Republican anti-regulatory moves–short memories
Republicans have long ridden the same pony, i.e., lower taxes, especially for corporations and the wealthy, and anti-regulation by government. As a by product, they have opposed most social welfare operations by government.
They believe these tenets with a zeal that borders on religious doctrine. A free market will always make the best decisions. Government regulation of business practices are enemies of free markets and must always be opposed. Faced with the wreckage produced by following those precepts, namely the Great Depression in the thirties and the near collapse of the banking industry in 2008, their voices dim for a while, but then shamelessly they attack the very regulatory measures enacted in response to those crises. The markets, they argue, would have righted itself if left alone by government. The stolidly Republican former CEO of Goldman Sachs and Bush’s Secretary of the Treasury during the 2008 financial crisis, Hank Paulson expressed it as follows: “An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention.” At this stage of the difficulties, Paulson was still railing at Glass-Steagall regulations.
In 1933, Congress passed the Glass-Steagall Banking Reform Act, that, among other things, sought to limit banks’ “affiliations” with securities firms as well as restrict certain investments by commercial banks. Banks, the argument went, are repositories for the savings of the public and should not place those savings at risk by Wall Street gambling.
Just two months later, as the fallout from the financial meltdown was being assessed, Secretary Paulson was singing a whole new song: “We are working through a severe financial crisis caused by many factors, including government inaction and mistaken actions, outdated U.S. and global financial regulatory systems, and by the excessive risk-taking of financial institutions. This combination of factors led to a critical stage this fall when the entire U.S. financial system was at risk. This should never happen again. The United States must lead global financial reform efforts, and we must start by getting our own house in order.” The Secretary, a hard-nosed pragmatist, was motivated to these words by considering what the low regulatory policies created. The Republican Free Market zealots ignore “what is” in favor of “What-ought-to-be.” As a result, they opposed the Dodd-Frank reforms.
In July of 2010, Congress passed the Dodd-Frank Act in response to the financial crisis of 2008. This Act basically attempted to give teeth to governmental regulatory institutions. During the Republican Bush administration, the regulators were basically instructed to “cool it” and not let regulations already in place interfere with commercial banks’ investment decisions. Though it has become clear that this failure to regulate and give oversight to the banks, allowed them to purchase and package for resale, real estate mortgage securities, and this in turn led directly to the financial meltdown that triggered the Great Recession of 2008.
Today, the Free Market Republicans are active critics of Dodd-Frank and are still trying to repeal it. Concomitant to their criticism, is their zealous opposition to government bailouts and the “too big to fail” concept. In contrast, Paulson supported and worked with Federal Reserve Chairman Bernanke to effect the bailout of AIG and supported Obama’s bailout of G.M. AIG reportedly held one and one-half trillion dollars of American life insurance policies, and GM, had they gone under, would have taken tens of thousands retirement plan moneys to say nothing of the thousands of jobs that would have been lost.
Note that our banking system relies on government for deposit insurance without which a run on the banks almost surely would have sunk it in 2008. Approval for government involvement, it seems, is a transitory action. When it aids our big banks, it’s fine. Otherwise, it’s bad and interferes with the operation of that elusive pure free market. Consider this when you hear commentators, buoyed by the new Congress’ make-up that has so many Republican Free Market ideologues, railing against regulation of the banks as well as urging an end to Dodd-Frank.