The current financial crisis proves the maxim that there’s no free lunch—or rather, there may seem to be a free lunch, but the bill is merely deferred, and ultimately it comes due with interest. How is it that all these oh-so-smart people didn’t see that? I guess they just got too hungry, and the aroma of lunch smelled awfully good.
As for blame, it’s not a Democrat or Republican thing. The history of how this happened is lengthy, complex, and bipartisan. I’ve done quite a bit of cramming on the subject in the last twenty-four hours, and I was going to try to summarize it—but that’s, as someone recently said, above my pay grade.
But here’s a very small attempt. As best I can piece it together, the process of deregulation began at the tail end of the Carter Administration. Reagan continued it, with Bush I bailing out the offenders during the Savings and Loan Crisis, an act that reinforced the idea on the part of management that risky behavior wouldn’t have such terrible consequences because the government would provide a safety net (Fausta has some opinions on this subject).
In 1999, Clinton signed a bill that repealed the Glass-Steagall Act. The latter had been in place since the Depression (see here for a timeline), and the combined action of Congress and the President helped pave the way for the current crisis by ending many of the divisions between commercial and investment banks. The repeal was a result of years of patient Congressional lobbying by the banking industry.
With the proliferation of subprime mortgages in recent years, neither the Republican Congress of the early Bush years nor the Democratic Congress of the last two seem to have had the foresight to see problems coming, and/or the will to do anything about it, and/or the knowledge of what actions might be helpful. Plus, they were getting money from the entities involved—and this includes prominent Democrats, prominent among them Barack Obama.
And yet Obama intones “eight years,” as if the problem began with his nemesis George Bush and is due to no one else. This is self-serving political garbage rhetoric at its worst.
Obama’s response has not only been more partisan, it is also more alarmist. Felix Salmon of Finance Blog compares and contrasts the candidates’ statements on the crisis, and Obama’s comes up short in more departments, including one area I had also noticed: Obama has publicly labeled it “the most serious financial crisis since the Great Depression.”
So far it isn’t. But if Obama keeps talking like this, he might do his bit to contribute to its ultimately fitting that definition.
Obama would do well to remember that it was a fellow-Democrat who understood the principle that investor panic can make these things a great deal worse, and who said as much during that Great Depression, “The only thing we have to fear is fear itself.”
Obama is reckless to speak as though a such a catastrophe has already occurred, drumming up fear rather than attempting to calm it through a realistic appraisal of what we are facing right now.
McCain, on the other hand, attempted to reassure Americans that, despite the need for reform and the fact that we are going through a very difficult period, the “fundamentals of our economy are strong” (something even the NY Times seems to believe—and they also write that the origins of the problem are bipartisan).
And yet Obama saw fit to criticize McCain’s statement of faith in the basis of our economy in order to try to paint John McCain as seriously out of touch. This is the Obama who wants us to come together, and presents himself as post-partisan? It would be almost funny if it weren’t so serious.
[ADDENDUM: Here’s more of the contribution of the Clinton years.]