Time's Economic Blame Points in Only One Direction

On its website, Time Magazine has published a “Dirty Dozen” list of things and people “guilty” for our current economic woes. With 12 chances to assign blame, Time had 12 shots at fairness and journalistic balance. It failed all 12 times.


According to Time’s Justin Fox, the financial crisis and the recession can be blamed on a mixture of phenomena (good times, too much money) and people (Alan Greenspan, Wall Street executives, the ratings agencies). But ultimate culpability for the recession lies with the free market and – wait for it! – Republicans.


Time’s Number 7 on the list is “The Myth of the Rational Market.” Fox wrote, “For decades, the accepted academic response to concerns that the economy might be on an unsustainable trajectory was that financial markets knew best. Got a backup? Markets are spectacularly efficient processors of information and opinion. But they also have a by-now-well-documented tendency to overshoot on both the upside and the downside.”


Perhaps, but what’s Fox’s alternative? In the Number 3 listing: “Twisted Regulation,” Fox wrote that, while “[b]anks have remained as closely supervised as ever … new institutions that grant mortgages, lend money, fund deals – businesses once monopolized by banks – have been allowed to grow with little oversight.”


According to Fox, “the perverse result was that the new and untested gained an unfair advantage over the tried and true.” Fox didn’t question whether, through regulation, the government should be conferring advantages on any product or entity.


Fox did acknowledge that there should be limits to government impact on the free market – well, sort of. In Number 5, “The Home Ownership Obsession,” he dismissed Republicans who “attempted to pin blame for the crisis on the Community Reinvestment Act (CRA) and mortgage giants Fannie Mae and Freddie Mac. Nice try: there's virtually no evidence to back up the CRA charge, and while Fannie and Freddie aren't blameless, they were mostly sidelined during the worst of the mortgage frenzy, from 2003 to 2006.”


Others aren’t so quick to exonerate the GSEs. In fact, two economists, Charles W. Calomiris of Columbia Business School and Peter J. Wallison of the American Enterprise Institute actually pointed to Fannie and Freddie in a Sept. 23 Wall Street Journal op-ed.


“The poor choices of these two government-sponsored enterprises (GSEs) – and their sponsors in Washington – are largely to blame for our current mess,” Calomiris and Wallison said.


But with Congressional Democrats and other liberals effectively off the hook, Fox could admit that “the decades-long, bipartisan government effort to encourage homeownership – of which CRA, Fannie and Freddie were but a small part – did tragically overshoot the mark.”


Oh, and there was another thing government did wrong. Number 10 was the Commodity Futures Modernization Act, which Fox helpfully noted was “passed by a Republican Congress and signed into law by lame-duck President Bill Clinton in December 2000.” And what did the act do? “It effectively banned regulators from sticking their noses into over-the-counter derivatives like credit default swaps.”


Finally, Bush came in at Number 9 on the guilty list. Fox said that some of the responsibility for “our current pass” is bipartisan. He even used the “D-word” before getting down to business, but ultimately Bush was on the hook.


“[Y]ou can't be a two-term president with your own party in charge of Congress for most of your time in office and escape blame for the economic debacle that unfolds as you prepare to leave town.”


No, you can’t. Even so, Fox couldn’t make a compelling case against Bush. “The specific Bush act that probably contributed most to today's difficulties?” he wrote. Was there some secret memo telling regulators to overlook malfeasance? Were plum favors handed out to Fat Cat cronies? Did he let Dick Cheney shoot a key whistleblower? No.


“His reckless disregard for sound fiscal policy, as his tax cuts and war spending combined to turn budget surpluses into chronic deficits.”


Tax cuts and the war? Glad that’s cleared up.