The American people lost literally trillions in the financial
crisis, in home values, in stock values, and in lost jobs and
wages. Obama had a narrative as to what caused the financial
crisis. It was Bush’s, and maybe even Reagan’s, tax cuts, and
Republican deregulation. And the argument that won the election for
Obama in my opinion was that Romney just wanted to go back to the
same policies that caused the financial crisis (the mess we are in)
in the first place.
Of course, that argument makes no economic sense at all. There
is no economic theory under which tax cuts cause recessions. Even
under Keynesian economics tax cuts are expansionary, not
recessionary. Even Karl Marx never said that cuts in tax rates,
like Bush and Reagan enacted, cause economic contractions. Just the
opposite, cuts in tax rates increase the incentives for increased
production and economic growth, by enabling producers to keep a
higher percentage of what they produce.
Moreover, the deregulation Obama and his minions blame for the
financial crisis, the bipartisan repeal of the old, New Deal era
Glass-Steagall Act, actually helped ease the crisis, by enabling
commercial banks, or actually their parent holding companies, to
buy out failing investment banks, such as when JPMorgan Chase
bought the failing Bear Stearns.
The business of commercial banks involves taking consumer and
business deposits and making consumer and business loans. The
business of investment banks involves issuing and dealing in
securities such as stocks and bonds. But the financial crisis did
not involve commercial banks failing because they were getting
involved in investment banking activities. The crisis involved
investment banks getting into trouble with their traditional
investment banking activities. And it involved commercial banks and
other financial institutions getting into trouble with the
traditional banking activity of financing mortgage loans.
But at least Obama had a narrative, and an explanation, as to
what caused the financial crisis, and one that worked directly
against his opponent and his agenda. The Republicans had no
narrative, no explanation, for the cause of the greatest
destruction of wealth in world history. Nor did they effectively
counter Obama’s narrative. So the millions of Americans angry over
their losses, and sustained high unemployment, were left to figure
it out for themselves, or to accept Obama’s narrative. Most took
the easy way out, and just bought Obama’s line.
But it wasn’t just the Republicans who failed to propagate a
full explanation of the financial crisis and its causes. The
conservative movement in general failed to adequately engage the
public on Obama’s ideologically self-serving financial crisis fairy
tale. Sure some individual conservative scholars developed the full
real explanation. But the leading conservative foundations and
other intellectual outlets never took their case to the American
people.
The true causes of the economic crisis were not the pro-growth
policies of tax rate cuts or deregulation. They involved first the
overregulation of President Clinton’s 1995 National Home
Ownership Strategy, which included 100 or more specific regulatory
initiatives that together forced financial institutions to
abandon their traditional lending standards and create the subprime
mortgage market. Those included not only greatly strengthening the
Community Reinvestment Act. They included as well racial
discrimination suits brought by the Justice Dept. or HUD against
mortgage lenders. They also included regulatory mandates on Fannie
Mae and Freddie Mac to finance subprime mortgages.
Because the market — correctly as it turned out —perceived the
securities issued by Fannie Mae and Freddie Mac as effectively
government guaranteed, the market continued lending these
government-sponsored enterprises the money to finance new
mortgage-backed securities, which are shares in pools of mortgages,
especially subprime mortgages. Fannie then sold these toxic
financial time bombs throughout the U.S. and world financial
communities.
This overinvestment in housing created the housing bubble,
bidding up the prices of homes beyond where they could be
sustained. When that bubble inevitably popped, the financial time
bombs represented by the runaway toxic mortgages all blew the lid
off the toxic mortgage securities now spread across the global
financial community.
The best explanation of these policies can be found in Paul
Sperry’s The Great American Bank Robbery, and Gretchen
Morgenson and Joshua Rosner’s Reckless Endangerment.
President Bush’s cheap dollar monetary policies and negative
real interest rates further contributed to the housing bubble,
providing the dollars and the negligible interest rate incentives
for further overinvestment in housing and other long-term
construction. When those loose monetary policies had to be stopped
to short circuit budding inflation, the housing bubble popped, as
the runaway housing prices could no longer be sustained.
The best explanation for this cause is by Stanford Economics
Professor John Taylor’s Getting Off Track.
The conservative movement has lost the biting intellectual edge
that caused it to intellectually dominate the Reagan era that
extended for a generation from 1980 to 2008. The movement needs to
focus more on advancing innovative and articulate intellectual
leaders.
The Republican Party too needs to turn to intellectual, idealist
leaders who know what they believe and why, and how articulate
those beliefs, instead of the multimillionaire business leaders who
can finance their own campaigns. Nominate the articulate idealists,
who know what they are for and why, and raise money for their
intellectual leadership from a broad base.
