According to a recent Opinion piece in the Orient ("Economic crisis rooted in liberal legislation," October 24), blame for the current fiscal crisis can be laid at the feet of Democrats, who by loosening Fannie and Freddie's lending standards "forced banks to make decisions against their own best interests."
Let me see if I have it right: A concern for helping Americans (perhaps even unthrifty poor ones?) own a piece of the American dream is really to blame for our current economic debacle. Market titans and laissez faire ideologues had their arms brutally twisted by a federal regulations regime, which forced them to jettison self-interest to pursue some kind of dubious experiment in social engineering.
The truth is that mortgage companies willingly and enthusiastically embraced?and indeed lobbied for?loose mortgage standards in pursuit of more and faster profits. Conservative Fed and Treasury officials generally blessed them. The notion that the mortgage industry found itself compelled to act against its own wisdom is simply ludicrous. People who have that much control of government know how to protect themselves with it.
It is true that Democrats politicized Fannie and Freddie in ways that, when combined with many other factors, created this crisis. In doing so, they appropriated the ethos of corporate profit mongering at the heart of Republican efforts to de-regulate the financial markets over the last quarter-century, seeking to adapt it to their broad-based constituency. Shame on them.
But those interested in the policy sources of the crisis could just as easily look toward quintessential pieces of Reagan-era deregulation, such as the Garn-St. Germain Depository Institutions Act of 1982, whose unbridling of the savings and loan industry led to a huge crisis in late 1980s and the economic recession of 1990-91. More recently, we should consider the Gramm-Leach-Bliley Act of 1999. This law, introduced by Republican Senator Phil Gramm (R-TX) and Representative James Leach (R-IA) in 1999, revoked New Deal protections by permitting new and unregulated forms of trading. Such measures were not inflicted on the finance industry, but actually written by their lobbyists?the same folks who brought you the securitization of bad mortgages, blatantly fraudulent accounting practices, unregulated derivatives trading, and the other vices that have led us to this point.
The point is not to lay the blame for the fiscal crisis at the feet of either party, for there is blame aplenty?and a useful lesson?for all. Both Democrats and Republicans have been shamefully beholden to corporate interests who have rolled back inconvenient regulation designed to protect average investors from a system that will not protect them on its own. But the philosophy that underlay these efforts?that markets work best when self-regulated?is a conservative article of faith that similar historical crises have repeatedly and blatantly exposed as fallacious. How many lessons do we need?
All markets need regulation. All markets are regulated. The critical question is, who benefits by the rulesets imposed on markets through the political process? Those who already have, who have seen their incomes and wealth skyrocket through recent decades? Or the vast middle and bottom, who have paid for this affluence with declining real wages and an ever-widening wealth gap? In short, who is the system for?
Now, when that system is in crisis, is the perfect time to assess the causes of crisis?not to lay blame, but to rethink our priorities about whom government should serve.
Patrick Rael is an associate professor in the history department.