For 28 years Republicans have promised, and the voting public has bought into the idea, that less government means a better life for everybody. From Ronald Reagan’s “Government is not the solution to the problem, government is the problem,” to John McCain’s declaration a few days ago that, “Government should stand beside you, not get in your way,” de-regulation, getting government off our backs and trusting the magic of the free market has been the pot of gold at the end of the rainbow.
Suddenly, everybody, including John McCain is talking about regulations.
Six months ago, I had never heard of the Glass Steagall Act, passed during the presidency of Franklin Roosevelt, which required commercial banks to maintain some risk in the loans they approved.
I remember the first time I ever bought a car. I remember going to the bank, sitting down with Mr. Allen who asked me a hundred questions. It surprised me because he was the treasurer of the church in which I was working and actually signed my paycheck. Nevertheless, he asked about my income, how much I was putting in as a down payment, my other debts, and how I planned to repay the loan.
That was then. That was before the Republican Congress of 1999 repealed Glass Steagall removing the wall between Commercial Banks and Investment Banks. My new friend Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan administration, testified before Congress warning of the dangers of removing these regulations and pretty much accurately predicted the melt down scenario we are experiencing on Wall Street today.
This is now. What happens now with de-regulation, (getting government out of our way, to use the words of John McCain) is that when I buy a house, the lending institution that makes the loan has little, if any, interest in my ability to pay off my mortgage. They have little, if any money invested. As soon as they make the loan, it is bundled with many other loans and sold to an investment company, which for enough profit is willing to take a “calculated risk.”
Now suddenly the house of card begins to collapse. Congress is talking about a $700 billion bailout. (That’s more than $2000 for each one of us.) and everybody, including McCain and Palin are talking about regulations.
The pot at the end of the free market rainbow is no longer full of gold, but IOUs.
September 25, 2008