THE BE YOUR OWN ECONOMIST ® BLOG
Many of us remember President Reagan’s favorite line: “Government isn’t the solution to our problems. It is the cause of our problems.”
There was an unarticulated corollary to that doctrine: Unfettered markets are the best providers of goods and services.
By and large that’s true. Markets do a good job with soda pop and software and many other goods and services.
But markets can’t supply us with public goods such as fire and police protection or Golden Gate Park. And markets often operate to give us things we don’t want, such as air pollution and global warming. Moreover, some markets require regulation and supervision, such as the production and dispensing of pharmaceuticals.
Yet the Reagan acolytes won the day: Less regulation triumphed over more regulation, and that included mortgage markets.
Now we are left with the $700 billion tab for their free-market ideology.
© 2008 Michael B. Lehmann
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I read your OpEd piece today in the SF Chronicle. I've sent the attached letter to the editor about it. I'm sending this cc to you as they might not print it.
Editor – In his OpEd piece discussing the $700 billion financial bailout proposal (“Triumph of ideology over common sense,” Sept. 26), professor emeritus of economics, Michael Lehmann, is quick to point the finger of blame at the expansionary policy of the 2001-2003 Federal Reserve and the Bush Administration. Certainly, this is partially true; but this amazingly selective, and history-ignoring assertion is anything but entirely accurate or fair. Whether Professor Lehmann is ignorant of history, or just plain partisan is unclear; but it is nonetheless astounding to read such statements from someone who should know better.
Thirty years ago, the issue of “redlining” was the media topic du jour. The claim from Congressional Democrats was that banks and mortgage lenders were discriminating by denying loans to blacks and minorities. Enter Jimmy Carter’s Community Redevelopment Act of 1977 where community activist groups such as ACORN would effectively agitate banks to make loans to unqualified borrowers. This gave rise to the “subprime” mortgage. Thus, the root of the problem – Congressional intervention in the free market – cannot be ignored. The largely democrat-populated Fannie Mae and Freddie Mac, encouraged by the unfailing support of democrats like Barney Frank, in light of warnings raised by the Bush Secretary of the Treasury John Snow and John McCain, continued to pressure banks and other lenders to extend mortgages to individuals when their underlying qualifications were either insufficient or nonexistent.
So, to be both fair and accurate, this is not necessarily a failure of Wall Street, capitalism, the Federal Reserve or the Bush Administration solely. This is a failure of injecting political correctness – largely driven by congressional democrats – into the market. Banks made bad loans at the behest of congress. Sadly, the people who caused this crisis – and in some cases benefited from it – will never be held responsible.
PAUL FORREST
Arnold, CA
(Calaveras County)
(209) 795-4767
paul_forrest@comcast.net
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