Today's installment of the Times "Reckoning" series offers a useful and accurate (if not entirely comprehensive--they would have needed several thousand more words) take on the Bush administration's contribution to the financial crisis. The basic story is that, under Bush, the federal government aggressively pushed subprime borrowers into homes while at the same time hacking away regulations that might have sussed out the shakiest mortgages. As the Times sums it up:
From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.
He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.
On the home ownership side, the Times offers this instructive example:
It was June 17, 2002, a day Mr. West recalls as “the highlight of my life.” Mr. Bush, in Atlanta to unveil a plan to increase the number of minority homeowners by 5.5 million, was touring Park Place South, a development of starter homes in a neighborhood once marked by blight and crime.
Mr. West had patrolled there as a police officer, and now he was the proud owner of a $130,000 town house, bought with an adjustable-rate mortgage and a $20,000 government loan as his down payment — just the sort of creative public-private financing Mr. Bush was promoting. ...
A lot has changed since then. Mr. West, beset by personal problems, left Atlanta. Unable to sell his home for what he owed, he said, he gave it back to the bank last year. Like other communities across America, Park Place South has been hit with a foreclosure crisis affecting at least 10 percent of its 232 homes, according to Masharn Wilson, a developer who led Mr. Bush’s tour.
And on the regulatory side, there's this:
The president’s first chairman of the Securities and Exchange Commission promised a “kinder, gentler” agency. The second was pushed out amid industry complaints that he was too aggressive. Under its current leader, the agency failed to police the catastrophic decisions that toppled the investment bank Bear Stearns and contributed to the current crisis, according to a recent inspector general’s report.
As for Mr. Bush’s banking regulators, they once brandished a chain saw over a 9,000-page pile of regulations as they promised to ease burdens on the industry. When states tried to use consumer protection laws to crack down on predatory lending, the comptroller of the currency blocked the effort, asserting that states had no authority over national banks.
The administration won that fight at the Supreme Court. But Roy Cooper, North Carolina’s attorney general, said, “They took 50 sheriffs off the beat at a time when lending was becoming the Wild West.”
As Larry Lindsay, the former Bush economic adviser who emerges as one of the heroes of the story, summed it up (in the Times' paraphrasing):
[T]here was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.
“No one wanted to stop that bubble,” Mr. Lindsay said. “It would have conflicted with the president’s own policies.”
I'd just add two quick points. First, while the piece is nominally about Bush and the housing market, it could easily describe the GOP's overall approach to economic policy over the last 20 years. What the piece describes is just a particularly destructive form of the GOP approach, the essence of which is expanding access to credit while stripping away the regulations that might prevent the most dangerous uses of it. To take a simple analogy, it's as though the government had spent the last 20 years giving athletes easy access to steroids, then, to make matters worse, prevented doctors and trainers from so much as monitoring their use. For a while, we might look like a nation of world-beaters. But no one should be surprised when the athletes develop assorted tumors and degenerative conditions.
As I say, this was much, much broader than Bush's home-ownership push. By far the biggest culprit on the credit creation side was Alan Greenspan's Fed, which, beginning in the mid-90s, embarked on a mostly uninterrupted binge of credit expansion. Greenspan's goal was to keep the financial markets lubricated when they were troubled and to avoid puncturing them when they were bubbly. For their part, Republicans (in Congress during the '90s--with the occasional assist from the likes of Bob Rubin--and later under Bush), scrupulously dismantled existing checks on Wall Street and discouraged new ones. For example, it was the GOP-controlled Congress that, in 1995, overrode Bill Clinton's veto of a measure that made it harder for shareholders to sue corporate executives, auditors, and stock underwriters. (Good thing that wasn't necessary in the ensuing 13 years...)
The second point involves the sorry spectacle of watching Bush come to terms with the financial crisis he helped create. On the foreign policy front, Bush could always tell himself history would vindicate him--that Iraq would eventually become a stable democracy, which, a generation or two hence, would loom larger than all the strategic mistakes combined. It was just plausible enough to reassure a semi-intelligent person with a strong stake in the outcome.
But what does Bush tell himself about the financial crisis? Even if he wanted to, how would he convince himself this was anything other than a historic failure on his part? (Sure, he could blame greedy Wall Streeters, as he and Greenspan have publicly. But that seems a little convenient, even for those two characters.)
From the Times piece, it's beginning to look like he can't:
But in private moments, aides say, the president is looking inward. During a recent ride aboard Marine One, the presidential helicopter, Mr. Bush sounded a reflective note.
“We absolutely wanted to increase homeownership,” Tony Fratto, his deputy press secretary, recalled him saying. “But we never wanted lenders to make bad decisions.”
That seems to be the case for his subordinates, too. This quote from the characteristically self-abasing Andy Card is my favorite of the piece:
Andrew H. Card Jr., Mr. Bush’s former chief of staff, said White House aides discussed Ameriquest’s troubles, though not what they might portend for the economy. Mr. Bush had just nominated Mr. Arnall [the Ameriquest founder and a major GOP donor] as his ambassador to the Netherlands, and the White House was primarily concerned with making sure he would be confirmed.
“Maybe I was asleep at the switch,” Mr. Card said in an interview.
Maybe...
--Noam Scheiber