Your Government...My View 10/2/08

By: Ernie Padgett

Well, I’m confused and at the same time, amazed……….again. I can’t wait to ask one of my anti-government, anti-regulations friends how their approach to government squares with current financial events.
Our federal government leaders (Republicans and Democrats) are working on a way to underwrite Wall Street to the tune of $700 billion. This could possibly be at taxpayers expense. I say possibly because there is the chance that some or even all of the money spent may be recouped.
Is this action consistent with private enterprise, free market and very little government oversight beliefs? I think not.
This bail out will initially increase the national debt from about $10 trillion to nearly $11 trillion. In the 1960’s Senator Everitt Dirkson was known to say "A billion dollars here and a billion dollars there and all at once we’re talking about real money." Let’s fast forward to 2008. Thanks to our overall lack of leadership in Washington, today, Dirkson would have to say a trillion here and a trillion there.
Did anyone in Washington see this coming? I think so. Author Ron Suskind wrote in the New York Times last week about a 2002 meeting at the White House. Federal Reserve Chairman Alan Greenspan and Treasury Secretary Paul O’Neill tried to convince the Bush administration that the financial industry needed fundamental restructuring to avoid meaningless ways of valuing companies and avoid a coming meltdown.
Here we are, six years later and the country’s financial industry is in meltdown territory. At the 2002 meeting, recommendations were made that would make chief executive officers of companies accountable for their actions and subject them to fines or other penalties for recklessness, malfeasance or negligence.
According to Suskind’s article, the Treasury Secretary described the proposal to leaders of the nation’s top 10 financial services companies. The executives didn’t agree with the additional oversight approach. One executive said he would rather resign than be held accountable for "what’s going on in my company."
Nothing was done in 2002 by the Bush administration. With leadership like that, it’s a wonder how this mess didn’t hit the country years earlier.
The two prime players in the subprime mess are Fannie Mae and Freddie Mac. President Bush in 2003 did, in fact, recommend that an agency be created to regulate the housing finance industry, including Fannie Mae and Freddie Mac. The Congress failed to act. Most Democrats were opposed to the increased regulations and the Republicans didn’t sense the urgency to push it to a vote. Bipartisan failure!
In 2005, Federal Reserve Chairman Alan Greenspan told Congress that Fannie Mae and Freddie Mac practices were creating ever-growing risk down the road. He said that the total financial system of the future was being placed at substantial risk.
Again, NO ACTION by Congress. These are all clear examples of the leadership deficit that we have in Washington.
In my opinion, there should have been much more oversight, regulation and enforcement of the financial industry years ago. This financial debacle started a decade ago as people began buying homes with subprime mortgages that, it turns out, they could not afford. Government agencies pushed the expansion in home ownership to the point of actually being a party to new home owners getting in over their heads.
Clearly, some homeowners are irresponsible. Evidence points to plenty of fraud. Home appraisals were inflated and loan applications were falsified.
Foreclosures rose. Property values nose-dived. POP! There went the bubble. Lenders, meanwhile, sold the bad mortgages to other finance companies who sold them again. The bad loans are now sprinkled throughout our financial system.
Part of this current financial meltdown is that regulators who were supposed to keep the system honest didn’t do their jobs (while congress was asleep at the wheel). One segment of the mortgage industry, the independent brokers, was barely regulated.
Financiers selling the bad loans had few regulations to reel them in. Starting in the 1980’s the Republican Party began dismantling as many government regulations as they could. By the 1990’s, seeing how popular Republicans were, plenty of Democrats had caught deregulation fever.
The 1999 Gramm-Leach-Bliley Act, backed by Republicans and Democrats blew apart depression era laws that separated banks, insurance companies and securities firms. Banks had been heavily regulated, but the rest of the finance industry was not.
What President signed this bad piece of legislation that accelerated our current financial meltdown possibility? It was Bill Clinton. It is clear that no political party, no congress, no one president since the 1980’s is without blame.
Adequate government regulations and enforcement are needed. Adequate…not over regulations….and not excessive punitive enforcement. I’ve seen both in my 30 years in government. The best solutions lie in neither extreme.
Until the human race perfects itself (not going to happen) and roots out greed and corruption (not going to happen), I want adequate and enforceable regulations in all areas where the low life abusers get the gold mine while the average, hard working citizens get the shaft. Citizens in Jackson County and throughout the United States should be more than a little concerned about the total lack of leadership we have been receiving from our elected officials from both parties. Their refusal to act responsibly over the years has gotten us into this financial mess.