Barney’s Blarney

The blame game is on. And we have a culprit identified: Ronald Reagan caused our financial crisis.

I know, this is old news from the Charlie Rose show: it’s the news according to Barney Frank. He’s shameless (but we all knew that).

Barney Frank wants to call September 15th “free enterprise day because that was the one day in which the Bush administration apparently stuck to its professed commitment to free enterprise….”

He says that a “true understanding” capitalism recognizes the need for “appropriate regulation.” He says that “by virtually totally abstaining from the market” Republicans in Congress and the Bush Administration caused the financial problem. He doesn’t understand “free enterprise” or the facts, although I’ll agree that we lacked “appropriate” regulation.

(And I was surprised during the Biden and Palin debate that Governor Palin didn’t answer the question about regulation. The problem, again, was the government, so why not defend deregulation? Why couldn’t she have made a stronger case for free enterprise? Doesn’t she like freedom?)

The Left wants us all to believe that the “free market” can “fail” and then we all suffer. Only the government can do what’s right and protect us. But what’s the failure of a buyer and seller agreeing to an exchange because they both think they will benefit? If the failure is fraud, we have laws for that…. Is the failure a lack of payment? or non-delivery of goods? We have laws, laws, and more laws for all aspects of commercial transactions.

Law enforcement, of course, is not premised on the coming of a Utopian age when mankind lives in perfect harmony. Instead, it’s premised on the idea of mortal man being fallible and the breaking of laws. It’s also requires proof in court.

So what’s the proof? who’s the culprit? Does Barney understand “appropriate”?

The dictionary doesn’t seem to help much in understanding what is “appropriate” legislation of “free enterprise.” The OED defines “appropriate” as “specially fitted or suitable, proper” and “enterprise” as “a bold, arduous, or momentous undertaking” and “free enterprise” as “the freedom of private business from state control, esp. as an economic doctrine.” This doesn’t help much because we only see here that “free enterprise” means “freedom of private business” and we don’t see what’s “fitted or suitable” regulation of “free enterprise.”

Now it might seem that “appropriate” doesn’t help much, but that’s not entirely the case. Consider who should decide what’s “appropriate”? If “appropriate” is whatever Barney decides, then we lack a rule of law. And without a rule of law, we lack liberty. (See Federalist No. 51 and Montesquieu’s definition of liberty in the Spirit of the Laws, Book 11, Chapter 3. )

But with the Community Reinvestment Act that encouraged loans to low and moderate income (LMI) applicants, guess who is deciding “appropriate” regulation? Under the “legislation,” banks were rated on their community development efforts. And community development is open to the “public” for “comment,” Appendix A (at end of CFR 228). So bank ratings of their compliance with the law and approval of mergers, etc. were subject to the comments of “community organizers” like ACORN and NACA. (ACORN says this comment period is “crucial.” And see ACORN’s “comments” in opposition to modifying CRA.)

So banks aren’t under the “appropriate” regulation of the rule of law as applied in court with independent judges. As explained here in 2000, they are subject to a form of extortion. Banks either make community “investments” or their CRA rating is lowered because of adverse “comments” by groups like ACORN and NACA.

There’s nothing “appropriate” or “democratic” or “community” about regulation by special interest “comments” designed to extort money from people without the protection of an independent court.

The comments that should count are the ones we make to our congressmen.

Free enterprise means that “government” isn’t the only entity for deciding what’s “appropriate.” What’s “appropriate” is not the mere will of Barney, or merely a matter of power. A sound loan is a sound loan because of the particular facts of the case, not because some ideology says making LMI loans and “community development” is a good thing to do. Barney’s ideology may say that, but Barney’s voice is not the voice of God, it’s just blarney.

The problem, again, is that what’s “appropriate” is not relative. The freedom of “free enterprise” is not relative but is grounded in morality. Free enterprise is merely an aspect of political liberty and as Montesquieu said, “political liberty does not consist in an unlimited freedom [to act as we please]. In governments, that is, in societies directed by laws, liberty can consist only in the power of doing what we ought to will, and in not being constrained to do what we ought not to will.”

Published in: on October 7, 2008 at 7:51 am  Comments (19)  

19 CommentsLeave a comment

  1. I’m blaming it on an over-valued market correcting itself. Think about it … 1) Stocks tumble drastically … 2) Oil falls … 3) Dollar rises

    Sounds like a correction to me.

  2. Yes, there’s a “correction” taking place but it’s not just a correction in the price of homes that’s happening. It seems that the impact of the correction is widespread because the CRA and activist groups encouraged “innovative” LMI loans. The crisis has made doing business more difficult, so stocks tumble. Business slowdown means less demand for oil. The crisis extends to overseas banks, and the dollar still sets the standard….

