Financial chaos is upon us, and its perpetrators are busy concocting their alibis – what Stanford law professor Joseph Grundfest has called "crimes of upholstery."
The big cover-up has already begun, as it always does when conservative free-market supply-siders cause yet another catastrophe and then find some dog-ate-my-homework excuse to blame it on the liberals.
Supply-side economics was founded by crackpots masquerading as economists – people like Arthur Laffer (of the "Laffer Curve"), Jude Waninski, and Robert Mundell and lately espoused by Larry Kudlow on CNBC (shame on them) and Dick ("Deficits don’t matter") Cheney. It’s a laffer, all right. The theory claims that government can cut taxes while spending lavishly and come out ahead because the tax cuts stimulate economic activity and increase government revenues.
People like Cheney love supply-side economics because politicians love to have an excuse to cut taxes for their rich friends and pretend there are no consequences.
We who are now living through the consequences disagree.
Under Reagan, supply-side theories led to all-time record deficits and a soaring national debt. Revenues increased very little, and productivity barely budged. Then, after these deficits had been turned into a surplus under Bill Clinton, George W. Bush and friends lapsed back into the deadly combination of runaway spending with tax cuts for the rich.
What goes hand-in-hand with the supply-side doctrine are rigid beliefs in deregulation – to let the free market work its magic, as it is doing right now, to our sorrow and theirs. Under Bush, regulators who actually tried to regulate were fired. New laws and policies prevented regulation of Enron, subprime mortgages, high-risk hedge funds, derivatives, and the financial markets in general.
At the same time, ideologically loyal incompetents – including utterly unqualified amateurs who didn’t believe in regulation anyway – were appointed to key posts related not only to finance but also to science, healthcare, environment, disaster recovery, law enforcement, and education. Competent professionals backed by an ethical government could have prevented much of the horrendous damage wreaked over the past eight years.
Some of these effects will take years to become obvious. But in the financial arena, Armageddon is at hand.
So the free-market supply-siders are busy spinning and spreading their alibis.
You can find them in conservative columns, on Fox "News," and on talk radio everywhere. The bigger the lie, the louder they talk.
Big Lie Alibi One: that Republicans tried to rein in the excesses of Fannie Mae and Freddy Mac, but Barney Frank and Chris Dodd stopped them.
This was in 2003. The Republicans controlled the White House and both houses of Congress, so they could have passed any reasonable reform or regulation bill they wanted to concerning Fannie Mae and Freddy Mac. But no, what they tried to do was create a new agency under the executive branch, removing Fannie and Freddy from congressional oversight (as they’ve tried to remove everything else) so they could do with it what they please. And what they please to do – with Fannie, Freddy, Social Security, Medicare, the works – is dismantle them. In the case of Fannie and Freddy, no doubt their functions would have been turned over to Citibank and suchlike, to let the mythical magic of the free market work its wonders. Free marketers don’t think government has any business encouraging affordable housing, especially not for minorities.
By similar reasoning, Reagan had tried with might and main to prevent the founding of Medicare. And Bush made a big push in 2005 to privatize Social Security, which would have funneled trillions of dollars of FICA deductions through the skimming operations of banks, brokerages, mutual funds, and insurance companies. Can you imagine what scenes would be unfolding now, had they succeeded – with every senior citizen in the country now seeing not only his savings but also his Social Security evaporating in the financial meltdown?
Big Lie Alibi Two: that the financial market meltdown was precipitated by liberals with the Community Reinvestment Act. The subtext is their claim that CRA forced banks into making risky loans to minorities.
The racism and the perverted dishonesty of this twisted tale, as a friend of mine once said, "buggers description."
To begin with, the law was passed in 1977, one of a series of anti-discrimination acts passed with bipartisan support dating from 1968. If it really had caused a financial meltdown in 2008, it would have taken thirty or forty years to do so -- and in the meantime there were three Republican presidents plus four Republican congresses who had every opportunity to modify it – and, in fact, did so under Bush Sr.
CRA prohibits FDIC-insured banks from red-lining entire communities – refusing to write any mortgages to anyone in the neighborhood -- but it does not in any way require them to grant a mortgage to someone who is not credit worthy. The fact is, the record of repayments of CRA-compliant loans made to minorities is better than the repayment record of mortgages in general. Further, the percentages of risky subprime mortgages issued by FDIC-insured banks is far lower than that of their unregulated brethern in the non-bank lending and leveraging orgy under George Bush.
The whole alibi is a deliberate lie, from beginning to end.
It’s promulgated under the Rovian theory that you can get people to believe any falsehood, slander, or smear if you tell it often enough and loudly enough.
This time, it may not work. The average person cannot understand financial practices and legislation, but everyone in the country can now see what horrors unfold when the free-market anti-regulation supply-siders get control of all three branches of government and have it all their own way.
In a book last year called The Big Con, author Jonathan Chait recounted the hare-brained exploits of right-wing economics since the 1970s – dismal failures at every turn. He noted how each time their strategies exploded in their faces (and ours), they talked their way out of their guilt, blaming the liberals – and he couldn’t see what would prevent them from doing it again.
Now he can. In an Op-Ed column last Sunday, Chait reports on how corporations and money managers are deserting the Republicans in disgust and demanding real regulation, environmental programs, and meaningful healthcare reform. In other words, doctrinaire conservatives are losing their core constituency.
Chait’s column was headlined, End of an Error. Let’s hope he’s right.