This coming Monday (February 16, 2009) is Presidents Day. This is the federal holiday that honours George Washington (born February 22) and Abraham Lincoln (born February 12).
Certainly these two men are worthy of remembrance. Washington was instrumental in the founding of this nation. The independence declared by Adams and Jefferson meant little if not defended in the field by Washington. Washington's prowess as a general may be debatable, but he indisputably accompolished an amazing feat. Largely through force of will; he was able to keep a small rag-tag army in the field against what could only be described as the super power of the 18th century; maintain morale; and prevail despite shortages of food, clothing, weapons, and other equipment. Under our current Constitution, Washington was the first President of the United States. But more than being first, Washington set an example for the others to follow. Washington's example is his great gift to our nation. In the history of mankind, generals who lead revolutions usually seize power (Caesar, Napoleon). After victory at Yorktown, Washington resigned his commission, disbanded his army, acknowledged the political supremacy of the Continental Congress and went home to Mount Vernon. For this, King George III called him, "the greatest man in the world." The American Revolution was fought for the principle that no one man should rule with absolute power. Washington could have destroyed that principle and ruled as a popular, perhaps even just, king, but he did not. After the Constitution was ratified, Washington was concerned about the powers invested in the Presidency and therefore limited himself to two terms. Again, he voluntarily relinquished power that no one would have begrudged him. In so doing, he set a precendent that every future President followed until FDR. Regardless of whether or not you believe FDR's legacy is a positive one, certainly a number of his supporters must have taken pause at his virtual lock on the Presidency because after FDR the Constitution was ammended to enshrine Washington's wisdom into law and limit Presidents to two terms.
Lincoln was arguably the most able President in the history of this country. No President has been handled a greater challenge than civil war. Lincoln's courage and fortitude held this nation together. His actions are not without controversy. His means may have been, at times, questionable. But, his legacy is a United States that remained united and whole and cleansed of the stain of slavery. Emancipation set the ground work for people of colour ultimately to share in the Jeffersonian ideal that all are created equal.
Why then do I hate Presidents Day? When I was a child, the holidays were separate: Washington's birthday and Lincoln's birthday. I can understand the desire to consolidate the two rather than have two holidays so close together, but the problem I have with President's Day is that in renaming it, the great legacy bestowed on our country by these two men gets lost. It should be a day for remembering the great gifts of Washington and Lincoln to our nation, not a day for buying cheap mattresses. Invariably, use of the term Presidents Day conjures up images of Mount Rushmore and other Presidents. We as a nation should be grateful for the contributions of Washington and Lincoln, not reminded of the irrelevance of Millard Fillmore, the corruption of Richard Nixon, the lechery of Bill Clinton, or the incompetence of George W. Bush. If it has to be one holiday, why not Washington-Lincoln Day, instead of Presidents Day?
Saturday, February 14, 2009
Monday, February 9, 2009
Trade
We are in difficult economic times. The collapse of the housing bubble has had repercussions in other aspects of the economy. Banks, faced with default mortgages, are now unwilling to lend. With capital frozen, business cannot expand or grow. Hiring freezes, and employees are let go to cut costs. In this climate, everyone looks to government to create jobs and protect jobs. Populism and protectionism become popular.
This is evident in the creation of the current economic stimulus package that is being debated on Capitol Hill. The House and the Senate have passed two different bills, which must be resolved in conference committee. The House version contains, “Buy American,” clauses to insure that the government money spent will go to American businesses, buy only American products and, “protect,” American jobs.
It is easy to understand why such measures might be popular in these economic times, but they are extremely short sighted. No one makes an effective argument for truly free trade. Trade proponents argue that it creates jobs, opponents point to the jobs lost. The truth is, in any free and competitive market there will be winners and losers. This gives each side examples to point to, but confuses the public at large that is trying to decide, on balance, whether open trade or protectionism would be better.
However, these, “practical,” arguments about whether free trade costs or creates jobs miss the larger moral issue at stake. What defines a free society is freedom of choice. Our Constitution enshrines some freedom of choice in the First Amendment – our government is not allowed to dictate what you can say (or think), cannot prevent you from assembling peacefully, and cannot tell you what to believe or what god to worship. True liberty, however, requires that this freedom of choice extend to economic activity as well. What empowers consumers is having multiple businesses providing goods and services competing for the consumers' business. The consumer then can choose amongst various options the product he or she judges is of reasonable quality and/or a reasonable price. Monopolies or trusts exploit the consumer by denying choice and either force the consumer to accept inferior quality or charge the consumer exorbitant prices. The competition of a free market prevents this economic exploitation.
Protectionism similarly exploits consumers. Freedom and both political and economic power are maximized when the consumer has more choice. Limiting access to foreign goods, or subsidizing domestic ones, or inflating the prices of imports through tariffs, limits choice and forces the consumer to accept higher prices than the market would otherwise bear. What helps a narrow segment of the population (those that work in the industry being protected) exploits everyone who consumes goods and services and hurts us all. Economic freedom of choice is so crucial to liberty that, in the same sentence of the Declaration of Independence that charges King George III with the tyranny of taxing the colonies without representation, Jefferson also labelled George III a tyrant, “for cutting off our trade with all parts of the world.” It is no less exploitive to restrict consumer’s access to the fullest selection of goods and services today through trade barriers as it was in Mr. Jefferson’s day or when the lord of the manor would insist that all his serfs use the lord's mill exclusively.
Furthermore, economic protectionism is no longer practical in the 21st century. The world and the U.S. economy have changed over the last century. The airplane, the telephone, the cellular phone, the computer, the internet, and broad-band internet access have made the world smaller. The world is now, to borrow Tom Friedman’s phrase, flat. It is now much easier to market goods and services to all parts of the globe, buy from and sell to all parts of the globe, and collaborate with others in every corner of the world. These technological innovations make it impossible to build a wall around fortress America and remain internally self-sufficient. As developing countries can manufacture simpler things less expensively, our economic growth depends on being a center of innovation for the new goods and services of tomorrow. We cannot continue to do that unless we take advantage of the same tools – a worldwide talent pool and the ability to maximize profit by outsourcing tasks that others do better or less expensively – as our competitors will. The truth is, we have no business manufacturing something if we can’t make it better or cheaper and we will need to have open access the world’s resources if we are to continue to innovate. This means our workforce will have to have more flexible skill sets and gone are the days where working on the same assembly line provides a lifetime of job security. This is neither bad nor good, it simply is. Our policies must reflect this reality and trying to protect the industries of the 20th century, burying our heads in the sand, will lead to a long-term lack of competitiveness that stunts our economic growth and allows competitors to pass us by. Buy American provisions will simply encourage others to close their markets to our goods and services and lead to escalating trade wars that will deprive us of the competitive advantages and opportunities of full participation in the global marketplace.
The Buy American provisions in the economic stimulus package are a poison pill that threatens our liberty and long-term economic prosperity. President Obama has voiced his disapproval of these provisions, but if they remain in the final bill, they will prove and interesting test of the new President’s leadership. If such provisions are in the final bill, President Obama should veto it. President Clinton took on elements in his own party when he promoted NAFTA, can President Obama do the same? If these provisions are in the final bill, will President Obama have the political courage to veto a stimulus package that most of the country believes we need in the face of the economic crisis and ask Congress for a new bill without these provisions? I, for one, certainly hope so.
This is evident in the creation of the current economic stimulus package that is being debated on Capitol Hill. The House and the Senate have passed two different bills, which must be resolved in conference committee. The House version contains, “Buy American,” clauses to insure that the government money spent will go to American businesses, buy only American products and, “protect,” American jobs.
It is easy to understand why such measures might be popular in these economic times, but they are extremely short sighted. No one makes an effective argument for truly free trade. Trade proponents argue that it creates jobs, opponents point to the jobs lost. The truth is, in any free and competitive market there will be winners and losers. This gives each side examples to point to, but confuses the public at large that is trying to decide, on balance, whether open trade or protectionism would be better.
However, these, “practical,” arguments about whether free trade costs or creates jobs miss the larger moral issue at stake. What defines a free society is freedom of choice. Our Constitution enshrines some freedom of choice in the First Amendment – our government is not allowed to dictate what you can say (or think), cannot prevent you from assembling peacefully, and cannot tell you what to believe or what god to worship. True liberty, however, requires that this freedom of choice extend to economic activity as well. What empowers consumers is having multiple businesses providing goods and services competing for the consumers' business. The consumer then can choose amongst various options the product he or she judges is of reasonable quality and/or a reasonable price. Monopolies or trusts exploit the consumer by denying choice and either force the consumer to accept inferior quality or charge the consumer exorbitant prices. The competition of a free market prevents this economic exploitation.
Protectionism similarly exploits consumers. Freedom and both political and economic power are maximized when the consumer has more choice. Limiting access to foreign goods, or subsidizing domestic ones, or inflating the prices of imports through tariffs, limits choice and forces the consumer to accept higher prices than the market would otherwise bear. What helps a narrow segment of the population (those that work in the industry being protected) exploits everyone who consumes goods and services and hurts us all. Economic freedom of choice is so crucial to liberty that, in the same sentence of the Declaration of Independence that charges King George III with the tyranny of taxing the colonies without representation, Jefferson also labelled George III a tyrant, “for cutting off our trade with all parts of the world.” It is no less exploitive to restrict consumer’s access to the fullest selection of goods and services today through trade barriers as it was in Mr. Jefferson’s day or when the lord of the manor would insist that all his serfs use the lord's mill exclusively.
