The Huffington Post reports that former Citigroup executive Jacob Lew, the administration’s nominee to lead the Office of Management and Budget, told Senate Budget Committee this Thursday that deregulation was not exclusively to blame for the financial meltdown and recession.
Lew was asked by Senator Bernie Sanders of Vermont whether he believed that the “deregulation of Wall Street, pushed by people like Alan Greenspan [and] Robert Rubin, contributed significantly to the disaster we saw on Wall Street.”
Lew answered that “the problems in the financial industry preceded deregulation,” and after discussing those issues, added that he didn’t “personally know the extent to which deregulation drove it, but I don’t believe that deregulation was the proximate cause.”
The Huffington Post can hardly believe it, stressing that experts and policymakers, “including US Senators, commissioners at the Securities and Exchange Commission, top leaders in Congress, former financial regulators and even Obama himself have pointed to the deregulatory zeal of the Clinton and George W. Bush administrations as a major cause of the worst financial crisis since the Great Depression.” The article further alleges that “experts agree on most of the several factors that led to the crisis,” and since they agree, evidently, the argument requires no further explanation.
Repeatedly “Wall Street greed” and “inhuman capitalism” are attacked for a recession that started in one of the single most regulated sectors of the US economy: the housing market. The past decade experienced President George W. Bush’s attempt to bring about his “ownership society” and the country today is witnessing the results of this experiment. Through consistent all time low interest rates set by the Federal Reserve and through an enormous increase in size and influence of the government-sponsored Fannie Mae and Freddie Mac enterprises, Washington promoted homeownership by artificially extending credit to people that, put simply, could never dream of affording their own house—let alone pay back their loans.
That is not to say that the private sector is free from blame entirely. But consider that Fannie Mae and Freddie Mac, supposedly privately owned, were publicly chartered and represented the archetype of unfair competition. Consider the Community Reinvestment Act of 1977 that “encouraged” banks to lend to uncreditworthy borrowers and sought to end “discriminatory” credit practices against low-income neighborhoods. And consider that the very banks who let themselves be pressured into participating in this madness were “bailed-out” by the government with billions of dollars of taxpayers’ money. Was this a free market at work?
In a truly free market, failure is possible and consumers are aware of the risk—with the result that they rationally and voluntarily assume less of it. What the US economy needs is not more government oversight. What is needs is more personal responsibility.