An article with the following headline appeared on several conservative web sites today, 4 April 2013
“New Study Confirms Economy Was Destroyed
by Dem Policies”
Nonsense, it says nothing of the sort.
I just got through reading it on the site
of the National Bureau for Economic Research (NBER). I had trouble finding it
because for some reason, none of the articles published on this subject
mentioned its URL or the names of the study or its authors. I shall now
disclose the URL so that nobody pulls a fast one on us: http://www.nber.org/papers/w18609
Firstly, practically all economic crises
have multiple causes. The only exceptions are economic crises caused by wars or
natural disasters.
Accordingly any sentence beginning with “Economy
Was Destroyed by …” must end with either the name of a war, or a natural
disaster, or several endogenous economic causes.\
I grant that the study proves that the enactment by Democrats of the Community Reinvestment Act (CRA) was
indeed ONE of the causes of the subprime mortgage crisis. But it does not
quantify the CRA’s effect. Nor does it even pose the question of what OTHER
causes may have contributed to the crisis, let alone pinpoint the CRA as its
principal cause.
Despite the article's denial that deregulation played a role in bringing on the 2008 financial crisis, I have seen persuasive evidence that deregulation was indeed a major generating factor. See "5
disastrous decisions that got us into this economic mess", by Joseph Stiglitz,
Moreover causes interact with each other. A
given event, enactment of the CRA, for example, can foster conditions likely to
lead to a crisis. But the actual occurrence of the crisis can usually be averted
by timely government action, unless the cause is impervious to government
action, like a huge balance of payments deficit, for example. If government fails
to act promptly, the crisis breaks out in all its fury. However in that case
the cause can just as fairly be called “government inaction” as “ CRA”.
This is what happened in the years leading
up to the 2008 financial crisis. The federal government signally failed to act.
One aspect of this failure was described by the then Governor of New York,
Elliott Spitzer, who wrote in the Washington
“In 2003, during the height of the
predatory lending crisis, … [n]ot only did the Bush administration do nothing
to protect consumers, it embarked on an aggressive and unprecedented campaign
to prevent states from … enforcing any of their own consumer protection laws
against national banks.”
Predatory lenders’ partner in crime, How
the Bush administration stopped the states from stepping in to help consumers, by
Eliot Spitzer, The Washington Post, February 14, 2008.
Spitzer spilled the beans too soon. He soon
lost his job as a result.
In reprisal for Spitzer’s revelations, the
Bush II administration sicked the FBI on Spitzer, illegally violated bank
secrecy laws and Spitzer’s constitutional rights and eventually discovered
evidence of wrongdoing that it promptly used in order to bring about the
governor’s downfall.
