Disaster and Denialby Paul Krugman
"Talk to conservatives about the financial crisis
and you enter an alternative, bizarro universe in
which government bureaucrats, not greedy bankers,
caused the meltdown.
"It's a universe in which government-sponsored lending
agencies triggered the crisis, even though private
lenders actually made the vast majority of subprime
loans.
"It's a universe in which regulators coerced bankers
into making loans to unqualified borrowers, even though
only one of the top 25 subprime lenders was subject to
the regulations in question."
When I first began writing for The Times, I was naïve about
many things. But my biggest misconception was this: I actually believed
that influential people could be moved by evidence, that they would
change their views if events completely refuted their beliefs.
[0] Fred R. Conrad/The New York Times
Paul Krugman
And to be fair, it does happen now and then. I've been highly
critical of Alan Greenspan over the years (since long before it was
fashionable), but give the former Fed chairman credit: he has admitted
that he was wrong about the ability of financial markets to police
themselves.
But he's a rare case. Just how rare was demonstrated by what
happened last Friday in the House of Representatives, when with
the meltdown caused by a runaway financial system still fresh in our
minds, and the mass unemployment that meltdown caused still very much in
evidence every single Republican and 27 Democrats voted against a
quite modest effort to rein in Wall Street excesses.
Let's recall how we got into our current mess.
America emerged from the Great Depression with a tightly regulated
banking system. The regulations worked: the nation was spared major
financial crises for almost four decades after World War II.
But as the memory of the Depression faded, bankers began to chafe at the
restrictions they faced. And politicians, increasingly under the
influence of free-market ideology, showed a growing willingness to give
bankers what they wanted.
The first big wave of deregulation took place under Ronald Reagan
and quickly led to disaster, in the form of the savings-and-loan crisis
of the 1980s. Taxpayers ended up paying more than 2 percent of G.D.P.,
the equivalent of around $300 billion today, to clean up the mess.
But the proponents of deregulation were undaunted, and in the decade
leading up to the current crisis politicians in both parties bought into
the notion that New Deal-era restrictions on bankers were nothing but
pointless red tape. In a memorable 2003 incident, top bank regulators
staged a photo-op in which they used garden shears and a chainsaw to cut
up stacks of paper representing regulations.
And the bankers liberated both by legislation that removed
traditional restrictions and by the hands-off attitude of regulators who
didn't believe in regulation responded by dramatically
loosening lending standards. The result was a credit boom and a
monstrous real estate bubble, followed by the worst economic slump since
the Great Depression.
Ironically, the effort to contain the crisis required government
intervention on a much larger scale than would have been needed to
prevent the crisis in the first place: government rescues of troubled
institutions, large-scale lending by the Federal Reserve to the private
sector, and so on.
Given this history, you might have expected the emergence of a national
consensus in favor of restoring more-effective financial regulation, so
as to avoid a repeat performance. But you would have been wrong.
Talk to conservatives about the financial crisis and you enter an
alternative, bizarro universe in which government bureaucrats, not
greedy bankers, caused the meltdown.
It's a universe in which government-sponsored lending agencies
triggered the crisis, even though private lenders actually made the vast
majority of subprime loans.
It's a universe in which regulators coerced bankers into making
loans to unqualified borrowers, even though only one of the top 25
subprime lenders was subject to the regulations in question.
Oh, and conservatives simply ignore the catastrophe in commercial real
estate: in their universe the only bad loans were those made to poor
people and members of minority groups, because bad loans to developers
of shopping malls and office towers don't fit the narrative.
In part, the prevalence of this narrative reflects the principle
enunciated by Upton Sinclair: "It is difficult to get a man to
understand something when his salary depends on his not understanding
it."
As Democrats have pointed out, three days before the House vote on
banking reform Republican leaders met with more than 100
financial-industry lobbyists to coordinate strategies.
==
"The House GOP leadership
'met with more than 100 lobbyists
at the Capitol Visitors Center'
yesterday to strategize about how
to kill financial reform legislation."
http://www.rollcall.com/news/41311-1.html
NOTE IN CONTRAST: Obama Pushes Hundreds
Of Lobbyists Off Federal Advisory Boards
On Friday, the Washington Post reported
that the move "may turn out to be the most
far-reaching lobbying rule change so far
from President Obama," resulting in "hundreds,
if not thousands, of lobbyists" being
ejected from federal advisory panels.
http://www.huffingtonpost.com/2009/11/27/obama-pushes-lobbyists-of_n_372\
070.html
==
But it also reflects the extent to which the modern Republican Party is
committed to a bankrupt ideology, one that won't let it face up to
the reality of what happened to the U.S. economy.
So it's up to the Democrats and more specifically, since the
House has passed its bill, it's up to "centrist" Democrats
in the Senate. Are they willing to learn something from the disaster
that has overtaken the U.S. economy, and get behind financial reform?
Let's hope so. For one thing is clear: if politicians refuse to
learn from the history of the recent financial crisis, they will condemn
all of us to repeat it.
http://www.nytimes.com/2009/12/14/opinion/14krugman.html?_r=1
