Fingers are being pointed in every direction to blame all sides for the current economic crises. The Washington Times has a good article that outlines the major contributing factors to the crises. I am sure many readers will be disappointed at the lack of focus on Bush. In fact, it is over regulation, not deregulation, that was the key contributing factor to the crises.
"Once again, it is assumed that government bureaucrats can plan the direction of the economy better than millions of consumers and investors can. Bailout proponents also rest on a misread of recent history in viewing the current mess as the result of "unfettered" markets. In truth, numerous government interventions from housing subsidies to directed lending have been big factors in this crisis."
"In the early '90s, the Federal Reserve Bank of Boston wrote a manual for mortgage lenders stating that "discrimination may be observed when a lender's underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants." As Stan Liebowitz, a professor of economics at the University of Texas at Dallas Business School, noted recently in the New York Post, "some of these 'outdated' criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification." In other words, the Boston Fed and other agencies were discouraging the very criteria that would have protected lower-income families from overextending their indebtedness and could have prevented the subprime meltdown."
"Among the crucial factors that helped make this crisis a global financial "contagion" were new accounting rules going into effect in the U.S. and Europe just as foreclosures were spiking and real estate was losing value. So-called mark-to-market accounting forces financial institutions to take losses in their regulatory capital - which determines how much they can lend - if another bank sells similar loans at a fire-sale price, even if the loans at the bank in question are still performing and are being held to maturity."
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Is the point of this comment to allege that corporations decided to issue lousy,and essentially un-repayable loans to people who should never have been issued ANY loans, just because the 'regulatory environment' allowed or indeed encouraged them to do so ?
Golly. What is the point of having a management structure if all it does is behave idiotically ? Where is the 'duty' to protect your investor's assets?
Did the 'regulators' insist on everyone using a completely inappropriate accounting system for these transactions or was this an attempt by incompetent and greedy 'managers' to make themselves look good on paper even if everything ended up in bankruptcy court? Their only regret is that it happened before they could get out and pass along the disaster to their successors.
To say that this disaster resulted from OVER-regulation is frankly just unbelievable. It makes the corporate entities involved out to be mere puppets. They were not puppets; they were and are merely useless at doing what they were established to do. They should ALL be allowed to fail and would have been, apart from the fact that they were going to take everything with them when they went.
This debacle resulted from corporate greed and a fundamental managerial incompetence. Could not one company have said that it was refusing to issue bad loans to deadbeats even if that meant its 'stated'(albeit fictitious) 'returns' were a little lower than they might have been?
The whole financial system has been running for decades on dubious and completely mystifying financial vehicles whose purpose is to 'pretend' that a sow's ear can magically be transformed into many many silk purses. At no cost whatsoever. It is the same 'logic' that drives stock markets wherein 'technical' analysis has taken the place of 'fundamentals'. Now everyone thinks that somehow the trading patterns of stock is the 'real' meaning of the stock. As if those patterns existed as 'real' things.
This is not Government's Fault. It is the Fault of a corrupt and incompetent 'private' sector. Who knew that the management group at the Big 3 auto-makers also ran the entire financial sector in their spare time ?
Too Big To Fail has turned out to be a VERY BAD THING indeed.
Doug seems to forget that when a regulator "suggests" something it has the force of law. Banks and financial institutions which decided to continue with "old fashioned" factors like debt to income ratios faced legal action by government regulators and the possibility of large fines, and intrusive oversight to "ensure" they would follow the letter of the Community Reinvestment Act.
Of course Doug also fails to note the CRA is a creation of the Carter Administration, was given teeth by the Clinton Administration, had its two biggest water carriers "Freddie Mac and Fannie Mae" exempted and protected from effective regulation by Democratic legislators in the Congress (who voted against the Bush administration's attempts to restrain Freddie and Fannie in 2003, and Senator McCain's attempts to restrain Freddie and fannie in 2006. A certain junior Senator from Chicago voted against Senator McCain in 2006, and also received huge sums of money from lobbyists for Freddie and Fannie. Hmmmmm)
Doug and the rest of us will have a first hand opportunity to see vast amounts of new regulation in action in the next four years, and we will also be able to judge for ourselves how well they work. The historical examples don't look too promising; think of Stagflation under the Carter administration or Bob Rae's "spending our way out of recession" during his one term in office.
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