October 06, 2008

At Least One Person At The Washington Post Halfway Has A Clue

Sebastian Mallaby is one of the Op-Ed clowns at the Post, and his specialty is the Dismal Science of Economics, albeit from a lefty point of view. What makes him at least halfway palatable is that, while liberal, he doesn't embrace full bore Krugmanism. And this column is a prime example.

While it still is a pro-Obama piece, Mallaby does put himself sqaurely at odds with the Chavez types who are attempting to forever discredit de-regulation. And, to me, here is the money quote:

If that doesn't convince you that deregulation is the wrong scapegoat, consider this: The appetite for toxic mortgages was fueled by Fannie Mae and Freddie Mac, the super-regulated housing finance companies. Calomiris calculates that Fannie and Freddie bought more than a third of the $3 trillion in junk mortgages created during the bubble and that they did so because heavy government oversight obliged them to push money toward marginal home purchasers. There's a vigorous argument about whether Calomiris's number is too high. But everyone concedes that Fannie and Freddie poured fuel on the fire to the tune of hundreds of billions of dollars.

So blaming deregulation for the financial mess is misguided. But it is dangerous, too, because one of the big challenges for the next president will be to defend markets against the inevitable backlash that follows this crisis. Even before finance went haywire, the Doha trade negotiations had collapsed; wage stagnation for middle-class Americans had raised legitimate questions about whom the market system served; and the food-price spike had driven many emerging economies to give up on global agricultural markets as a source of food security. Coming on top of all these challenges, the financial turmoil is bound to intensify skepticism about markets. Framing the mess as the product of deregulation will make the backlash nastier.

The next president will have to make some subtle choices. In certain areas, markets need to be reformed -- by pushing murky "over-the-counter" trades between banks onto transparent exchanges, for example. In other areas, government needs to fix itself -- by not subsidizing reckless mortgage lending. But a president who has a mandate only to reregulate will be a boxer with a missing glove. By going along with the market skepticism of his party, Obama may end up winning an election while compromising his presidency.

Damn. And when I agree with Mallaby, I know things are wacky.

Posted by: eddiebear at 03:19 PM | No Comments | Add Comment
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