Investors Business Daily observes that, although the left is ready to blame the subprime fiasco on an insufficiency of regulation, as lenders eliminated credit standards, government was right there encouraging their actions.

Commercial banks threw lending standards out the window in their rush to get new business. Like S&Ls of the 1980s, they would have gone wild without Gramm-Leach-Bliley. Washington, if anything, egged them on, but not because of free-market dogma. Banks and mortgage brokers were pumping up the homeownership numbers in America, and politicians were eager to take credit for that.

Wall Street, meanwhile, became a victim of its own innovation. It created new classes of derivative investments that spread — and, through leverage, amplified — the risk from the subprime mortgages produced by the banks. A new multitrillion-dollar market emerged almost overnight, lacking in transparency and reliable price signals. With their asset values in doubt, investment banks lurched toward insolvency.

If regulators failed here, it wasn’t because of policies adopted years before. It was more of the same story that has played itself out over and over in modern finance: Innovation races ahead of the rules. Crises tend to take almost everyone by surprise — including the major players as well as the regulators.

Read the whole thing.

Virginia Shanahan, writing at MacsMind, has a longer memory than most of us, and cites a NY Times article from 2003 recalling that the Bush administration actually foresaw problems, and tried reforming Fannie Mae and Freddie Mac, but his efforts were blocked. By whom? The same democrats who now possess a Congressional majority. With current Chairman of the House Financial Services Committee, Massachusetts’ own Barney Frank playing a leading role.

I doubt many of the readers recall this article from the New York Times five years ago.

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

We can see now that the Bush administration had accurately diagnosed the problem in the lending market and had a plan to address it. Reluctantly Fannie Mae and Freddie Mac supported the plan. However, Democrats objected.

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Panopticon explains the tale of Asset-Backed Securities (ABS), tranches of risk, Collateralised Debt Obligations (low tranche ABS) repackaged and marketed at higher ratings, Adjustable-Rate Mortgages, and No Documentation Loans. Making mortgage loans was really profitable, the federal government wanted home ownership made more accessible, and real estate prices only go up, after all. What could possibly go wrong?

—————————————–

Hat tip to Karen L. Myers.

Donald Luskin, in yesterday’s Washington Post, points out that politicians and reporters have a personal interest in exaggerating the scope and dimensions of current economic woes.

Do a Google News search for “since the Great Depression,” and you come up with more than 4,500 examples of the phrase’s use in just the past month.

But that doesn’t make any of it true. Things today just aren’t that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression — or exaggerated Depression comparisons.

Overall, the pessimists are up against an insurmountable reality: In the last reported quarter, the U.S. economy grew at an annual rate of 3.3 percent, adjusted for inflation. That’s virtually the same as the 3.4 percent average growth rate since — yes — the Great Depression.

Why, then, does the public appear to agree with the media? A recent Zogby poll shows that 66 percent of likely voters believe that “the entire world is either now locked in a global economic recession or soon will be.” Actually, that’s a major clue to what started this thought-contagion about everything being the worst it has been “since the Great Depression”: Politics.

Patient zero in this epidemic is the Democratic candidate for president. As it would be for any challenger, it’s in his interest to portray the incumbent party’s economic performance in the grimmest possible terms. Barack Obama has frequently used the Depression exaggeration, including during a campaign speech in June, when he said that the “percentage of homes in foreclosure and late mortgage payments is the highest since the Great Depression.” At best, this statement is a good guess. To be really true, it would have to be heavily qualified with words such as “maybe” or “probably.” According to economist David C. Wheelock of the Federal Reserve Bank of St. Louis, who has studied the history of mortgage markets for the Fed, “there are no consistent data on foreclosure or delinquency going all the way back to the Depression.”

The Mortgage Bankers Association (MBA) database, which allows rigorous apples-to-apples comparisons, only goes back to 1979. It shows that today’s delinquency rate is only a little higher than the level seen in 1985. As to the foreclosure rate, it was setting records for the day — the highest since the Great Depression, one supposes — in 1999, at the peak of the Clinton-era prosperity that Obama celebrated in his acceptance speech at the Democratic National Convention late last month. I don’t recall hearing any Democratic politicians complaining back then.

