Open Thread (12/14/2009)

As the debate over Financial Regulatory Reform hits the Senate, Nobel prize winning economist Paul Krugman lays out the history:

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.

And ...

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.”

Many conservatives on this blog and elsewhere have spent a lot of time defending conservative economic theory in the face of a mountain of evidence to the contrary.  I encourage everyone interested in the financial future of this country to contact Senators and demand they pass this bill.

Enough.

"Nobel prize winning economist"

Just doesn't seem to carry the same weight for some reason..

"Many conservatives on this blog and elsewhere have spent a lot of time defending conservative economic theory in the face of a mountain of evidence to the contrary.  I encourage everyone interested in the financial future of this country to contact Senators and demand they pass this bill."

While everyone agrees that wall street played its part, does the bill address subprime loans?    Does the bill address the idea that the government promoted the idea of banks offering subprime loans to boost home ownership or are we just going to conveniently ingore that part?   To focus on one aspect and ignore the root cause is silly.

People respond to incentives.   The government planted the subprime seed and it grew because everyone in the system responded natuarally to incentives.   Now, the same kind of people who planted the seed are going to be regulating the banking business.    The same people who suggested and defended subprime loans are working to correct the problems created by excessive amounts of subprime loans in our enterprise system.   Sharp incline followed by a sharp decline.   Yep, that's pretty much how it works. 

Check out the trend line staring at about 1999 (when subprimes were introduced) and project where it would end up if it continued along that tragectory.   Go figure.  The bubble started in about 1999.   The market adjusted as is should have have without any regulatory changes.   According to the chart, we should be about at that point to start a steady climb again.   Go figure.

There many local and national financial loans available at a great rate for both commercial and personal purposes.  You will be required to have a decent credit rating, an adequate down payment and evidence you can pay back the loan.  If your missing one of these key ingrediants, you will have a difficult time getting $'s and/or you will pay high costs.  As a conservative, I believe this is the way loans should be handled.

...   he is an aristocratic bozo who routinely proposes....

Has he ever lived in Urbana ?

Michael Fuerst