[This article also appears on Huffingtonpost.com. You can access it from my author page here.]
Rep. John Boehner, R-Ohio, the House Minority Leader, made this statement on Sunday's edition of This Week regarding the need for a bailout plan to deal with the subprime mortgage fiasco: "We need to rise above partisan politics ... and deal with this as adults."
My response? That's a load of crap. (Yes, I'm being graphic on purpose. I'm mad.)
Of course, yes, the two parties need to come together and come up with the best long-term solution to what many are calling the biggest financial crisis since the Great Depression. So in that sense, Boehner is correct.
But that's not what Boehner really meant. In the context of the discussion, he made the statement to defend the position that Congress should pass the "clean bill" proposed by the Bush administration, which would provide for buying up "illiquid" (financial speak for "junk") mortgages with no limits or regulations for the institutions taking advantage of the benefit.
And that is why Boehner's comment was crap.
The current crisis, which is requiring a proposed $1 trillion bailout by the government, is the coming to fruition of more than a decade of a policy of deregulation of the financial markets. It was an experiment in letting the free market, completely unfettered, regulate itself. And the experiment has failed. Miserably. So much so that the tax payers will now have to front more money than we have spent so far in Iraq, and twice what we spend on health care each year (according to George Stephanopoulos on This Week), to keep the reckless behavior of the unregulated institutions from affecting the everyday finances of Americans.
Deregulation has been the mantra of George W. Bush and of John McCain (who said recently, "I'm always for less regulation ... I'm fundamentally a deregulator"), and of former Senator Phil Gramm, who is the architect of McCain's economic policies, and of, yes, John Boehner, who in this very appearance on This Week again boasted of being a deregulator.
So, yeah, I'm angry when a guy like Boehner, who got us into this mess in the first place, has the unmitigated nerve to try and dictate the terms of how to fix things. Who is he to tell anyone how this should be handled? The deregulation-happy politicians need to shut up and stop urging us to continue the same policies that allowed the crisis to occur in the first place.
I am not an economist, and nobody would read a 10,000-word description of the mechanics of the subprime mortgage debacle if I was, but at its core, what happened is actually pretty simple. Lending money for the purchase of a home used to be fairly straight forward: An applicant would undergo close scrutiny from a bank to determine if he/she would be able to pay back the loan. Banks knew a small percentage of these borrowers would default, necessitating foreclosures and the bank reselling the properties, but the plan was for a vast majority of buyers to pay their bills.
But then came deregulation, which took down the barriers that prevented lenders and borrowers from acting irresponsibly. After the Glass-Steagall Act (which was put in place after the 1929 stock market crash to separate investment banks, which engage in risky behavior, from commercial banks, which operate with average consumers) was gutted and derivative securities were taken out of the realm of regulation, everything changed. (As an aside, in 2003, billionaire Warren Buffet warned that derivatives were a potential "mega catastrophe" for investors.)
In this new world, companies issuing loans were no longer doing so with the idea of the borrower repaying them. Rather, the institutions were earning fees just to issue the loans, with the knowledge that they would immediately be bundled and securitized. As a result, the institutions issuing mortgages were encouraged to write more and more loans so that they could be sold off, and the granters of the mortgages were no longer at risk, simply collecting their fees and passing the loans along.
The result was lots of loans that people couldn't afford. Some of it was irresponsible borrowing, some of it was predatory lending, but all of it was made possible by deregulation.
And where has it left us? With a tough decision to make. Do the American taxpayers, most of whom did not engage in irresponsible behavior, pony up the money to bail out the institutions and borrowers that acted recklessly? Or do we leave those that abused the system to handle their own losses, with the effect being that the American taxpayers are left in a severely damaged economy?
The frying pan or the fire, essentially.
Which is why Boehner's fake pleas for nonpartisanship and demand for a "clean bill" are so outrageous. What he and other Republicans are saying is, "Give us the money to bail out the people who abused the system, but we don't want to put any limits on the abusers, since, after all, the free market works."
