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Republican Misinformation, Scams & Delusions, and the Best Ways to Combat Them

By   Follow Me on Twitter     Message Richard Clark       (Page 1 of 5 pages)     Permalink

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Wall Street turned a few million home-loans into what Warren Buffet called "economic weapons of mass destruction," cratered the global economy, and then, when the bubble burst, turned around and insisted on a massive bailout courtesy of the American tax-payer.

 

That rightly infuriated most Americans, and yet it has become an article of faith among most Republicans that Wall Street bears little blame for the Great Recession.   The dominant narrative on the right today is that "big government" is ultimately responsible for the crash.   Many claim that Democratic lawmakers like Barney Frank and Chris Dodd "brought down the banking industry by forcing banks to give loans to people who couldn't afford them."   But no bank was ever "forced" -- or coerced or incentivized, by the government in any way -- to make a bad loan.

 

The claim falls apart even before one digs into the particulars, for the simple reason that people's mortgages didn't bring down the banking system in the first place.   To wit:

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The entire subprime mortgage market was worth only $1.4 trillion in the fall of 2007, and that includes loans that were up-to-date.   As former Goldman Sachs trader Nomi Prins noted in her book, It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street, the federal government could have **bought** every single residential mortgage in the country -- good, bad and in between -- and it would have cost a trillion _less_ than the bailouts!

 

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Short of that, notes Prins, if the crisis were really about people buying homes they couldn't afford, "we could have stopped the crisis much more cheaply , in a couple of days, in late 2008, by simply providing borrowers with additional capital to reduce their loan principals!   This solution would have cost about **3%** of what the entire bailout wound up costing!

 

What really brought down the global economy was as much as $140 trillion worth of financial gimmickery built on top of the mortgage industry.   I refer of course to the alphabet-soup "financial instruments" of the credit meltdown -- the CDOs, MBSs, default swaps and other derivatives -- that turned less than a trillion dollars of foreclosed loans into an economic weapons of mass destruction that would ultimately cost the American economy $14 trillion in lost wealth.

 

 

Deregulation:   The Government's Role in the Collapse

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As Joshua Holland reports on Alternet, a fair criticism of the government's role is that it didn't "meddle" in the free market sufficiently to protect borrowers, investors and the public -- i.e. it inadvertently allowed a $140 trillion house of cards to be built in an environment created by decades of deregulation.   But that situation is also the fault of Wall Street rather than simply an indication of the perfidy of "big government."   Legislators were bought with $5 billion in campaign contributions by the banking lobby -- and yes, as powerful chairs of congressional banking committees, the right's bogeymen, Barney Frank and Chris Dodd, were two of the financial industry's top recipients of this largesse.

 

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)
 

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