February 22, 2009

We Can't Fix the Economy Without Knowing What Broke

Really great article at HuffPo. Among other highlights:

Fact Checking Time's List of 25 People to Blame

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2. Phil Gramm Bottom Line: He deserves to be at the top of the list. It's hard to overestimate the damage he caused.

Unmentioned by Time: Gramm slashed the SEC's budget, stacked the CFTC with his cronies, helped emasculated investor protections under the SEC acts. [E.g., Gramm led the charge to repeal Glass-Steagall, among other things, which, during the decades since the '29 Crash until repealed, had worked to protect against losses by prohibiting banks from engaging in the kinds of excessively risky investments that caused the 1929 crash.]

3. Alan Greenspan Bottom Line: Time sanitizes Greenspan's record.

Greenspan recklessly ignored parts of his job description, which included correcting the regulatory loopholes that allowed predatory lenders like Ameriquest to flourish. And he recklessly ignored evidence of the risks. After the S&L crisis of the early 1990s, everyone knew the hazards of unregulated mortgage lending. (Greenspan had championed S&L deregulation and was a big booster of Charles Keating.) Everyone knew that subprime mortgage lending was fraught with peril and could lead to financial disaster by June 2000, when First Union wrote down its entire $2.8 billion investment in The Money Store, a subprime lender acquired two years earlier. But Time gives it all a "mistakes-were-made" spin, merely noting that "his long-standing disdain for regulation underpinned the mortgage crisis."

Time's Conspicuous Omission: The Republican Congress.

"Federal lawmakers didn't pose much of a threat to the subprime industry in recent years. Members of Congress received at least $645,000 in donations from Ameriquest and large sums from other big subprime lenders, Federal Election Commission records indicate. They debated new oversight of the industry, but took no action." The Wall Street Journal, December 31, 2007

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5. American Consumers Bottom Line: Part of the phony "plenty-of-blame-to-go-around" narrative.

"We really enjoyed living beyond our means... Household debt in the U.S.--the money we owe as individuals--zoomed to more than 130% of income in 2007, up from about 60% in 1982... Now we're out of bubbles." Time neglects to mention how those bubbles were inflated with artificially low interest rates and a new tax exemption on dividends during the run up to the 2004 election.

Time's Conspicuous Omission: Republican Tax Cuts. In terms of living beyond our means, consider this. In 2000 Federal revenues (excluding social security) were $1.54 trillion versus $1.46 trillion in outlays. In 2003, long past a recession that ended in November 2001, Federal revenues were $1.26 trillion (an 18% decline) versus outlays that were $1.8 trillion. Revenues had declined three years for three years in a row, something unprecedented since the Great Depression. And this was before we started tallying the cost of the Iraq war.

6. Hank Paulson Bottom Line: Time gets it right, though Paulson should be in the top 3.

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