Furthermore, economic protectionism is no longer practical in the 21st century. The world and the U.S. economy have changed over the last century. The airplane, the telephone, the cellular phone, the computer, the internet, and broad-band internet access have made the world smaller. The world is now, to borrow Tom Friedman’s phrase, flat. It is now much easier to market goods and services to all parts of the globe, buy from and sell to all parts of the globe, and collaborate with others in every corner of the world. These technological innovations make it impossible to build a wall around fortress America and remain internally self-sufficient. As developing countries can manufacture simpler things less expensively, our economic growth depends on being a center of innovation for the new goods and services of tomorrow. We cannot continue to do that unless we take advantage of the same tools – a worldwide talent pool and the ability to maximize profit by outsourcing tasks that others do better or less expensively – as our competitors will. The truth is, we have no business manufacturing something if we can’t make it better or cheaper and we will need to have open access the world’s resources if we are to continue to innovate. This means our workforce will have to have more flexible skill sets and gone are the days where working on the same assembly line provides a lifetime of job security. This is neither bad nor good, it simply is. Our policies must reflect this reality and trying to protect the industries of the 20th century, burying our heads in the sand, will lead to a long-term lack of competitiveness that stunts our economic growth and allows competitors to pass us by. Buy American provisions will simply encourage others to close their markets to our goods and services and lead to escalating trade wars that will deprive us of the competitive advantages and opportunities of full participation in the global marketplace.
The Buy American provisions in the economic stimulus package are a poison pill that threatens our liberty and long-term economic prosperity. President Obama has voiced his disapproval of these provisions, but if they remain in the final bill, they will prove and interesting test of the new President’s leadership. If such provisions are in the final bill, President Obama should veto it. President Clinton took on elements in his own party when he promoted NAFTA, can President Obama do the same? If these provisions are in the final bill, will President Obama have the political courage to veto a stimulus package that most of the country believes we need in the face of the economic crisis and ask Congress for a new bill without these provisions? I, for one, certainly hope so.
Trade
We are in difficult economic times. The collapse of the housing bubble has had repercussions in other aspects of the economy. Banks, faced with default mortgages, are now unwilling to lend. With capital frozen, business cannot expand or grow. Hiring freezes, and employees are let go to cut costs. In this climate, everyone looks to government to create jobs and protect jobs. Populism and protectionism become popular.
This is evident in the creation of the current economic stimulus package that is being debated on Capitol Hill. The House and the Senate have passed to different bills, which must be resolved in conference committee. The House version contains, “Buy American,” clauses to insure that the government money spent will go to American businesses, buy only American products and, “protect,” American jobs.
It is easy to understand why such measures might be popular in these economic times, but they are extremely short sighted. No one makes an effective argument for truly free trade. Trade proponents argue that it creates jobs, opponents point to the jobs lost. The truth is, in any free and competitive market there will be winners and losers. This gives each side examples to point to, but confuses the public at large that is trying to decide, on balance, whether open trade or protectionism would be better.
However, these, “practical,” arguments about whether free trade costs or creates jobs miss the larger moral issue at stake. What defines a free society is freedom of choice. Our Constitution enshrines some freedom of choice in the First Amendment – our government is not allowed to dictate what you can say (or think), cannot prevent you from assembling peacefully, and cannot tell you what to believe or what god to worship. True liberty, however, requires that this freedom of choice extend to economic activity as well. What empowers consumers is having multiple businesses providing goods and services competing for the consumers business. The consumer then can choose amongst various options the product he or she judges is of reasonable quality and/or a reasonable price. Monopolies or trusts exploit the consumer by denying choice and either force the consumer to accept inferior quality or charge the consumer exorbitant prices. The competition of a free market prevents this economic exploitation.
Protectionism similarly exploits consumers. Freedom and both political and economic power are maximized when the consumer has more choice. By limiting access to foreign goods, or subsidizing domestic ones, or inflating the prices of imports through tariffs, limits choice and forces the consumer to accept higher prices than the market would otherwise bear. What helps a narrow segment of the population (those that work in the industry being protected) exploits everyone who consumes goods and services and hurts us all. Economic freedom of choice is so crucial to liberty that, in the same sentence of the Declaration of Independence that charges King George III with the tyranny of taxing the colonies without representation, he also labelled him a tyrant, “for cutting off our trade with all parts of the world.” It is no less exploitive to restrict consumer’s access to the fullest selection of goods and services today through trade barriers as it was in Mr. Jefferson’s day or when the lord of the manor would insist that all his serfs use his mill exclusively.
Furthermore, economic protectionism is no longer practical in the 21st century. The world and the U.S. economy have changed over the last century. The airplane, the telephone, the cellular phone, the computer, the internet, and broad-band internet access have made the world smaller. The world is now, to borrow Tom Friedman’s phrase, flat. It is now much easier to market goods and services to all parts of the globe, buy and sell to and from all parts of the globe, and collaborate with others in every corner of the world. These technological innovations make it impossible to build a wall around fortress America and remain internally self-sufficient. As developing countries can manufacture simpler things less expensively, our economic growth depends on being a center of innovation for the new goods and services of tomorrow. We cannot continue to do that unless we take advantage of the same tools – a worldwide talent pool and the ability to maximize profit by outsourcing tasks that others do better or less expensively – as our competitors will. The truth is, we have no business manufacturing something if we can’t make it better or cheaper and we will need to have open access the world’s resources if we are to continue to innovate. This means our workforce will have to have more flexible skill sets and gone are the days where working on the same assembly line provides a lifetime of job security. This is neither bad nor good, it simply is. Our policies must reflect this reality and trying to protect the industries of the 20th century, burying our heads in the sand, will lead to a long-term lack of competitiveness that stunts our economic growth and allows competitors to pass us buy. Buy American provisions will simply encourage others to close their markets to our goods and services and lead to escalating trade wars that will deprive us of the competitive advantages and opportunities of full participation in the global marketplace.
The Buy American provisions in the economic stimulus package are a poison pill that threatens our liberty and long-term economic prosperity. President Obama has voiced his disapproval of these provisions, but if they remain in the final bill, they will prove and interesting test of the new President’s leadership. If such provisions are in the final bill, President Obama should veto it. President Clinton took on elements in his own party when he promoted NAFTA, can President Obama do the same? If these provisions are in the final bill, will he have the political courage to veto a stimulus package that most of the country believes we need in the face of the economic crisis and ask Congress for a new bill without these provisions? I, for one, certainly hope so.
This is evident in the creation of the current economic stimulus package that is being debated on Capitol Hill. The House and the Senate have passed to different bills, which must be resolved in conference committee. The House version contains, “Buy American,” clauses to insure that the government money spent will go to American businesses, buy only American products and, “protect,” American jobs.
It is easy to understand why such measures might be popular in these economic times, but they are extremely short sighted. No one makes an effective argument for truly free trade. Trade proponents argue that it creates jobs, opponents point to the jobs lost. The truth is, in any free and competitive market there will be winners and losers. This gives each side examples to point to, but confuses the public at large that is trying to decide, on balance, whether open trade or protectionism would be better.
However, these, “practical,” arguments about whether free trade costs or creates jobs miss the larger moral issue at stake. What defines a free society is freedom of choice. Our Constitution enshrines some freedom of choice in the First Amendment – our government is not allowed to dictate what you can say (or think), cannot prevent you from assembling peacefully, and cannot tell you what to believe or what god to worship. True liberty, however, requires that this freedom of choice extend to economic activity as well. What empowers consumers is having multiple businesses providing goods and services competing for the consumers business. The consumer then can choose amongst various options the product he or she judges is of reasonable quality and/or a reasonable price. Monopolies or trusts exploit the consumer by denying choice and either force the consumer to accept inferior quality or charge the consumer exorbitant prices. The competition of a free market prevents this economic exploitation.
Protectionism similarly exploits consumers. Freedom and both political and economic power are maximized when the consumer has more choice. By limiting access to foreign goods, or subsidizing domestic ones, or inflating the prices of imports through tariffs, limits choice and forces the consumer to accept higher prices than the market would otherwise bear. What helps a narrow segment of the population (those that work in the industry being protected) exploits everyone who consumes goods and services and hurts us all. Economic freedom of choice is so crucial to liberty that, in the same sentence of the Declaration of Independence that charges King George III with the tyranny of taxing the colonies without representation, he also labelled him a tyrant, “for cutting off our trade with all parts of the world.” It is no less exploitive to restrict consumer’s access to the fullest selection of goods and services today through trade barriers as it was in Mr. Jefferson’s day or when the lord of the manor would insist that all his serfs use his mill exclusively.
Furthermore, economic protectionism is no longer practical in the 21st century. The world and the U.S. economy have changed over the last century. The airplane, the telephone, the cellular phone, the computer, the internet, and broad-band internet access have made the world smaller. The world is now, to borrow Tom Friedman’s phrase, flat. It is now much easier to market goods and services to all parts of the globe, buy and sell to and from all parts of the globe, and collaborate with others in every corner of the world. These technological innovations make it impossible to build a wall around fortress America and remain internally self-sufficient. As developing countries can manufacture simpler things less expensively, our economic growth depends on being a center of innovation for the new goods and services of tomorrow. We cannot continue to do that unless we take advantage of the same tools – a worldwide talent pool and the ability to maximize profit by outsourcing tasks that others do better or less expensively – as our competitors will. The truth is, we have no business manufacturing something if we can’t make it better or cheaper and we will need to have open access the world’s resources if we are to continue to innovate. This means our workforce will have to have more flexible skill sets and gone are the days where working on the same assembly line provides a lifetime of job security. This is neither bad nor good, it simply is. Our policies must reflect this reality and trying to protect the industries of the 20th century, burying our heads in the sand, will lead to a long-term lack of competitiveness that stunts our economic growth and allows competitors to pass us buy. Buy American provisions will simply encourage others to close their markets to our goods and services and lead to escalating trade wars that will deprive us of the competitive advantages and opportunities of full participation in the global marketplace.
The Buy American provisions in the economic stimulus package are a poison pill that threatens our liberty and long-term economic prosperity. President Obama has voiced his disapproval of these provisions, but if they remain in the final bill, they will prove and interesting test of the new President’s leadership. If such provisions are in the final bill, President Obama should veto it. President Clinton took on elements in his own party when he promoted NAFTA, can President Obama do the same? If these provisions are in the final bill, will he have the political courage to veto a stimulus package that most of the country believes we need in the face of the economic crisis and ask Congress for a new bill without these provisions? I, for one, certainly hope so.
Saturday, January 3, 2009
An Open Letter to President George W. Bush
Dear Mr. President:
Shortly before Christmas, sixteen years ago, I wrote your father to thank him for his service to our nation as President. I thanked him for his leadership and, to this day, believe our country is better off because of it.
