No, that can’t be, some say. The recession is clearly all the fault of the other political party. They are the evildoers. We are the good guys. Actually, no. When it comes to our economic crisis, which was triggered by the cratering of the subprime market, both parties share much of the blame. The policies and actions of both parties, along with their deep coziness with the financial sector, created a bubble that was destined to explode. Garbage securities were sold with no accountability or regulatory oversight. Long-standing laws limiting bank power were repealed. Federal entities guaranteed mortgages that should never have been issued. And now, with the foreclosure debacle upon us, it’s clear that fraud and corruption are rampant.
Regulatory agencies were gutted and rendered as ineffective as possible under both Bush Administrations. They cut budgets so the agencies would be understaffed and made it clear that ambitious prosecutions would not be welcome. This was done in the “Randian” belief that markets, if only left alone by an interfering government, would regulate themselves. Can we please throw this bizarre belief into the scrap heap of history? Markets, if left alone, do not play nice. Rather, they turn into pirates. The events of the past few years conclusively demonstrate this.
Under Clinton, the Department of Housing and Urban Development undertook to increase home ownership from 60% to 70%. Subprime mortgages were the vehicle for this (by a bizarre coincidence, these were also the mortgages that Wall Street made the most money from.) Fannie Mae and Freddie Mac backstopped the mortgages by guaranteeing them. Clinton cheerfully presided over repeal of the Glass-Steagall Act, a law which had been in effect since the 1930’s and which prevented certain types of bank mergers. These two actions led directly to the creation of the subprime bubble.
The floodgates opened. All manner of NINJA (No Income, No Job, and No Assets) mortgages went flying through the system, were bundled together, and securitized. Wall Street made billions. Since the regulatory agencies were snoozing, no one cared much that the foundation for all of this, subprime mortgages, was made of sand.
Financial bloggers like Calculated Risk and Mish were way ahead of the mainstream media and the government on predicting the collapse of subprime. A few others, such as Gerald Celente, Nouriel Roubini, Marc Faber, Peter Schiff, and Dr. Ron Paul, had warned of impending disaster as well. Subprime imploded and took the economy with it. The states where the real estate bubble was the most extreme, like California, have suffered the worst, with high unemployment and foreclosure rates.
Obama was backed early and by huge contributions from Wall Street. He was their guy. Hillary was too independent for them. McCain thought them to be “spoiled brats and ruthless opportunists” who would take bailout money, keep it, and then pay themselves huge bonuses. (He was right, although he did vote for the $700 billion bailout.) This is from Charles Gasparino’s new book Bought and Paid For: The Unholy Alliance Between Barack Obama and Wall Street., in which he details the decades-long alliances of both parties with Wall Street. And if you’re a liberal who thinks the book must be suspect because Gasparino is a conservative, then you don’t get the point. Both parties are culpable.
Obama had no such qualms with Wall Street. He told them their mortgages were swell and then, after the economy collapsed, asked them for advice on how to fix it. Did he understand he was asking the architects of the disaster how to rebuild what they previously destroyed? Apparently not, because he brought several of them, including Geithner and Summers among them, into his administration. Obama also allowed accounting rules to be neutered so banks no longer had to mark-to-market. They instead are now permitted to price their holdings as they deem fit. They then book illusory profits and pay themselves more huge bonuses. You and I have to mark-to-market. The big banks don’t.
The financial blog Zero Hedge has done a superb job of exposing financial fraud and criminality. They say The fraud started at the very top: With government leaders of both parties. So, what do we do? Yelling that the other side is to blame is pointless and self-defeating. Instead, citizens on all sides of the political spectrum can educate themselves on these issues, ensure that the issues stay in the public spotlight, organize in their geographical areas, and then maybe gain real political power. This is precisely what the Populist Party did in the 1890’s. They were farmers who were losing their farms to predatory banks and being gouged by crop speculators. They joined together to form co-ops to buy their goods at a fair price, and then became a national force. The trust-busting of Teddy Roosevelt was certainly influenced by the populists.
We’re seeing an upsurge of populism now. As far as I’m concerned, bring it on, because something needs to be done.