Obama Pitches Jobs Program, Points Finger at GOP for Economic Mess; My reply

Posted by The Real Don Johnson on Wednesday, December 09, 2009 8:58:34 AM

In the President’s speech on his "Jobs Program", he takes the now usual swipe at the GOP, and by implication, the Bush administration. The Administration, by way of the "Jobs program", more than a year after the big financial collapse of 2008, is just now getting around to figuring out how to help the small business community by way of tax incentives. But my intent here is not to take him to task for that short coming, but rather, the "Blame Bush" tirades (as well as blaming the greedy bankers, insurance companies, auto makers, Fed, and on and on and on).


When the housing and financial crisis hit last year, my initial reaction was that we should treat this as a breakdown of a complex system, and approach it from somewhat of an engineering troubleshooting (my background) perspective. We should not cast about for the usual cast of characters (scapegoats), but rather seek the root causes of the crisis, and then go about fixing them.

I think I may have found such an analysis, in the journal "Critical Review". The current issue of this journal has the title "Causes of the Crisis", and contains 12 essays on the subject. It’s hard for me to put a label on this organization, left/right, but the Board of Advisors is populated by a large number of academic types from universities in the US and the UK. The contributors to the issue also seem to be of the same background, but two of them are from Poland. You can link to the Introductory essay INTRODUCTION: A CRISIS OF POLITICS, NOT ECONOMICS: COMPLEXITY, IGNORANCE, AND POLICY FAILURE below; thus far it is the only one I have read.


I’ll try to summarize what I think I have learned from this as follows, but suggest you read for yourself.:

The causes of the crisis are many, and for the most part regulatory problems.

· The Community Reinvestment Act (CRA), passed by Congress in 1977 (Note: not during the Bush years you may notice, nor during the tenure of Allen Greenspan). The intent of CRA was to allow low income families to own houses, even though the attendant risk was high in these cases. One of the things CRA did in the mid to late 90s, was to legislate that mortgage lending institutions (banks) allocate 30% of their lending to the poor; this was bumped to 50% in 2000.

· Fannie Mae and Freddie Mac, created by Congress is 1968 (see note above).

· Quasi -Governmental rating Agencies: Moody’s, Standard and Poors, and Fitch. In 1975, the S.E.C. ensured that these three companies were the only ones legally permitted to rate securities such as the Mortgage Backed Securities (MBS) created during the housing bubble. Further, in 1936, regulation re these "agencies" effectively guaranteed income from their ratings. Their ratings were considered to be somewhat of a gold standard, and the fact is (as was exposed by the 2008 melt down) that the MBSs were grossly flawed. (again, see Note above).

· The Fed. The very low interest rates for such a long time during the housing bubble contributed with all of the other factors (perhaps now, Bush and Greenspan have some culpability).

· The Basel Accord. The Basel Accord set the requirements of banks to have a certain amount of Capital in order to protect against defaulted loans. You’ll have to read the essay yourself to get an appreciation of what happened with the accord and the Mortgage Crisis.

· Ignorance. Because of the complexity and interrelationship of the maze of regulations, many of the key players (bankers included) were ignorant of what was actually building, in particular, the securities ratings.

· Others I may have missed in the essay.

· Greedy bankers? The analysis may surprise you, so be sure to read that portion.

Now let me get back to the finger pointing.

Now that it appears that someone is tackling the problem, and finding the root causes, the next question I have, is "What the hell is the Administration and Congress doing to correct these problems?". The answer should be obvious; Blame the other guy, spend lots of money and dig the debt hole deeper, create a stimulus package or two or three, spend most of the congressional session on a "Health Care Reform?" package that will contribute to the bankruptcy of this nation, and leave the mess to future generations. Have you noticed anyone in Congress or the Administration talking about or holding hearings on the issues that have been uncovered by the essays referred to above? I haven’t.

Again I say; get informed, get active in your local tea parties and town hall meetings, and do some serious voting next time around.




2 responses to “Obama Pitches Jobs Program, Points Finger at GOP for Economic Mess; My reply

  1. Pingback: How a bad economy has re-elected Barack Obama | A Yearning for Publius

  2. Pingback: Calvin Coolidge | A Yearning for Publius

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