Even if Obama is right that the foreclosure rate is the worst since the Great Depression, it’s spurious to evoke memories of that great national calamity when talking about today — it’s akin to equating a sore throat with stomach cancer. According to the MBA, 6.4 percent of mortgages are delinquent to some extent, and 2.75 percent are in foreclosure. During the Great Depression, according to Wheelock’s research, more than 50 percent of home loans were in default.

Moreover, MBA data show that today’s foreclosures are concentrated in that small fraction of U.S. homes financed by subprime mortgages. Such homes make up only 12 percent of all mortgages, yet account for 52 percent of foreclosures. This suggests that today’s mortgage difficulties are probably a side effect of the otherwise happy fact that, over the past several years, millions of Americans of modest means have come to own their own homes for the first time.

Read the whole thing.

Friederich August Hayek

Jesse Larner, writing in Dissent, makes a valiant attempt to dismiss Hayek from a post-Soviet-collapse, “we’re only advocating voluntary collectivism,” progressive perspective. Hayek overlooked “spontaneous collectivism” you see.

Ilya Somin, at Volokh Conspiracy, offers an intelligent critique of Larner.

Megan McArdle does to the leftwing professoriate at University of Chicago who signed a letter protesting the establishment of a Milton Friedman Institute (God forbid!) at their university what a Jack Russell terrier does to a rat.

I haven’t heard such transparently wishful claptrap since my fifteen-year-old boyfriend tried to convince me that sex provided unparalleled aerobic exercise.

Obama gets to rail about the bad economy for which the probability of his election is responsible. Sometimes there’s no justice.

Glenn Reynolds.

Harry Reid, despite originating from and representing Nevada in the Senate (a state whose history is based upon minerals and mining), has gone all moonbat, and won himself a place in YouTube’s list of “Most Watched” videos, bleating absurdities about coal and oil “making us sick” and “ruining the earth.”

0:35 video

Well, mining coal in deep mines and breathing in coal dust can make you sick. It killed my grandfather back in the 1930s. But claims that coal is making anybody other than deep miners sick is a claim based on what we call statistics. Statistics are produced by sophisters, calculators, and economists, and liberals always have statistics by the boxcar load ready and waiting to prove whatever they happen to want to prove. As the old saying goes, there are lies, damned lies, and statistics.

Coal has been used in domestic heating and in industrial production since Elizabethan times. Burning coal undoubtedly produced cleaner air in places like London than the wood fires used previously.

They discovered anthracite coal in Pennsylvania early in the 19th century, and Benjamin Franklin’s stove adapted with grates was found perfect for its use. By mid-century, railroads and canal boats were carrying coal to all major American cities. They found oil, also in Pennsylvania, in the mid-19th century, and we’ve been using that ever since, too.

Generations of Americans and Europeans have lived and died using coal and oil, and the Earth remains, far from ruined.

I don’t feel particularly sick. How about you?

The truth is that no economically practical alternatives exist, and politicians cannot magic new forms of energy into existence. What they can do is jump on to the bandwagons of fashionable do-gooder causes and disseminate misinformation and sow unnecessary fear as a means of bamboozling the gullible public into surrendering more powers and more tax monies to them.

It’s this kind of politics that ought to make you sick.

Loon Decoy, Nova Scotia

One of my liberal college classmates was recently ranting about the terrible growth of Inequality over the whole post-Reagan period of the ascendancy of Conservatism in American politics, which roughly coincided, interestingly enough, with most of our own real, post-age-30, adulthoods.

Another classmate effectively rebutted those assertions of declining middle-class economic well-being by pointing out how much had changed with respect to lifestyle and expectations in America during that time, as well as over our own lifetimes. We approaching-age-60 adults can remember not only a world with no personal computers, no cell phones, and no multiple family automobiles. We can remember the time of no televisions, no air conditioners, party-line telephones, and a lot of people owning no automobile at all.

One can see the dramatic impact on human life of the economic growth produced by the free economy just by looking at antique artifacts of everyday life. Those charming collectible pieces of folk art being sold at auction for high prices to serve in future as decorative art not so terribly long ago were practical tools.

Take the charming, somewhat primitive, stark and streamlined decoy above, found in Nova Scotia, going on the block at a Guyette & Schmidt Auction later this month. Someone will be proudly displaying it soon in his living room or den but, less than a century ago, it was bobbing in some cove or inlet along the shore as a hunter was trying to shoot… a loon.

