« Business Inventories | Main | "The Obama Renaissance" »

Friday, December 17, 2010

Paul Krugman: Wall Street Whitewash

When the facts are inconsistent with the conservative narrative, conservatives "adjust the facts":

Wall Street Whitewash, by Paul Krugman, Commentary, NY Times: When the financial crisis struck, many people — myself included — considered it a teachable moment. Above all, we expected the crisis to remind everyone why banks need to be effectively regulated.
How naïve we were. We should have realized that the modern Republican Party is utterly dedicated to the Reaganite slogan that government is always the problem, never the solution. And, therefore, we should have realized that party loyalists, confronted with facts that don’t fit the slogan, would adjust the facts.
Which brings me to the case of the collapsing crisis commission. The bipartisan Financial Crisis Inquiry Commission ... has broken down along partisan lines, unable to agree on even the most basic points. It’s not as if the story of the crisis is particularly obscure. ... It’s a straightforward story, but a story that the Republican members of the commission don’t want told. Literally.
Last week,... all four Republicans on the commission voted to exclude the following terms from the report: “deregulation,” “shadow banking,” “interconnection,” and, yes, “Wall Street.”
When Democratic members refused to go along with this..., the Republicans went ahead and issued their own report... That report ... tells a story that has been widely and repeatedly debunked...
In the world according to the G.O.P. commissioners, it’s all the fault of government do-gooders, who used various levers — especially Fannie Mae and Freddie Mac... — to promote loans to low-income borrowers. Wall Street — I mean, the private sector — erred only to the extent that it got suckered into going along with this government-created bubble.
It’s hard to overstate how wrongheaded all of this is. For one thing,... the housing bubble was international — and Fannie and Freddie weren’t guaranteeing mortgages in Latvia. Nor were they guaranteeing loans in commercial real estate, which also experienced a huge bubble. Beyond that... During the peak years of housing inflation, Fannie and Freddie were pushed to the sidelines; they only got into dubious lending late in the game, as they tried to regain market share.
But the G.O.P. commissioners are just doing their job, which is to sustain the conservative narrative ... that absolves the banks of any wrongdoing... Last week, Spencer Bachus, the incoming G.O.P. chairman of the House Financial Services Committee, told The Birmingham News that “in Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.”
He later tried to walk the remark back, but there’s no question that he and his colleagues will do everything they can to block effective regulation of the people and institutions responsible for the economic nightmare of recent years. So they need a cover story saying that it was all the government’s fault.
In the end, those of us who expected the crisis to provide a teachable moment were right, but not in the way we expected. Never mind relearning the case for bank regulation; what we learned, instead, is what happens when an ideology backed by vast wealth and immense power confronts inconvenient facts. And the answer is, the facts lose.

    Posted by on Friday, December 17, 2010 at 01:02 AM in Economics, Financial System, Housing, Politics | Permalink  Comments (35)


    Feed You can follow this conversation by subscribing to the comment feed for this post.