Regulations and Reality

By February 25, 2009Economy, Regulations

Just one point on President Obama’s Not-the-State-of-the-Union speech last night.

In other words, we have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election. A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day.

We’ve heard similar lines about deregulation repeatedly since the campaign. What specifically are you talking about, Mr. President? Gramm-Leach-Bliley-inspired deregulation? If it was harmful, how? Do you regard the push to have Fannie and Freddie support mortgages to ever less credit-worthy home buyers to be an offense? But wasn’t that really a policy failure, brought about by politicians of both parties?

As Katherine Mangu-Ward writes in the January issue of “Reason,” “Letting Freddie and Fannie get away with murder wasn’t deregulation. It was bad governance. And letting deregulation take the primary blame for a credit-fueled housing bubble and its aftermath isn’t an argument. It’s misdirection.”

In her piece, “Is Deregulation to Blame?” Mangu-Ward also notes that the Bush Administration greatly expanded the regulatory state: “In reality, regulation as a whole has thrived under President George W. Bush. Between 2001 and fiscal year 2009, the federal regulatory budget increased 65 percent in real terms, to about $17.2 billion.” She also, point by point, refutes the various charges about financial deregulation causing the Wall Street crisis.

Slogans about fat cats, Wall Street and regulations are good tools in a populist campaign. But for development of policy, the public would be well served, even reassured, by a more thorough and accurate discussion of causes.

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