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About the Progressivism on Tap series
A massive housing bubble drove the financial meltdown, Co-Director of the Center for Economic and Policy Research Dean Baker explained at the first Progressivism on Tap event of 2010 last night. Government regulators from Alan Greenspan to Ben Bernanke allowed this bubble to grow to $8 trillion dollars, Baker said, despite growing evidence of the danger posed to the broader economy.
Baker also argued that rhetoric defending the 2008 bank bailout as the only alternative to settling into a Second Great Depression was overblown. Not only is this an empirically debatable claim, but he maintained that it represents “a pretty low bar” for economic policy. Even if the federal government allowed the banks to fail, he said, federal institutions were capable of intervening to sustain a working credit system.
He further noted that federal institutions at multiple levels did not pressure highly leveraged banks to the degree that they might have. The crisis was a missed opportunity for federal regulators to link public funds to closing regulatory loopholes. Federal Reserve Chairman Bernanke only showed willingness to consider taking over failing banks after Congress voted to approve bailout funds. Baker claimed that this was a manipulation of a serious public crisis and a serious failure on Bernanke’s part. He also suggested that this pattern of reticence to challenge Wall Street wrongdoings might be due to the influence large financial interests have had in determining regulation policy and appointments to key Federal Reserve posts.
Baker described the recently released Dodd bill—Sen. Chris Dodd’s (D-CT) package of financial regulatory reforms to reduce the size and systemic risk of the financial sector—as “better than expected,” but noted that “it still doesn’t go far enough.” He worried that conservative lawmakers would weaken the bill’s measures on the way to passage, and that there was nothing in the bill that would single-handedly prevent the return of future bubble-driven economic crises. Baker said he believes that Dodd’s bill is worth passing as it currently stands, but that compromise on key regulatory safeguards could render it pointless.
Baker also challenged progressives “not to cede free market principles to conservatives.” The American economy in its current shape depends on numerous federal regulations from the Federal Deposit Insurance Corporation to Federal Reserve adjustments of interest rates. Financial leaders who invoked laissez faire market ideology during the economic crisis “weren’t interested in a free market,” said Baker, “they were interested in a free lunch.”
Event information
About the Progressivism on Tap series