I am registered on YouGov and am asked to fill out opinion surveys about once per week. After I filled out this week’s survey, I ended up on the homepage and the above title appeared on the headline. The next headline was 28% say the economy is getting better with 38% saying it is getting worse. I’ve seen similar polls on Gallop and Rasmussen and they are about in agreement, with the exception of Rasmussen that reflected 61% blame Bush with no option for Wall Street. Obviously, the YouGov result is a concatenation of two different questions, probably something along the lines of’ who do you blame for the economy more, Bush or Obama’; and then added the Wall Street response in the mix as a follow up. It doesn’t say how the percentages shift from either Obama or Bush to Wall Street, which I think would be important to know for interpretational value.
My personal take on the matter is that I would place 100% of the blame for the financial crisis on the Bush administration because of the tight money stance the Fed took after Bernanke became the Chairman; and 100% of the blame for the following depression on the Obama administration for not having corrected the problem.
I place about 10% of the blame on Wall Street and banks because together they are heavily regulated. They are not their own keepers; and in that state, we go around natural market discipline making the impossible possible, and we pay the price for it while fostering an atmosphere of crony capitalism. It’s amazing to me that with the current interventions in financial markets, specifically justified by a perceived need to curb wanton speculation with other people’s money, people blame the markets for things that the government not only let them do, but nudged them toward it.
Part of the driver behind the mortgage fiasco that I have heard some pieces of is that there has been government coveting of pension funds and 401k plans from time to time. It has come up again recently in the news regarding the fiscal cliff as a plan to buy out 401k plans for their values as of August 2008 with an equal value 3% government bond in the account holder’s social security account.
I think we can determine that such overt confiscation of retirement funds is quite ill advised, as was probably the determination the last time it was discussed and tabled. It isn’t beyond a stretch of the imagination, however, that in lieu of being able to directly access the savings of the majority of citizens who have been attempting to provide for themselves in old age, the government decided to direct them instead, leveraging the ability of financial institutions to funnel the funds into choice investments such as mortgage backed securities for low income housing. And it just so happens that some of the regulations regarding required reserves for mortgage backed securities were changed in 2001 and again 2002, during the Bush administration, in order to relax them. Reserve requirements for MBS purchased from Fannie and Freddie were lowered each time, ending with just 2%, on par with municipal bonds and other AAA rated securities.
It would be nice if someone can explain to me how any of this is consistent with the philosophy behind supply side economics or anything resembling free market philosophy. It is nothing of the sort; and it is really no wonder why, buried in all of the political rhetoric is scapegoating of markets and capitalism itself as fragile, and a dangerous creature in need of taming when nearly everything government did was wrong – from tight money to abuse of retirement funds of the nation.
In order to help solve this situation, I would recommend the following reforms that can be undertaken by the private sector without specific need for legislation. The first of them would be to not contract financial management of pension funds to specialized investment firms – do it in-house. The second would be that 100% of funds are able to be managed by individuals for 401k plans. These two reforms would dilute the ability of government to covertly abuse an employee’s funds by decentralizing control over them. The plan could be augmented by contracting an investor’s information service that could provide investing advice, but the practice of just handing the whole ball of wax over to these national investment firms would come to an end. I think it would also help solve a large portion of the hubris and corruption in Washington DC as well. It is obvious that we need a solution; and I highly doubt that it is going to come from the politicians themselves.