A USA Today poll out this morning indicates that Americans don't buy the Occupy movement's critique of our economic problems. The USA TODAY/Gallup Poll taken over the weekend found:
When asked whom they blame more for the poor economy, 64% of Americans name the federal government and 30% say big financial institutions.
78% say Wall Street bears a great deal or a fair amount of blame for the economy; 87% say the same about Washington.
This is dead on. It is not that Wall Street is completely innocent, far from it. But what the Occupy movement, and their intellectual leaders, fail to grasp is that the federal government has been Wall Street's partner in crime. Take Paul Krugman, who, while accusing the Republicans of being clueless on the economy, writes:
In the real world, recent events were a devastating refutation of the free-market orthodoxy that has ruled American politics these past three decades. Above all, the long crusade against financial regulation, the successful effort to unravel the prudential rules established after the Great Depression on the grounds that they were unnecessary, ended up demonstrating — at immense cost to the nation — that those rules were necessary, after all.
But down the rabbit hole, none of that happened. We didn’t find ourselves in a crisis because of runaway private lenders like Countrywide Financial. We didn’t find ourselves in a crisis because Wall Street pretended that slicing, dicing and rearranging bad loans could somehow create AAA assets — and private rating agencies played along. We didn’t find ourselves in a crisis because “shadow banks” like Lehman Brothers exploited gaps in financial regulation to create bank-type threats to the financial system without being subject to bank-type limits on risk-taking.
Countrywide Financial did not succeed because of "free-market orthodoxy." Countrywide Financial grew into the nation's largest mortgage lender because it formed a public-private partnership with the government sponsored entities Fannie Mae and Freddie Mac. During its rise, Fannie Mae was the biggest buyer of Countrywide loans. Countrywide CEO Angelo Mozilo worked personally with Fannie Mae CEO, and President Obama campaign adviser, Jim Johonson to make it easier for Fannie to buy Countrywide loans. Here is how a 2000 Fannie Mae Foundation report describes Countrywide's competitive advantage:
Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. … When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs.
And those "private ratings agencies" Krugman complains about did not play along because of "free-market orthodoxy" either. In 1975, the Securities and Exchange Commission issued regulations requiring all bonds sold in the market to get ratings from "nationally recognized statistical rating organizations." This regulation, not the free market, gave Moody’s, S&P, and Fitch their credit ratings monopoly. Without any real competition, collusion between the ratings agencies and financial institutions was inevitable.
Wall Street did not find itself in need of a bailout because Washington didn't interfere with markets enough. Wall Street melted down because some players figured out how to game federal regulations to gamble with other people's money.
