Three Cheers for Laissez-Faire Economics! (Right Until the Crisis)

Originally published March 26, 2008.

DailyKos reports that John McCain, after boldly stating that he would propose methods to deal with the mortgage crisis, “offered no major prescriptions for quelling turbulence” (LAT). DailyKos further notes that:

– McCain voted against discouraging predatory lending practices. In 2005, McCain voted against an amendment prohibiting law-breaking high-cost predatory mortgage lenders from collecting funds from homeowners who are forced into bankruptcy court. [S. 256, 3/03/05]

– McCain failed to vote on bill to overhaul mortgage lending practices of FHA. In 2007, McCain failed to vote on passage of a bill that would overhaul the mortgage lending practices of the Federal Housing Administration (FHA). The bill would reduce the required minimum down payment for an FHA-insured loan and simplify its calculation, requiring a flat 1.5 percent of the appraised value of the home. [S. 2338, 12/14/07]

– McCain failed to sign on to the Predatory Lending Consumer Protection Act. In 2003, McCain failed to add his name to this legislation, which was intended to “protect consumers against predatory practices.” The bill, which was endorsed by a host of civil rights and housing advocates, including the U.S. Conference of Mayors, ACORN, and the Consumer Federation of America. [S. 1928, 11/21/03]

– McCain failed to sign on to Truth in Lending Act. Less than four months ago, McCain failed to sign on to this bipartisan initiative providing protection to consumers taking out home mortgage loans. Among other measures, it was designed to “establish new lending standards to ensure that loans are affordable and fair.” McCain also refused to co-sponsor this legislation in the 107th Congress as well. [S. 2452, 12/12/2007]

Meanwhile Treasury of the Secretary Henry Paulson noted that “The crash of Wall Street’s once mighty Bear Stearns underscores the need to bring investment houses under the kind of federal oversight that has long been given to commercial banks.”

three things are apparent here: first, that McCain is dithering at a pace that’s even slower than his own government. Second, it’s pathetic that a pathological adherence to the ideology of unregulated free-market economics should continue after more than four hundred years of booms and busts that end up shattering a nation’s economy. Certainly the United States has fared better than its predecessors — Holland’s tulipomania and the South Sea Bubble to name two historic examples. But now that the Dismal Science has undergone a bout of creative destruction with freakonomics, putting a definitive stamp upon something we’ve known all along — that a rationalist explanation of economic activity is an untenable abstraction that disintegrates when confronted by the Chaotic variables of the human psyche — it’s time to become more reasonable in our appreciation of, in Greenspan’s phrase, “irrational exuberance” — something that is hardly new, but an extremely predictable occurrence. Economics isn’t a numbers game, but a social activity. Ever get to a party late? Feel depressed that you’re not as merry as the rest? Ever down a bottle of wine in order to “get up to speed” and wind up puking in the toilet an hour later? Yeah. Exactly.

Dear John (McCain), you helped leave the barn door open and the horses have run out. We don’t need to bolt the barn door shut; we want everyone to learn to ride, and we understand that some people are going to fall off their horses regardless. (And there’s a limit to the responsibility we owe to those who insist upon galloping a horse when they haven’t learned how to properly mount their saddle.) We don’t even need to shut the door completely. We can leave it ajar, so us youngsters who want to be cowboys can peek inside and see the strength, nobility, and temperment of those horses. But, dear John, the barn door needs to be a little heavy, so that only those who can push it open thus prove to have the strength to hoist themselves up, and swing themselves on the saddle. Whereas our new economics said, “To hell with the door!” There are an awful lot of horse-thieves out there (and horse-thieves were the some of the worst criminals in the old Wild West). And horse-thieves are cowards dressed as confidence-men.

Remember: it’s always the Wild West, and we always need sheriffs.

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