Editor:
Father Gregorio blames “free market” advocates for the dismal economic situation we are in. (“Do We Really Know What ‘Free Market’ Means?” March 6.) This is just plain wrong and it is important that people understand what really happened if we are to ever get out of the mess.
Regulation is not an all or nothing issue. Regulation in moderation is the key. In banking we want regulations, for example, that prevent banks from running off with our money among other things. So to advocate no regulation is a foolish position. But I assume that Father Gregorio knows that.
Freeing up the markets was not the cause of our current recession! Regulating the markets not to protect people but to achieve a social objective was the root cause of the problem. Sure, there was greed and irresponsibility involved, but the underlying cause was the government-imposed regulations.
In 1994, the Clinton Administration extended Carters Community Reinvestment Act and established quotas for diversity in bank loan portfolios. Banks were rated based on neighborhood, income level and race. This led to the explosion of the sub-prime lending market. Freddie and Fannie snapped up risky loans and became a home loan finance company.
In 2003, President Bush proposed a significant regulatory overhaul in the housing finance industry including a new regulator for Fannie and Freddie. Even after regulators uncovered a scheme to overstate earnings by $10.6 billion to boost executive bonuses, Democrats killed reform. Rep. Barney Frank said, “Fannie Mae and Freddie Mac are not facing any kind of financial crisis.”
In 2005, Alan Greenspan told Congress: “We are placing the total financial system of the future at substantial risk.” Sen. John McCain said, “If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie and Freddie places on the housing market, the overall financial system and the economy as a whole.” Sen. Harry Reid accused the GOP of trying to “cripple the ability of Fannie and Freddie to carry out their mission of expanding home ownership.”
It is clear that Fannie and Freddie were created, regulated, largely run and protected by Democrats.
This is a great example of a situation where regulation was imposed to pursue a social objective with very dire unintended consequences. We are where we are not because of too little regulation but because of bad regulation. The markets were not free to behave in a responsible way and we now have the current crisis. People in the federal government are not all wise and pure of intent with the best interests of the entire country in mind. Some act to gain and reinforce their own power and prestige.
The free market was not the problem. The problem was excessive, misdirected regulation and involvement by the federal government. We have to understand how this happened and be very wary that it does not continue to happen.
George Gershefski
Cherry Hill
Editor:
Father Gregorio blames low-taxes, too small government and an un-checked or poorly regulated “free market” as the culprit for the financial turmoil that is engulfing our country, and President George Bush and his administration as the facilitators. (“Do We Really Know What ‘Free Market’ Means?” March 6.) As is usually the case, the facts are much more involved and complicated than that, and the blame cannot simply be pinned to the previous administration.
While greed in the private sector is certainly the root of our financial crisis today, and seems to be endemic to the dark side of human nature, it is also the desire for power and influence by certain elected leaders, along with their abject greed and narcissism which has allowed this disaster to play out. They are the ones in favor of a larger, more intrusive government.
For example, when Congressman Barney Frank, as chairman of the Banking Committee and Sen. Chris Dodd demand that banks and mortgage giants Fannie Mae and Freddie Mac loosen up their lending requirements and give mortgages to people who cannot afford them, and then they guarantee that the government will back these doomed loans, what outcome can be expected?
When the heads of auto labor unions and “fat-cat” auto industry executives strike unsustainable long-term union contracts and the government places onerous, costly mileage mandates on the auto manufacturers instead of providing incentives to meet those goals, what outcome can be expected?
When the price of oil, which is the life blood of our economy and the world economy, suddenly goes through the roof, and we cannot tap our own resources, what outcome can be expected?
These are a few of the reasons why our economy is in shambles. What is needed is an end to Bush-derangement syndrome and an honest and thorough study of the facts, without political or ideological motivation, and holding the scoundrels accountable, whoever they may be.
Louis F. Esola
Cherry Hill