Most Americans are under the impression that the Bush administration, during its eight years in power, muddled the economy up and left its successor with a lot of cleaning up to do.
This simply isn’t the case.
In fact, both the left- and right-wing facets of the U.S. government contributed to the state in which we find our nation.
The Bush administration lightly regulated capital markets, but it wasn’t novel in this approach. By the mid-1990s, according to the Washington Post, ‘Experts across the spectrum believed that U.S. financial institutions faced outmoded restraints on their ability to innovate.
‘Thus, the Clinton administration, supported by then-Federal Reserve Chairman Alan Greenspan, refused to tighten regulations on financial derivatives, memorably dubbed ‘financial weapons of mass destruction’ by Warren Buffett. The 1999 repeal of the Glass-Steagall Act, a Depression-era law separating commercial banking and investment banking, passed with overwhelming bipartisan support in Congress and was signed into law by President Bill Clinton.’
So, is Clinton to blame for the current state of the economy because he legalized a type of gambling, which inevitably led to the collapse of capitalism? No, not exactly.
The problems with our economy have direct correlation to our government’s failure to control general risks it helped to create. The government saw home ownership as a worthy expenditure to invest in so that more Americans could enjoy it.
But in its deregulation of the system, it failed to control the systems that needed regulations. Confusing? It only gets worse.
‘It is important to note that many politicians were running ‘- and winning ‘- on platforms based upon the increased rate of housing ownership in America,’ Texas A&M economics senior Michael McGinnis said in a Bulls & Bears Press article. ‘Meanwhile, banks, mortgage houses and many others were making large profits on housing. This increased housing ownership in America was the initial reason Jimmy Carter set up the Community Reinvestment Act in the late 1970s.
‘However, large amounts of Fannie Mae and Freddie Mac dollars consistently reached politicians in forms of campaign contributions in an effort to sustain legislative support.’
The government favored the economic activity of home ownership, but did not seek to balance its control and sustain public resources. Banks, for example, have to adhere to clear requirements set up by the government in return for federal deposit insurance.
Congress didn’t set up sound principles for Fannie Mae and Freddie Mac to follow. The companies engaged in increasingly risky activities with an unreserved government guarantee simply because they were still making money. In the end, the taxpayers had to assume more than $5 trillion of Fannie Mae and Freddie Mac’s obligations.
Whichever model of capitalism ‘- or perhaps socialism ‘- rises from the ashes of this crisis, it needs to be more consistent.
Too many people have been able to take advantage of the current system. Bernie Madoff, R. Allen Stanford and the likes of Fannie Mae, Freddie Mac and Enron need to be stopped much sooner than they have been under the current system.
‘Government-sponsored, upside-only capitalism is the kind that’s in crisis today,’ the editorial board of the Washington Post wrote. ‘And we say: Good riddance.’
It is apparently still acceptable to talk about the free enterprise system, but capitalism has joined the ranks of the politically incorrect.
Matthew Keever is a communication junior and may be reached at [email protected]
