[Congressional Record (Bound Edition), Volume 156 (2010), Part 15]
[Extensions of Remarks]
[Pages 22998-22999]
[From the U.S. Government Publishing Office, www.gpo.gov]




              PAUL KRUGMAN AND FACTS VS. REPUBLICAN MYTHS

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                           HON. BARNEY FRANK

                            of massachusetts

                    in the house of representatives

                       Friday, December 17, 2010

  Mr. FRANK of Massachusetts. Madam Speaker, in recent years Paul 
Krugman has been, in my view, the single-most incisive and accurate 
commentator on our economy. In the New York Times today, December 17, 
he rebuts very effectively the partisan effort to shift blame for our 
recent economic crisis away from the failures of deregulation and of 
financial irresponsibility in the private sector issued by the four 
Republican Members of the Financial Crisis Inquiry Commission. It is of 
course the case that government policy failures played some role in the 
crisis, but the most egregious of these is ignored by these partisans--
the refusal of the Republicans in the Bush administration, the Federal 
Reserve and in Congress to support Democratic efforts to restrict the 
kind of irresponsible predatory mortgages that should not have been 
issued and which were a major cause of the crisis. As Mr. Krugman 
notes, ``the G.O.P. commissioners are just doing their job, which is to 
sustain a conservative narrative. And a narrative that absolves the 
banks of any wrongdoing, that places all the blame on meddling 
politicians, is especially important now that Republicans are about to 
take over the House.'' Referring to the incoming Chairman of the 
Financial Services Committee, Mr. Krugman sadly, but with good reason, 
predicts ``that he and his colleagues will do everything they can to 
block effective regulation of the people and institutions responsible 
for the economic nightmare of recent years.''
  Madam Speaker, I ask that Paul Krugman's very important correction to 
an egregiously erroneous report be printed here.

                [From The New York Times, Dec. 16, 2010]

                         Wall Street Whitewash

                           (By Paul Krugman)

       When the financial crisis struck, many people--myself 
     included--considered it a teachable moment. Above all, we 
     expected the crisis to remind everyone why banks need to be 
     effectively regulated.
       How naive we were. We should have realized that the modern 
     Republican Party is utterly dedicated to the Reaganite slogan 
     that government is always the problem, never the solution. 
     And, therefore, we should have realized that party loyalists, 
     confronted with facts that don't fit the slogan, would adjust 
     the facts.
       Which brings me to the case of the collapsing crisis 
     commission.
       The bipartisan Financial Crisis Inquiry Commission was 
     established by law to ``examine the causes, domestic and 
     global, of the current financial and economic crisis in the 
     United States.'' The hope was that it would be a modern 
     version of the Pecora investigation of the 1930s, which 
     documented Wall Street abuses and helped pave the way for 
     financial reform.
       Instead, however, the commission has broken down along 
     partisan lines, unable to agree on even the most basic 
     points.
       It's not as if the story of the crisis is particularly 
     obscure. First, there was a widely spread housing bubble, not 
     just in the United States, but in Ireland, Spain, and other 
     countries as well. This bubble was inflated by irresponsible 
     lending, made possible both by bank deregulation and the 
     failure to extend regulation to ``shadow banks,'' which 
     weren't covered by traditional regulation but nonetheless 
     engaged in banking activities and created bank- type risks.
       Then the bubble burst, with hugely disruptive consequences. 
     It turned out that Wall Street had created a web of 
     interconnection nobody understood, so that the failure of 
     Lehman Brothers, a medium-size investment bank, could 
     threaten to take down the whole world financial system.
       It's a straightforward story, but a story that the 
     Republican members of the commission don't want told. 
     Literally.
       Last week, reports Shahien Nasiripour of The Huffington 
     Post, all four Republicans on the commission voted to exclude 
     the following terms from the report: ``deregulation,'' 
     ``shadow banking,'' ``interconnection,'' and, yes, ``Wall 
     Street.''
       When Democratic members refused to go along with this 
     insistence that the story of Hamlet be told without the 
     prince, the Republicans went ahead and issued their own 
     report, which did, indeed, avoid using any of the banned 
     terms.
       That report is all of nine pages long, with few facts and 
     hardly any numbers. Beyond that, it tells a story that has 
     been widely and repeatedly debunked--without responding at 
     all to the debunkers.
       In the world according to the G.O.P. commissioners, it's 
     all the fault of government do-gooders, who used various 
     levers--especially Fannie Mae and Freddie Mac, the 
     government-sponsored loan-guarantee agencies--to promote 
     loans to low-income borrowers. Wall Street--I mean, the 
     private sector--erred only to the extent that it got suckered 
     into going along with this government-created bubble.
       It's hard to overstate how wrongheaded all of this is. For 
     one thing, as I've already noted, the housing bubble was 
     international--and Fannie and Freddie weren't guaranteeing 
     mortgages in Latvia. Nor were they guaranteeing loans in 
     commercial real estate, which also experienced a huge bubble.

[[Page 22999]]

       Beyond that, the timing shows that private players weren't 
     suckered into a government-created bubble. It was the other 
     way around. During the peak years of housing inflation, 
     Fannie and Freddie were pushed to the sidelines; they only 
     got into dubious lending late in the game, as they tried to 
     regain market share.
       But the G.O.P. commissioners are just doing their job, 
     which is to sustain the conservative narrative. And a 
     narrative that absolves the banks of any wrongdoing, that 
     places all the blame on meddling politicians, is especially 
     important now that Republicans are about to take over the 
     House.
       Last week, Spencer Bachus, the incoming G.O.P. chairman of 
     the House Financial Services Committee, told The Birmingham 
     News that ``in Washington, the view is that the banks are to 
     be regulated, and my view is that Washington and the 
     regulators are there to serve the banks.''
       He later tried to walk the remark back, but there's no 
     question that he and his colleagues will do everything they 
     can to block effective regulation of the people and 
     institutions responsible for the economic nightmare of recent 
     years. So they need a cover story saying that it was all the 
     government's fault.
       In the end, those of us who expected the crisis to provide 
     a teachable moment were right, but not in the way we 
     expected. Never mind relearning the case for bank regulation; 
     what we learned, instead, is what happens when an ideology 
     backed by vast wealth and immense power confronts 
     inconvenient facts. And the answer is, the facts lose.

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