Do Republican Presidencies Mean Financial Crisises?

One of the messages that Bubble-Boy and his band of merry right-wing radicals have pushed is the idea that his reckless tax cuts have been good for the economy. Any economic good news is seized on by the Bushies as evidence that their glorious leader's policies have been good for the American economy. They conveniently overlook the growing inequality in America and the fact that the great majority of his tax cuts went to the upper 5% of American households to argue that their fiscal policies do work.

Well, the chickens are coming home to roost as the American economy seems to be moving into a recession. The New York Times had an article up on its website dated November 8, 2007 about the Dow Jones losing over 300 points on Wednesday, November 7, 2007 and how the Chinese are beginning to sell off their tremendous holding of American dollars. This is the money quote, to make a bad pun, from the article about the Chinese decision: “We will favor stronger currencies over weaker ones, and will readjust accordingly,” Cheng Siwei, vice chairman of the Standing Committee of the National People’s Congress told a conference in Beijing on Wednesday.

What is apparently driving the down slide in both stocks and the value of the American dollar is the uncertainty over the fallout from the sub prime mortgage crisis. This is the second time since 1980 that there has been a financial crisis during a Republican administration. The first was the savings and loan crisis of the 1980s and now we are having the sub prime mortgage crisis of the first decade of the 21st century. Going back further in history we have the recession of the late 1950s under Eisenhower and, of course, the granddaddy of them all, the Great Depression under Hoover.

It is no mystery why there is this correlation between financial crisis and Republican presidential administrations. The Republican Party doesn't believe in government regulation and oversight. It does believe in the power of the marketplace to correct excesses. The market does correct excesses but by the time such excesses show up, the damage done by the correction to millions of Americans is much worse than it had to have been.

Financial diasters such as the savings and loan crisis of the 1980s or the sub prime mortgage crisis of this decade can be avoided. Take, for example, the sub prime mortgage crisis. Most commentators will tell you that a major reason why financial institutions made thousands of bad loans is that they sold the loans to other institutions instead of keeping them in-house. As a result, they didn't have incentives to make good loans and had incentives to make bad loans. Here's a thought: Why not make financial institutions keep the promissory notes for a minimum period, say five years. Such a law would give incentives to banks and other financial institutions to make good loans.

Republicans will say that such a law is an intolerable interference with the marketplace, but isn't such an interference better than having real estate markets collapse across America as thousands of homes go into foreclosure?