It is with a heavy heart that I cannot do the same today. While I realize that your administration was dealt a difficult hand (9-11, financial crisis, etc.), I am forced to conclude, as a majority of Americans have, that your administration has failed this nation and your leadership has been detrimental to it.
In my opinion, Mr. President, this is a direct result of being conservative in rhetoric only, rather than in policy. Yours has been the most left-leaning administration in decades, and certainly more leftist than your three predecessors. Other than tax cuts, which I do thank you for, your administration has not pursued any conservative policies. You have presided over the largest increases in domestic, non-defence, discretionary spending since LBJ’s great society. You had been in office for six years before you finally vetoed a spending bill. Your administration created a brand new healthcare entitlement (the Medicare prescription drug benefit). Industrial subsidies for agriculture, wool, sugar, and ethanol have increased on your watch. Both your father and President Reagan were committed to free trade with other nations. Although you have negotiated free trade agreements with our Latin American neighbours, you have also placed (at least temporarily) protective tariffs on European steel and engaged in trade disputes over the purchase of lumber from Canada. This free spending domestic policy has saddled us with debt, undoing the 104th Congress’ work in balancing the federal budget, and is a record Jimmy Carter or Bill Clinton could have been proud of.
While President Reagan wanted to abolish the federal department of education, you expanded the role of federal government in education with the No Child Left Behind Act, which makes the federal department of education the watchdog of schools in every state. What policy could be more antithetical to the Reagan-Goldwater view of devolving power out of Washington? I am shocked that, as a former governor, your administration would make a mockery of state sovereignty. In addition to No Child Left Behind, your administration, under Attorney General Ashcroft, attempted to use the Controlled Substances Act to prosecute doctors in Oregon that assisted in suicide. While I am not an advocate of assisted suicide, I would defend to my last breath the right of the state of Oregon to decide what is acceptable medical practice in Oregon. Similarly, your administration has disrespected laws allowing medical use of marijuana in several states. Wading into the Terry Schiavo case was truly shameful. Clearly such end of life decisions belong to families and state laws should govern who is an appropriate decision maker. The federal government clearly has no role in such cases. Fortunately you chose not to pursue it in your second term, but your proposal for a Constitutional Amendment to ban gay marriage is also a frontal assault on state sovereignty and states rights.
The intrusiveness of federal government under your administration does not stop with the trampling of states rights. Rights of individuals have also been threatened by illegal detentions, aggressive interrogation tactics, and illicit eavesdropping. I appreciate that stronger measures may be necessary in the post 9-11 world, and I am consoled by the fact that provisions of the USA PATRIOT act are subject periodic review and renewal by Congress. However, it is worth remembering that when similar anti-terrorism measures were proposed in the wake of the Oklahoma City bombing by President Clinton, it was Republicans that defeated those measures with concerns that they threatened civil liberties. I miss the days when Republicans concerned themselves with keeping the federal government off the back of the people… Your administration’s expansive view of executive authority is frightening. In a recent appearance on Fox News Sunday, Vice President Cheney argued that the War Powers Act was unconstitutional, not because it strips Congress of its constitutionally defined role to declare war, but because it allows Congress to interfere (after 90 days) with the President’s execution of his role as Commander-in-Chief! I can understand, in the 21st century, why a War Powers Act is necessary to allow a President to act in a time-sensitive manner while Congress convenes, debates, and votes. But, make no mistake sir, under our Constitution it is Congress alone that has the authority to decide when and if the United States goes to war.
Your foreign policy has been no less leftist. In your second inaugural address, you set as a goal of U.S. foreign policy, the elimination of tyranny in our world. This is certainly a noble ideal, but not a suitable guiding principle for the foreign policy of any nation. Foreign policy must always be based on national interest. Aiding freedom fighters to prevent communist hegemony may have met that goal, but toppling all dictators in every corner of the globe does not. Your policies resemble the nation-building zeal of the Clinton administration (Haiti, Bosnia, Somalia), the, “make the world safe for democracy,” philosophy of President Wilson, and the human rights agenda of President Carter more than the, “humble foreign policy,” that you promised in your 2000 presidential campaign. I would agree that things have changed because of 9-11, but we knew before invading that Iraq had no role in 9-11. We also knew Saddam was not anywhere near the largest state sponsor of terrorism (Iran has been a much bigger sponsor of terrorists), his military had been cut down in size by Desert Storm, his country was under tough economic sanctions, a third of his country was under a no-fly zone, and Iraq had not threatened another country outside its own borders in over a decade. Even assuming the accuracy of intelligence reports of WMD (which I did at the time), it is clear from these facts that there was no justification for invading Iraq. Possession of WMD is not enough. That would be justification for invading dozens of countries (including the U.S.). Only intelligence of an imminent attack with those weapons could justify pre-emptive military action. As a Christian, I cannot believe you asked, “What would Jesus do?” and concluded that He would invade Iraq. The consequences have been staggering. Not only have lives, American and Iraqi, been needlessly lost, but this unnecessary, unjustifiable war has cost billions of dollars, alienated our allies and strengthened the hand of Iran, a country that actually does sponsor terrorists and has an active nuclear program. In this, too, your administration’s policies have been contrary to the principles of previous Republican administrations. Your father explained why military occupation of Iraq was a bad idea:
Trying to eliminate Saddam, extending the ground war into an occupation of Iraq, would have violated our guideline about not changing objectives in midstream, engaging in, “mission creep,” and would have incurred incalculable human and political costs…. We would have been forced to occupy Baghdad and, in effect, rule Iraq. The coalition would have instantly collapsed, the Arabs deserting it in anger and other allies pulling out as well. Under those circumstances, there was no viable, “exit strategy,” we could see, violating another of our principles. Furthermore, we had been self-consciously trying to set a pattern for handling aggression in the post-Cold War world. Going in and occupying Iraq, thus exceeding the United Nations mandate, would have destroyed the precedent of international response to aggression we hoped to establish. Had we gone the invasion route, the United States could conceivably still be an occupying power in a bitterly hostile land. It would have been a dramatically different - and perhaps barren – outcome.
George H.W. Bush and Brent Scowcroft
A World Transformed, p.489 (1998)
Finally, I would like to say a few words about the financial crisis. The most basic conservative principle is the limitation of government’s influence in the market place. Conservatives believe that this not only encourages economic growth, but also establishes an important economic component of individual liberty. We all know that the financial crisis, while global, began with the collapse of a real estate bubble in the United States. What is often not discussed is that the real estate bubble was created by the type of government intervention in the market places that all conservatives should eschew. As you know, the Community Reinvestment Act indirectly encourages subprime lending by mandating home loans to low-income families. A revision of the act on your watch in 2005 made it easier for lenders to participate in the program by allowing smaller banks to participate solely as lenders, with less oversight. In addition, in 2004, your administration increased the affordable housing goals of both Fannie Mae and Freddie Mac and allowed them to include securitized subprime loans toward their affordable housing goals. The goal was to increase home ownership and in your 2004 State of the Union address, you boasted about the success of these policies, noting that new home construction was the highest in twenty years and home ownership was at an all-time high in the U.S. But, these policies ignore the fundamental conservative principle that government intervention in the market place has unintended consequences. Add to these policies a Federal Reserve that kept interest rates artificially low and you have an artificial market that encourages exuberant lending. Furthermore, the Feds policies devalued the dollar, which raised the price of fuel and food, and made it more difficult for those with subprime mortgages to make their payments. Your administration’s manipulation of the marketplace for a public policy goal of affordable housing helped create this financial crisis. Such policies are anathema to conservatives who believe in free market principles. Your administration’s response to the crisis has been even more shocking. Bailouts of industries, government ownership of financial institutions, and a, “car czar,” to direct business decisions of the automakers that take government money. In short, the response to a crisis created by ignoring free market principles and has been socialism – government purchase and ownership of private industry. These policies can in no way be seen as anything other than leftist.
In summary, the policies of your administration have abandoned almost every conservative principle: free trade and laissez-faire economic policies, strict interpretation of and adherence to the Constitution, limited government intrusiveness and the protection of individual liberty and states’ rights, fiscal discipline, and non-interventionist foreign policy. Your administration has systematically undone and reversed the policies of previous Republican Presidents and Congresses. The result has been an unpopular war, disaffected conservative voters, the decimation our political party and policies that lay the groundwork for President-elect Obama to establish a new American socialism. This is not what we conservatives thought we were voting for in 2000.
Mr. President, it is not my goal to be disrespectful. I understand that you had to make difficult decisions in real time, and it is easy for me, or anyone else, to play, “Monday morning quarterback.” However, I felt compelled to explain to you why so many of us conservatives feel let down by your administration. On January 20, 2001, I stood in the cold, pouring rain, on the Mall in front of the Capitol while you took the oath of office. I was excited about your election and hopeful and optimistic about where you would lead this country. As I have watched your administration do nothing but expand the scope of federal government for eight years, I feel betrayed. I think you need to understand that a number of conservatives feel this way and I hope you will reflect on what I have said.
Let me close, Mr. President, by wishing you, Laura, the twins, your folks, and all of your family a happy, healthy, and prosperous New Year. Regardless of our differences, I wish you the best and hope you enjoy some much deserved time off.
Shortly before Christmas, sixteen years ago, I wrote your father to thank him for his service to our nation as President. I thanked him for his leadership and, to this day, believe our country is better off because of it.
It is with a heavy heart that I cannot do the same today. While I realize that your administration was dealt a difficult hand (9-11, financial crisis, etc.), I am forced to conclude, as a majority of Americans have, that your administration has failed this nation and your leadership has been detrimental to it.
In my opinion, Mr. President, this is a direct result of being conservative in rhetoric only, rather than in policy. Yours has been the most left-leaning administration in decades, and certainly more leftist than your three predecessors. Other than tax cuts, which I do thank you for, your administration has not pursued any conservative policies. You have presided over the largest increases in domestic, non-defence, discretionary spending since LBJ’s great society. You had been in office for six years before you finally vetoed a spending bill. Your administration created a brand new healthcare entitlement (the Medicare prescription drug benefit). Industrial subsidies for agriculture, wool, sugar, and ethanol have increased on your watch. Both your father and President Reagan were committed to free trade with other nations. Although you have negotiated free trade agreements with our Latin American neighbours, you have also placed (at least temporarily) protective tariffs on European steel and engaged in trade disputes over the purchase of lumber from Canada. This free spending domestic policy has saddled us with debt, undoing the 104th Congress’ work in balancing the federal budget, and is a record Jimmy Carter or Bill Clinton could have been proud of.