Does Boehner not understand that executives at these companies have walked away with unprecedented millions in compensation, all while the government now has to spend hundreds of billions of taxpayer dollars to bail these same companies out? You can argue all day and all night that the bailout is necessary to save the economy, and that is probably true, but it doesn't change the fact that the offenders got rich off their schemes, while the government is paying to clean up their messes.
Thankfully, for once, it seems like the Democrats, who have done nothing in the last 20 years to stop the Republican drive to deregulate, are finally finding their footing. (I know you thought I was going to reference another part of their anatomies, and I almost did.) On This Week, Democratic Senator Chris Dodd of Connecticut agreed that something needed to be done fast, but he also noted that Congress had to act "quickly but deliberately." Dodd said that any legislation had to account for "reciprocity," "oversight and accountability," and "governance" and "debt issues."
In other words, Dodd doesn't want to bail out the reckless companies without getting something back for the taxpayers. And that idea is present in the Democratic proposal made today that would require companies selling their junk mortgages to the government to give the taxpayers a stake in those companies, to limit the compensation of the executives running those companies, and to increase oversight of the companies while they work out of their troubles using taxpayer money.
I wrote earlier this month that McCain's claims of being an agent of change, when he was at the heart of everything that needed changing, was the ultimate example of the Yiddish word chutzpah (nerve). McCain's statements about the financial crisis show an equal amount of chutzpah. McCain, who still calls himself a deregulator, says that we need sweeping regulations to make sure a meltdown like this one never happens again.
It's like Wile E. Coyote, with feathers coming out of his mouth, asking to be appointed the guardian over the Roadrunner.
McCain, who has spent more than 25 years in Congress and has as his main economic advisor Gramm, the man most responsible for the gutting of Glass-Steagall and the deregulation of derivatives, decided on the campaign trail yesterday that the person responsible for the subprime mortgage crisis was Barack Obama. McCain said something about Obama being in bed with special interests, which is interesting when you consider that McCain's campaign is dominated by lobbyists, including Rick Davis, his campaign manager, who has accepted $2 million in fees from Fannie Mae and Freddie Mac (both of which were bailed out by the government earlier this month) with marching orders to, you guessed it, defend them from stricter governmental regulations. Yes, this is the same McCain who, as a member of the Keating Five, was at the center of the savings and loan debacle of the late 1980s and early 1990s, which also required a government bailout (at a cost Stephonopoulos put at $120 billion).
If this whole thing wasn't so serious, it would be a laugh riot.
Let me be clear: I don't absolve the behavior of the Democrats over the last two decades. The party did not do anything to prevent the Republicans from deregulating the financial industry and creating a lawless environment, which led to the abuses that caused the current crisis. And I'm not arguing that Obama's policies are some kind of all-encompassing cure-all for the debacle.
What I am saying, though, is that there needs to be attention focused on the fact that this mess was created by a mass of deregulators, who now have the chutzpah to try and tell the American people how to fix the debacle they have caused. And I am saying that for McCain, who sells himself as a proud deregulator, to try and portray himself as the man who is going to come in and rein in the companies he has made a career out of setting free is absurd. And such a course of action would be a horrible idea for the American people.
"We need to rise above partisan politics ... and deal with this as adults." I agree. So, as adults, let's agree that complete deregulation was a failure, and let's require the companies being bailed out by the taxpayers to have to accept some consequences for their actions. And let's put a system in place that regulates the worst impulses of the financial industry to ensure that greed does not push Wall Street to the brink of a meltdown again (and do so without being overly intrusive in a way that hurts legitimate business).
It's time for us to move forward in a smart fashion, and it's time for Boehner, McCain and the other self-proclaimed deregulators to accept their responsibility in this debacle and stop preaching more of the same. That's the kind of nonpartisan politics I can get behind.