    Letting the market correct itself was not an option that treasury or fed thought was responsible. They supported the bailout, and I think more reforms are necessary for a sound budget.

  3. Governor Palin didn’t answer the question about regulation. The problem, again, was the government, so why not defend deregulation? Why couldn’t she have made a stronger case for free enterprise? Doesn’t she like freedom?)

    I think that she’s a bit hamstrung by her running mate on this issue. She’s toeing the campaign line, but I’m willing to bet that she’s more in line with our thinking that the bailout was a bad idea and that free enterprise is a Good Thing.

  4. The only thing worse for this country than McCain winning the election, is McCain winning the election and dying in office at any point. Can’t wait ’till Palin disappears back into the shadows of Alaska where she came from before McCain tried to one-up Obama with this stunt VP pick of his.

  5. Yeah Jen, I think she’s got good ideas about free enterprise, but without rebuttals, the attacks on free enterprise take a toll.

    Denis, let me think, is there something worse than Palin, hmmmm, well,,, oh, I got it: O B A M A

    After months and months of campaigning, he’s got an agenda on his website with things like spending more money so people can serve.

    He has a bizarre notion of service that requires the federal government. Doesn’t he know that neighbors can help each other without a government program?

    Oh wait, let me see, that’s right, this is probably a “service” program that pays ACORN activists to ruin more businesses. And he calls it “service.”

    Come on Denis, what’s good about his “specifics”?

  6. I have said it before–this crisis is a mirror of the S&L crisis of the ’80’s.

    From Wikipedia:

    “Under financial institution regulation, which had its roots in the Depression era, federally chartered S&Ls were only allowed to make a narrowly limited range of loan types. Late in the administration of President Jimmy Carter, caps were lifted on rates and the amounts insured per account to $100,000. In addition to raising the amounts covered by insurance, the amount of the accounts that would be repaid was increased from 70% to 100%. Increasing Federal Savings and Loan Insurance Corporation (FSLIC) coverage also permitted managers to take more risk to try to work their way out of insolvency so the government would not have to take over an institution.

    Carter left office in January 1981, a year in which 3,300 out of 3,800 S&Ls lost money. In 1982 under Ronald Reagan, the combined tangible net capital of the industry was $4 billion. The chartering of federally regulated S&Ls accelerated rapidly with the Garn-St. Germain Depository Institutions Act of 1982, which was designed to make S&Ls more competitive and more solvent. S&Ls could now pay higher market rates for deposits, borrow money from the Federal Reserve, make commercial loans, and issue credit cards. They were also allowed to take an ownership position in the real estate and other projects to which they made loans and they began to rely on brokered funds to a considerable extent. This was a departure from their original mission of providing savings and mortgages.”

    Later in the article it says:

    “The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990–1991 economic recession. Between 1986 and 1991, the number of new homes constructed dropped from 1.8 to 1 million, the lowest rate since World War II.

    “Some commentators believe that a taxpayer-funded government bailout related to mortgages during the savings and loan crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher risk loans during the 2007 subprime mortgage financial crisis.”

    This problem started with deregulation by Carter to make more low income families able to own homes. That trend continued under Democratic insistence, including Sen. Frank’s, right up to the failure. The pressure was on all lenders to make risky loans so more people, people with bad credit, low income and high debt could go even further into debt by borrowing more to buy a house. There was a housing bubble caused by this excessive demand. When even more pressure was applied, the lenders offered loans with low payments but either adjustable rates that escalated rapidly in the out years or that had “balloon” payments that would come due in the 7th, 10th or 15th year. And as those payments loomed, low income families couldn’t make that payment.

    One should always stretch somewhat for that first house. The expression is “house poor” to describe those first few years in a first home. The rationale (in the days of fixed rate mortgages) is that your income will go up, even if only by inflation, but your house payment won’t, so you will eventually get out of the house-poor state because the relative size of the house payment goes down as income goes up. But with ARM’s, particularly those with artificially low initial rates and fixed escalations, that decline in the relative size of the payments doesn’t work. The payments increase faster than inflation, leaving the hapless owner even more house-poor.

    What the Democrats who pushed for “affordable” housing didn’t see coming was that when the housing bubble burst, people lost jobs just as the “affordable” loans the Dems had so diligently demanded escalated the payments and left those families unable to pay. Foreclosures increased, albeit still very, very low relative to loans not in default. But the press (liberal almost to a man) seized on the story to blacken the eye of the Bush administration and drove the market into deep distrust of all loans. Portfolios dried up as people bailed out of the market for banks and lenders of all kinds. Now people don’t have any trust in the market in general, again fostered by bad news the press keeps trumpeting. The news would have you believe that disaster is at the door and only Obama can rescue us. It sounds much like the press just before the election in 1992–“It’s the economy, stupid.” But it wasn’t the economy, the economy was already recovering before the election. Clinton inherited a growing economy and managed not to screw it up because the Republicans invoked the “Contract with America” and keep things under some control.

