article on the ideological battle about governance at the heart of this election. He also participated in a roundtable with Mark Green where he made some great points:
GREEN Q: Is the mortgage-housing-banking crisis just the story of an economic bubble that's bursting, which happens every so often, or has this Administration's actions or inactions helped create this crisis?
FRANK: "Oh it's absolutely what you just said...Here is the fundamental point. Until maybe twenty years ago most mortgage loans were made by a regulated bank or credit union -- you got the loan from that entity and you paid them back. Then the financial geniuses came up with securitization. Now that has a lot of advantages because it can make your money move quicker. But basically what it says is, 'I will lend you the money, but I will than sell the right to collect from you to other people. And since I no longer am dependent on your repayment because I already made my money by selling your loan, it turns out people are less careful about it.'
It's really been a test of regulation...and conscious decision brought by Alan Greenspan, who is the arch de-regulator. Because in 1994, not coincidently the last time the Democrats had a congressional majority before this year, a bill was passed that was called the Home Owner Equity Protection Act, that said to the Federal Reserve, 'Look, we know have loans being made by non-regulated entities so please pass some rules. We give you the statutory authority to pass the rules to contain their activity and make it more responsible'. Alan Greenspan said, 'oh no, that's interfering with the market, I can't do that.' He didn't do it; that's where the crisis came. Fed Chair Ben Bernanke, to his credit, on Monday of this week finally used that authority, but if Greenspan had done 10 years ago what Bernanke did on Monday, we wouldn't be in nearly as bad as a situation."
. . . GREEN Q: In the historic tug-of-rope between free market Republicans and pro-regulation Democrats, could this be a moment that exposes the emptiness of free-market Republicans and boosts the arguments of pro-regulation Democrats?
FRANK: "You're absolutely right; it is almost comparable to the Depression. Look, a few years ago, a Republican appointee to the Securities Exchange Commission, Bill Donaldson, ordered hedge funds to simply register with the SEC. What a commotion! Oh, this was the end of the Earth! And the industry was actually able, in court, to overturn the order. The new SEC chair said 'Well, we're not going to do that again.' When I became Chairman a year and a half ago, it was 'you better deregulate or we're all going to Europe.' Last week, Secretary of the Treasury Paulson and Federal Reserve Chairman Bernanke, two Bush appointees, came before the committee I chair and said 'you know what, we better charter those hedge funds.' There is now a consensus that we have to give the Federal Reserve a great deal more authority over investment banks and hedge funds. So yes, this is a recession caused by structural problems that are the result of inadequate regulation. First, they allowed a lot of mortgage loans to be made that shouldn't have been made. Second, they allowed these various financial institutions that are unsupervised to sell each other these mortgage loans so that the poison was spread throughout the financial system."
This is a debate that Democrats, like Barney Frank has for years now, relish. Let's let McCain run on the extreme Republican ideology enacted by the Bush Administration. Let McCain and Republicans own their failures and tell the American People that is the right way to go.
Like Bill Clinton, I am confident the American People will say, thanks, but no thanks.
