During the 2004 campaign, President Bush declared his pride in making America what he called “an ownership society.” He promoted expanding home-ownership as the best way to ensure a strong economy, campaigning constantly on the idea:
5/6/04: “Thanks to being the most productive workforce in America, and I might say, thanks to good policies, this economy is strong and it’s getting stronger. … Home sales were the highest ever recently. That’s exciting news for the country.”
8/28/04: See, I love an ownership society. It’s a hopeful society. It’s a society that provides stability in times of change.
8/9/04: If you own your own home, and building equity in your own home, and you’re changing from job to job, it provides great security and relief.
8/6/04: Home ownership is at an all-time high now in America. That’s fantastic news. Isn’t it wonderful to have somebody for the first time be able to say: welcome to my home; I’m glad you’re here at my piece of property.
Watch a 2004 campaign ad in which Bush fawns over the inherent value of ownership:
Of course, what the current enormous crisis — rooted in subprime mortgages — proves is that promoting home ownership without regulatory safeguards is inherently risky. As economist Paul Krugman explained, “[B]orrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake.” And that’s just what happened: More homeowners now owe more money than their homes are actually worth, while foreclosure filings in August rose 12 percent from July — and represented a 27 percent increase from Aug. 2007.
Further, the quest for an all-encompassing ownership society led to the policies that have created the crisis. From dramatically low interest rates to ignoring the warnings about predatory lending to quashing state regulations that would have helped prevent such massive Wall Street investment in subprime loans, Bush and his allies built an economy on a house of cards that was bound to collapse.
Today, Bush declared, “There will be ample opportunity to debate the origins of this problem.” That debate will need to focus on his own failed promise of an “ownership society” as an economic panacea.
Last year Bloomberg had a long article on the troubles plaguing Finland’s Olkiluoto-3, “the first nuclear plant ordered in Western Europe since the 1986 Chernobyl disaster.” By 2007, the plant had been delayed two years thanks to “flawed welds for the reactor’s steel liner, unusable water-coolant pipes and suspect concrete in the foundation.” It was also more than 25 percent over its 3 billion-euro ($4 billion) budget.
Yet a year later, the cost was up 50%, and Finland’s Radiation and Nuclear Safety Authority said “the supervision and ‘safety culture’ of welding at the Olkiluoto-3 nuclear plant did not meet all of its standards and must be improved.”
Who could be responsible for all these flaws and cost overruns? Could it be … Satan? After all, The Book of Revelation clearly states:
I’ve never been to Las Vegas, but I’ll be leaving the office in a bit over an hour to go for the weekend. So, naturally, I’ve been thinking about gambling. Or, in particular, the following “imagine if” scenario. Suppose I discover that my closet contains a mystical kind of roulette wheel with 1 billion possible outcomes. On 999,999,999 of those outcomes, the house pays you 1:1. But on the other outcome, you pay the house 2:1. If I’m a smart guy, I recognize that this is a bad bet. But, hey, there’s still a way to make money off of this. I just need to go rooting around in my dad’s house for a while, brush of my diploma, and declare myself a fund manager of some kind. Then I find some guy to give me money to invest in exchange for a small commission on his earnings. Then on Monday, I spin the wheel. If I win, on Tuesday, I “reinvest” and spin the wheel again. Wednesday, Thursday, Friday, ever day the same thing. Over the weekend, I hand him a bunch of money (less my cut) and show him a piece of paper with a bunch of funny equations squiggled on it, assuring him that this is my excellent quantitative model.
So he tells his friends, and next week I’m gambling with even more money. The week after that, the pot gets even bigger. The odds strongly favor me being able to place one bet every day for a whole year while winning every time. By then, my cut’s big enough that I can hire a bunch of subordinates — all smart guys who did well in the very best schools and who spend their time coming up with clever little stories and charts and figures to “explain” our sophisticated quantitative strategy. Our clients won’t understand what we’re talking about because, deliberately, it doesn’t make sense. And some will realize it doesn’t make sense and walk away — nothing wrong with that — but most won’t want to show ignorance by asking real questions and will be satisfied that my methods are getting results. And so they are! Along with hefty commissions.
