Obama’s Universal Fix-all: There’s a Regulation for that!
“There are nine codes relating to injuries caused by parrots, and three relating to burns from flaming water-skis.”
President Obama, you are no Bill Clinton. The problem on most American’s mind today is the economy so let’s look at how Bill Clinton addressed the economy.
Clinton in 1992 discovered that the economy’s problem was Bush’s fault. No. Not GW Bush but George HW Bush’s fault. Unlike Obama, he actually worked to fix the problem—not just blame the guy before him while doing things to make it worse. So why was the 1992 recession Bush Sr.’ fault? The story starts with a financial crisis…in the 1980s.
From Financial Crisis in the 1980s to Recession in the 1990s
By 1989, it was clear that fraud, mismanagement and corruption put taxpayers on the hook for hundreds of Billions of dollars in imprudent loans made during the 1980s. The S&L crisis was the sub-prime crisis of its day. Congress took action. Never mind that the root cause of the crisis for the Savings and Loan crisis was the unexpected inflation of the 1970s—the American people demanded reforms. Congress and Bush Sr. took action demanding strict accountability.
The result was Congress passed strict regulations in 1989 not just on the S&Ls but on all banks with the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). This bill bailed out the savings and loan industry and increased regulations on ALL bank lending. The intent was to end irresponsible lending and Irresponsible lending was put to an end —but so was most legitimate lending:
“These regulatory shifts helped precipitate the 1990 recession, during which banks and S&Ls reduced loans by about eight times the amount of their decline in capital.” (That is banks stopped lending and the economy tanked.)
Articles at the time described the problem and its impact on the economy. This article from March 1993 in the Baltimore Sun:
Maryland businessman Richard Tworek has a profitable company with a steady cash flow and a good credit record, but he can’t get a new line of credit from the bank he has used for seven years.
He is a victim of a credit crunch that has been hampering small business expansion across the nation for the past three years, undermining vital job creation in a period of dramatically increasing unemployment.
Similarities to Today
In response to the sub-prime crisis, Congress passed sweeping regulations not just for housing lending and, just like Bush Sr.’s regulations –not just on the offending sector. This time Congress regulated virtually ALL financial companies with very complex and restrictive rules—not just sub-prime lenders.
According to the Economist:
Dodd-Frank is far too complex, and becoming more so. At 848 pages, it is 23 times longer than Glass-Steagall, the reform that followed the Wall Street crash of 1929. Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long. Just one bit, the “Volcker rule”, which aims to curb risky proprietary trading by banks, includes 383 questions that break down into 1,420 subquestions.
These regulations have made lending to business more difficult. Unfortunately, Obama’s regulations did not stop with the financial sector. The Economist continues:
Barack Obama’s health-care reform of 2010 had many virtues, especially its attempt to make health insurance universal. But it does little to reduce the system’s staggering and increasing complexity. Every hour spent treating a patient in America creates at least 30 minutes of paperwork, and often a whole hour. Next year the number of federally mandated categories of illness and injury for which hospitals may claim reimbursement will rise from 18,000 to 140,000. There are nine codes relating to injuries caused by parrots, and three relating to burns from flaming water-skis.
But these regulations are burying us. The increased hours of paperwork make Healthcare more expensive. Increased financial regulations make it more difficult for business to gain credit.
The problem is Obama thinks the solution to every problem is some new form of government regulation:
Problem with the economy? In Obama’s America: There’s a regulation for that!
Problem with cheap oil? In Obama’s America: There’s a regulation for that!
Politically connected and need money? In Obama’s America: There’s a regulation for that!
Problem with farm chores, fast food, too big soda cups, dusty roads, restaurant menus, foggy bathroom mirrors? You name it: In Obama’s America, There’s a regulation for that!
Together, these regulations have slowed our economy’s recovery. Bankers report they are not able to make loans to worthy companies. Employers tell us they are finding it hard to hire people with the increased health care costs. Many companies are locating overseas (and taking those jobs with them) to avoid burdensome regulations (and projected tax increases).
How Clinton Responded to Over-Zealous Regulations
Many Republicans, including George HW Bush recognized the error of Bush Sr.’s regulations but were unable to push reform through a Democrat controlled Congress. When President Clinton came into office, however, he got Congress to do what Bush couldn’t—repeal many of the regulations passed in 1989:
Hoping to spur commercial lending, the Clinton Administration has developed a set of revised banking regulations meant to encourage a mellower mind-set among bank examiners without encouraging lenders to rebuild shaky loan portfolios.
The proposed new regulations, to be introduced by President Clinton on Wednesday at a White House gathering of business executives, are being presented as a form of economic stimulus that costs the Government nothing, requires no new legislation and benefits mainly small businesses, which the Administration says have the greatest potential to create new jobs and the hardest time getting credit.
It worked in the 1990s. It will work now.
Unlike Obama has proceeded with actions increasing regulations and making compliance more difficult—Clinton reduced banking regulations and make compliance easier. The reduced regulations stimulated lending. Companies were able to expand and a new Republican Congress in 1994 ensured fiscal discipline. The result was an economy that grew and businesses that expanded. Employment rose and tax revenues increased.
Romney Should Duplicate Clinton’s Banking Proposals
So specifically what did Clinton do that Romney could support? In terms of banks, Clinton proposed the following actions which are particularly relevant today:
1. Give bankers greater scope to assess a borrower’s character and reputation as well as his cash flow in making loan decisions.
2. Ease regulations on bank sales of foreclosed property to help the real estate recovery
3. Relax collateral requirements on small-business loans to improve the flow of credit
4. Create a credit ombudsman to judge complaints from banks and would-be borrowers to lessen frustration with the (regulatory) system.
Each of these would be wise steps to follow and while Obama and Democrats will howl, Romney can calmly point out that these actions helped revive the economy in the 1990s and their opposition shows that they care more about regulations than actually turning the economy around.