BarroMetrics Views: Capitalism to Blame for Sub-Prime?

If a Government inflates its money supply, at some point, the piper will be paid in the form of a burst bubble. But, the shape the bubble will take, has it roots in the environment in which it occurs. For example, why sub-prime and not a tulip bubble?

In ‘Architects of Ruin‘, Peter Schweizer shows that the very groups that created the environment permitting the sub-prime crisis are the forefront of alleging that the ‘capitalism has failed’. One point I would make: Schweizewer is writer with conservative leanings. If you read the book, you need to separate the facts from his sweeping and often unproven allegations.  For example:

“All, as we shall see, were thoroughly Clintonian, which is to say that their high-minded ideals were sometimes at odds with a tendency to cut ethical corners in their personal and professional lives”.

However no where in the book is this claim proven. He does illustrate some examples but ’some’ is hardly ‘all’.

Despite this tendency for hyperbole, his central thesis is well established: “..the heart of this story is the role that radical activists and liberal politicians in Washington played in trying to harness the US financial system….it is a cautionary trade tale about the perils of trying to use the power of the state to do good…such efforts ended up doing the most harm to the very people they were intended to help..”.

The book shows how activists used the Community Reinvestment Act to compel banks to make increasingly risky loans. How did this come about? Well:

• First in the 1970s Senators Ted Kennedy and William Proxmire were responsible for legislation that empowered local activists to force banks to lower lending standards.
• Powerful liberals including Bill Clinton, Robert Rubin, Barack Obama, and Nancy Pelosi, to name a few mentioned by Schweizer, began pushing legislation to encourage or compel banks to make risky loans.
• Finally you had Wall Street with their ties to Washington - a Wall Street that makes a mockery of the word capitalism. Capitalism implies reward and risk. Nowadays there is ‘guaranteed’ reward because a bank is ‘too big to fail’. Get into trouble and the US taxpayer will bail you out. Hmmm….

Here’s the issue as I see it. The Obama government has not learned from history. They  are spending more than they earn and are actively pursuing their agenda - green economy, socialised medicine. More on this tomorrow…..

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