One day, of course, I’ll hit the whammy and everyone’s money goes away. Except, of course, for my commission money which I’ve been investing in a broad stock index on a “buy and hold” strategy.
During a press briefing yesterday, White House press secretary Dana Perino was asked to explain the “accusation that the White House is to blame in some way, or the Bush administration policy is to blame in some way” for the current financial crisis.
Perino responded by issuing a challenge: “I would ask you to go back and look…what specific regulation did they want that we blocked? What specific regulation did we eliminate?”
The Wonk Room gladly took up the Perino challenge. Here are some of the specific regulations of the financial system that the Bush administration has eliminated:
- The Uptick Rule: In July 2007, the Securities and Exchange Commission (SEC) eliminated the “uptick rule,” which “made it hard for speculators to push the price of a stock down after betting it would fall.” As the Wonk Room noted yesterday, “since then, legions of short sellers have progressively hammered Wall Street, contributing greatly to the current stock market crisis.”
- The Net Capital Rule: In 2004, the SEC loosened the “net capital” rule, which required “that broker dealers limit their debt-to-net capital ratio to 12-to-1.” The five investment banks that qualified for an alternative rule – Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley – were allowed “to increase their debt-to-net capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1.”
- State Laws Against Predatory Lending: In 2003, the Office of the Comptroller of the Currency (OCC) issued regulations that exempted national banks from state laws against predatory lending. As Slate reported, “with the state laws nullified, national banks were free to engage in the sharp practices the states were hoping to stamp out.”
The Bush administration eliminated these “specific regulations,” contributing to the specific mess that the financial system is in today.
Earlier this week, Sen. John McCain (R-AZ) repeatedly erroneously referred to the Securities Investor Protection Corporation (SIPC) as the “SPIC.” Today on Fox News, McCain’s top economic adviser Douglas Holtz-Eakin — one of the “smart people” McCain said he relies on for economic policy — also referred to the “SPIC.” Watch it:
Holtz-Eakin mentioned “the SPIC” when discussing the “alphabet soup” of regulatory “agencies” — despite the fact that the SIPC is “neither a government agency nor a regulatory authority.” At least it’s now clear where McCain gets his faulty talking points.
Nate Silver’s has a way with the understated insult:
Sean Oxendine at The Next Right purports to find evidence of a Bradley Effect in the Democratic primaries, something which I also looked for and did not find. The difference between my study and his is that I include all the states, whereas he excludes those which do not fit his argument.
But which way to choose?
Maybe Mike Scherer can explain to us again that it’s somehow lying to point out that McCain is a longtime supporter of Social Security privatization.
It’s interesting that even though John McCain’s whole political strategy depends on him engaging in a lot of superficial Bush-bashing rhetoric, as best one can tell George W. Bush has been unfailingly helpful to McCain’s political campaign, whatever his private feelings are. In other words Bush, say what you will about him, puts his ideological commitment to the conservative movement above whatever disputes he may have with his would-be successor in the White House.
In an unrelated development, McCain will be delivering a keynote address on energy policy at the Clinton Global Initiative early next week.
Robert Litan makes the case for charter schools. I largely agree with what he says to say:
A couple of caveats. One is that I think he underplays the importance of the voucher/charter distinction here, but the fact that charter schools, unlike private schools, don’t get to choose their students is important. The second is that while bashing our system as “Soviet-style” makes for good rhetoric, primary and secondary education in the Soviet Union was fine. Indeed, Communism, if applied across the board in the United States, would probably do a lot to improve our public schools. There are just other good reasons to avoid it. Last, it’s important to understand that the charter schools that have shown the most impressive results get substantial additional funding from foundations and other charitable sources over and above their public funding. The evidence, in other words, suggests that structural reform in the direction of more charter schools is a necessary complement to more funding, but not a substitute for it.