As some of you are well aware, I was explaining how Bush and the Fed were creating the conditions for an inevitable economic bust throughout the mid-2000s, specifically identifying Bush’s unsustainable Keynesian policies, Bush’s Keynesian advisers, and Bernanke’s flawed arguments beginning in 2002 about the need for extremely low interest rates “required” to avoid Bernanke’s own flawed conception of “deflation”.
It’s important that we learn the lessons of history here, and Bruce Bartlett has assembled some useful reminders:
Bush’s responsibility for the recession is implicit in every conservative analysis of its origins. The most thorough has been done by John Taylor, a respected economist from Stanford University who served during most of the Bush administration as the No. 3 official at the Treasury Department. In his book, Getting Off Track, he puts most of the blame on the Federal Reserve for holding interest rates down too low for too long.
While the Fed does bear much responsibility for sowing the seeds of recession, it’s commonly treated as an institution independent of politics and even the government itself. But the Federal Reserve Board consists of governors appointed by the president and confirmed by the Senate.
Because the president appoints the board, he has primary influence over its policies. This is especially the case for chairmen of the Fed appointed by Republicans because they often have ties to Republican administrations. Chairman Ben Bernanke was originally appointed as a member of the Fed in 2002, serving until 2005, when he became chairman of the Council of Economic Advisers in the White House, a position that made him Bush’s chief economic adviser.
As early as 2002, a majority of the seven-member Federal Reserve Board was Bush appointees, and by 2006 every member was a Bush appointee. While many critical decisions about monetary policy are made by the Federal Open Market Committee, the board’s position always prevails.
The Treasury secretary also has had breakfast with the Fed chairman on a weekly basis for decades. Consequently, most economists generally believe that every administration ultimately gets the Fed policy it wants. Therefore, one must conclude that if there were errors in Fed policy that caused the current downturn, it must be because the Fed was doing what the Bush administration wanted it to do.
To the extent that there were mistakes in housing policy that contributed to the recession, those were necessarily committed by Bush political appointees at the Department of Housing and Urban Development, Fannie Mae, Freddie Mac, and other agencies. To the extent that banks and other financial institutions made mistakes or engaged in fraudulent activity, it was either overlooked or sanctioned by Bush appointees at the Securities & Exchange Commission, the Comptroller of the Currency, the Commodity Futures Trading Commission, and elsewhere.
One significant part of the fraud story that Bartlett neglects to mention is the seldom told mortgage origination side of the fraud problem — and the missing in action status of the FBI, which moved agents off this beat and into other areas of investigation.
When the history of this episode comes to be written, any competent historian of the period will consult many of the articles collected here.