We all know the metaphor that George W. Bush drove the economy off a two thousand foot cliff in to jagged rocks swarming with alligators. The Honorable Senator Al Franken provides a dramatic enactment of this metaphor.
Most of the people I know believe in Al Franken and believe this metaphor.
I, unfortunately, have developed the nasty habit of looking beyond the colorful metaphor to see what really happened. If Bush killed the economy, as is claimed, then shouldn't we be able to find a smoking gun in the legislation passed during the Bush years. (yes, I am mixing metaphors)
I dislike that Bush passed a tax cut without a corresponding decrease in spending.
NOTE: The Economic Growth and Tax Relief Reconciliation bill passed on June 7, 2001. Economic conditions changed slightly on September 11, 2001. Planes slamming into the World Trade Center disrupted several markets.
The primary financial legislation of the Bush years was called the Sarbanes-Oxley Act of 2002. This law "mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the 'Public Company Accounting Oversight Board,' also known as the PCAOB, to oversee the activities of the auditing profession."
This bi-partisan law strengthened financial regulations and created severe penalties for fraudulent financial reports. The accountants involved with Sarbane-Oxley reporting claim that compliance involved a great deal of work, and there is good indication that bill achieved some improvement in the quality and accuracy of financial statements.
During the financial collapse, few people were calling to question the accounting which showed Mortgage Backed Securities worthless.
Republicans in the Bush years complained about financial irregularities at Fannie Mae and Freddie Mac … which were systematically pooh-poohed by the mainstream media.
Other financial acts of the Bush years included a major bi-partisan expansion of Medicare with the prescription drug bill and a major bi-partisan expansion of CHIP (Children's Health Insurance Program).
Back to the Bush car crash metaphor.
There is an incessant partisan drumming that Bush drove the economy off a cliff. The current president uses the metaphor to justify pushing his political enemies into the back seat.
The metaphor is compelling. But, I can't help but wonder: if Bush is the one who drove the economy off the cliff, why aren't his finger prints on the mortgage backed securities, the community re-investment act, the credit default swaps, the mortgage backed securities, the CDOs, the Enron-style hedge funds, the currency manipulation and derivatives that imploded.
Many of the things at the heart of the economic collapse were created or expanded in the Clinton years.
Bush is to blame for many things. His primary fault is that he did not go after Freddie Mac, and he did not repeal the Security Modernization Act of 2000. But how could he make the political case for repealing laws that no-one really understood?
The Sarbanes-Oxley Act was a stab at a reform that people did understand. People did understand that fraudulent reporting undermined the market. Sarbanes-Oxley failed because cause of our economic duress was the absurd mix of derivatives traded on Wall Street. No matter how well accountants recorded these transactions, they could not change that fact that securities themselves were simply creating instable fluff.
Bush and the Republicans failed to identify and address the root cause of economic instability. When the Democrats took control of the economy in 2006, it was clear that the tax cuts without decreases in tax spending and the mix of toxic assets accumulated through the years would lead to sour economic times.
Yes, Bush is guilty of failing to identify the source of economic instability. All of the hard work invested in Sarbanes-Oxley compliance did not stave off the economic reality that our complex financial system created by progressives is inherently instable.
Unfortunately, Obama's economic policy based on projecting all financial ills onto his political enemies will not lead to any meaningful financial reforms.
The economy is interconnected and involved everyone. Obama's method of shoving his political enemies in the back seat is unlikely to result in prosperity as Obama's Moaist ways impoverish those he struggles against.
Although Sarbanes-Oxley misidentified the root of economic instability, at least it was bipartisan.