Bush Retrospective, Part 8

The “Worst Crisis since the Great Depression”

With the economy already reeling from high gasoline prices, the resultant price inflation and slowing demand, there were increasing signs that the housing bubble was ready to pop. Subprime lenders such as giant Countrywide Financial had already collapsed. Bear Stearns was bought out for $2 per share in March of 2008 and only because the US government was willing to offer $30 billion in loan guarantees.

On June 26, Senator Schumer (D-NY) wrote a letter to IndyMac Bank, expressing concern about its viability. A copy of the letter went to Bloomberg News, and within eleven days, panicked depositors had pulled $1.3 billion worth of deposits out of the shaky bank, sealing its fate.

On September 7, the federal government officially took over Fannie Mae and Freddie Mac. These Government Sponsored Entities (GSE’s), a public/private amalgamation held or guaranteed about half of the $12 trillion American housing market. Fannie Mae and Freddie Mac are Ground Zero for the entire subprime meltdown.

As the bodies of dead mortgage companies and purchasers of bundled securities piled up, the economic crisis spread worldwide. In a desperate attempt to head off a complete collapse of the economy of the US and the entire world, Bush asked for and Congress passed legislation entitled “Troubled Assets Relief Program” (TARP) to enable Treasury Secretary Paulson to spend $700 billion to buy the so-called “toxic assets”. Nevertheless, the stock market which had lost 40 percent of its October, 2007 value, remained in the doldrums.

As of this writing, the government continues to be receptive to bailout requests from seemingly every area of the economy. Pledging $800 billion here and $350 billion there with money it doesn’t have there is no end in sight. It may well be that the economic devastation would have been worse without the bailouts, but the fallout from this incredible increase in US debt is incalculable and may inflict permanent damage.

The pertinent question for us here is, “How much of this is George Bush’s fault?” There are three areas where he has culpability for at least part of the problem. Thus far, all of the blame has been dumped on him, whether deserved or not.
1. He supported low interest rates and the concept of broadening home ownership widely.
2. He appointed Hank Paulson and others and followed their advice.
3. He failed to yell loudly enough when he believed Fannie Mae and Freddie Mac needed regulatory overhaul, and to keep yelling when Congress refused to act.

There are some other culpable parties:
The Community Reinvestment Act of 1977
The 1995 revisions to the CRA
Cheap money policies by the Fed
ACORN
The concept of (GSE’s) joining private profit with public risk
Fannie Mae and Freddie Mac executives, such as Franklin Raines, Jamie Gorelick and James Johnson who pocketed millions in bonuses
Senator Chris Dodd (D-CT)
Congressman Barnie Frank (D-MA)
Other members of congressional committees, who took big campaign contributions from, and blocked regulation of, Fannie and Freddie
Greedy lenders and mortgage bundlers such as Countrywide CEO Angelo Mozilo, and the Sandlers, spoofed in that SNL skit that has been pulled down. (Kudos to those responsible lenders who maintained their standards.)

All in all, the evidence will show that neither George Bush nor de-regulation (i.e., Gramm-Leach-Bliley) is at the root of this crisis. The Democrats are up to their ears in this mess, and guess what. Now that they own the whole government, they get to fix it - or compound it. But don’t take just my word for it.

What I do blame the Bush administration for is not speaking out – in being so unifying and above the fray and classy that he wouldn’t try to defend himself. But it’s an old pattern, as Andy McCarthy documents here.

From the days of the Florida recount when Al Gore tried to steal the election from him, George Bush has responded to every smear and attack with class and good humor. “If you can’t speak well of someone, speak not at all,” is the credo of a gentleman. Unfortunately, it’s also the habit of a president with a 30% approval rating and a legacy in the hands of his opponents.

Neither Bush nor Republican presidential nominee John McCain sought to place any blame for the subprime collapse on the Democrats. If they had made an effort to defend free markets and limited government and explain how Big Government intervention distorted the housing market, the election might have turned out differently. For a brief period after the convention, and before he foolishly decided to suspend his campaign in an unsuccessful effort to persuade House Republicans to pass a bailout bill, John McCain was actually leading the presidential polls.

But maybe neither would defend limited government because they both believe in government intervention. “When someone is hurting, it’s up to government to help” is the definition of Compassionate conservatism.

That's capital ‘C’ compassionate; small ‘c’ conservative.