Let the blamestorming begin

Everyone is keen to blame everyone else for the current market woes. Jeff Jarvis sums is up in once keen sentence:

In this week’s news from Wall Street and in last week’s news convention we are seeing the problems that arise when people who are granted stewardship over our assets — charged with the care of our news or our money — instead think they have ownership of them.

Fannie Mae and Freddie Mac forgot that the money they managed was not their own. Unfortunately it falls into that gray zone of "government entity but not really government entity". That is, they were privatized but not really.

Do we blame republicans or democrats?

Kavips would have you believe this is all due to a lack of regulation. He goes on to draw parallels to the crash of 1929. I believe he's wrong for several reasons. The market in 1929 was unregulated. The market of 2008 is so highly regulated financial firms have myriad lawyers to navigate those waters. Consider also that hedge funds, which are much less regulated are doing fine. They are hedge funds after all. He wants to blame this all on the lack of regulation on derivatives. How this is so is not explained. Are people defaulting on their loans because of a faulty and/or unregulated derivative?

Recovering Marxist John Judis writing at TNR agrees:

"John McCain issued a statement today on the financial crisis in which he blamed government “regulation” for what happened: McCain declares, 'We cannot tolerate a system that handicaps our markets and our banks and places at risk the savings of hard-working Americans and investors.” That’s 1920s Republicanism—and exactly what one would expect from a candidate whose chief economic advisor was former Sen. Phil Gramm."

Investors Business Daily begs to differ. They cite Clinton era regulations:

"Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties."


Doesn't sound like a lack of regulation does it? Sounds like misregulation. It is a well intentioned government program that went awry. (NB: the only other type of government program that seems to exist is the one that is ill intentioned and went awry.)

Megan McArdle is on the case with some key points:

"We start by asking what beefier SEC enforcement was supposed to do to portfolios and banks that were in full legal compliance with the SEC rules until the subprime market collapsed."

Which leads us to a conclusion about Clinton and cancer rates:

I interrupt this post to note that thanks to Bill Clinton, millions of people have died of cancer in the last ten years. It seems to me that if he cared, he could have funded research that would have cured cancer. What research? I don't know, I'm not a damn doctor. All I know is, a lot of people are dying of cancer.

Followed with this salient but overlooked point:

"One of my commenters blames Bush for gutting the predatory lending laws at the state level. A wicked pundit would note that this is a project near and dear to the heart of one Senator Joe Biden, (D-MBNA). A less divisive voice would point out that predatory lending laws are aimed mostly at payday loans and credit cards, not housing loans. The fraud problems in the housing market seem mostly to have been perpetuated by mortgage brokers, who are still regulated at the state level. The worst problems are in Democratic-dominated California."

She goes on to explain that this is market fueled and largely outside of Presidential control. One of the unfortunate side effects of the presidency is that you often have the ability to do great harm and little good. You can start the ball rolling but market forces very quickly get beyond your control.

The crash of 1929 is a prime example. The conventional wisdom holds that FDR saved us from the Great Depression. Quite the opposite. His policies, in fact, prolonged it.

Bank failures are a bad thing but not letting them fail is worse.

Comments

Brian Shields said…
I blame common sense, because it was absent.

Ability to allow failure does not mean the blame goes on the government for not regulating to the point where failure doesn't exist. It lies on those who make bad decisions on behalf of companies that are now failing.

Blaming the government solely for this means another eventual bailout, which apparently will happen because of a bad day, a 4 or 5% fall, on Wall Street.

If 90% of the nations banks fail, then yeah.. regulation, but only 5 or 6 companies have failed, let's not run amok yet with depression talk.
AJ Lynch said…
When it involves a govt entity or quasi-govt entity like Fannie & Freddie we should require financial statements and reporting standards that mirror public compaies.

Plus they should be run by qualified professionals not partisan looters like Gorelick, Jim Johnson and Franklin Raines.

The next shoe to drop will be state and city pension funds which are too too generous and underfunded. Pols treat like they are kids in a penny-candy store.
kavips said…
Both great comments, sorry I have not had time to give this good post the comment it deserves...

I have sort of responded to them in my sites comments... but I always seem to get tied down with comments over there and run out of time before I am finally able to get over here....

Keep up the good analysis...

Please...(its about the only thing keeping me on my toes these days, with everyone else preoccupied with their own electoral agendas....) talking points, talking points ad nausium

If any of you three could give Tyler a plug, please do,,,,It's on my agenda but I other ideas keep sprouting, growing, and crowding it out....

To all three above.... thanks for actually "thinking."

Don't stop...
Duffy said…
Tyler?

Popular posts from this blog

My Entire Career in a nutshell

Sean Thomas Lugano