Friday, March 20, 2009

Okay, So What Do We Do?

Pat Buchanan shares his thoughts on the financial crisis:
Who is to blame for the disaster that has befallen us?

Their name is legion.

There are the politicians who bullied banks into making loans the banks knew were bad to begin with and would never have made without threats or the promise of political favors.

There is that den of thieves at Fannie and Freddie who massaged the politicians with campaign contributions and walked away from the wreckage with tens of millions in salaries and bonuses.

There are the idiot bankers who bought up securities backed by sub-prime mortgages and were too indolent to inspect the rotten paper on their books. There are the ratings agencies, like Moody’s and Standard & Poor’s, who gazed at the paper and declared it to be Grade A prime.

In short, this generation of political and financial elites has proven itself unfit to govern a great nation. What we have is a system failure that is rooted in a societal failure. Behind our disaster lie the greed, stupidity and incompetence of the leadership of a generation.

Does Dr. Obama have the cure for the sickness that ails the Republic?

He is going to borrow and spend trillions more to bring back the good old days, though it was the good old days that brought us to the edge of the abyss into which we have fallen. Then he is going to spend new trillions to give us benefits we do not now have, though the national debt is surging to 100 percent of the Gross National Product, and may reach there by 2011.
A simplified narrative followed by a simplistic judgment. It's a bit like, well, blogging. (Yes, obviously myself included.) Monday morning quarterbacking. Buchanan speaks as if he saw this coming. But of course, he didn't.

It's one of the strange things about this crisis - we're dealing with a scope and scale that defies imagination. What's a trillion dollars? (Is this what you pictured?) It was easy enough for people to look at housing prices as compared to incomes, or housing prices compared to rental prices, and say "This can't continue." But few people had the perspective on the situation to see this as a potentially huge problem - and fewer were willing to speak out about it. And as prescient as those few voices were, I don't recall any that even hinted at the magnitude of the coming collapse. A recession and some housing deflation, sure. But a global financial meltdown?

Buchanan's piece also highlights the other side of the problem - nobody knows what to do, or what will work. The strategy carried over from the Bush Administration is as Buchanan describes - put the same Humpty Dumpty financial system back together, whatever the cost, and hope it stays up on the wall this time. And there are genuine reasons to say, "That might not work," or "These other approaches might be better," but nobody really knows. Hence the conservative approach - return to the status quo ante.

Buchanan doesn't even offer that much - he has criticism, but he doesn't pretend to have a solution. Instead, he imagines a world where credit is harder to obtain (news flash: we're already in that world):
Is Obama willing to speak hard truths?

Is he willing to say that home ownership is for those with sound credit and solid jobs? Is he willing to say that credit, whether for auto loans, or student loans, or consumer purchases, should be restricted to those who have shown the maturity to manage debt — and no others need apply?
Right... we're going to deny student loans to students, because they're young and don't have good job histories. Next solution, please? I'm not sure what to make of Buchanan, period, let alone when he says stuff like this; by his own measure, we created more than enough trouble by having the government meddle in the credit business, so perhaps we shouldn't be moving into an era where the President dictates tighter credit terms. I'm fine with saying that we can't restore the system that led us into this crisis, but what's Buchanan calling for? More regulation? Nationalization?

Perhaps the government should be stepping out of the business of deciding who should have credit, and perhaps that's especially true in relation to any express or implied notion that it will step in and bail out financial firms (including those like FNMA and FDMC) if they screw up. If lenders (and shareholders, and bondholders) know that the risk of loss is truly and entirely theirs, I don't think the President would need to play a role in deciding which citizens are sufficiently responsible to "deserve" a mortgage, car loan or credit card.

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