Conservatives seem to have learned nothing from the 2008 Financial Crisis. I wonder why that is, as efficient market theory suggests that when something has caused so huge a loss on the part of so many players in the financial markets, they should have learned something from that pain. Instead conservatives in the US have come up with an explain all scapegoat: the Community Relations Act, which encouraged loans to poor areas for house purchase, as if this explains the whole crazy Ponzi scheme on Wall Street, let along the similar madness round the world. Upton Sinclair’s saying may be helpful here: ‘It is difficult to get a man to understand something, when his salary depends upon his not understanding it!’
The Community Relations Act is a well known, thoroughly discredited conservative red herring, because from Alan Greenspan on down conservative free market fundamentalists cannot believe how stupid the market behavior was, because their ideology says markets can’t behave irrationally on that scale. So it can’t have happened. So rather than learn from what happened conservative lackeys of the banks come up with the CRA bs.
The banks did like the CRA or they would have stopped it in its tracks, but CRA supported loans were about 20% of sub-prime residential loans and not even the worst of them. There were far worse predatory lending practices than the CRA ones. And 0% of the vast commercial sub prime loans were CRA, as it didn’t apply to them. There was no CRA involved at all in the banking collapses in the rest of the world as the CRA was a US Act. No CRA in Ireland, Iceland, Greece, Spain, Portugal….So the CRA for all its faults was a minor factor in the scheme of things US numerically, or globally, as all the post postmortems on the Crash have made clear.
And there was no CRA driven necessity to bundle sub prime loans into Collateralized Debt Obligations, that Warren Buffet called ‘weapons of mass financial destruction’. These removed the link between those issuing mortgages, and those holding them, so there was no disincentive against predatory lending to those who could afford the loans. Complex maths was used to conceal high risk loans in opaque ‘low risk’ bundles. No CRA necessity for the rating agencies to give these bundles of toxic crap AAA ratings, which they did presumably because the three ratings agencies were paid by the number of CDOs they rated, and charitably they didn’t understand what was going on. No CRA necessity for AIG to insure said bundles of crap with folk, who insured stuff they didn’t even own against risk of loss many times over. Or for Goldman Sachs, when they saw the writing on the wall, to both continue to advise their customers to buy CDOs, while betting both that the CDOs would default, as they did, and also betting that AIG would go to the wall, as it did. Or for the loathsome Republican Phil Gram to repeal the 1933 Glass-Steagall Act separation of retail and merchant banking, so that the toxicity in the CDO world spread to the rest of the banking system which had to be so massively bailed out. Or for banks to leverage themselves from conservative levels of ratio of assets to loans to insane Ponzi levels.
For any conservative reading this blog and thinking this is all some left-wing take, I suggest you watch the movie ‘Inside Job’ directed by Charles Ferguson that does a creditable job in explaining what really happened systemically, as well as naming and shaming the names of the corrupt sociopathic clowns who caused it, starting with Greenspan and Gram who caused so much of the havoc, which the Democrats have done little to correct by rigorous regulation because Wall Street spent $5 billion on political lobbying in the years before the crash and continue to do so….
One interesting aside in this movie is the corruption of the economics profession many of whose Professors made millions as consultants and board members on financial institutions whose behavior was little short of criminal. And these folk were the purveyors of much of the de-regulation, free market fundamentalism, which with Alan Greenspan’s support, did capitalism, not to mention world economies, untold damage.
And all the points I have made above should make sense to sensible conservatives ,who haven’t been smoking free market fundamentalism. Markets need law and order as much as our society does. It is not a left-wing critique, but a sane non corrupt capitalist critique. Goldman Sachs behavior should have lead to their bankruptcy, and criminal charges, in my view.
In my view then, Alan Greenspan and his followers did more harm to the western economies and capitalism than all the efforts of Marx, Stalin and their followers.
Footnote: the marvelous Democratic Senator Elizabeth Warren, scourge of Wall Streets iniquities, is joining forces with Republican Senator John McCain to restore the 1933 Glass Steagall Act to separate retail and investment banking. There is hope yet and Wall Street is worried because they don’t even understand what is in their own interests, let alone what they should have learned by now…