Travis Rowley takes on the talking point that the “Bush tax cuts” and the deregulatory impulse are what (say it with me) got us in this mess in the first place. The core of the argument goes to those government-sponsored enterprises (GSEs) that backed mortgages for lower-income families:
Whenever Democrats cite “the failed policies of the past” in order to refer to Republican promises to loosen up government guidelines placed on private enterprise, they are purposely confusing plans to deregulate the marketplace with the lack of oversight on Fannie Mae and Freddie Mac – government-sponsored agencies (GSEs) that prominent Democrats sought to protect from Republican reforms.
As early as 2001 the Bush administration was warning that the size of Fannie Mae and Freddie Mac was a “potential problem” that could “cause strong repercussions in financial markets.” And Congressman Ron Paul (R) spoke of an existing real-estate bubble, and predicted that it “will burst, as all bubbles do.”
Put differently, it wasn’t the deregulation that caused the problem; it was the promise of bailouts if things went wrong. As I’ve pointed out in various parts, Fannie and Freddie became an alternative to government debt for a safe investment at a time when the stock market was creating more prospective money than even existed in the gross domestic product (GDP). The deregulation alone wouldn’t have had the same effect, because investors would have come to the conclusion that mortgage lenders had previously, before the government began pressuring them to expand lending.
Namely, investors would have realized that securities anchored in mortgages to lower-income families were indeed riskier than government debt, and they wouldn’t have built their portfolios around them. The expectation of government bail-out was ultimately the operative quality in which people were investing.
I’ve been writing for a long time that America’s biggest problem isn’t the liberal policies of the Democrats or the more conservative policies of the Republicans, but the way in which both parties mix their incompatible positions for a worst-of-both-worlds concoction. In the long run, I believe conservative policies form a better basis for longer-term health for our society, but the real danger, as the cliché terms it, is the socialization of risk and the privatization of profit.
That result will inevitably lead to disparity of suffering — which, rather than disparity of wealth, ought to be the focus of public policy — as the economic cycle comes around to the “risk” part of the equation. And because that result is inevitable, it is also to be expected that a huge and expanding government will inevitably move toward the noxious blend of left and right.
In order to get there, in a system that requires the public to vote for representatives, both sides pick emotional tugs that obscure what’s really happening.