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Obama Did Not 'Fix' Economic Mess Left by Republicans

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Washington, January 11, 2017 | comments

This op-ed was posted on Newsmax.

It's time to put an end to the media-backed myth that President Barack Obama "fixed the economic mess left behind by Republicans."

Every day, liberal talking heads and narrative spinners continued with their fictional account of what caused the financial crisis. Was it caused by the financial industry? By the Republicans? By deregulation?

No, no, and no. And now, Larry Summers is weighing that President-elect Donald Trump's deregulatory efforts will cause yet "another" crisis! Wow.

Key to the truth is the one fact that is not in dispute. The financial crisis started in the housing sector. Ouch. Alan Greenspan and all of the other economic elites at the time had assured us that this "housing" asset class was the gold standard.

And so the true narrative must explain how this golden sector went south. A sector so golden that the prior 200 years of free market logic could not ruin it, I may add. Only central planners have this high power.

To be fair, however, I will agree with my leftist friends Sens. Elizabeth Warren and Bernie Sanders, that human nature is depraved and that after the housing collapse, Wall Street corruption was indeed on full display.

The truth after all is the truth. But this is no way gives my leftist friends a free pass on the ultimate cause of the last financial collapse. The blame game does matter.

Let's rewind to 2007 and 2008 and remember exactly what happened.

The housing market was red hot. But financial institutions were ignoring all common sense and loaning money to anyone with a pulse, even if they did not offer a single shred of evidence that they could afford the loan. These were the now infamous "no doc" loans.

These terrible lending practices were being caused by liberal big government policies.

Federal mortgage standards were being set by Fannie Mae and Freddie Mac, under the direction of key Democrats in Congress, and these mortgage buying giants were constantly lowering the underwriting standards for making loans.

The corruption embedded in these government entities was captured in several books on their CEOs who make even us politicians blush. Corruption it turns out is a human trait, not a free market invention.

In fact, former President George W. Bush and other Republicans were calling on Congress to reform these lending standards because of the risk they created starting in 2001. Those warnings were ignored by congressional leaders like Rep. Barney Frank, who later became chairman of the House Financial Services Committee.

In fact, Frank and other Democrats wanted Fannie and Freddie to do even more to put low income individuals into mortgages. Self-interest again, this time for votes.

Like a lot of liberal policies, it sounded like a good idea to increase the level of home ownership. However, it put in place huge incentives for financial institutions to make bad loans. And, it removed risk from the financial institutions who made the loans and placed it squarely on the federal government whose full faith and credit was backing up the misguided policies of these cronies.

No banker in the private sector would ever have made such poor loans. Any loss would have been on them. That is the real power of market logic. You act morally out of self-interest.

In other words, the policy makers in Washington ignored fundamental economic principles rooted in the free market. They rewarded cronies on Wall Street while putting at risk the savings and investments of millions of average Americans.

Average Americans were also obviously on the hook for the economic failure and federal bailouts that followed. That is why it does matter who we blame.

Instead of reinstituting sound lending practices and getting the government out of the mortgage guarantor business, President Obama and the Democratic leadership in Congress continued with the failed top-down approach and rammed through more federal laws which did more harm than good.

While most community banks continued sound lending practices during the financial crisis, sweeping new regulations out of Washington severely restricted their ability to provide much needed lending to the small businesses who help the economy grow.

The economic results were staggeringly and historically bad. Economic growth was anemic, never rising above 3 percent growth for a single year under President Obama.

Official unemployment went down over the last eight years, but it was also driven by the number of working age adults who simply gave up looking for work. Small business start ups, which typically lead economic recoveries, were down dramatically.

This is why the message of Bernie Sanders and Donald Trump resonated: the economic mood was sour, and the media narrative could not change that.

As a candidate, Donald Trump understood that people were hurting as a result of Obama's economic agenda of more oppressive regulations mixed with crony capitalism where the rich got richer because they knew how to work the system.

He heard loud and clear the cynicism and the despair among many across our nation — a despair that crossed all colors races and creeds and religions.

As we work to make America great again, I pray President Trump will heed the lessons from the policies that have crushed this economy, and that we never again fall prey to the misguided belief that elites in Washington D.C. can run an economy from the top down.

Washington elites and Ivy league book smarts can never replace the true genius of the invisible hand of economics.

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