letters, opinions, editorials
Government intervention, not market failure, explains crisis
—Jason Clemens and Robert Murphy
A financial crisis is gripping the nation and the global economy. This crisis, according to a growing consensus, is the result of market failures coupled with Wall Street greed and corruption. This false assessment of the cause will lead to costly “solutions” that will only make things worse.
Almost unanimously, national leaders criticized Wall Street, deregulation, and lax oversight. House Speaker Nancy Pelosi indicted almost everyone in her recent speech: “budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision, and no discipline in the system.” President-elect Barack Obama has repeatedly blamed “deregulation” for the crisis.
The Republicans have chimed in too. During the presidential campaign, both John McCain and his running mate chastised Wall Street for greed and corruption and Washington for slack oversight.
This bipartisan windstorm ignores an awkward fact—government policies sowed the seeds of both the housing bubble and the ensuing financial crisis.
In an effort to jumpstart the economy after the dot-com crash, Alan Greenspan cut rates from 6.5 percent in 2001 down to one percent by 2003, and then held them at that incredibly low level for an entire year. At the same time, the government-sponsored Fannie Mae and Freddie Mac did everything they could to extend homeownership to applicants who would likely not have qualified in a normal market.
Other government culprits include Jimmy Carter’s Community Reinvestment Act, which was beefed up under President Clinton in order to further “encourage” banks to lend to traditionally unqualified applicants, and activist groups such as ACORN that intimidated local banks into loosening their lending standards. But the story doesn’t end there.
Government policies to save institutions saddled with mortgage-backed assets have contributed to the crisis in credit markets. Since September 2007, the Fed and Treasury have offered greater and greater assistance to troubled firms. This paradoxically has given an incentive for banks to hold on stubbornly to their overvalued assets, hoping for a government bailout.
Perhaps more disruptive have been the government seizures of firms such as AIG. By bypassing traditional bankruptcy proceedings, the government shortchanged senior debt-holders in these companies. These heavy-handed actions—not to mention the ban on short-selling—have scared investors away from the very financial institutions that stand in dire need of new capital.
Despite the evidence of government culpability, critics of the market argue that it takes two to tango. After all, nobody forced banks to make loans to unqualified applicants, and the investment banks on Wall Street were only too happy to securitize dodgy mortgages into exotic new instruments, onto which the ratings agencies happily stamped their approval. None of these fat cats complained about government intervention during the few years when they made out like bandits.
Although there is some truth to this, the irony is that it was liberal Democrats who resisted the urge to regulate the mortgage giants amidst the housing boom. The reason Fannie and Freddie dominated the market was their implicit government backing. And even after the discovery of accounting scandals that would have spelled ruin—not to mention jail sentences—for any private-sector firms, Fannie and Freddie stayed in business because of support from politicians such as Senator Christopher Dodd and Representative Barney Frank. Indeed, a quick YouTube search of “Barney Frank Freddie” reveals some worrying clips, such as his statement in July 2008 that the firms were “fundamentally sound.”
Identifying the cause of a problem is a necessary step to determine the appropriate solution. Government interference with the market caused nearly every aspect of the financial mess. The current financial crisis is the result of years of systematic government policies that flooded the markets with cheap credit, promoted mortgages for unqualified applicants, and then bailed out firms when their leveraged bets turned sour. There are many terms one could use to describe this history, but “market failure” is not one of them.
Jason Clemens is the director of research and Robert Murphy, Ph.D., is a senior fellow at the Pacific Research Institute (www.pacificresearch.org).
re: Tito and Pablo Carrillo
If you live in Placitas, you may not personally know Tito or Pablo Carrillo. They live in Tucson, Arizona, and for the past few years, have made Placitas their temporary residence. Professionally, Tito and son Pablo are traders who make their living selling Mata Ortiz pottery and other pueblo artistries. During the summer, they settle in Placitas for a few weeks and venture out to the pueblos of Santo Domingo, Santa Clara, and the Placitas Flea Market. During these arts and crafts shows, they sell their pottery. Several years ago, we met Tito at Santo Domingo’s Arts and Crafts Festival.
Lately, we have been spending more time with Tito and Pablo and getting to know them on a much more personal basis. Recently, we traveled with them and some friends to Sonora, Mexico. Our initial goal was to purchase Mayo and Yaqui dance masks. We got some beauties. What we did not expect was to see the incredible generosity that Tito and Pablo demonstrated during our visits to the Mayo village of Masiaca and Yaqui village of Potam.
For over thirty years, Tito, and later Pablo, have been visiting with their friends of Masiaca and Potam, bringing in collectors, and distributing their generosity and kindness to these indigenous people. As a young boy, Pablo spent his summers in Potam. On our trip, we were very fortunate and honored to meet and be greeted by some of their old friends, share stories, and purchase dance masks.
For Tito, the Mayo and Yaqui vision started when he was chosen as a participant in the building of LBJ‘s Great Society. After receiving his training in accounting and management skills, Tito returned to his Tucson, Arizona home and began a long-lasting project that laid the foundation blocks for the Yaqui, African American, and Hispanic people who resided inside the unincorporated areas of Tucson. With the assistance of legal aid, surveyors, and churches, Tito, Yaqui elders, and others worked to establish what is now the incorporated city of South Tucson. He and his co-workers established credit unions, legal aid, and direct financial support to the residents of the Hispanic, African American, and Yaqui barrios. Later, he was adopted by the South Tucson Yaquis and is widely respected in the community, as well as the villages of Masiaca and Potam in Sonora, Mexico.