The common loon, Gavia immer, is protected today, and most people would find the idea of shooting one of these iconic symbols of the Northern wilderness sacrilegious and the idea of cooking and eating one even less appealing.

Loons are pretty much the lowest evolutionary form of waterfowl, the most primitive and the boniest, featuring the toughest flesh and the fishiest taste. No one would eat loon if he could get coot or even merganser.

Loons were so renowned for their lack of gustatory appeal that a whole genre of loon recipes taking roughly the following form are traditional jokes.

PLANKED LOON
Catch a Loon Duck. (Black Lake Loon’s are best). Pluck and clean. Boil well. With sharp knife, split duck down the belly. Splay it on a well soaked hardwood plank. Nail it good and wire it securely. Place upright on plank in front of hot coals on outdoor fireplace. Cook well for about two hours. When done, throw that fishy duck away, and eat the plank!

But, in the old days, people really did hunt loons in order to eat them. There would be periods of the year when the more migratory waterfowl were not present and available in the North Country. Ducks and geese would have flown South, but you could still find loons.

Even in Nova Scotia, I expect it’s been a long, long time since anybody was reduced to dining on loon.

Democrats Barack Obama, Nancy Pelosi, and Harry Reid have all recently declared that “we can’t drill our way out” of the current high priced petroleum crisis.

What would their solution look like?

The answer may have been recently supplied when several House democrats proposed nationalizing oil companies

FoxNews:

House Democrats responded to President’s Bush’s call for Congress to lift the moratorium on offshore drilling. This was at an on-camera press conference fed back live.

Among other things, the Democrats called for the government to own refineries so it could better control the flow of the oil supply.

They also reasserted that the reason the Appropriations Committee markup (where the vote on the amendment to lift the ban) was cancelled so they could focus on preparing the supplemental Iraq spending bill for tomorrow.

At an off-camera briefing, House Majority Leader Steny Hoyer (D-MD) said the same. And a senior Republican House Appropriations Committee aide adds that “there were multiple reasons for the postponement” including discussion on the supplemental. But the aide said there was the thought that Democrats may wish to avoid a debate today on energy amendments.

Here are the highlights from briefing

Rep. Maurice Hinchey (D-NY), member of the House Appropriations Committee and one of the most-ardent opponents of off-shore drilling

1115
We (the government) should own the refineries. Then we can control how much gets out into the market.

Maxine Waters made the same proposal last month.

Democrat supporters will respond: “Oh well, Maurice Hinchey and Maxine Waters are just congressional backbenchers and representatives of the democrat party’s extreme left fringe.”

And Barack Obama is also a member of the extreme leftwing fringe of his party.

“Not ready to be president.”

1:17 video

The Guardian describes how Europe’s intensely regulated employment policies are resulting in a generation of losers.

With inflation soaring, property prices sky high, wages relatively static, labour markets gridlocked and sluggish or slowing economies, ..tens of millions of Europeans raised to expect that their degrees and diplomas will assure them a relatively high quality of life.. are now realising that the world has changed. The disappointment is a shock with big political, social, cultural, even demographic consequences. …

In 1973, only 6 per cent of recent university leavers in France were unemployed; now the rate is 25 to 30 per cent; salaries have stagnated for 20 years while property prices have doubled or trebled, though the overall proportion of French people living in poverty has not changed. Whereas in the 1960s the poor were mainly the old, now they are the young; in 1970, salaries for 50-year-olds were only 15 per cent higher than those for workers of 30; the gap now is 40 per cent.

‘Some talk of a war between the generations, but that’s a little simplistic. It is more that the system means that the haves are keeping what they have and no one is helping the have-nots,’ said Chauvel. ‘The big determinant in France now of success is not your educational level but the wealth of your parents, if they can support you during your twenties as you fight your way into a closed employment market.’

French economists speak of ‘insiders and outsiders’. The insiders are those who already have a job and are well-defended by the battery of French laws protecting the workforce and the unions. The outsiders are those without work which, naturally, include newcomers on the job market. Chauvel says the problem is particularly bad in Latin countries where parents are expected to support their children much longer.

But, cheer up, Europe! we have a political party right here in the United States firmly committed to bringing us European-style labor market regulations, too. They call themselves democrats, and they are favored to win in November.

H/t to MeaninglessHotAir.