The Eclectic Quill

September 18, 2008

It’s Regulation Stupid!

Filed under: Uncategorized — Kelly @ 6:14 pm

The Republicans are flailing about like a blindfolded man trying to find the piñata when it comes to the current financial woes, yet no matter how hard they swing they can’t get that satisfying thud that comes from connecting, probably because they aren’t even swinging in the right direction. Heck, they aren’t even standing under the right tree! The reason that conservatives can’t seem to connect on the financial crisis is that they are trying to address a paradigm problem procedurally. This is not about what they do; it’s about what they think. Here’s some of the “misses” and why they are under the wrong tree.

Greedy CEOs

One thing that’s been bandied about is that this is all because of greed. Greed and corruption played a part, a large part in the financial crisis, but these things are not new to the world—they’ve existed since Adam bit the apple. The subprime mortgage crisis however is not purely a result of greed and corruption; it’s the product of greed and corruption running amok because it is unregulated. Greed is precisely why we need regulation. Sometimes it seems that the conservatives and libertarians approach the idea of government as though it started out as a pile of regulations and progress is marked as getting rid of them. In truth government started off as one person literally calling himself God and getting whatever he wanted. Gradually this system evolved into one where the King had to answer to the rule of law, and eventually it became a government by the people and for the people. Once that happened it took about a hundred years, but eventually it started to happen that the actual people started to get representation in government, and most of this representation is through regulation by the government. Generally speaking the reason most regulations were added is because at one time or another they were needed, and they were needed because greedy people were taking advantage of other people. Regulation is the result of progress, not the frustration to it. It’s regulation stupid!

Regulatory Reform Act of 2005

John McCain has been trying to demonstrate himself as prescient in voting for the Regulatory Reform Act of 2005, which would have transferred regulatory control of Freddy Mac and Fannie Mae over to the executive branch from Congress.. Polifact has a nice write up on this claim which can be summed up in four in points.

  • First, this Act, which failed, has nothing to do with the actual crisis. It was about administrative control of the oversight in regards to their accounting practices. The present crisis has nothing to do with that, it’s about predatory lending, banks making bad loans and bundled bad mortgages being sold in swap markets. This legislation would have zero effect on any of that. It was strictly addressing Freddy and Fannie, not the larger banking industry.
  • Second, McCain’s claim came after an extensive report came out which demonstrated the accounting practice problems. McCain had been opposing similar control since the early 90s. His stance was not a result of prescience but one of a belated realization.
  • Third, I’m not sure that transferring control of oversight of anything over to the Bush administration is the greatest of ideas. It’s certainly not the sort of thing I’d be bragging about!
  • Fourth, Freddie and Fannie have been praised by many, even though they are in trouble, for actually helping to soften the blow of the crisis. If anything if McCain had had his way the situation might be worse.

The bottom line here is that McCain is pointing to a piece of legislation that had nothing to do with the present crisis, and which if it had passed might have exacerbated it. Whether this is a clumsy attempt at trying to disguise his lengthy history of opposing regulation or simply the result of his failure to grasp the cause of the present crisis, or a combination of the two, I don’t know, but whatever it is it instills no confidence in me that he gets it. He’s trying to show he tried to do something about it before it became a problem, but instead he demonstrates that even after it has become a problem that has literally put the world at risk, he still doesn’t have the vaguest idea why. Changing who had regulatory control over Freddie and Fannie is not even in the same book as exercising more regulatory control over the banking industry, much less on the same page. It’s regulation stupid!

The Market Correcting Itself

Senator McCain has taken a new stance every day on this issue, many of them demonstrating the profound depth of his ignorance on this matter. His hollering about the bail out of AIG is startlingly bereft of even the most basic understanding of the potential fallout. His claims that the fundamentals of the economy are strong are probably the most genuine of his many and often contradictory statements about what to do and about the state of the economy. Bush’s statements about how this is the market correcting itself is the true feeling of those who hold the laissez-faire paradigm, and probably an accurate reflection of John McCain’s. It’s the driving paradigm behind all of the Republican thoughts on the economy ever since Ronald Reagan, and it’s wrong. Never has it more evident than right now. The market tanked because the Republicans prevented the government from being able to regulate the market, and it’s only because the government stepped in and bailed out AIG that it rebounded! Can we please once and for all dismiss this myth that the government has no positive effect on the economy? Can we dismiss the foolhardy notion that every good thing about the economy over the last 28 years has been because of Reagan and the Bush’s leadership, and every bad thing is because of Clinton and Carter? It’s ludicrous and ignorant to ignore the reality, the middle class is healthier with an involved government, and a healthy middle class is the best measure of a healthy economy. It’s regulation stupid!

A couple of days ago McCain wanted to bust up and sell Fannie Mae and Freddy Mac, another ignorant idea that betrays once again his ignorance in failing to understand the purpose of the institutions. McCain wanted to privatize your social security dollars. Imagine the impact if he’d had his way? McCain wanted to let AIG fail until he was told that it was horrendous, now he’s doing an about face on that. McCain would have Gramm, the author the deregulatory legislation that caused the crisis in the first place, be the next Treasure Secretary. He also had him write his economic plan. Now he wants to start a new government agency, the MFI, that would let private enterprise tell it how to regulate it. Yep, he really is that oblivious. McCain says he wants to reform Washington, but he’s been doing that for the last 26 years, and from the S&L crisis, to Enron to the subprime mortgage crisis he’s been on the wrong side all the way. McCain can’t solve the problem and he can’t understand why he can’t solve the problem because he is the problem. Unless he experiences a sudden paradigm shift a McCain presidency would be nothing less than extension of the last 28 years.




  1. McCain scare me. Pallin Scares me and Obama scares

    Comment by Stan Earl — September 18, 2008 @ 9:35 pm | Reply

  2. McSame and Bush with a bush will drive us into 3rd world status real fast.

    Comment by Crazy Canton Cuts — September 22, 2008 @ 11:16 pm | Reply

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