The Society of the Owned: Under the Bus

Part Two of a series.

Consider this scenario. You're standing at a busy street corner when you see someone about to step off the curb right into the path of an oncoming bus. You have just enough time and you're close enough to reach out and stop them before it's too late. Do you? Conservatism says, no.

Now consider this scenario. You're standing at a busy street corner when you see someone about to step in front of a speeding bus. Someone else beside you is about to reach out and stop the other person from becoming roadkill. Even if you don't attempt to stop the person from stepping in front of the bus, would you actually stop the would-be rescuer from stopping them? Even if the driver was deliberately aiming for the would-be victim? Conservatism says, yes.

Conservatism apparently holds that some people should end up under the bus, or at the very least no one should try to keep them from ending up there.

In a Washington Post editorial, New York Governor Eliot Spitzer writes of how the Bush administration blocked states' efforts to protect subprime borrowers [1]. When Spitzer and officials in 49 other states attempted to stop predatory lending practices, the Bush administration stepped in to stop states from taking any such action.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

In fact, when Spitzer's office opened investigations into possible discrimination in mortgage lending, the OCC under the Bush administration filed a federal lawsuit to stop the investigations.

The full significance of what Gov. Spitzer is saying really becomes evident when you remember, as Bill Scher pointed out [2] earlier, that when people who saw the hand writing on the subprime-mortgaged wall alerted the Bush administration to the impending disaster, they were ignored. Specifically, Alan Greenspan himself received direct warning about the coming subprime crisis, and did nothing to stop it [3].

And leaders of a housing advocacy group in California, meeting with Mr. Greenspan in 2004, warned that deception was increasing and unscrupulous practices were spreading.

John C. Gamboa and Robert L. Gnaizda of the Greenlining Institute implored Mr. Greenspan to use his bully pulpit and press for a voluntary code of conduct.

“He never gave us a good reason, but he didn’t want to do it,” Mr. Gnaizda said last week. “He just wasn’t interested.”

Today, as the mortgage crisis of 2007 worsens and threatens to tip the economy into a recession, many are asking: where was Washington?

Where was Washington? Well. Like Rip Van Winkle [4] finally waking up from a long nap, Greenspan delivered astounding pronouncement that the U.S. economy is "on the edge of recession" [5] due in part to the crisis of falling home values, set in motion by the very scourge he declined to do anything about even when the looming disaster was pointed out to him.

Where was Washington? Well. Dean Baker points out [6] that, like the Federal Reserve's very own Mr. Magoo [7], Ben Bernanke failed to even see the housing bubble [8], and then once it finally burst failed to see the "financial tsunami" [9] (as Baker calls it) that was about to hit our economy.

Baker's right when he says that there's really no excuse for not seeing disaster about to strike, when (a) it's your job to see it, and (b) people are going out of their way to point it out to you.

Allowing the housing bubble to grow unchecked was a mistake of monumental proportions. It was inevitable that it would end badly. There is absolutely no excuse for a competent macro economist to have missed the growth of this bubble. The country had never seen this sort of run-up in house prices. Furthermore, there was no explanation for this run-up, based on the fundamentals of supply and demand in the housing market, that passed the laugh test.

Yet, the Fed chairmen either did not see the bubble or chose to ignore it. As Greenspan said repeatedly in reference to the stock bubble, he thought it was best just to let the bubble run its course and then pick up the pieces after it burst. Well, it is not easy to pick up the pieces after bubbles burst, and that is going to be even more true with the housing bubble than with the stock bubble.

But there's a third possibility, besides the two Baker mentions. First, you have to take into consideration that we're dealing with an administration that got the memo about potential terrorist hijackings [10] in August 2001, and didn't classify warnings about Bin Laden's network as "urgent." We're dealing with an administration that declined to study how to protect New Orleans [11] from a hurricane, despite government agency reports in 2001 that such a catastrophe was highly likely. We're dealing with an administration that ignored and then squelched intelligence suggesting that Iraq had no WMD [12].

So, where was Washington? Washington was standing on the street corner where we started this post. Washington saw the speeding bus coming, saw someone about to walk into the path of that speeding bus, and declined to stop them. Far from ignoring the impending crash, Washington saw the states about to stop the people from stepping in front of the subprime bus, and instead stopped the states from averting disaster.

In a previous post [13], I wrote that there are people who look on the disaster and see things as they should be. It's important to remember that Greenspan "didn't want to do it" when urged to stop the subprime debacle from happening, and "thought it best to let the bubble burst and pick up the pieces later." Put that in the context of a remark that will be significant later in this series — that there's nothing fundamentally wrong with financial system that made it all possible — and it's clear that there are those who don't see anything fundamentally wrong with some people ending up under the economic bus, don't particularly want to stop them ending up there, and think it's best to just let it happen.

Three guesses as to who's a member of the ownership society and who's not — the economic roadkill or the bystanders who watch it all happen and "pick up the pieces later" — and the first two don't count.

Washington stood on that street corner, watched people go under the bus, and now that a crowd has gathered and at the scene of the accident, now Washington is concerned. Now Washington is declaring an emergency. This, after Washington saw the whole thing coming, watched it happen, and did nothing about it.

Maybe Washington just thinks it's inevitable that someone will end up under the bus, and that some people just belong under the bus, however they get there.

It seems inherent in conservative philosophy to see disaster approaching, to know where and whom it will strike, and to simply stand out of its way. The problem is that the person stepping into that intersection, about to get mowed down, is all of us. Or at least the 99.2% of us who are not, have never been, and never will be members of the ownership society.

Even if that disaster can be averted, it shouldn't be. That's the heart of both the conservative love of deregulation and reluctance to intervene that makes economic disasters like this likely to happen, and to happen on large scales like the metastasizing subprime crisis, and on the small scale of millions of personal stories ranging from foreclosure to bankruptcy to never-ending debt.

There's a motive for letting simply letting it all happen, though. It's very simple. As easy as it might be to write off that kind of "devout neglect" [13] to the plain old mean-spirited notion that survival — economic or otherwise — "is a matter of privilege," the bottom line is actually the bottom line. None of this would have happened, or been permitted to happen, unless somebody — and not just anybody, but people already significantly privileged when it comes to economic survival — stood to profit from it.