Thursday, November 10, 2011

Historical revisionism: is it all we have left?

Andrew Leonard, in reviewing Bill Clinton's new book--Back to Work: Why We Need Smart Government for a Strong Economy--for Salon, takes the former President to task for engaging in a bit of self-serving revisionism, when it comes to the issue of financial derivatives (the catch-all bogeyman for the mortgage meltdown):
Clinton then has the gall to approvingly mention Commodity Future Trading Commission director Brooksley Born’s strongly voiced opinion at the time that “financial derivatives should be subject to the same kinds of capital and transparency requirements as agricultural derivatives.” He somehow fails to mention the fact that Born’s push to regulate financial derivatives was cut off at the knees by Clinton’s own senior economic officials, including, notably, Larry Summers and Robert Rubin. The heads of the Treasury Department, Federal Reserve and SEC released a joint statement that left no doubt as to administration policy: “We have grave concerns about this action and its possible consequences. We seriously question the scope of the CFTC’s jurisdiction in this area.”
And Leonard is absolutely right. The Clinton admin did nothing to prevent the coming crisis (though they had no idea it was coming) and, in fact, did a good chunk of the groundwork to make it happen, from the above to the repealing of Glass-Steagall. Of course, the next admin--the Bush admin--did its part, as well. Plenty of blame to go around, for those that need villains.

However, Leonard is absolutely wrong, when it comes to Clinton's take on the Community Reinvestment Act:
Clinton rightly dismisses the notion that his aggressive support of the Community Reinvestment Act was the root cause of the housing bust. We’ll give him points for that.
Sorry Mr. Leonard, no.

Both Clinton and Leonard fail to understand the role of incentives. The CRA is at the root of the housing bubble--and therefore the root of the housing bust--because of the incentives it created, incentives which led to sub-prime mortgages, overstuffed GSEs, and mortgage-backed securities. It's not the cause of a single one of these things, true, but it is nonetheless a critical reason for why things happened in the way that they did.

But Leonard and Clinton's failure here is not a case of historical revisionism, but rather a case of limited understanding, when it comes to economics. This may seem a tad arrogant on my part, but it is what it is.

However, Leonard does play his own game of revisionism, even as he chides Clinton for doing the same: To whit:
We’ll never know how a Clinton (or a McCain, for that matter) would have tackled the recession or jousted with John Boehner, just as we’ll never know what would have transpired if there had been no stimulus at all, or if Obama had taken a more confrontational stance against his Republican opposition from the get-go, rather than pursue a doomed strategy of bipartisan cooperation.
The nonsense at the end is what I'm referring to. Bipartisan cooperation? From the get-go? Please. People are quick to forget that Bush--in starting the bailout--essentially started the tea party movement. The bailout pleased the left side of the aisle to no end; it was exactly what they wanted. But many on the other side were fuming; they believed Bush was doing exactly what he shouldn't do.

Obama's proposed "stimulus" bill was the kick to the groin for these folks. But their objections were ignored, as the bill was hammered through, with no opportunity for anyone to read it, let alone suggest changes. And that was in February of 2009. There was no bipartisan cooperation on the part of the admin from pretty much day one. Yet, the lie that there was is a standard meme from the left. And they will not hear otherwise, completely ignoring reality, at all costs.

Even people cognizant of historical revisionism seem unable to escape from it. Standard fare, it has become, for left and right and everywhere in between.  Welcome, 1984.

Cheers, all.

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