    Look at this chart:

    Note that it took from 1929 to 1955 or so to recover from the Crash of ’29. Never since then have we had so deep a decline or so slow a recovery. Even the 9/11 effect was recovered from quickly. The period of the middle 60’s to 1980 was flat, with minor bear and bull markets. What we are in now is a correction of an inflated, highly leveraged market. What is needed is for the credit market to loosen up. That is what the bailout was about, but it’s not working yet because nothing has been actually provided yet—just promises.

    Fearless prediction: If Obama wins, the press will start printing good news, even if it’s very thin, on Jan 21 and keep it up relentlessly. Confidence may return because of the press efforts, and if so, markets will recover. Obama will raise taxes, which will stifle the recovery by taking money out of people’s hands who normally would invest it in the market. Obama and his cronies will go back to encouraging “affordable” loans to appease his worshipers. We’ll head for an even bigger crash later when all those risky chickens come home to roost. The gov’t will print money to cover their butts, inflation will take off, interest rates will skyrocket. Can anyone say “1980’s again?”

    If McCain wins, if he is successful at maintaining the Bush tax cuts, the economy will recover from a shallow recession more slowly, but it will be on more sound foundations. Those risky chickens won’t hatch. A slow recovery will provide a much more stable base. Tax revenues will increase over time as the GDP increases. People with money will return to the markets and credit will ease, getting us back to a growth footing.

    Sorry about the long post. It’s an interesting topic!

    Just say Nobama in ’08. It sounds so good!

  7. Hey Pop,
    Yes, it’s an interesting topic, but did you mean to say, “Can anyone say ‘1970’s again?'”

    Yes, this crisis is similar to the S&L crisis in that government regulation has caused the problem, but now the government “regulation” mechanism is more hidden and the effects through the securities is more widespread.

    Depression era government regulation limited S&L’s ability to compete and regulation of banks had an unintended consequence of encouraging redlining. Deregulation allowed S&Ls to compete and competition expanded markets into redlined areas. Deregulation should have been sooner. See a fed article published around the time of Clinton’s expansion of CRA, “Redlining or Red Herring?”

    But before deregulation by Reagan, Carter created CRA and Clinton made it a weapon for left special interest groups to use against banks.

    I fear that the similarity you see is too optimistic. I fear that markets today have more trouble assessing the bailout and future prospects. With the S&L crisis, the deregulation had been done and troubled identifiable businesses were bought and assets sold. Now the problem is the securities, not the businesses.

    And the foundation today is not in place for a recovery; the fundamental reforms have not been done. CRA, Fannie and Freddie have not been reformed. There is a real problem beyond restoring confidence.

    Yes, with Obama, old ways will return in the blink of an eye because that’s the foundation we have. The leftists will continue the assault on free enterprise.

  8. No, I actually did mean ’80’s. My reasoning is that the problems were sown in the changed in the ’70’s. Note that by the time Carter left office in ’81, 3300 of 3800 S&L were losing money! In the ’80s they failed. That’s where we are today–the damage was done earlier, now we reap the rewards.

    I think to restore confidence, we do have to repeal or reset the regulation so that the credit market believes what the mortgage bundles claim about the quality of the mortgages. Of course, there is always some risk, anyone can lose a job or be injured, but in the past the foreclosure rate was below 1%. Now it’s about 3%, but the market is acting like it is 97%!

  9. Two words. Thanks, Bush.

    Eight years of misery and lawlessness. 1/20/09 couldn’t come too soon for me, Obama and the health of this country.

    The problem is, if he can’t dig us out of Bush’s mess, you’ll blame him. If he can, you’ll say the recovery started on Bush’s watch (which it hasn’t. Did you check your 401k balance today?) and try to give him the credit. Typical Republican spew.

    Sleep tight knowing Bush’s days are numbered.

  10. Well Pop, I’m not convinced we’re set for an ’80s recovery.

    And Denis, why say “thanks, Bush”? and not “thanks, Barney”? I ask, WHY?

  11. Denis, the answer is,”No, I have not checked my 401k balance today.” The reason I have not is that I understand how the market works. A financial advisor once said, “Research it, buy it and forget you have it.” In other words, investing is for the long term. My 401k has zero value until I decide to sell. Then it has a value. Until then, I’ve forgotten it. That is what it means to INVEST, not speculate.

