Cleaning up the terminology

This will be a quick post because, this weekend, soccer is my life. Fortunately, I only want to make a quick point, and it’s one that I think needs to be made over and over and over again.

As you may recall from Thursday’s debate, Biden kept saying that our current financial woes arose because of deregulation and that even John McCain now wants more regulation. In other words, bad Republicans let Wall Street go wild, and now they’re cowed and are following the Democratic line.

Palin, who generally did fantastically well, failed a bit when dealing with Biden’s direct and indirect accusations, because didn’t correct the terminology. Let me state, therefore, what should be obvious, and what should be an embarrassment for the Democrats and a source of pride for the Republicans. That the opposite is true is only because the Democrats are controlling the message and the Republicans are hiding:

The problem did not start because of deregulation. It started because of hyper-regulation: Because Democrats did not think it was “fair” that only people who have saved a lot of money and have reliable income sources should get loans, the Democrats forced through policies mandating that banks must give loans to those who normally would be poor risks (those famous subprime loans). What kept banks from squawking about being forced by the government to engage in practices that no sound business would ever engage in was the fact that Fannie and Freddie (staffed at the upper level by Democrats) promised to buy those loans, insure them, and sell them. Well, with an offer like that, the Banks couldn’t refuse, and they went hog wild. It was a no loss for them, and a huge incentive (because of these government regulations, not deregulations) to give out as many bad loans as possible.

What Bush and McCain and other Republicans started calling for a few years ago wasn’t deregulation (although that would have been a good idea considering the disaster that was looming with Democratic interference in the market) but, instead, some oversight. That is, given that the government was bossing the market around, at least it should investigate to see what the result was and make sure everyone was playing honestly (including Fannie and Freddie).

Sensible Republicans are still calling for more policing. They understand that the smart money is on letting the market function normally, which will prevent handing out insane loans that are doomed to failure, and which will ensure that housing prices curve with inflation, rather than soaring above inflation. The government’s involvement should be limited to ensuring that the lenders are acting honestly (no cheating, no discrimination).

So, let’s get things clear here: The problem was too much regulation (not deregulation), with the Democrats forcing the banks to give bad loans. The Republicans certainly wanted less regulation, but what they were calling for in the past (and what the intelligent ones seek now) is government policing or oversight, which is an appropriate role for the government in a national money market.

Cross-posted at Bookworm Room

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