"Our Country!
In her intercourse with foreign nations may she always be in the right;
but right or wrong, our country!"

    --Commodore Stephen Decatur

Thursday, March 11, 2010

The Party of New Ideas

It has become a cliche that the current economic crisis is the biggest such downturn since the 1930's.  For the Democrats, it actually is the 1930's all over again.

The Washington Post reports that the Obama Administration has no immediate plans to relinquish federal control of Fannie Mae and Freddie Mac.

...in response to questions from lawmakers, Treasury Secretary Timothy F. Geithner clarified last month that it would be another year before the government proposes how to restructure the firms.

Sixteen months after they were seized to prevent their collapse, the companies remain wards of the state, running a tab that has now exceeded $125 billion in what has become the single costliest component of the federal bailout for the financial system.
This means that, for the time being, Fannie Mae is essentially back to its original status as a government agency which competes directly against the private sector.  The Post also mentions that Fannie and Freddie combined now own or back more than half of all U.S. mortgages.

Faced with this unprecedented level of direct government involvement in the market, banks have been reluctant to issue new loans, despite President Obama's occasional prodding to do so.  His administration's latest proposal won't help matters.  ABC News reports that Democrat leaders in Congress want to expand regulation over non-bank firms.

Merkley and Levin want to impose the rule but broaden its application to nonbank financial firms too.

Merkley, a first-term member of the Senate Banking Committee, told colleagues in a letter last month that he was drafting a bill to apply to both banks and nonbank firms that are large enough to be classified as critical to the financial system.
Other sources observe that this proposed regulation is very similar to the 1933 Glass–Steagall Act which broke up the largest banks into consumer deposit banks and investment banks.  The rule proposed by Merkley and Levin would go one step further by regulating the big investment banks, even if they close down their consumer deposit divisions.

Democrats have a special reverence for F.D.R. and the New Deal.  However, they would do well to remember that the Great Depression didn't end because of F.D.R.'s policies, but because of the massive industrial build-up of World War II.  Moreover, Obama's waning popularity more closely resembles Hoover's than the overwhelming support that allowed F.D.R. to win a third term despite the failure of his policies.

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