While President Reagan wanted to abolish the federal department of education, you expanded the role of federal government in education with the No Child Left Behind Act, which makes the federal department of education the watchdog of schools in every state. What policy could be more antithetical to the Reagan-Goldwater view of devolving power out of Washington? I am shocked that, as a former governor, your administration would make a mockery of state sovereignty. In addition to No Child Left Behind, your administration, under Attorney General Ashcroft, attempted to use the Controlled Substances Act to prosecute doctors in Oregon that assisted in suicide. While I am not an advocate of assisted suicide, I would defend to my last breath the right of the state of Oregon to decide what is acceptable medical practice in Oregon. Similarly, your administration has disrespected laws allowing medical use of marijuana in several states. Wading into the Terry Schiavo case was truly shameful. Clearly such end of life decisions belong to families and state laws should govern who is an appropriate decision maker. The federal government clearly has no role in such cases. Fortunately you chose not to pursue it in your second term, but your proposal for a Constitutional Amendment to ban gay marriage is also a frontal assault on state sovereignty and states rights.
The intrusiveness of federal government under your administration does not stop with the trampling of states rights. Rights of individuals have also been threatened by illegal detentions, aggressive interrogation tactics, and illicit eavesdropping. I appreciate that stronger measures may be necessary in the post 9-11 world, and I am consoled by the fact that provisions of the USA PATRIOT act are subject periodic review and renewal by Congress. However, it is worth remembering that when similar anti-terrorism measures were proposed in the wake of the Oklahoma City bombing by President Clinton, it was Republicans that defeated those measures with concerns that they threatened civil liberties. I miss the days when Republicans concerned themselves with keeping the federal government off the back of the people… Your administration’s expansive view of executive authority is frightening. In a recent appearance on Fox News Sunday, Vice President Cheney argued that the War Powers Act was unconstitutional, not because it strips Congress of its constitutionally defined role to declare war, but because it allows Congress to interfere (after 90 days) with the President’s execution of his role as Commander-in-Chief! I can understand, in the 21st century, why a War Powers Act is necessary to allow a President to act in a time-sensitive manner while Congress convenes, debates, and votes. But, make no mistake sir, under our Constitution it is Congress alone that has the authority to decide when and if the United States goes to war.
Your foreign policy has been no less leftist. In your second inaugural address, you set as a goal of U.S. foreign policy, the elimination of tyranny in our world. This is certainly a noble ideal, but not a suitable guiding principle for the foreign policy of any nation. Foreign policy must always be based on national interest. Aiding freedom fighters to prevent communist hegemony may have met that goal, but toppling all dictators in every corner of the globe does not. Your policies resemble the nation-building zeal of the Clinton administration (Haiti, Bosnia, Somalia), the, “make the world safe for democracy,” philosophy of President Wilson, and the human rights agenda of President Carter more than the, “humble foreign policy,” that you promised in your 2000 presidential campaign. I would agree that things have changed because of 9-11, but we knew before invading that Iraq had no role in 9-11. We also knew Saddam was not anywhere near the largest state sponsor of terrorism (Iran has been a much bigger sponsor of terrorists), his military had been cut down in size by Desert Storm, his country was under tough economic sanctions, a third of his country was under a no-fly zone, and Iraq had not threatened another country outside its own borders in over a decade. Even assuming the accuracy of intelligence reports of WMD (which I did at the time), it is clear from these facts that there was no justification for invading Iraq. Possession of WMD is not enough. That would be justification for invading dozens of countries (including the U.S.). Only intelligence of an imminent attack with those weapons could justify pre-emptive military action. As a Christian, I cannot believe you asked, “What would Jesus do?” and concluded that He would invade Iraq. The consequences have been staggering. Not only have lives, American and Iraqi, been needlessly lost, but this unnecessary, unjustifiable war has cost billions of dollars, alienated our allies and strengthened the hand of Iran, a country that actually does sponsor terrorists and has an active nuclear program. In this, too, your administration’s policies have been contrary to the principles of previous Republican administrations. Your father explained why military occupation of Iraq was a bad idea:
Trying to eliminate Saddam, extending the ground war into an occupation of Iraq, would have violated our guideline about not changing objectives in midstream, engaging in, “mission creep,” and would have incurred incalculable human and political costs…. We would have been forced to occupy Baghdad and, in effect, rule Iraq. The coalition would have instantly collapsed, the Arabs deserting it in anger and other allies pulling out as well. Under those circumstances, there was no viable, “exit strategy,” we could see, violating another of our principles. Furthermore, we had been self-consciously trying to set a pattern for handling aggression in the post-Cold War world. Going in and occupying Iraq, thus exceeding the United Nations mandate, would have destroyed the precedent of international response to aggression we hoped to establish. Had we gone the invasion route, the United States could conceivably still be an occupying power in a bitterly hostile land. It would have been a dramatically different - and perhaps barren – outcome.
George H.W. Bush and Brent Scowcroft
A World Transformed, p.489 (1998)
Finally, I would like to say a few words about the financial crisis. The most basic conservative principle is the limitation of government’s influence in the market place. Conservatives believe that this not only encourages economic growth, but also establishes an important economic component of individual liberty. We all know that the financial crisis, while global, began with the collapse of a real estate bubble in the United States. What is often not discussed is that the real estate bubble was created by the type of government intervention in the market places that all conservatives should eschew. As you know, the Community Reinvestment Act indirectly encourages subprime lending by mandating home loans to low-income families. A revision of the act on your watch in 2005 made it easier for lenders to participate in the program by allowing smaller banks to participate solely as lenders, with less oversight. In addition, in 2004, your administration increased the affordable housing goals of both Fannie Mae and Freddie Mac and allowed them to include securitized subprime loans toward their affordable housing goals. The goal was to increase home ownership and in your 2004 State of the Union address, you boasted about the success of these policies, noting that new home construction was the highest in twenty years and home ownership was at an all-time high in the U.S. But, these policies ignore the fundamental conservative principle that government intervention in the market place has unintended consequences. Add to these policies a Federal Reserve that kept interest rates artificially low and you have an artificial market that encourages exuberant lending. Furthermore, the Feds policies devalued the dollar, which raised the price of fuel and food, and made it more difficult for those with subprime mortgages to make their payments. Your administration’s manipulation of the marketplace for a public policy goal of affordable housing helped create this financial crisis. Such policies are anathema to conservatives who believe in free market principles. Your administration’s response to the crisis has been even more shocking. Bailouts of industries, government ownership of financial institutions, and a, “car czar,” to direct business decisions of the automakers that take government money. In short, the response to a crisis created by ignoring free market principles and has been socialism – government purchase and ownership of private industry. These policies can in no way be seen as anything other than leftist.
In summary, the policies of your administration have abandoned almost every conservative principle: free trade and laissez-faire economic policies, strict interpretation of and adherence to the Constitution, limited government intrusiveness and the protection of individual liberty and states’ rights, fiscal discipline, and non-interventionist foreign policy. Your administration has systematically undone and reversed the policies of previous Republican Presidents and Congresses. The result has been an unpopular war, disaffected conservative voters, the decimation our political party and policies that lay the groundwork for President-elect Obama to establish a new American socialism. This is not what we conservatives thought we were voting for in 2000.
Mr. President, it is not my goal to be disrespectful. I understand that you had to make difficult decisions in real time, and it is easy for me, or anyone else, to play, “Monday morning quarterback.” However, I felt compelled to explain to you why so many of us conservatives feel let down by your administration. On January 20, 2001, I stood in the cold, pouring rain, on the Mall in front of the Capitol while you took the oath of office. I was excited about your election and hopeful and optimistic about where you would lead this country. As I have watched your administration do nothing but expand the scope of federal government for eight years, I feel betrayed. I think you need to understand that a number of conservatives feel this way and I hope you will reflect on what I have said.
Let me close, Mr. President, by wishing you, Laura, the twins, your folks, and all of your family a happy, healthy, and prosperous New Year. Regardless of our differences, I wish you the best and hope you enjoy some much deserved time off.
Wednesday, November 5, 2008
Decision 2008
I have made it a point not to discuss the Presidential race or endorse a candidate in my postings because I want this blog to be about issues and ideas and not about personalities. However, I would like to suspend that custom today and comment on the results of yesterday's historic U.S. Presidential election.
I must admit that I did not vote for Barack Obama yesterday. Other than his opposition to the war in Iraq, his views are antithetical to those presented in this blog. However, today I am proud of my country for electing him. Although he had a number if advantages - fund raising, George Bush's unpopularity, John McCain's link to an unpopular war and the simple truth that the party that holds the White House during an economic downturn always loses it - any of those could have been negated by racial prejudice, and they weren't. I may not agree that President-elect Obama's policies will be the best for our future, however 63 million Americans did and they didn't let Barack Obama's race dissuade them. That may seem like a small thing, but in a country that as recently as 150 years ago enslaved people of colour and as recently as 50 years ago had laws designed to deny them access to the voting booth, it is a big deal.
But more than that, Barack Obama is a bi-racial person, and on his father's side, a first generation American (the son of a Kenyan immigrant). His origins are humble, raised by a single parent and grandparents. From this improbable beginning, he will become President of the United States. His election is an affirmation that the American Dream is alive and well. He has demonstrated that we speak the truth when we tell our young people that in this great land, you can be anything you want to be and achieve anything you set your mind to achieve. Regardless of who your parents are or the colour of your skin, the United States of America is a land of opportunity for all.
I am sure that in the years to come I will be posting criticism of some of President Obama's policies. But today it is my sincere hope that his administration will be a successful one during which our nation enjoys peace and prosperity. It is my hope that his election will transform how the world views the U.S. by demonstrating to the world that we are not simply a nation of gun-slinging cowboys, but a nation of diverse peoples.
I did not support Senator Obama's candidacy, but his election reminds my of why I love this country.
