As
Issodhos, and most other posters who have been here any amount of time, knows, I don't put much stock in
Mises, but this article has a great deal of merit. Rather that dwelling on the minor disagreements, I'll simply note that the description of the corruption of the Republican party is, in my estimation, spot on. In particular, I'll commend this part, which follows the quote
Issodhos supplied:
the Republican-dominated Congress (1994–2006) and the administrations of George W. Bush have morphed Republican-style mercantilism into corporate socialism.
Harmful military spending, unbalanced budgets, fiscal irresponsibility, protectionist and monopoly handouts to friends is the old style Republican playbook. The new style is audacious, unprecedented, and truly awful for the economy. It begins with the Republican-controlled Federal Reserve, which, under Alan Greenspan and Ben Bernanke, has flooded the economy with money and credit and bailed out every economic crisis since 1987. Greenspan's admonitions against "irrational exuberance" apparently were not intended to restrain the Federal Reserve's irresponsible monetary policy. Who in their right mind could honestly say that the Fed had nothing to do with the housing bubble after driving the nominal interest rate to 1% and proclaiming that the mortgage market was well regulated?
But an insidious form of "market-based policy" is also a real culprit in the current mess. In 1999 a bill was passed by a Republican Congress and signed by Democratic President Bill Clinton that rescinded the Depression era's divorce of commercial banking activities from investment banking, called the Glass-Stegall Act of 1933. That opened a floodgate of "creative" financial instruments backed by notes and other commercial paper. Much of the banking regulation of the Roosevelt administration — including abandonment of the gold standard — made absolutely no sense, but markets can fail with dire short-run consequences under a fiat monetary system. With Glass-Stegall, Congress put its finger on and mitigated the tendency and temptations of banks to create massive costly externalities to society, in this case, by holding bundled mortgage-backed securities which were deemed safe by rating agencies but which ultimately failed the market test.
While the authors wish for real free-market operations, they note that
in the world as it is, this "deregulation" amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly.
They then list many of the excesses of the Republican approach, including" subsidies to the pharmaceutical, sugar, and steel industries" before noting that
this particular gift to financial institutions is what allowed the credit bubble to expand to such absurd proportions, because it allowed banks of all types to engage in increasingly risky transactions and to greatly expand the leverage of their balance sheets. As the crisis unfolds, credit continues to contract, the risk of bank failures increases, and the possibility of far more serious economic consequences become more apparent. The S&L crisis cost the taxpayers a few hundred billion, but this crisis has the potential of saddling the taxpayer with several trillion in bailouts.
They are most assuredly correct that it was overleaveraging (Bear Stearns was leveraged at over 32:1 - when 10:1 is considered "risky - some institutions have exceeded Bear Stearns in their illiquidity) that created the crisis, and that the Republican prescription, "to bail out lenders — wealthy financial-industry professionals for the most part — who made unwise market decisions with subsidies and election-year subventions" has only made it worse and will continue to make it worse. It is, indeed, a prescription for Depression.
