Rabbit-Hole Economics!

[Gerald]

Reading the transcript of Tuesday’s Republican debate on the economy is, for anyone who has actually been following economic events these past few years, like falling down a rabbit hole. Suddenly, you find yourself in a fantasy world where nothing looks or behaves the way it does in real life. And since economic policy has to deal with the world we live in, not the fantasy world of the G.O.P.’s imagination, the prospect that one of these people may well be our next president is, frankly, terrifying. In the real world, recent events were a devastating refutation of the free-market orthodoxy that has ruled American politics these past three decades. Above all, the long crusade against financial regulation, the successful effort to unravel the prudential rules established after the Great Depression on the grounds that they were unnecessary, ended up demonstrating — at immense cost to the nation — that those rules were necessary, after all. But down the rabbit hole, none of that happened. We didn’t find ourselves in a crisis because of runaway private lenders like Countrywide Financial. We didn’t find ourselves in a crisis because Wall Street pretended that slicing, dicing and rearranging bad loans could somehow create AAA assets — and private rating agencies played along. We didn’t find ourselves in a crisis because “shadow banks” like Lehman Brothers exploited gaps in financial regulation to create bank-type threats to the financial system without being subject to bank-type limits on risk-taking. No, in the universe of the Republican Party we found ourselves in a crisis because Representative Barney Frank forced helpless bankers to lend money to the undeserving poor.

http://www.nytimes.com/2011/10/14/opinion/rabbit-hole-economics.html?src=me&ref=general

Note: October 13, 2011

[mookiemookie]

This is what happens when you let ideology trump fact. People don't look at what happened and say "well based on the facts, this is the conclusion." They start out with an ideological driven conclusion in their head, and they attempt to cherry pick and twist the narrative to suit it.

In their world, the bad guys aren't the Fed who irresponsibly lowered rates to an all-time low in the early 2000s and kept them there in order to prop up asset prices - they're Fannie and Freddie, two organizations that have been around with no problems since 1938 and 1970, respectively, because they loan money to poor people (nevermind that for all the problems they did have, they don't loan money at all and were responsible for a minority percentage of anything approaching "subprime").

Nevermind the fact that the Fed and bank regulators in charge of lender oversight did nothing to stem the tide of garbage loans being pumped out to statisfy the securitization machine on Wall Street - blame the CRA, a 30 year old piece of legislation that forced the poor banks at gunpoint to make loans they otherwise wouldn't have to the poor (but ignore the fact that the CRA doesn't force anyone to make loans at all, much less the fact that the lenders making shabby loans were by and large not subject to CRA regulation, and also ignore the very elements of time and space, blaming and completely mischaracterizing a 1977 law for something that happened in the mid-2000's).

Its this attempt to twist fact to suit an ideology that irks me, given the severity of the crisis and the ramifications of it that are still being felt today. If we can't even establish a timeline of exactly what happened without people blatantly... making crap up about it (not to put too fine a point on it) to suit their vision of a story, then how can we ever begin to appropriately address the problem?

Against my better judgement, I got in a discussion with one of my parent's neighbors over dinner about this subject a couple years ago. She was adamant that the entire crisis could be placed squarely on Bill Clinton's shoulders. I asked her to expand on what she meant. She couldn't. I was hoping she'd come up with something like saying he signed the Commodity Futures Modernization Act or the repeal of Glass Steagall into law, because then I'd know she had at least an inkling of an understanding of the issue, but she couldn't. She kept saying that he forced banks to make home loans to blacks. I asked he if he himself personally walked into the bank to do this and was he armed or did he bring toughguys to rough up anyone who wouldn't make these loans. She didn't have an answer. I asked her what exactly did he do to "force" a bank to make a loan they otherwise wouldn't have. I'll never forget her answer: "I don't know, but I just know he did it!" This is the kind of stupidity we're dealing with. The blind allegiance to an ideology and a narrative trotted out by political hacks with an axe to grind. Makes me shake my head.