The New York Times has a fantastic article examining how the Bush administration’s policies–particularly his focus on building an “ownership society”–caused the current financial crisis by neglecting oversight, denying the growing problems and putting ideology above all else.
Here are some of the major parts that struck me:
Lack of oversight:
- President Bush populated oversight agencies with people like him who wanted fewer rules.
- Bush appointed an “old prep school buddy” to regulate Fannie Mae and Freddie Mac, who then “pronounced the companies sound even as they headed toward insolvency.”
- “This administration made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight,” said L. William Seidman, who advised Republican presidents and led the savings and loan bailout in the 1990s. “To make the market work well, you have to have a lot of rules.”
- Bush’s first chairman of the Securities and Exchange Commission promised a “kinder, gentler” agency. The second was let go because of financial industry complaints that he was too aggressive. Under its current leader, the SEC failed to stoop the catastrophic decisions that toppled Bear Stearns and contributed to the current crisis.
- In 2006, Bush and his advisers ignored warnings that housing prices were inflated and a crisis was coming. When the economy started to deteriorate, the White House misjudged the causes and depth of the problem; as recently as last February, Bush was referring to this as a “rough patch.”
- “There is no question we did not recognize the severity of the problems,” said Al Hubbard, Mr. Bush’s former chief economics adviser, who left the White House in December 2007. “Had we, we would have attacked them.”
- “The problem with those guys at the White House, they had all the answers and they didn’t think they had to listen to anyone, including the Treasury secretary,” [Former Ohio Republican Congressman Michael] Oxley said in a recent interview. “They were driving the ideological train. He was in the caboose, and they were in the engine room.”
- The administration ignored the massive discrepancy in the rent-to-own ratio. Usually, as home prices increase, rental costs rise proportionally. The White House and Treasury were informed that the monthly cost of owning far outpaced the cost to rent, which was a sign that housing prices were inflated and destined to collapse, thus creating a foreclosure crisis. The White House didn’t listen.
Ideology above all:
- “No one wanted to stop [the housing] bubble,” [Bush economic adviser Lawrence B.] Lindsey said. “It would have conflicted with the president’s own policies.”
- [Bush] pushed to let first-time home buyers qualify for federally insured mortgages with no money down. GOP Congressional leaders and housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to just walk away.
- When states used federal consumer protection laws to crack down on predatory lending, the comptroller of the currency blocked the effort on the grounds that state governments had no authority over national banks.
Let’s face it, pure laissez-faire capitalism is as failed and discredited an as pure soviet communism. A functional economy needs strong oversight and regulation; let the collapse of the financial industry and the Bernie Madoff ponzi scheme stand as testaments to that.