I must admit that I did not vote for Barack Obama yesterday. Other than his opposition to the war in Iraq, his views are antithetical to those presented in this blog. However, today I am proud of my country for electing him. Although he had a number if advantages - fund raising, George Bush's unpopularity, John McCain's link to an unpopular war and the simple truth that the party that holds the White House during an economic downturn always loses it - any of those could have been negated by racial prejudice, and they weren't. I may not agree that President-elect Obama's policies will be the best for our future, however 63 million Americans did and they didn't let Barack Obama's race dissuade them. That may seem like a small thing, but in a country that as recently as 150 years ago enslaved people of colour and as recently as 50 years ago had laws designed to deny them access to the voting booth, it is a big deal.
But more than that, Barack Obama is a bi-racial person, and on his father's side, a first generation American (the son of a Kenyan immigrant). His origins are humble, raised by a single parent and grandparents. From this improbable beginning, he will become President of the United States. His election is an affirmation that the American Dream is alive and well. He has demonstrated that we speak the truth when we tell our young people that in this great land, you can be anything you want to be and achieve anything you set your mind to achieve. Regardless of who your parents are or the colour of your skin, the United States of America is a land of opportunity for all.
I am sure that in the years to come I will be posting criticism of some of President Obama's policies. But today it is my sincere hope that his administration will be a successful one during which our nation enjoys peace and prosperity. It is my hope that his election will transform how the world views the U.S. by demonstrating to the world that we are not simply a nation of gun-slinging cowboys, but a nation of diverse peoples.
I did not support Senator Obama's candidacy, but his election reminds my of why I love this country.
Sunday, October 26, 2008
D.C. v. Heller Revisited
A friend of mine recently sent me this article from The New York Times:
www.nytimes.com/2008/10/21/washington/21guns.html?_r=1&ei=5070&emc=eta1&oref=slogin
The article presents arguments critical to Justice Scalia's majority opinion in D.C. v. Heller from the right.
The gist of the article is that the Justice Scalia's opinion in Heller is politically motivated and at odds with an originalist interpretation of the Constitution. It is an example of judicial activism on the right, the way Roe v. Wade is an example of judicial activism on the left. The argument runs that it makes a mockery of federalism by restricting the states ability to establish their own gun laws (as Roe restricts the states ability to have their own abortion laws).
Those that have read my post from April 26, 2008 (freemarkets-freeminds-freesociety.blogspot.com/2008/04/district-of-columbia-v-heller.html) will already know that I disagree with this view. I came to the same conclusion, by the same reasoning as Justice Scalia did.
Unlike Justice Scalia, who is an avid hunter (I think he's even survived hunting trips with the Vice President), I have never and will never own a gun. I don't hunt and I detest handguns. The only purpose of a handgun is to shoot a person, and I would agree no one needs one. I would favour the DC handgun ban, if I thought the Constitution allowed it. I came to the conclusion that it didn't independent of any political pro-gun agenda.
Justice Scalia's decision does not impair localities ability to regulate ownership - in the same way speech is still regulated (no profanity on publicly owned broadcasting venues, speech that incites violence isn't protected, speech that creates a danger (the old, "yelling fire in a crowded theatre,") isn't protected and slander isn't protected). In my view, there is nothing different about the right to keep and bear arms (which the framers clearly viewed as an individual right) and the right to free speech, free assembly, a free press, or freedom of religion. They are all quite explicit in the Bill of Rights. I agree with the point, later in the article, that comparing D.C. v. Heller with Roe is unfair because gun rights are explicitly mentioned in the Constitution and abortion rights are not.
I can see how some would view the decision (DC v. Heller) as activist. The idea that this decision is an assault on federalism is certainly a very originalist way of looking at the issue as the Bill of Rights was initially felt to apply only to federal law (and therefore the original interpretation to the 2nd Amendment is that the federal government shall not infringe the right to keep and bear arms - important because of the preceding clause that explains the reason: so that States will always have an armed citizenry to resist a federal standing army if necessary). Jefferson and the Democratic-Republicans viewed the Alien and Sedition Acts as unconstitutional, and they were, but after they were repealed there will still plenty of state sedition laws viewed completely acceptable under the Constitution that provided that only the federal government couldn't restrict speech or the press.
However, the 14th amendment changed all that. The equal protection clause mandates that those rights extend to everyone equally, in any state. So now state legislatures can't pass laws restricting free speech, free press, free assembly and so on. The argument from the right against Scalia's decision is an argument that they should be able to. In my view, if the 14th amendment extends all other rights guaranteed in the Constitution into every state and locality, it does so for second amendment rights as well, just as Scalia observed. We would not tolerate a different law with regard to free speech in New York city compared to Wichita Falls, Kansas would we? There are perhaps good reasons to have different gun laws in those two places, but the Constitution, extended to the states by the 14th amendment, forbids it.
I am not in favour of a national gun ban. I am, in priniciple, in favour of letting states and localities figure what gun laws work best for them as the critics of the Scalia decision suggest. I would be all for a constitutional amendment that restricted the second amendment to the federal government and allowed states and localities to be autonomous on this issue. But, I remain convinced that it takes an amendment to do that, and to do it without an amendment sets precedent that puts the remainder of the Bill of Rights at risk.
www.nytimes.com/2008/10/21/washington/21guns.html?_r=1&ei=5070&emc=eta1&oref=slogin
The article presents arguments critical to Justice Scalia's majority opinion in D.C. v. Heller from the right.
The gist of the article is that the Justice Scalia's opinion in Heller is politically motivated and at odds with an originalist interpretation of the Constitution. It is an example of judicial activism on the right, the way Roe v. Wade is an example of judicial activism on the left. The argument runs that it makes a mockery of federalism by restricting the states ability to establish their own gun laws (as Roe restricts the states ability to have their own abortion laws).
Those that have read my post from April 26, 2008 (freemarkets-freeminds-freesociety.blogspot.com/2008/04/district-of-columbia-v-heller.html) will already know that I disagree with this view. I came to the same conclusion, by the same reasoning as Justice Scalia did.
Unlike Justice Scalia, who is an avid hunter (I think he's even survived hunting trips with the Vice President), I have never and will never own a gun. I don't hunt and I detest handguns. The only purpose of a handgun is to shoot a person, and I would agree no one needs one. I would favour the DC handgun ban, if I thought the Constitution allowed it. I came to the conclusion that it didn't independent of any political pro-gun agenda.
Justice Scalia's decision does not impair localities ability to regulate ownership - in the same way speech is still regulated (no profanity on publicly owned broadcasting venues, speech that incites violence isn't protected, speech that creates a danger (the old, "yelling fire in a crowded theatre,") isn't protected and slander isn't protected). In my view, there is nothing different about the right to keep and bear arms (which the framers clearly viewed as an individual right) and the right to free speech, free assembly, a free press, or freedom of religion. They are all quite explicit in the Bill of Rights. I agree with the point, later in the article, that comparing D.C. v. Heller with Roe is unfair because gun rights are explicitly mentioned in the Constitution and abortion rights are not.
I can see how some would view the decision (DC v. Heller) as activist. The idea that this decision is an assault on federalism is certainly a very originalist way of looking at the issue as the Bill of Rights was initially felt to apply only to federal law (and therefore the original interpretation to the 2nd Amendment is that the federal government shall not infringe the right to keep and bear arms - important because of the preceding clause that explains the reason: so that States will always have an armed citizenry to resist a federal standing army if necessary). Jefferson and the Democratic-Republicans viewed the Alien and Sedition Acts as unconstitutional, and they were, but after they were repealed there will still plenty of state sedition laws viewed completely acceptable under the Constitution that provided that only the federal government couldn't restrict speech or the press.
However, the 14th amendment changed all that. The equal protection clause mandates that those rights extend to everyone equally, in any state. So now state legislatures can't pass laws restricting free speech, free press, free assembly and so on. The argument from the right against Scalia's decision is an argument that they should be able to. In my view, if the 14th amendment extends all other rights guaranteed in the Constitution into every state and locality, it does so for second amendment rights as well, just as Scalia observed. We would not tolerate a different law with regard to free speech in New York city compared to Wichita Falls, Kansas would we? There are perhaps good reasons to have different gun laws in those two places, but the Constitution, extended to the states by the 14th amendment, forbids it.
I am not in favour of a national gun ban. I am, in priniciple, in favour of letting states and localities figure what gun laws work best for them as the critics of the Scalia decision suggest. I would be all for a constitutional amendment that restricted the second amendment to the federal government and allowed states and localities to be autonomous on this issue. But, I remain convinced that it takes an amendment to do that, and to do it without an amendment sets precedent that puts the remainder of the Bill of Rights at risk.
Tuesday, October 14, 2008
Anatomy of a Financial Crisis
Two weeks ago, Congress passed a $700 billion dollar spending bill to buy mortgage loans in danger of default. Doing so bailed out numerous lenders who made these risky loans and will require the federal government to figure out a way to realize payment on these loans. The purpose of bailout was to prevent the financial collapse of the nation’s mortgage companies and banks. The move comes after purchasing the failing AIG and was aimed at preventing a massive credit crunch as loans would default, banks would collapse and failing companies would send the stock market in a tail spin. There would be no money to lend, no loan that would be considered safe, stockholders (and people with a 401K) would see their savings evapourate and a run on banks could jeopardize cash savings as well. This crisis, we were told, had the potential to develop into the next Great Depression.
Our politicians have a penchant for labelling everything a “crisis.” Whether it is the tide of illegal immigration, or the number of Americans without health insurance; whether it is the war on drugs, or the war on poverty; whether it is the threat of WMD in Iraq or the threat of global climate change; we are always told by our leaders that the sky is falling and only decisive action by government can fix the problem. Although our political leadership has, “cried wolf,” on many occasions, it is easy to see how the current situation could degenerate into the misery described above. Whether or not the government’s action will stop this economic collapse is, of course, another story.
