Walter Williams - Congress's Financial Mess

Walter E. Williams, professor of economics at George Mason University, has written another interesting commentary on the current financial crisis called Congress's Financial Mess. He notes that the new media have repeatedly insisted that the current financial crisis was caused by deregulation and free markets. He goes on to show that this is not at all the case.

Professor David Henderson, research fellow at the Hoover Institution of Stanford University, studied how regulation has grown in general over the last few decades. He published his results in "Are We Ailing From Too Much Deregulation?" in Cato Policy Report (Nov/Dec 2008). He examined the Federal Register for its lists of new regulations.

• 1977-1980, Carter, annual average of 72,844 pages of new regulations
• 1981-1988, Reagan, annual average of 54,335 pages
• 1989-1992, Bush, annual average of 59,527 pages
• 1993-2000, Clinton, annual average of 71,590 pages
• 2001-2008, Bush, annual average of 75,526 pages

Employees in government regulatory agencies:

• 1980, 146,139 employees
• 2007, 238,351 employees, an increase of 63%

[How do you measure the efficiency of a regulatory agency employee? Is it by the number of new pages of regulations per employee? If so, in 1980 there were 0.50 pages of new regulations per employee and this had dropped by 2007 to about 0.32 pages per employee! Apparently, the more employees, the less efficient they become.]

Regulatory spending by the banking and finance industries:

• 1980, $725 million
• 2007, $2.07 billion, an increase of 286%
  

Under the recent George Bush, there was no hesitation at all in creating new regulations. In fact, the Bush administration specifically wanted to tighten down on risky mortgage and other loans by banks, but Congress would not allow it. The most outspoken critics of tighter credit controls in Congress were Democratic leaders and committee chairmen, including Rep. Barney Frank and Senator Harry Reid.

The Clinton administration made a concerted effort to force Fannie Mae to expand mortgage loans to low and moderate income people in 1999. They used the 1977 Community Reinvestment Act to make the banks make high-risk loans they otherwise would not make. Banks not submitting were fined and their mergers and branch expansion plans were denied or held-up.

In 2008, about $5 trillion of mortgages outstanding were owned or securitized by Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing, and the Veterans Administration. This was one-third of all such mortgages.

[Government also encouraged the inflation of home and property values with extremely low interest rates through inflation of the money supply by the Federal Reserve Board over the last several years.]

To make matters still worse for us taxpayers, Bush gave the auto industry a bailout of $17 billion in addition to about $700 billion in bailouts to banks and financial institutions. Now, the presidents of 36 state government universities are asking for a bailout. State governors and local governments are readying proposals for bailouts, with California $15 billion in the red, Florida $5 billion negative, and Michigan shutting down a prison to save money.

Williams notes that the news media is insulting our intelligence! Unfortunately, they appear to be right about the intelligence, or at least the attention span, of the average voter.