WSJ Follies

Generally, one turns to The Wall Street Journal for learned insight on matters economic and financial. Most often, one comes away from the columns better informed.

And then one encounters Thomas Frank.

Honest leftists -- such as there are -- might be fundamentally wrong, but they’re honest. Demagogues anger me.

Political leftism represents more of a religion than politics. Its adherents passionately believe in its nostrums as a matter of received wisdom, and no amount of factual refutation suffices to overcome their faith. Listening to a leftist explain the present economic "crisis" leaves one bewildered: did we just enter a Lewis Carroll world in which words have no meaning? Or a Soviet system in which history gets a makeover to match today’s Party Line?

So, while Fannie and Freddie, which, Frank admits (in a refreshing burst of candor) enabled the crisis (one abides his call for their abolition), the real fault lies with the "largely unregulated" mortgage industry, the operators of which wanted to "make a buck". First, in what world does he live, that the mortgage industry is "largely unregulated"? And, second , what would make a normally prudent lender, solicitous of its bottom line, offer money to people (including, apparently millions of illegal aliens), with problematic credit?

Answer: liberal government mandates and liberal-governmentally created moral hazards.

As has been repeatedly shown, lenders who insisted that their mortgagors meet traditional lending standards repeatedly ran afoul of Clinton-era government regulations. Indeed, the whole point of many of these regulations was to compel lenders to provide money to bad risks, all in the name of "affordable housing". Frank entitles one of his recent columns "blaming the victims", asserting that conservatives blame people for taking out mortgages they couldn’t afford.

Not hardly. Everyone behaved perfectly rationally.

Except government. Liberal government.

Why shouldn’t relatively poor folks take out mortgages? In an up market, they could always sell – at a profit – if they got behind. And, in a down market, they could simply walk away (as they have). What was their risk? Often, they put up no money of their own; everything was financed. If they lost the house after a few years, they occupied no worse a position than if they had simply paid rent.

And why shouldn’t the lenders lend, when Fannie and Freddie socialized the risk? Make a loan, earn a bunch of fees, and sell the paper to the GSEs. What’s not to love, from the perspective of a lender? No risk!! (Frank possesses an annoying talent for making the pursuit of profit sound downright unsanitary.)

Is there a bunch of private sector blame to go along? OF COURSE!! Who denies that? People got caught up in a bubble mentality. It happens. If Frank knows a way to prevent occasional irrationality, he’s keeping that information to himself. Like most leftists, while he blames "deregulation" for the losses, he’s keeping the identity of the repealed regulations a closely guarded secret. Put simply, what regulations did "conservatives" eliminate, over liberal objections, which might have prevented the problem? Indeed, regulations which might have prevented the problem – directed at Fannie and Freddie and supported by conservatives – faced massive leftist opposition. Their "affordable housing" mission was simply to important to permit something as trivial as traditional standards to stand in the way. To reiterate the quote from Barney Frank, he urged "rolling the dice" on the GSE’s. We did; and the taxpayers lost, big time.

And where, pray tell, is this "conservative", anti-government ethos in the present Administration? George Bush, the "compassionate conservative", who signed every single spending bill in his first six years in office; who joined with Ted Kennedy on No Child Left Behind; who created the largest entitlement program since the Great Society; a "conservative"? Puh-leeze. Even his foreign policy goes by the name "liberal internationalism".

Frank lists the usual liberal suspects: "tax cuts, deregulation, privatization, outsourcing federal work ..." Hmm. Tax cuts caused this economic downturn ... how? What regulations were repealed which would have prevented it? Privatization had ... what to do with it? Frank doesn’t bother to offer evidence; true believes don’t need evidence. That’s what faith is for.

Lawyers have an expression, "proximate cause", which means that occurrence, but for which a particular event would not have happened. In the case of the present economic disaster, the "proximate cause" was liberal government’s insistence upon lending to unreliable folks and the willingness of liberal governmental agencies to purchase those loans. But for those regulations and that willingness, none of the present unpleasantness would have occurred.

Frank’s correct that government misrule caused this problem, but it was liberal policies, "rolling the dice" with the taxpayers’ money, all in service to the leftist goal of "affordable housing", and not "conservative deregulation" which sparked the catastrophe.

Alas, it looks as if Obama may profit electorally from the present disaster; demagogues and socialists often do, as fear produces irrationality in voters. It’s possible that, Clinton-like, he could inherit an improving economy and, without the slightest personal responsibility, reap the credit (despite how infuritating that would be, one certainly hopes so). Then again, it’s also possible that, Roosevelt-like, he could inherit a terrible economy (caused by high taxes and protectionism), and, through inane tax, spend, borrow, and protectionist policies, make that economic malaise permanent. Perhaps, unlike 1936, the people would see through all the false "hope". It’s possible that, somewhere, there’s a Ronald Reagan waiting to replace this latest incarnation of Jimmy Carter. Maybe some of those folks wearing "yes we can" stickers will, by that time, appreciate that the difference between "Hope" and "Hype" is but a single letter.