Heritage Foundation fellow Stephen Moore has an interesting — and all too familiar— led on one of his two columns posted online Friday.
Moore tells of his 13-year-old son talking at the dinner table about how Franklin Roosevelt ended the Great Depression. That’s what his history book says. “Of course, the New Deal exacerbated the pain and financial devastation of a stock market crash, and unemployment lingered in double digits for a decade after Roosevelt was elected until the start of World War II. We get this kind of rampant revisionism because the left writes the history books — which they are doing right now,” Moore morosely relates.
He goes on to note how the Great Recession is being blamed on greedy bankers and a lack of regulation, and now Ben Bernanke in the Wall Street Journal is claiming he saved the economy with $3 trillion in quantitative easing and zero interest rates, though this is what actually created the crash.
“As my fellow Heritage colleague Norbert Michel and other scholars have thoroughly documented, the crash of 2008 was caused by government policies and regulatory failure, including easy money policies that flooded the markets with debt,” Moore writes. “Within a decade, these policies led to preposterous mortgage loans being issued, and massive over-leverage of government, companies, and households.”
Easy credit caused housing prices to balloon until they burst in a foreclosure crisis.
In a separate column on the same theme in Investor’s Business Daily, Moore points out that Fannie and Freddie are again guaranteeing mortgages with down payments as low as 3 percent — “the same subprime mortgages that crashed eight years ago. The housing lobby demands it, and Congress complies. So taxpayers are back on the hook with the same Fannie and Freddie policies that required $150 billion in bailouts.”
The blame game is easy to play after the fact, but the problem is that no one is learning from the history just what caused the problem and acting to prevent a reoccurrence.
Here is a FactCheck.org run down from 2008 trying to explain what caused the Great Recession — a partial list at best:
- The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.
- Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.
- Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
- Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
- The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
- Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
- Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
- Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
- The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
- An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
- Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.
They left out federal government debt.
In 2008, the debt was $10 trillion. Now it is $18 trillion, but low interest rates are protecting Obama and foisting the problem onto the next administration, possibly a Republican one, to take the blame. Obama wants to raise the debt ceiling and have Congress let him write a blank check.
Even Donald Trump, whose crystal ball is often clouded, sees the problem ahead. He told The Hill recently a crash is coming. “You know who gets hurt the most? People who practice the American dream and did what should have been the right way — the people that went through 40 years of their life and saved a hundred dollars every week …” Trump said. “They worked all their lives to save and now what happens is they’re being forced into an inflated stock market and at some point they’ll get wiped out.”
“The point is that government and politicians have no learning curve. All of the conditions of financial wreckage are reappearing. The presidential candidates should start warning voters that Washington is rebuilding another financial house of cards.
“If they don’t, when the financial crash comes and Americans see their life savings disappear, the media and the history books will again blame conservatives for the destruction from the rampant financial negligence of government.”
Mr. Mitchell publishes the 4TH ST8 Blog at www.4thst8.wordpress.com.
The column was originally published on Mr. Mitchell’s blog.