Cross-posted at Tall Tales
Today, the S&P 500 dropped to an 11-year low, and it has now lost more than half its value since October of last year.
It was a fitting day for this statement from Treasury Secretary Henry Paulson, all but admitting the complete failure of modern Republican economics, which has rested heavily on the twin pillars of less government regulation and more corporate power:
We are working through a severe financial crisis caused by many factors, including government inaction and mistaken actions, outdated U.S. and global financial regulatory systems, and by the excessive risk-taking of financial institutions.
And who, exactly, was responsible for this "government inaction" and misplaced trust of "financial institutions"?
Exhibit A:
Feb. 22, 2007
Officials Reject More Oversight of Hedge Funds
The Bush administration said Thursday that there was no need for greater government oversight of the rapidly growing hedge fund industry and other private investment groups to protect the nation’s financial system.
Instead, the administration ... announced that investors, hedge fund companies and their lenders could adequately take care of themselves by adhering to a set of nonbinding principles....
The working group rejected any proposal that would give the government the ability to inspect the books and records of hedge funds or force the funds to make regular reports about their activities....
On Thursday, the president’s working group, led by Mr. Paulson, proposed a series of nonbinding principles that put the onus primarily on companies, investors and the buyers and sellers of their complex securities to impose a "market discipline" that should be adequate to protect investors and the marketplace....
The announcement was hailed by several trade groups for the hedge funds and other companies involved in trading complex financial instruments
Exhibit B:
March 30, 2008
In Treasury Plan, a Reluctant Eye Over Wall Street
[T]he plan ... has its genesis in a yearlong effort to limit Washington’s role in the market. And that DNA is unmistakably evident in the fine print.
[O]versight would have a light touch, enabling the government to do little beyond collecting information ... authority would be limited, doing virtually nothing to regulate the many new financial products whose unwise use has been a culprit in the current financial crisis.
All the checks and balances in the plan reflect the mindset of its architect, Treasury Secretary Henry M. Paulson Jr., who came to Washington after a long career on Wall Street.
Mr. Paulson is clearly taking a stand against critics who support even stricter regulations ... "I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil." ...
Mr. Paulson’s vision for the future echoes the traditional Republican view that new rules and agencies are no substitute for market discipline....
The Treasury says that it and other federal regulators still believe a principle it enunciated a year ago, "that market discipline is the most effective tool to limit systemic risk."
The record couldn't be clearer. The Bush administration, with Paulson at the helm of Treasury, made a very clear decision in 2007 and 2008 as the storm clouds were gathering: trust the storm clouds not to rain (even though that's what they naturally do), and don't worry about building shelter (we can always scramble after the deluge).
More excerpts from Paulson's speech today:
This should never happen again....
There was no playbook for responding to a once or twice in a hundred year event.
Except ... it shouldn't have happened this time, and there darn well should have been a playbook, since the same trickle-down, deregulatory policies led to the Great Depression, and the same denial of reality dominated the early Republican response to that crisis.
Hoover, October 1929:
"The fundamental business of the country ... is on a sound and prosperous basis.
Paulson, January 2008:
The U.S. economy is fundamentally strong
Paulson, February 2008:
The U.S. economy is fundamentally strong, diverse and resilient
Paulson, July 2008:
[T]he long-term fundamentals are very solid.
Paulson's record of Hoover-esque statements is even more striking when it comes to the housing market meltdown, which he now acknowledges as the principal cause of the financial crisis. Here's what Paulson had to say about the housing market in June 2007:
I do believe that we are at or near the bottom.
Sounds awfully familiar:
I am convinced we have now passed the worst
- Herbert Hoover, May 1930
***
Hoover's "sound and prosperous" and "passed the worst" quotes and Paulson's "strong" and "at or near the bottom" quotes collected in Yeah, Right, pages 2, 3, 58 & 59
Yeah, Right: "This Economy Is Strong" and Other Tall Tales
Yeah, Right is a wonderful little barb of a book .... Armed with such gems as "The Bush economic plan worked, and it worked brilliantly," (Rush Limbaugh, July 17, 2007), this book packs a lot of wallop....Pick up Yeah, Right and use it. You just know you'll have the one annoying cousin at the Thanksgiving table who will start in on how the problem with the economy is that it's over-regulated and we pay too much in taxes. Oleske's provided the ammo to fight back ... dirty, quick and easy. - SusanG, Daily Kos