What has been missing, however, from the rhetoric of both the President and the Congress and from most politicians on both sides of the aisle, is a frank discussion about how we got to this point in the first place. Politicians on the left have, predictably, laid the blame on greedy predatory lenders who took advantage of folks to make a quick buck. They argue that this is what naturally follows from too little regulation of the economy and that if only the government had regulated the mortgage industry more tightly then all of this could have been avoided. The current situation is a failure of deregulation. Even the Republican candidate for Vice President railed against the, “greed and corruption on Wall Street,” during the Vice Presidential debate. Almost no one has the political courage to assign any blame to the borrowers that took out mortgage loans that were beyond their means.
Although both lenders and borrowers are clearly at fault here, the notion that this crisis was created by a lack of government influence in the market place could not be further from true. Our government actively fostered the economic climate that created this housing bubble. Far from being a failure of deregulation, government intervention in the market place had a hand in creating this financial crisis.
The first piece of the puzzle is the Community Reinvestment Act. First passed in 1977 and then modified in 1995 and 2005, this act was passed with the goal of increasing home ownership among the working poor. It requires lenders in impoverished areas to maintain a quota of loans (often subprime loans) to underprivileged individuals. In other words, a percentage of the subprime loans contributing to this crisis were specifically mandated by the federal government. The act requires federally regulated banks to meet the credit needs of the community in which it is chartered by offering mortgage loans to low income families.(1) Although the act specifically states that banks are not required to make high risk loans to meet community needs, a study by the Federal Reserve Bank of Cleveland in 2000 of 143 of the 500 largest CRA-regulated banks revealed that the security of such loans is variable from loan to loan and institution to institution and that, on average, such loans are more likely to default or be unprofitable than other loans.(2) The same study estimated that 25% of CRA loans were, “unprofitable or marginally unprofitable.”(2) The CRA encourages predatory lending in two ways. First, some CRA banks will issue subprime loans to low income families directly because they would still get CRA credit for these loans and improve their CRA rating. Secondly, banks can get CRA credit by securitizing predatory subprime loan, buying them with federally guaranteed letters of credit.(3) Banks can even get credit for making subprime loans to low or middle income individuals that qualify for prime rates.(3) New federal regulations in 1995 and 2002 expanded the CRA, making it easier for smaller banks to participate by focusing on just lending.(4) In 2002, when several states, including Georgia(5), tried to limit credit for subprime lending, federal regulators blocked those efforts.(6)
In addition to the CRA, a 1992 federal law required Fannie Mae and Freddie Mac to devote a percentage of their activities to meeting affordable housing goals(4) and at the height of the housing bubble in 2003-2004 the federal government was directly securitizing nearly half of the nation’s subprime loans through Fannie Mae and Freddie Mac (government subsidized corporations).(7) In 1999, Fannie Mae was pressured by the Clinton administration to securitize more high risk loans, in an effort to expand home ownership among low and middle income Americans.(8) The Clinton administration also moved, in 1995, to allow Fannie Mae and Freddie Mac to count subprime mortgage securities toward their affordable housing goal.(9) Although this directive was later rescinded in 2001, in 2004 the Bush administration raised the affordable housing goal from 50% to 56% and again allowed Fannie and Freddie to count securitized subprime mortgages toward this goal, further encouraging predatory lending. Although some, such as University of Michigan Law Professor Michael Barr would call easing these restrictions on Fannie and Freddie, “an abject failure to regulate,”(9)nothing could be further from the truth. This was no failure to regulate. This was a specific government tampering with market forces to encourage subprime lending as a mechanism for increasing home ownership. President Bush bragged about the success of this policy in his 2004 State of the Union address noting that new home construction was the highest in twenty years and home ownership at its highest levels ever in the U.S.(10) He was, of course, describing the housing bubble that has now burst. Far from being created by an unfettered free market, this bubble was created, intentionally, by government policies aimed at loosening credit to expand home ownership.
However, Professor Barr pointed out that about half of the subprime mortgages were made by lenders not under the CRA’s jurisdiction and another 20-25% were made by small lenders and only later securitized under the CRA (although we have seen how this is a direct result of government policy and encourages predatory lending), leaving only 25-30% if subprime loans made by CRA institutions.(11) Robert Gordon, senior fellow at the Center for American Progress, offers as proof that the mortgage crisis was caused by a lack of regulation a statistic provided by Janet Yellen of the San Francisco Federal Reserve, “Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts.”(12),(13) However, this does not negate the fact that CRA lending is responsible for thousands of subprime and high risk loans. In communities where CRA institutions were conservative in lending, there was demand for other institutions to offer higher risk loans.(3),(4) This was also encouraged, actively, by the federal government as we have seen through its mandate to Freddie and Fannie to increase the percentage of their business that is directed to affordable housing goals and by giving other banks incentives to securitize these mortgages by guaranteeing their investments or allowing these banks to claim that activity as CRA credit. Therefore, many of these loans made by independent mortgage companies ultimately do fall under the CRA.(14) But even the subprime lending completely outside the CRA was encouraged by federal government policies. From 2003-2005, the Federal Reserve held interests low, below the expected level of inflation.(15) This reduced the cost of borrowing money dramatically and allowed lenders to offer subprime mortgages with very low introductory, but variable, rates easily. It was a policy that changed market dynamics from encouraging people to save to encourage them to borrow. Furthermore, the Fed lowers interest rates by buying bonds from banks and thereby injecting more cash into the economy. The increased supply in money reduces the “cost,” of borrowing it, or the interest rate. The increased supply in money also devalues the dollar, and we have seen the U.S. dollar plummet in value over the past few years (yet few talk about the fact that it is the policies of our federal government that are responsible for its devaluation). Oil is sold on the world market in U.S. dollars, therefore, even without the increased demand for oil from India and China, the rise in oil prices is directly linked to the falling value of the dollar. The Feds’ inflationary policies have not only encouraged the exuberant lending that is at the root of this financial crisis, but they have also contributed to rising energy and food prices, putting an economic pinch on those low income homeowners that the government wanted to have mortgages. When these people can no longer afford to pay their mortgage, put food on the table, heat their homes, or put gas in their car to get to work, all at the same time, they then default or are at risk for defaulting on that loan, and hence the bursting of the bubble and the beginning of the financial crisis. Because many U.S. securities are owned by foreign lenders, this has become an international credit crunch. Another mechanism by which government policy helped create the crisis are government regulations that limit assessment of credit risk to a handful of credit agencies, who inaccurately assessed the risk of these loans, leading to, ironically, the most regulated banks making some of the worst mortgage investments.(15)
In summary, the federal government set a goal of increasing home ownership among low and middle-income families, an ostensibly laudable goal. The government employed several mechanisms to achieve this goal. First, it mandated lending to lower income families through the Community Reinvestment Act. Sometimes this was done responsibly, and sometimes not. Secondly it put pressure on lenders to increase their CRA activity and allowed smaller lenders to participate in the CRA. Third, it subsidized subprime lending, both directly by ordering Fannie Mae and Freddie Mac to securitize more of these loans to increase its activity to meet affordable housing goals, and indirectly by allowing secondary mortgage market banks to count securitized subprime loans towards their CRA ratings. Fourth, it encouraged non-CRA lenders to join the party by keeping interest rates artificially low and fifth, it pumped capital into the economy to lower the interest rates, thereby devaluing the dollar and putting an economic pinch on the lower income families that made the loans. Those that argue that this crisis was caused by a failure to regulate the financial industry are simply wrong. Ironically, those on the left who are blaming the, “deregulatory policies of the Bush administration,” actually opposed Bush administration plans in 2003 to increase oversight of Fannie and Freddie (Barney Frank (D-MA) argued that Fannie and Freddie were not, “facing any kind of financial crisis,” and that, “The more people exaggerate these problems, the more pressure we see on these companies, the less we will see in terms of affordable housing.”)(16) This crisis was not caused by a lack of government oversight. It was caused by government policies specifically designed to create a housing bubble (to increase home construction and home ownership). Alan Greenspan cheered it on,(12) Barney Frank made sure no one put on the brakes,(16) and President Bush bragged about its success.(10) Certainly in a free market, at times, individuals or groups will act irrationally. But, a correction will occur and those who acted imprudently will pay the price, often with minimal effect on the economy as a whole. In the current situation, however, our government encouraged exuberant borrowing and lending, through a combination of mandates and incentives, creating a national economic mess. The lemmings didn’t jump off the cliff, they were pushed. These actions were taken for a good cause, affordable housing, but illustrate clearly the principle that government intervention in the market place often has unforeseen, unintended, negative consequences. This isn’t what happens when the government keeps its hands off the market, this is what happens when your government fights for you.
Unfortunately, understanding how the crisis occurred is not the same as knowing what to do about it. Much like the invasion of Iraq, the mess was caused by misguided policies but how to clean it up isn’t as obvious. Personally, I am inclined to be distrustful of government action to, “fix,” the problem, since it was government action that created it in the first place. I am distrustful of this government when it tells me there is a crisis that requires immediate governmental action, for history shows that usually politicians call something a crisis that isn’t simply to expand the government’s (and therefore their own) power. Certainly many on the left are taking just that opportunity right now, using the current situation as an excuse to expand the government’s influence in the market place (so we can have more crises like this in future). And of course it really irritates me that the solution proposed is to bailout all those greedy lenders (who, yes, do share responsibility with the federal government) who made risky loans and now don’t have to pay the price for taking a risk (which will encourage similar risky economic behaviour in the future because it is without consequence). Where is this $700 billion dollars coming from? Our Treasury certainly doesn’t have this money as our federal government is in debt. I suspect the Federal Reserve will simply print it, further devaluing the dollar and causing greater inflation (the value of the dollar compared the British Pound and the euro has increased over the last week because national banks in Europe have already pumped large amounts of capital into their economies and devalued their currencies). And, as I write this, President Bush is proposing another cash injection to capitalize banks by having the government buy ownership shares in the nation’s major banks (alas, we are back to the 200-year-old Hamilton-Jefferson debate about whether or not there should be a national bank…). Those of the Austrian school of Economics, such as Loyola College (Maryland) economics professor Thomas DiLorenzo and Congressman Ron Paul (R-TX) would argue that this bailout only has the effect of prolonging economic misery by attempting to stop, but only delaying, a necessary correction in the market (in his book, How Capitalism Saved America, Professor DiLorenzo argues that the market interventionism of both Presidents Hoover and Roosevelt extended the duration of the Great Depression, whereas previous economic crises had been much briefer).(17),(18) While I am convinced that this is true and that allowing the market to correct would be quicker, the real question is, at what cost? Would the losers be only those who acted irresponsibly, or does the crunch in credit have the ability to affect those who did the right thing, as illustrated in the opening paragraph. If the savings of those who were fiscally responsible are at risk in the correction, then that, in my view, is market failure and I would be willing to sacrifice my laissez-faire principles if it would prevent another Great Depression. But how can we trust that our leaders will do the right thing (even if the right thing is doing nothing) when they are always telling us of crises government needs to address, demonstrate so little understanding of how this crisis was created, and use the crisis to advance a pro-regulatory political agenda? Understanding the genesis of the crisis may not help us determine the best course of action (or inaction) to take going forward, but it does tell us something useful about future policy. The lesson to learn here is that this kind of government interventionism in the market place that creates artificial incentives to promote certain economic behaviour and devalues our currency, leading to boom and bust business cycles, has got to stop.
