I didn't expect to see serious economic policy discussions in the "Republican Pledge To America," but even by Washington, D.C. standards, this document is staggeringly disingenuous. Not once in the entire 48-page screed do Republicans mention the words "Wall Street," "subprime," or "foreclosure." It's a deliberate effort to obscure the fact that today's economic mess is the direct result of financial malpractice on Wall Street -- and that Republican economic policies would encourage more of it.
As my CAF colleague Richad Eskow has noted, this Pact to Rob The Middle Class has plenty of other problems -- but fundamentally, it's supposed to be a discussion about government spending and the federal budget deficit. For anyone to even pretend to discuss those issues without mentioning the past decade's Wall Street excess is simply laughable. The increases in government spending under President Barack Obama have been an attempt to counter economic damage wreaked by Wall Street under President George W. Bush. They haven't been enough, but they've helped -- just ask economist Mark Zandi, former adviser to Sen. John McCain's presidential campaign (.pdf file).
But after watching a deregulated Wall Street pump out trillions of dollars worth of ridiculous predatory mortgages and then amplify their bets tenfold in the unregulated derivatives market, Republicans now promise to hold up any new government regulation that "costs" the economy more than $100 million.
This is pure insanity. Any serious Wall Street regulation will cost every megabank far more than $100 million over the 10-year span devoted to budget projections -- that's the whole point of serious financial regulation. Republicans are defending the basic housing bubble accounting scam: book huge, illusory short-term profits with reckless lending and gambling-- when those bets blow up, stick taxpayers with the bill. You can measure the short-term costs to bank profitability, but you can't measure the costs of future financial collapse. Plenty of free-market activists thought decades of deregulation had worked until markets cratered in 2008. At that point, we lost eight million jobs, and the amount of government debt held by the private sector increased by 40 percent of GDP. Without Obama's stimulus package, the cost in jobs would have been far higher.
This rabid deregulatory agenda applies to every rule yet to be written under the Wall Street reform legislation that Congress approved this summer. Since the basic strategy of that bill was to kick all major decisions to regulatory agencies, the Republicans are sending a clear signal to their Wall Street friends: Republicans will work with bank lobbyists to dismantle the entire Wall Street reform bill. They even pledge to freeze federal hiring to prevent regulators from putting more cops on the beat fighting Wall Street fraud.
As for further, stronger reforms? Nothing. A promise to "permanently" end bailouts. These promises are always empty. They mean nothing without serious regulations to rein in financial excess. The United States bailed out banks and their creditors prior to 2008 (under Republican regimes), and will do so again the next time megabanks get into trouble. Without strong regulations, smaller banks, or both, the bailout cycle is inevitable.
But Republicans have not only pledged to set Wall Street loose, they've vowed not to clean-up the economic mess that megabanks create. That's what their much-ballyhooed cap on federal spending means. When Wall Street sets the economy on fire, we'll let it burn -- if that means your home, your job, or your retirement, then so be it.
Both political parties court Wall Street campaign cash, and Republicans have been extremely successful at securing that funding. Take a look at the 90 most flagrant Wall Street Cronies in Congress -- everyone who voted for the bank bailout in 2008, but opposed reforming Big Finance in 2010 (full table at the end of the post). The list doesn't include every Wall Street servant on Capitol Hill, only the most obvious offenders.
This Coalition of Wall Street Cronies includes 81 Republicans, and just about every member of the Republican leadership who showed up to roll out the "Pledge To America." In the House, it includes Minority Leader John Boehner, R-Ohio, and Minority Whip Eric Cantor, R-Va., while the Senate brings in Minority Leader Mitch McConnell, R-Ky., Minority Whip Jon Kyl, R-Az., Republican Conference Chairman Lamar Alexander, R-Tenn., Republican Policy Committee Chairman John Thune, R-S.D., and National Republican Senatorial Committee Chairman John Cornyn, R-Texas. The full list of Financial Miscreants is at the end of this post.
What does "The Pledge" actually say about the financial crisis? Repeatedly disproven drivel:
"Fannie Mae and Freddie Mac . . . triggered the financial meltdown by giving too many high risk loans to people who couldn't afford them."
That's not what happened. Private-sector banks issued subprime loans. Private-sector investors bought up these garbage mortgages in the form of mortgage-backed securities and collateralized debt obligations (CDOs). They lobbied hard to keep consumer protections at bay and to lift leverage limits that prevented them from betting too much on the housing market. After a few years of crazy, irrational profits in the private sector, Fannie and Freddie caught on to the scam, lobbied the Bush administration to adjust their regulations, and began buying up mortgage-backed securities in order to compete with Wall Street.
This behavior was disgusting, but it did not cause the subprime crisis, the housing bubble or the Wall Street crash. All of those were created and catalyzed by Wall Street. Fannie and Freddie's basic function -- buying up mortgages and securities -- made them totally divorced from any losses at big banks. They didn't push the crisis onto the banks, they belatedly chose to take part in the crisis created by banks. Even today, only about 14 percent of seriously delinquent mortgages at Fannie and Freddie are subprime.
None of this turns Fannie and Freddie executives into good guys -- they were reckless scumbags who cost taxpayers billions. But if you're going to demand major structural reform of Fannie and Freddie (and you should), then you should demand much further-reaching reform of the Wall Street casino that actually wrecked the economy.
Best of all, Republicans pledge to "fight efforts to use a national crisis for political gain." If the Republican "Pledge" isn't a cynical exploitation of a national jobs crisis for political gain, I don't know what could possibly qualify as cynical exploitation. Conservatives created the crisis with deregulatory economic policies, and now want to use the crisis not to fix things, but to deregulate further.
I've been very critical of both President Obama and Congressional Democrats for being overly timid about financial reform and refusing to take the prospect of another near-term crash seriously. This is not a partisan defense of Democrats -- to be sure, some of them are still behaving very badly. This is a defense of financial sanity, something that the Republican Party has just pledged to erase.
Wall Street's Cronies are listed below.