I'm going to make this short. The past two weeks have really been bad for the U.S. economy. Congress is in the midst of $700 billion bailout of wall street. The consensus seems to be that without it we may be facing another great depression. I just feel like these last couple of weeks have done a lot of damage to the conservative philosophy of government. To be sure, there are those hardcore conservatives out there that oppose this bailout, but even the President seems to be 100% behind it. I have a hard time believing that these die hard "conservatives" would not do the same if they were in Bush's position.
Let's reflect on this for a moment. These are the guys that push for more and more deregulation of the private sector. Their argument is that everything will work out fine if people would just let the market do its thing unfettered. After this last week, I find this argument laughable. Not only that, these are the people that say a national healthcare system that provides insurance for every man, woman, and child is tantamount to socialism. From their perspective it's just an expensive, big government solution to a problem that is handled best by the free market. But come next week the U.S. government will be in the business of propping up its most important financial institutions to the tune of $700 billion. Sounds an awful lot like socialism to me.
13 comments:
It is socialism. I think that conservatives must accept the fact that without regulation, we risk what is happening now. In the back of their mind, though, they know that the government will come to their rescue or America too will suffer the consequences. True-believer conservatives on the other hand, those who would refuse a socialized rescue plan, to be in-sync with their philosophy must be okay with the occasional collapse of the American economy. A true-believer conservative in a globalized world must look past the American economy for the greater power of the global market economy.
Their hypocrisy stings, you're right. The frustrating part about this is that it's going to rest in the hands of a Democratic congress and a Bush administration that many conservatives have effectively abandoned on every issue except Iraq, meaning that it probably won't stick to conservatism as a philosophy, at least not in the minds of conservatives.
What's really frustrating is that nobody really knows what needs to happen, nobody's taking responsibility, and everyone's trying to maneuver into a spot where they can avoid being associated with the fallout. As of right now, it even looks like both of the presidential candidates are probably skipping out on the vote.
I don't know. I think Barack Obama has shown a desire to tackle some of theses issues for quite some time now. Back in March he gave a speech outlining his vision for a 21'st century regulatory system for our financial institutions:
http://link.brightcove.com/services/link/bcpid1435509773/bctid1534625276
On the other hand, John McCain says that he is fundamentally a deregulator, and fought in 1999 with Phil Gramm to repeal the Glass-Steagall act (http://en.wikipedia.org/wiki/Glass-Steagall_Act). This legislation was passed during the great depression by FDR, and many blame its repeal for the problems we face today.
Perhaps Glass-Steagall was outdated and needed reform, but the events of the past two weeks have shown that massive deregulation was not the solution.
Unlike John McCain, Barack Obama realized that our economy was headed for a crisis, and has a plan to get it back on track. On the other hand, its hard to know which John McCain to believe: the angry as hell populist or the behind the scenes deregulator.
Agreed. It's socialism on the grandest scale. One thing I think is important to point out is that there is such a thing as bad regulation. While I'm for some regulation in the marketplace, acts like the Community Reinvestment Act, which requires banks essentially to lend money to potentially risky debtors, referred to as people of "under-served populations." -People who would otherwise be rejected.
Also, it's worth remembering that both Fannie Mae and Freddie had the backing of the federal government, giving them a huge advantage over other institutions and creating an unstable housing market.
I don't know much about the CRA, but for now I'll point you to this this. I'll do some further research and get back to you.
As far as socialism is concerned, I thought Bill Maher made a great point this week. We are getting all the bad parts of socialism. I'd much rather get universal healthcare and a free college education for every american.
Hi Eric. After doing a little more research I really don't think the argument that the Community Reinvestment Act is behind the subprime lending crisis passes the smell test.
Some of the highlights from the article include:
1. Half of the sub-prime loans came from
mortgage companies beyond the reach of CRA,
and only one in four sub-prime loans were
made by institutions fully governed by the CRA.
2. Lenders subject to CRA have engaged in less, not
more, of the most dangerous lending. In fact,
independent mortgage companies, which are not
covered by CRA, made high-priced loans at
more than twice the rate of the CRA regulated
banks.
Furthermore, the article cites evidence that showed that the "CRA increased lending and homeownership in poor communities without undermining banks' profitability".
So were sub-prime loans made by CRA regulated banks? You bet. But It seems to me that non-CRA regulated mortgage companies where being more risky knowing that they could turn a higher profit.
Well, I wouldn't make the argument that the Community Reinvestment Act is solely to blame for the subprime mortgage crisis. I'm just making a point that not all regulation is good. In the case of the CRA, forcing banks to lend to low-income, risky segments of the population, often without proof of their assets and by extension, their ability to pay a mortgage -that's an absurdity.
I freely admit that it's an extremely complex problem that I don't know the half of, but the CRA seems categorically suspect. But again, surely there are other roots to the current mortgage crisis.
I agree that not all regulation is good regulation, but given the evidence I provided above it seems like the non-CRA regulated banks were making more risky loans. So I guess I'm a little confused about your point. Are you saying that there should have been more or less regulation? My hunch is that you are arguing for the latter, but it seems to me that many of the problems the country is facing right now is due to a lack of oversight.
I've been reading on this subject quite a bit lately to try to fine-tune my stance:
True. The Community Reinvestment Act didn't apply to most of the banks who are to blame for the current subrime mortgage mess. But with the introduction of the CRA, a new set of values was put on the table. Part of the reason for the CRA was to fight discrimination against minorities and low-income families with respect to mortgage lending. So institutions subject to the CRA had to comply and give loans to "under-served" segments of the population.
As for other financial institutions who weren't subject to the CRA, in order for them not to appear discriminatory, they then had to play the same ball game. i.e. start lending to unqualified segments of the population. Thus a large number of banks were engaging in irresponsible lending. In short, the CRA in effect changed the lending standards in the mortgage industry.
Two major reasons for the crisis:
-loans to people with poor credit history
-loans with no down payments
In addition, the Federal Reserve manipulated interest rates which made it cheaper for people to borrow money and created an unstable housing market.
Actually, maybe it wouldn't be a bad idea to abolish the Federal Reserve, since the Constitution grants Congress the right to coin money and determine the value of currency, not some central bank. -But now I'm ranting.
Hey Eric. I'll post a reply very soon. I think I'm going to roll it into a larger post that explores the major differences between progressives and conservatives as I see them.
I'd just like to thank you for engaging in this debate with me. We are truly on the path to youdaimonia. :)
Cool, sounds good.
One favor: don't lump traditional conservatives in with neoconservatives (not that you've done so in the past.)
Okay Eric, I've decided that I will make a small reply here. I'm not really buying this argument for a couple of reasons.
First, in addition to all the reasons listed above, the CRA was enacted in 1977. The subprime mortgage crisis started within the past 8 years.
Second, essentially what you are saying is that there is a correlation between the number of subprime loans made on behalf of CRA regulated institutions and private lending institutions not regulated by the CRA. Now this may be true, but it is fallacious to conclude causation from correlation. So in other words, while it could be that the CRA changed the lending standards of the mortgage industry, it is equally likely that the CRA regulated banks were trying to stay competitive with the private institutions that were (as stated above) making subprime loans in much larger numbers.
I'd also like to point out that I have come to realize that subprime loans were really just the catalyst for the current crisis. The real culprit is the completely unregulated (not just deregulated, but literally unregulated) credit default swap market. A great resource on this is this episode of This American Life.
. . . I forgot about this entry.
Clinton strengthened the CRA in the mid 90s and thus increased the number of subprime loans given out.
We agree that the credit default swap issue has a lot to do with the current crisis.
This issue is so, like, one month ago.
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