He notes that in 1999 when Congress replaced the New Deal-era Glass-Steagall Act with a looser set of banking rules, "we let investment banks get into a much wider range of activities without regulation." This helped create the subprime mortgage mess and the cascading calamity in banking.
While Frank is a liberal, the same cannot be said of Ben Bernanke, the chairman of the Federal Reserve. Yet in a speech on Tuesday, Bernanke sounded like a born-again New Dealer in calling for "a more robust framework for the prudential supervision of investment banks and other large securities dealers."
Bernanke said the Fed needed more authority to get inside "the structure and workings of financial markets" because "recent experience has clearly illustrated the importance, for the purpose of promoting financial stability, of having detailed information about money markets and the activities of borrowers and lenders in those markets." Sure sounds like Big Government to me.
Since the Reagan years, free market cliches have passed for sophisticated economic analysis. But in the current crisis, these ideas are falling, one by one, as even conservatives recognize that capitalism is ailing.
You know the talking points: Regulation is the problem and deregulation is the solution. The distribution of income and wealth doesn't matter. Providing incentives for the investors of capital to "grow the pie" is the only policy that counts. Free trade produces well-distributed economic growth, and any dissent from this orthodoxy is "protectionism."
The irony is that using the last twenty five years and the mortgage market as proof of capitalisms failure and more regulation is absurd on both counts.
The last twenty five years have been of enormous growth. Furthermore, much of that growth has been as a result of a lack of regulation. Much of that growth has been in technology and cell phones and the internet specifically. It's exactly because the government has resisted regulating each that the full power of their innovative abilities have unfolded. Can you imagine a world in which the government were to regulate the internet the way they regulate mortgages? Can you imagine having to sign one hundred documents before you view a web page the way you have to sign one hundred before receiving a loan?
Furthermore, Dionne says that it was a lack of regulations that contributed to the mortgage crisis. Nothing could be further from the truth. Few industries are more regulated than mortgages and financial services. It seems that Mr. Dionne is oblivious to the nearly hundred pieces of documentation that each borrower signs when they close on a loan. Furthermore, the deregulation that allowed financial services firms to enter the mortgage market had absolutely nothing to do with the crisis.
In fact, mortgages are the worst example to use if you are in favor of more regulations. Mortgages proves that regulations are nearly impotent if people are determined to act irresponsibly.
Next, Dionne uses the typical socialists red herring, income gap.
You know the talking points: Regulation is the problem and deregulation is the solution. The distribution of income and wealth doesn't matter. Providing incentives for the investors of capital to "grow the pie" is the only policy that counts. Free trade produces well-distributed economic growth, and any dissent from this orthodoxy is "protectionism."Of course, no one ever said that capitalism would distribute wealth fairly. In fact, the whole goal of capitalism to distribute it unfairly because capitalism is a race to the top. Of course, this race to the top ultimately benefits everyone, and there is one statistic that Dionne won't get around. The U.S. has a higher GDP than the next four nations combined. Thus, whatever problems our nation's economy has, clearly we all enjoy more wealth than anyone else. What is the nation with the fastest growing economy. It is China of course and that growth, not coincidentally, began when they moved away from centralized government and toward capitalism.
Finally, Dionne's entire thesis rests on the perspective of Barney Frank and the current Fed Chair, Ben Bernanke. Talk about relying on anecdotal evidence to make the case for a scientific thesis. Frankl is a quasi socialist and Bernanke's statements were self serving since he was asking for more power to himself.
Bernanke said the Fed needed more authority to get inside the structure and workings of financial markets" because "recent experience has clearly illustrated the importance, for the purpose of promoting financial stability, of having detailed information about money markets and the activities of borrowers and lenders in those markets." Sure sounds like Big Government to me.
Yeah, big government controlled and powered by the very man proposing it. It appears we should all take with a straight face the proposal of a man that would give that same man enormous new powers. It appears that we should head toward socialism because surprise, surprise, the Chairman of the Fed wants to see himself gain even more power.
If regulation and centralized planning is the way to go, why has it been shown to be such a failure. No one says that free markets and capitalism are pure. Speculative markets are an unfortunate by product of free markets. They are a result of government failings, however I don't know of any government regulation that has prevented future speculative markets. The only thing that government regulations do is fix the problems of previous speculative markets, and the free market usually applies its own rules much better and faster. On this point, once again the mortgage market is proof the free market works best. In the aftermath of the mortgage crisis all of the excess techniques: stated, no money down, interest only, option arms were eliminated or significantly reduced by the market. We are of course still waiting for any new regulations. What has been the result of centralized planning. Let's look at some examples.
Here is one more thing that Dionne won't get around. We have already tried centralized planning. That happened when FDR took over in 1933. Had FDR not recently been elected we might have thought he was a king. He called for bank holidays, government mandated economic projects, and he even created government mandated retirement savings. All of this socialized economic planning was a total failure. We continued deep into the depression only until WWII pulled us out. Social Security, his signature program, is a financial disaster. Furthermore, LBJ proposed to end poverty through the quasi socialist Great Society. Yet, our poverty rate has changed little since that enormous increase in centralized power.
So to no one's surprise, during this time of economic turmoil we have those blaming the entire system and calling for an overhaul. No one said that capitalism would lead to never ending good times, and that we would never face crises. That said, no amount of crisis means that socialism and centralized planning is the way to go, and history and the facts are on my side.