See also: http://online.wsj.com/article/SB122298982558700341.html for another nice summary of how government policies helped create the housing bubble.(19)
_______________________
(1)Full text of Community Reinvestment Act available at: http://www.fdic.gov/regulations/laws/rules/6500-2515.html
(2)Avery RB, Bostic RW, and Canner GB, “The Performance and Profitability of CRA Regulated Lending,” Economic Commentary, Federal Reserve Bank of Cleveland [November 2000]. Available at: http://www.clevelandfed.org/research/Commentary/2000/1100.htm
(3)Engel KC and McCoy PA, “The CRA Implications of Predatory Lending,” Fordham Urban Law Journal, Vol. XXIX, April 2002. Available at: http://lsr.nellco.org/cgi/viewcontent.cgi?article=1029&context=uconn/ucwps
(4)Bernanke BS, “The Community Reinvestment Act: It’s Evolution and New Challenges.” Speech at the Community Affairs Research Conference in Washington, D.C., on March 30, 2007. Available at: http://www.federalreserve.gov/newsevents/speech/Bernanke20070330a.htm
(5)Georgia Fair Lending Act. dbf.georgia.gov/vgn/images/portal/cit_1210/56/7/64943073GAFLA-OCGA7-6A.pdf#12
(6)Bagley N, “Crashing the Subprime Party: How the Feds Stopped the States from Averting the Lending Mess,” Slate, January 24, 2008. Available at: http://www.slate.com/id/2182709/pagenum/all
(7)http://www.washingtonpost.com/wp-dyn/content/graphic/2008/06/10/GR2008061000059.html
(8)Holmes SA, “Fannie Mae Eases Credit to Aid Mortgage Lending,” The New York Times, September 30, 1999. Available at: http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260
(9)Leonnig CD, “How HUD Mortgage Policy Fed the Crisis,” The Washington Post, June 10, 2008, p. A01.
Available at: http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html
(10)Bush GW, State of the Union Address to Congress at the Capitol in Washington D.C. on January 20, 2004. Available at: http://www.whitehouse.gov/news/releases/2004/01/20040120-7.html
(11)Barr MS, “The Community Reinvestment Act: Thirty Years of Accomplishments, but Challenges Remain,” Testimony before the Committee on Financial Services, U.S. House of Representatives on February 13, 2008. Available at: http://www.house.gov/apps/list/hearing/financialsvcs_dem/barr021308.pdf
(12)Gordon R, “Did Liberals Cause the Sub-Prime Crisis?” The American Prospect (on-line), April 7, 2008. Available at: http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis
(13)Yellen JL, Opening Remarks to the 2008 National Interagency Community Reinvestment Conference. San Francisco, California. March 31, 2008. Available at: http://www.frbsf.org/news/speeches/2008/0331.html (statistic referenced in the Gordon article is actually in footnote 16, not the text of the speech).
(14)DiLorenzo TJ, “The CRA Scam and It’s Defenders,” Ludwig von Mises Institute, Daily Article for April 30, 2008. Available at: http://mises.org/story/2963
(15)“A Mortgage Fable,” The Wall Street Journal, September 22, 2008. Available at: http://online.wsj.com/article/SB122204078161261183.html?mod=special_page_campaign2008_mostpop
(16)Labaton S, “New Agency Proposed to Oversee Freddie Mac and Fannie Mae,” The New York Times, September 11, 2003. Available at: http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print
(17)Paul R, “Bailouts Will Lead to Rough Economic Ride,” CNN Commentary (online), September 23, 2008. Available at: http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html
(18)DiLorenzo TJ. How Capitalism Saved America. Crown Forum 2004.
(19)Roberts R, “How Government Stoked the Mania,” The Wall Street Journal, October 3, 2008.
Our politicians have a penchant for labelling everything a “crisis.” Whether it is the tide of illegal immigration, or the number of Americans without health insurance; whether it is the war on drugs, or the war on poverty; whether it is the threat of WMD in Iraq or the threat of global climate change; we are always told by our leaders that the sky is falling and only decisive action by government can fix the problem. Although our political leadership has, “cried wolf,” on many occasions, it is easy to see how the current situation could degenerate into the misery described above. Whether or not the government’s action will stop this economic collapse is, of course, another story.
What has been missing, however, from the rhetoric of both the President and the Congress and from most politicians on both sides of the aisle, is a frank discussion about how we got to this point in the first place. Politicians on the left have, predictably, laid the blame on greedy predatory lenders who took advantage of folks to make a quick buck. They argue that this is what naturally follows from too little regulation of the economy and that if only the government had regulated the mortgage industry more tightly then all of this could have been avoided. The current situation is a failure of deregulation. Even the Republican candidate for Vice President railed against the, “greed and corruption on Wall Street,” during the Vice Presidential debate. Almost no one has the political courage to assign any blame to the borrowers that took out mortgage loans that were beyond their means.
Although both lenders and borrowers are clearly at fault here, the notion that this crisis was created by a lack of government influence in the market place could not be further from true. Our government actively fostered the economic climate that created this housing bubble. Far from being a failure of deregulation, government intervention in the market place had a hand in creating this financial crisis.
The first piece of the puzzle is the Community Reinvestment Act. First passed in 1977 and then modified in 1995 and 2005, this act was passed with the goal of increasing home ownership among the working poor. It requires lenders in impoverished areas to maintain a quota of loans (often subprime loans) to underprivileged individuals. In other words, a percentage of the subprime loans contributing to this crisis were specifically mandated by the federal government. The act requires federally regulated banks to meet the credit needs of the community in which it is chartered by offering mortgage loans to low income families.(1) Although the act specifically states that banks are not required to make high risk loans to meet community needs, a study by the Federal Reserve Bank of Cleveland in 2000 of 143 of the 500 largest CRA-regulated banks revealed that the security of such loans is variable from loan to loan and institution to institution and that, on average, such loans are more likely to default or be unprofitable than other loans.(2) The same study estimated that 25% of CRA loans were, “unprofitable or marginally unprofitable.”(2) The CRA encourages predatory lending in two ways. First, some CRA banks will issue subprime loans to low income families directly because they would still get CRA credit for these loans and improve their CRA rating. Secondly, banks can get CRA credit by securitizing predatory subprime loan, buying them with federally guaranteed letters of credit.(3) Banks can even get credit for making subprime loans to low or middle income individuals that qualify for prime rates.(3) New federal regulations in 1995 and 2002 expanded the CRA, making it easier for smaller banks to participate by focusing on just lending.(4) In 2002, when several states, including Georgia(5), tried to limit credit for subprime lending, federal regulators blocked those efforts.(6)
In addition to the CRA, a 1992 federal law required Fannie Mae and Freddie Mac to devote a percentage of their activities to meeting affordable housing goals(4) and at the height of the housing bubble in 2003-2004 the federal government was directly securitizing nearly half of the nation’s subprime loans through Fannie Mae and Freddie Mac (government subsidized corporations).(7) In 1999, Fannie Mae was pressured by the Clinton administration to securitize more high risk loans, in an effort to expand home ownership among low and middle income Americans.(8) The Clinton administration also moved, in 1995, to allow Fannie Mae and Freddie Mac to count subprime mortgage securities toward their affordable housing goal.(9) Although this directive was later rescinded in 2001, in 2004 the Bush administration raised the affordable housing goal from 50% to 56% and again allowed Fannie and Freddie to count securitized subprime mortgages toward this goal, further encouraging predatory lending. Although some, such as University of Michigan Law Professor Michael Barr would call easing these restrictions on Fannie and Freddie, “an abject failure to regulate,”(9)nothing could be further from the truth. This was no failure to regulate. This was a specific government tampering with market forces to encourage subprime lending as a mechanism for increasing home ownership. President Bush bragged about the success of this policy in his 2004 State of the Union address noting that new home construction was the highest in twenty years and home ownership at its highest levels ever in the U.S.(10) He was, of course, describing the housing bubble that has now burst. Far from being created by an unfettered free market, this bubble was created, intentionally, by government policies aimed at loosening credit to expand home ownership.