    I don’t sleep tight these days because I fear an Obamanation abomination. These two near-communists the Dems have nominated will dismantle everything that makes capitalism work, if we let them. Remember, this isn’t Bush’s mess, its Barney Frank and the other Democrats’ mess–the ones who wanted the socialist goal of ‘Everybody has the same’ even if they couldn’t and shouldn’t get a mortgage. Now we reap the whirlwind of chaos they stirred up. And the conservatives of this country are angry that the near-communists are getting a free pass on it because the liberal media won’t expose the truth. And because the truth doesn’t come out, folks like you can’t see it. It’s sad, really, and it makes conservatives angry because they don’t have a voice.

    Nobama in ’08, never!

  12. Conservatives have a voice. It’s called Fox News. And I’m a fiscal conservative. I only wish Bush was. Bush has just piled on the debt in the past eight years. Does anybody know what a budget is and how to stick to one? I fear what this mess of a presidency will do for my children and their children. And I look at 401k’s more as a gamble. Some times you win, some times you lose. It’s only money, right?

    And to answer your question, Beau, all of a sudden Barney Frank is the guy to blame for Bush’s mess. Every week I hear Republicans blaming a different guy. Oh, yeah, never a Reublican. Like the Democrats have been in charge of the presidency, congress and the senate for about 25% of the time in the past 20 years, but I guess it’s a matter of quality and not quantity, right? Republicans should fix their own house first before they start throwing stones, if I can mix my metaphors. LOL

  13. Denis, yes there’s blame to go around. Republicans have supported home ownership as a social goal; they’ve seemingly agreed with Dems that any problem can be declared a national problem and national problems should be solved by the government. But there’s particular evidence of Barney et al. denying the evidence of trouble at Fannie and Freddie. Democratic Congressman Artur Davis admitted it.,2933,431209,00.html

    The bigger problem is that a handful of congressmen, Reps. or Dems. depending on which is the majority party, that can manipulate “law” like this. It would be better that the law was clear and that the president, Dem. or Rep., had the -clear- responsibility to enforce it than to have our current confusion.

    How many people can be expected to understand the effect of an innocuous sounding “comments” in “Appendix A”? How can the people hold anybody responsible for that? or see that it needs changing?

  14. Beau, thanks for admitting there is enough blame to go around. Now if we could only agree on how to fix the problem. Well, not us, but the politicians acting on our behalf. We should clean house. Get rid of everyone in Congress and the Senate and start over with new blood. Get rid of the two-party system too. Any thoughts?

  15. We don’t have two parties. We have multiple parties, including the Green and Libertarians. In our history, we’ve had others. But from the beginnings of party politics in the early 1800’s we’ve usually had two dominant parties. Unlike the confusion that multiple parties generate (have you read the history of the Italian parliament?), two parties generally lead to a clear winner and loser, making it more clear on who’s in charge.

    Now, getting politicians “acting in our behalf” is subject to discussion. President Bush is acting in my behalf most of the time, although not always. Sen Obama, based on his public positions and history, will rarely act in my behalf. Hence, I will NOT vote for him. The problem is most folks vote local issues, which keeps the same folks in Congress for a long time. We complain about Congress, but don’t do anything. The seniority process gives us motivation to keep the same folks there because they can do more for us locally, even if we don’t like the national issues. But we normally don’t get hit by national issues, while the local issues are in our face every day. When the politician can get Fed money for local roads, or local schools or local jobs, even if we have to hold our noses to vote, we tend to do so. Term limits would help, as would committee membership by drawn lots and chairs by senior majority member. Don’t let the same old do the same old. If you keep doing what you’ve been doing, you’ll keep getting what you’ve been getting. So, flush the top Dems, those in Congress, for a fresh set of Republicans and get a fresh start. And since Obama is buddy-buddy with Reid and Pelosi, keep him out, too. Don’t reward those two crooks with a puppet in the Oval office.

    As for this financial crisis, most of the blame for both this crisis and the earlier S&L crisis rests with the democrats because they are the ones who have strongly urged the S&Ls, banks and Freddy/Fannie to make loans to “disadvantaged” folks. Those loans are now proving to be highly risky, as Sen Frank was told in 2004. From the reference Beau provided, this is a snippet of the Hannity exchange with Mary Matalin:
    HANNITY: With all due respect to Alan, we just have a disagreement, it’s not deregulation. Big government liberalism and redistribution of the wealth, it all started in 1977 with the Community Reinvestment Act forcing these banks, if they wanted to stay in business and they wanted to be profitable to grant these risky loans. It was — they upped the ante back in 1995, and the lack of regulatory oversight that we just saw with the Democrats, that was a 2004 hearing, that existed because they were kicking back money to these politicians. Some Republicans, too, but the number one recipient was Dodd, the number two recipient was Obama.