It is a great gift to have Tito and Pablo as our friends and as summer residents of Placitas.
—Ron Sullivan, Placitas
re: a thank you to the community
A heartfelt thanks from the parents, students, and staff at Placitas Elementary to the community for their ongoing support of the Placitas Flea Market. The $10 vendor fee helped to fund art projects and activities for the students at Placitas Elementary School through the “Art in the School“ program.
This year, the school was able to purchase the curriculum and supplies for “Art Tells the Story: My Story“—an art education program that includes lessons in “Self Portraits of Van Gogh, Kahlo, Lawrence, and Hardin,” and the surreal collages of Chagall, Ernst, Magritte, and Miro. The children will be exploring the craft of book construction and illustration, along with creating a quilt as an expression of their personal story. The parent volunteers have started their training sessions and are now in the classrooms guiding the students along in their journey of self-discovery through art.
To the Orvilles and Judy and Jon McCallister, a special thank you for allowing us to use the land space. Your generous contribution has been a major factor in the success of our fundraising efforts. The Flea Market will reopen next spring, the second Saturday of each month from May through October.
—Linda Hughes, AIS Coordinator
re: registered voters of Placitas
I am so proud of the registered voters of Placitas! I worked the polls for Precinct 5 (the largest precinct in Placitas) on November 4. We had ninety percent of our registered voters vote (either early or at the polls). Deleting the “inactives” who probably were not going to vote because they moved, died, or never vote, our percentage went up to ninety-five!
These voters should all be commended for taking the time and energy to do their civic duty. Also, all of the people who encouraged people to vote, drove them to the polls, worked for the candidates, and ran the polls should all be proud. This is what America represents… people interested and willing to take responsibility in our government.
—Jodie Streit, Placitas
re: thank you to voters of eastern Sandoval County
On behalf of the Board of Directors of the Eastern Sandoval County Arroyo Flood Control Authority (ESCAFCA), I thank you for passing our $6 million mill levy to develop and maintain flood control structures throughout the Algodones, Bernalillo, and Placitas areas.
Our commitment to you is to protect our natural environment as well as our homes, property, and public venues. Working in conjunction with other government entities, we will leverage our funding to maximize the opportunities for the region.
Our vision is to manage today’s storm waters for tomorrow’s benefits. Our mission is to promote the health, safety, prosperity, security, and general welfare of the citizens of eastern Sandoval County in a fiscally responsible manner. We will protect property while preserving the natural beauty and rural character that is eastern Sandoval County.
I pledge to you that we will be in frequent communication about what ESCAFCA is doing, and we will be seeking your input. Our meetings are the second Tuesday of every month at 3:00 p.m. at the Town of Bernalillo council chambers. Please feel free to join us at any meeting.
Again, thank you for your confidence in the ESCAFCA Board of Directors.
—Sal Reyes, ESCAFCA Chairman
re: have granola bars; will travel
Dear Friends Back East:
I very much look forward to visiting you next week in the Big Apple.
I’m afraid, however, that my arrival will be delayed. Traveling any distance out of Albuquerque’s airport is increasingly difficult as airlines cut flights and route passengers in ways most cost-effective for the company. This can result in awkward itineraries. The airline has just notified me that I will no longer be flying via Atlanta to Newark, but will necessarily go by way of Calgary and Oslo with several Scandinavian stops. So, don’t wait at the airport—I’ll call you.
The absence of food service, coupled with this itinerary, means I’ll have to bring many more snacks with me. Apparently, food scarcity can actually create dangerous situations on board. A friend of mine just returned from Baltimore, having been routed through the Indonesian archipelago before landing at Albuquerque. On one segment, a fellow attempted to roast a goat in the aisle, creating a major fracas and greatly upsetting my friend. But thanks to the Placitas Mercantile, I’ve plenty of granola bars, PB and J sandwiches, and Cherry Mashes packed away.
Please don’t feel I need to be entertained. Just seeing all of you and perhaps taking a high speed taxi ride down Second Avenue in rush hour traffic would be sufficient recreation for me—especially if the streets are a little slushy. I would, however, like to see the new Global Warming Capital of the World Monument over in New Jersey (our beloved Airborne Particulate State) if time allows. It would be highly sentimental for me. I have wonderful memories of the rivers undergoing chemical ignition, including that terrific Christmas Eve blaze. Such a gift it was!
I hate to leave Patrick, former serial killer and superb Maine Coon Cat. He will, however, have his favorite pet sitter to feed and befriend him and will do fine.
I must conceal my suitcase, as Patrick knows such objects can mean a prolonged separation. A few weeks ago, I planned to fly from Albuquerque to Kansas City to attend a Kansas Jayhawk football game in Lawrence. When Patrick saw me packing a bag the night before, he sat directly in front of me and assumed the most wretched, mournful, disconsolate look capable of Felis catus while securely locking his yellow eyes onto my blue ones. He was clearly conveying thoughts like, “How can you leave me, Boss? I’m just a helpless little animal with AIDS and seven teeth. I’m all alone here. The sea is so wide and my boat is so small…..,” etc., etc.
To cancel the trip would have cost me dearly, so I did what any normal, mature, reasonably macho fellow would do—I cancelled the trip. But I didn’t mind all that much. The airline had routed my Albuquerque to Kansas City trip through Reykjavik and I doubtlessly would have missed the kick-off. See you soon, my friends.
—Your friend Herb, Placitas