A STRONG ECONOMY
The financial crisis of 2008 led to a “Great Recession” from which the nation is still recovering. The left is already trying to rewrite the history of this era. They tell us the crisis is a vindication of government’s role in the economy: that the heroic application of federal power rescued the system with emergency bailouts and massive stimulus spending directed by government, preventing a depression and driving the economy from recession to recovery during the Obama years.
This narrative has distorted the causes of the economic crisis and distracted from the need for real reform to head off future disaster. Meanwhile, the very government institutions that helped to create the crisis have been left untouched or empowered with new responsibility. Conservatives hoping to project readiness to serve as responsible stewards of the economy have a duty to set the record straight on the nature of the collapse.
As with many other misadventures, the federal government’s jaunt into the private sector contributed to the crisis and is slowing the recovery. The Federal Reserve kept interest rates too low for too long, while government puppets Fannie Mae and Freddie Mac distorted the mortgage market. Lenders of all stripes faced pressure from regulators to lend to underqualified borrowers, while Fannie Mae and Freddie Mac played an outsized role in inflating the bubble, pumping the housing market full of junk mortgages ultimately backed by taxpayers.
When the mortgage lenders and their underwriters went underwater, society was forced to pay for their life support. Such is the privilege of institutions deemed “too big to fail.” The tragic corollary to this terrible slogan is that immunity from failure destroys the incentive for excellence and the creative energy unleashed by learning from failure and clearing away the deadwood. These institutions do not develop in a vacuum. A company that is too big to fail can’t exist without a government that is too big to stay out of the private market.
Now that bad actors know that bailouts, subsidies, and government partnerships are the price of failure, they have more incentive to place risk on taxpayers again. The prospect of another government-inflated bubble and taxpayer-financed bailout should be unacceptable. We can neither afford another such recession nor allow governmental interference to create a new financial calamity.
The measures that were taken to ensure a sound financial sector—the “Dodd–Frank” Act chief among them—stand as a grim monument to the consequences of panicked action by legislators. The government either regulated completely unrelated issues or created vast new powers for itself, generating new opportunities for incompetent administration and inviting corruption and unprecedented intrusion into the private affairs of American citizens. In the process, these regulations are tying down the private sector, preventing it from doing all it can to lift Americans out of the economic doldrums. Worse still, rather than ending “too big to fail,” Dodd–Frank’s provisions enshrined it in law. As for the Federal Reserve, despite the connection between its involvement in the economy and the panic in 2008, it has only stepped up its interference in financial markets, both through its expanded “assistance” to financial firms during the crisis and through its subsequent rounds of quantitative easing, which have increased the prospect of inflation and put taxpayers at further risk.
Congress can act to ensure that history does not repeat itself. Conservatives can and should ensure that taxpayers will never again bail out large institutions. Instead of bailouts, large financial institutions that fail should be allowed to wind down through an orderly bankruptcy process. Government corporations Fannie Mae and Freddie Mac should be eliminated altogether and the housing market made more stable by relying more on private financial firms that are not backstopped by taxpayers. And the Fed’s regulatory actions, which go far beyond merely maintaining price stability, must be reported and accountable to Congress and, therefore, to the public.
If we are to root out corruption and irresponsible stewardship in the private sector, we must attack the government policies that encourage it. To occupy Wall Street is to stage sit-ins over symptoms; to occupy Washington is to kill the disease at its source.