Nobel Prize Winning Economists Highly Critical Of Conservative Policies

by Ben Hoffman

It’s obvious that conservative policies don’t work — in fact, they fail every time. Tom Sargent, Nobel Laureate, spells it out in this interview:

“The Kareken and Wallace model’s prediction is that if a government sets up deposit insurance and doesn’t regulate bank portfolios to prevent them from taking too much risk, the government is setting the stage for a financial crisis.”

The Republican sponsored Financial Services Modernization Act of 1999 allowed commercial banks, investment banks, securities firms, and insurance companies to consolidate. They immediately began taking on increased risk and was a large contributor to the collapse of our economy.

He went on to criticize the Reagan administration and the deregulation that occurred just before the S&L scandal and bailout.

If you’re going to deregulate financial institutions, which we in the United States did in the late ’70s and early ’80s, you’d better reform deposit insurance first. You’d better make it clear that financial institutions that take these risks are not allowed to have access to lender-of-last-resort facilities. But the U.S. government didn’t do that.

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2 Comments to “Nobel Prize Winning Economists Highly Critical Of Conservative Policies”

  1. What…..no discussion or thoughts on Barney Frank and his boyfriend or Dodd-Frank and the negative impact that had on the economy. You clowns are a joke on searching out the real causes.

  2. Reposting this knowledgeable comment from
    “Phyllis-2480124”

    Ok, that’s just nonsense. Banking and housing both started their decline when the Bush Admin eliminated the Federal Agencies dedicated to investigating predatory lending practices at the Federal Level. I know – my partnership owned a large regional mortgage company up until 2003.

    When Bush’s own stimulus policies weren’t working and he was burning through the surplus handed down to him, he cut all those federal investigative arms – such as the RESPA division which, in early 2002, he cut down to TWO PEOPLE for a total of 50 states – and, when he did that, his Administration actually sent an official mailer out to every bank and mortgage company in the US. (I know, because we received one of them). And, magically, every major mortgage bank in the US who had questionable ethics, started up all the “really cool” predatory lending practices, especially toward subprime customers, to make a quick buck (and, lots of them). Countrywide, Dime, First Franklin, MILA, and a whole list of others started the ridiculous 1.5% loans, and the $125% LTV loans. These kinds of loans are the biggest reasons why the housing market began to crash, and thus, banks began to crash. Once we saw the big guys doing this in 2002, we put our mortgage company up for sale and sold it within 6 months of listing it. Had we held on much longer, it would have been worthless.

    Bush knew his economic policies weren’t working, so he built a false economy based upon the largest increase in signature debt, HELOC debt and refinance debt ever seen in any presidential term. And when these short term 1.5% loans and 125% LTV loans came due 3-5 years later, many ballooned and fell into default. This all started LONG before Obama’s election. And it is directly related to Bush’s policy – which was specifically written to encourage banks to build up a false economy based on spending that was derived from more debt, NOT more jobs. Of course, the secondary market failed, and then, who was the first major bank to finally drop? Countrywide – the first major lender to offer these crazy loans after Bush wiped out every federal agency dedicated to investigating predatory lending practices.

    None of this happens overnight. This took a few years and it didn’t happen a few weeks after Obama was elected, like some would like you to think. We saw it coming a mile away in 2002, and took action to get out before it got bad. So did many other smaller mortgage companies who also sold off at that time.

    Seriously, you can “blame the DEMs” all you like. It’s simply ridiculous. Blaming Barney Frank and a couple others, for blocking a GOP Controlled Congress? Really? LOL!! And yet, even what you’re claiming — it would not have had the effect on the crisis you’re suggesting. Because the secondary market wasn’t responding to that – it was collapsing due to defaulting short-term refinance and HELOC loans that had largely begun getting awarded in 2002/03.

    You had a GOP Controlled White House from 2001 – 2009. And a GOP Controlled Congress (BOTH houses) from 1997 – 2007.

    The collapse initially started in 2005 when the first wave of defaults began to show up; it picked up speed by 2006, and was in full swing by 2007.

    Even if you could show this was due to Democratic controlled policy before 1997 – then, with 10 years of full GOP legislative control after that in BOTH HOUSES, why the hell didn’t the GOP solve the problem before this happened? You keep claiming the GOP is brilliant, with all the talent – then what the hell happened for the 10 years they controlled both houses and the Executive Branch? Didn’t they have the talent and smarts to FIX ANYTHING? Or, were they just hoping their false economy would make them look good long enough to ride it out?

    The car drove soundly into the wall. The GOP was in the driver’s seat for all that time. How long you gonna try to blame the crash on someone else?

    Blaming Obama, and trying to put these morons right back into control — then get ready for another HUGE drop, and watch this country go further into the sewer. It took a decade of GOP malfeasance and mismanagement to bring this nightmare down upon us. People have been whining about Obama since the day he’s been in office, and he hasn’t had a chance to do much without GOP stonewalling since Day 1. A decade to create this mess, and now you blame Obama for not being able to reverse it in a few months. Nice political ploy, but it doesn’t make any sense.

    #1.31 – Sun Oct 24, 2010 4:59 AM HST

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