    MATALIN: And let’s just say, that it was well intended that we want more people to have home ownership. There is a good for the state that comes from that stability, but not the way in which they were issues those loans, and indeed not the way they were covering up the fraud that was going on in Fannie and Freddie, and they were falsifying records for the purposes of getting their own bonuses and stealing from Freddie and Fannie. That’s why people are — 70, 80 percent have no confidence in either side to be able to fix this.
    So the seed of this debacle was planted with the CRA in 1977, which led to the S&L crisis, then the pressure on Fannie/Freddie to back loans in the ’90’s (Clinton Administration). In 2004, when regulators came to Congress to report major problems looming, the Dems took them to task for getting in the way. From the same transcript:
    ALAN COLMES, CO-HOST: The political fallout continues and now it includes this program. The following video of a House hearing in 2004 is circulating around the Internet, and we played it for you on “Hannity & Colmes” last night:


    REP. MAXINE WATERS, D-CALIF.: There were nearly a dozen hearings where frankly we were trying to fix something that wasn’t broke. Mr. Chairman, we do not have a crisis at Freddie Mac and in particular at Fannie Mae under the outstanding leadership of Mr. Frank Raines.

    REP. GREGORY MEEKS, D-N.Y.: There’s been nothing that was indicated that’s wrong with Fannie Mae. Freddie Mac has come up on its own, and the question that questions the competence that your agency has with reference to deciding and regulating these GSEs, and so I wish I could sit here and say that I’m not upset with you, but I am very upset because what you do is you may be giving a reason to as Mr. Gonzales said, to give someone a heart surgery when they don’t need it.

    REP. BARNEY FRANK, D-MASS.: But I have seen nothing in here that suggests the safety and soundness as an issue, and it serves us badly to use safety and soundness as kind of a general shibboleth when it does not seem to be an issue.
    So, in 2004, when regulators were warning Congress, these fine upstanding Dems attacked the messenger. I particularly like good ol’ Barney’s comment about it serving badly to use safety and soundness of the loans as a warning when, in his expert opinion, “it does not seem to be an issue.” Now Barney forgets he said that. Somehow it’s become Bush’s fault. Not Barney’s, nor Maxine’s nor Mr. Meeks.

    I can fix the problem. Fire the entire Democratic Congress and bring back Republicans. Bring bankers back to banking, instead of the riverboat gamblers we seem to have now.

    And vote against Nobama!

  16. We’ve already flushed out the problems with Congress. The Republicans controled the House and the Senate for the most part between 1995 and 2007, when most of the damage was done to our fine country. Democrats have been working for the past two years to clean up their mess. It’s hard work un-doing a decade of incompetence, lawlessness, and greed, but under Obama’s direction, the country should be able to right itself and take its rightful place as world leader again.

    Obama in ’08!

  17. Denis, what’s this? “working … to clean up the mess”? Barney Frank was NOT working to correct a problem that President Bush proposed to address. He opposed having an independent regulator. That’s why there’s the focus on Frank, who is now leading “reform” of Fannie and Freddie.

    Admittedly Republicans were a “majority.” But passing a law proposed by President Bush required some Democrat support.

    FYI, The whole hearing is available here:

  18. You can’t have it both ways, being in the majority and making the rules and blaming the minority when your decisions go south. They were either in charge or not. Which was it? If they were in charge, they made the mistakes, if they weren’t they were incompetent for not taking charge and letting the minority rule. Your pick.

    Oh, yeah, I just heard that Virginia is now a Blue State. LOL When are you moving further south? Looks like you’ll have to come our way in South Carolina for that. Even North Carolina looks like it’s going blue. Blue’s a good color on you. Don’t worry, you’ll grow to love Obama and a successful turnaround for our country.

  19. Hey Denis,

    Well, yes, if government were simply about getting “something” done, you wouldn’t need procedures like the presentment clause and President Bush could have done whatever he wanted without the House and Senate agreeing.

    But with the rules in place, ONE Senator can gum up the works. And unless there’s 60+ Senators supporting the President’s proposal, it may not get very far.

    So a bit of history. The 2003 House hearing were the result of evidence of problems at Fannie and Freddie. The IMF took note. By 2005 Congress was still looking at the problem. Obama says he sent a letter, but it appears that he didn’t actually DO much to help. See

    And about another Senator who got a sweetheart loan, see:

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