However, Professor Barr pointed out that about half of the subprime mortgages were made by lenders not under the CRA’s jurisdiction and another 20-25% were made by small lenders and only later securitized under the CRA (although we have seen how this is a direct result of government policy and encourages predatory lending), leaving only 25-30% if subprime loans made by CRA institutions.(11) Robert Gordon, senior fellow at the Center for American Progress, offers as proof that the mortgage crisis was caused by a lack of regulation a statistic provided by Janet Yellen of the San Francisco Federal Reserve, “Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts.”(12),(13) However, this does not negate the fact that CRA lending is responsible for thousands of subprime and high risk loans. In communities where CRA institutions were conservative in lending, there was demand for other institutions to offer higher risk loans.(3),(4) This was also encouraged, actively, by the federal government as we have seen through its mandate to Freddie and Fannie to increase the percentage of their business that is directed to affordable housing goals and by giving other banks incentives to securitize these mortgages by guaranteeing their investments or allowing these banks to claim that activity as CRA credit. Therefore, many of these loans made by independent mortgage companies ultimately do fall under the CRA.(14) But even the subprime lending completely outside the CRA was encouraged by federal government policies. From 2003-2005, the Federal Reserve held interests low, below the expected level of inflation.(15) This reduced the cost of borrowing money dramatically and allowed lenders to offer subprime mortgages with very low introductory, but variable, rates easily. It was a policy that changed market dynamics from encouraging people to save to encourage them to borrow. Furthermore, the Fed lowers interest rates by buying bonds from banks and thereby injecting more cash into the economy. The increased supply in money reduces the “cost,” of borrowing it, or the interest rate. The increased supply in money also devalues the dollar, and we have seen the U.S. dollar plummet in value over the past few years (yet few talk about the fact that it is the policies of our federal government that are responsible for its devaluation). Oil is sold on the world market in U.S. dollars, therefore, even without the increased demand for oil from India and China, the rise in oil prices is directly linked to the falling value of the dollar. The Feds’ inflationary policies have not only encouraged the exuberant lending that is at the root of this financial crisis, but they have also contributed to rising energy and food prices, putting an economic pinch on those low income homeowners that the government wanted to have mortgages. When these people can no longer afford to pay their mortgage, put food on the table, heat their homes, or put gas in their car to get to work, all at the same time, they then default or are at risk for defaulting on that loan, and hence the bursting of the bubble and the beginning of the financial crisis. Because many U.S. securities are owned by foreign lenders, this has become an international credit crunch. Another mechanism by which government policy helped create the crisis are government regulations that limit assessment of credit risk to a handful of credit agencies, who inaccurately assessed the risk of these loans, leading to, ironically, the most regulated banks making some of the worst mortgage investments.(15)
In summary, the federal government set a goal of increasing home ownership among low and middle-income families, an ostensibly laudable goal. The government employed several mechanisms to achieve this goal. First, it mandated lending to lower income families through the Community Reinvestment Act. Sometimes this was done responsibly, and sometimes not. Secondly it put pressure on lenders to increase their CRA activity and allowed smaller lenders to participate in the CRA. Third, it subsidized subprime lending, both directly by ordering Fannie Mae and Freddie Mac to securitize more of these loans to increase its activity to meet affordable housing goals, and indirectly by allowing secondary mortgage market banks to count securitized subprime loans towards their CRA ratings. Fourth, it encouraged non-CRA lenders to join the party by keeping interest rates artificially low and fifth, it pumped capital into the economy to lower the interest rates, thereby devaluing the dollar and putting an economic pinch on the lower income families that made the loans. Those that argue that this crisis was caused by a failure to regulate the financial industry are simply wrong. Ironically, those on the left who are blaming the, “deregulatory policies of the Bush administration,” actually opposed Bush administration plans in 2003 to increase oversight of Fannie and Freddie (Barney Frank (D-MA) argued that Fannie and Freddie were not, “facing any kind of financial crisis,” and that, “The more people exaggerate these problems, the more pressure we see on these companies, the less we will see in terms of affordable housing.”)(16) This crisis was not caused by a lack of government oversight. It was caused by government policies specifically designed to create a housing bubble (to increase home construction and home ownership). Alan Greenspan cheered it on,(12) Barney Frank made sure no one put on the brakes,(16) and President Bush bragged about its success.(10) Certainly in a free market, at times, individuals or groups will act irrationally. But, a correction will occur and those who acted imprudently will pay the price, often with minimal effect on the economy as a whole. In the current situation, however, our government encouraged exuberant borrowing and lending, through a combination of mandates and incentives, creating a national economic mess. The lemmings didn’t jump off the cliff, they were pushed. These actions were taken for a good cause, affordable housing, but illustrate clearly the principle that government intervention in the market place often has unforeseen, unintended, negative consequences. This isn’t what happens when the government keeps its hands off the market, this is what happens when your government fights for you.
Unfortunately, understanding how the crisis occurred is not the same as knowing what to do about it. Much like the invasion of Iraq, the mess was caused by misguided policies but how to clean it up isn’t as obvious. Personally, I am inclined to be distrustful of government action to, “fix,” the problem, since it was government action that created it in the first place. I am distrustful of this government when it tells me there is a crisis that requires immediate governmental action, for history shows that usually politicians call something a crisis that isn’t simply to expand the government’s (and therefore their own) power. Certainly many on the left are taking just that opportunity right now, using the current situation as an excuse to expand the government’s influence in the market place (so we can have more crises like this in future). And of course it really irritates me that the solution proposed is to bailout all those greedy lenders (who, yes, do share responsibility with the federal government) who made risky loans and now don’t have to pay the price for taking a risk (which will encourage similar risky economic behaviour in the future because it is without consequence). Where is this $700 billion dollars coming from? Our Treasury certainly doesn’t have this money as our federal government is in debt. I suspect the Federal Reserve will simply print it, further devaluing the dollar and causing greater inflation (the value of the dollar compared the British Pound and the euro has increased over the last week because national banks in Europe have already pumped large amounts of capital into their economies and devalued their currencies). And, as I write this, President Bush is proposing another cash injection to capitalize banks by having the government buy ownership shares in the nation’s major banks (alas, we are back to the 200-year-old Hamilton-Jefferson debate about whether or not there should be a national bank…). Those of the Austrian school of Economics, such as Loyola College (Maryland) economics professor Thomas DiLorenzo and Congressman Ron Paul (R-TX) would argue that this bailout only has the effect of prolonging economic misery by attempting to stop, but only delaying, a necessary correction in the market (in his book, How Capitalism Saved America, Professor DiLorenzo argues that the market interventionism of both Presidents Hoover and Roosevelt extended the duration of the Great Depression, whereas previous economic crises had been much briefer).(17),(18) While I am convinced that this is true and that allowing the market to correct would be quicker, the real question is, at what cost? Would the losers be only those who acted irresponsibly, or does the crunch in credit have the ability to affect those who did the right thing, as illustrated in the opening paragraph. If the savings of those who were fiscally responsible are at risk in the correction, then that, in my view, is market failure and I would be willing to sacrifice my laissez-faire principles if it would prevent another Great Depression. But how can we trust that our leaders will do the right thing (even if the right thing is doing nothing) when they are always telling us of crises government needs to address, demonstrate so little understanding of how this crisis was created, and use the crisis to advance a pro-regulatory political agenda? Understanding the genesis of the crisis may not help us determine the best course of action (or inaction) to take going forward, but it does tell us something useful about future policy. The lesson to learn here is that this kind of government interventionism in the market place that creates artificial incentives to promote certain economic behaviour and devalues our currency, leading to boom and bust business cycles, has got to stop.
See also: http://online.wsj.com/article/SB122298982558700341.html for another nice summary of how government policies helped create the housing bubble.(19)
_______________________
(1)Full text of Community Reinvestment Act available at: http://www.fdic.gov/regulations/laws/rules/6500-2515.html
(2)Avery RB, Bostic RW, and Canner GB, “The Performance and Profitability of CRA Regulated Lending,” Economic Commentary, Federal Reserve Bank of Cleveland [November 2000]. Available at: http://www.clevelandfed.org/research/Commentary/2000/1100.htm
(3)Engel KC and McCoy PA, “The CRA Implications of Predatory Lending,” Fordham Urban Law Journal, Vol. XXIX, April 2002. Available at: http://lsr.nellco.org/cgi/viewcontent.cgi?article=1029&context=uconn/ucwps
(4)Bernanke BS, “The Community Reinvestment Act: It’s Evolution and New Challenges.” Speech at the Community Affairs Research Conference in Washington, D.C., on March 30, 2007. Available at: http://www.federalreserve.gov/newsevents/speech/Bernanke20070330a.htm
(5)Georgia Fair Lending Act. dbf.georgia.gov/vgn/images/portal/cit_1210/56/7/64943073GAFLA-OCGA7-6A.pdf#12
(6)Bagley N, “Crashing the Subprime Party: How the Feds Stopped the States from Averting the Lending Mess,” Slate, January 24, 2008. Available at: http://www.slate.com/id/2182709/pagenum/all
(7)http://www.washingtonpost.com/wp-dyn/content/graphic/2008/06/10/GR2008061000059.html
(8)Holmes SA, “Fannie Mae Eases Credit to Aid Mortgage Lending,” The New York Times, September 30, 1999. Available at: http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260
(9)Leonnig CD, “How HUD Mortgage Policy Fed the Crisis,” The Washington Post, June 10, 2008, p. A01.
Available at: http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html
(10)Bush GW, State of the Union Address to Congress at the Capitol in Washington D.C. on January 20, 2004. Available at: http://www.whitehouse.gov/news/releases/2004/01/20040120-7.html
(11)Barr MS, “The Community Reinvestment Act: Thirty Years of Accomplishments, but Challenges Remain,” Testimony before the Committee on Financial Services, U.S. House of Representatives on February 13, 2008. Available at: http://www.house.gov/apps/list/hearing/financialsvcs_dem/barr021308.pdf
(12)Gordon R, “Did Liberals Cause the Sub-Prime Crisis?” The American Prospect (on-line), April 7, 2008. Available at: http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis
(13)Yellen JL, Opening Remarks to the 2008 National Interagency Community Reinvestment Conference. San Francisco, California. March 31, 2008. Available at: http://www.frbsf.org/news/speeches/2008/0331.html (statistic referenced in the Gordon article is actually in footnote 16, not the text of the speech).
(14)DiLorenzo TJ, “The CRA Scam and It’s Defenders,” Ludwig von Mises Institute, Daily Article for April 30, 2008. Available at: http://mises.org/story/2963
(15)“A Mortgage Fable,” The Wall Street Journal, September 22, 2008. Available at: http://online.wsj.com/article/SB122204078161261183.html?mod=special_page_campaign2008_mostpop
(16)Labaton S, “New Agency Proposed to Oversee Freddie Mac and Fannie Mae,” The New York Times, September 11, 2003. Available at: http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print
(17)Paul R, “Bailouts Will Lead to Rough Economic Ride,” CNN Commentary (online), September 23, 2008. Available at: http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html
(18)DiLorenzo TJ. How Capitalism Saved America. Crown Forum 2004.
(19)Roberts R, “How Government Stoked the Mania,” The Wall Street Journal, October 3, 2008.
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