Oct 07 2012

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Election Shorts: Tax Cuts Didn’t Cause the Financial Crisis

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Repetition Doesn't Equal Truth

It is a canon of faith among Democrats that Bush administration policies were the cause of the financial meltdown in 2008.

During the first debate on the House floor to consider the TARP rescue bailout, then-House Speaker Nancy Pelosi single-handily ensured the bill’s defeat by launching into a partisan screed that blamed the Bush administration for the financial crisis:

“What we have now is a man-made disaster, a disaster that sprang – comes from the Bush failed policies, the failure of the Bush administrations [sic] to steward our economy in a responsible way.”

1,355 days into his presidency, Barack Obama has never missed an opportunity to link the financial crisis to his predecessor, or to blame his own failings on greater historical forces unleashed in the “previous decade.”

Today, the President’s re-election campaign relies heavily on this narrative, specifically by linking Bush policies and their preceived failures to those articulated by Mitt Romney. Both Bill Clinton and Obama made nearly identical statements at the Democratic National Convention to this effect.

In his latest “closing argument” ad, Obama states:

“Now, Governor Romney believes that with that even bigger tax cuts for the wealthy and fewer regulations on Wall Street all of us will prosper. In other words he’d double down on the same trickle down policies that led to the crisis in the first place.”

And if there was any doubt that this is a central argument to Team Obama, the President restated it again in Wednesday’s debate with Mitt Romney:

“Now, it ultimately is going to be up to the voters, to you, which path we should take. Are we going to double-down on the top-down economic policies that helped to get us into this mess?”

The fallacy here is easy to see for anyone who is willing to do a cursory review of the facts. But now comes confirmation of this Obama hoax from, of all sources, the Washington Post fact-checker, Glenn Kessler.

Both President Obama and former president Bill Clinton assert that Mitt Romney wants to cut taxes for the wealthy and cut financial regulations — which they suggest is a recipe for another economic crisis…But Obama…highlights the [Bush] tax cuts and then says the “same trickle-down policies” — Democratic code for tax cuts for the wealthy — led to the “crisis.” The campaign’s back-up material labels that as “economic crisis,” thus leaving no ambiguity about his reference.”

Kessler notes the irony in Bill Clinton pressing the case that deregulation was the cause of the crisis when he himself is culpable.

Clinton signed into law a repeal of the Glass-Steagall law that separated commercial and investment banks — a policy shift that some have said also played a role in the economic crisis. Moreover, Clinton also signed into law the Commodity Futures Modernization Act, which essentially removed derivatives contracts from regulatory oversight. By many accounts, derivatives, such as the credit default swap, were at the heart of the financial crisis.

Indeed, Clinton has admitted that he was given wrong advice about the need to regulate derivatives contracts. “I think they were wrong, and I think I was wrong to take” their advice, Clinton said of his economic advisers.”

Perhaps more damning, Kessler points out that, “The Dodd-Frank bill tightened regulations on derivatives contracts, thus reversing the decision that Clinton — not Bush — had made.” (emphasis added)

With regard to tax cuts as the cause of the crisis, Kessler says:

“…the notion that the Bush tax cuts “led” to the 2008 crisis is especially puzzling. The campaign’s back-up material for the Obama ad cites only one source — a column by our colleague Ezra Klein.

And what of Klein’s column?

“…the column does not back up Obama’s statement about tax cuts. Klein mostly laments the fact that, in his view, the Romney campaign does not appear to have new ideas with which to confront today’s economic realities. Just to be sure, we checked with Klein, and here is how he responded: “I am absolutely not saying the Bush tax cuts led to the financial crisis. To my knowledge, there’s no evidence of that.” (emphasis added)

“Indeed, the official government inquiry, the 631-page final report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, makes no mention of the Bush tax cuts. The report, endorsed by every Democrat on the panel, does cite deregulation, but 30 years of deregulation across multiple administrations — not just deregulation in the Bush years.”

Kessler’s verdict is withering:

It is time for the Obama campaign to retire this talking point, no matter how much it seems to resonate with voters. The financial crisis of 2008 stemmed from a variety of complex factors, in particular the bubble in housing prices and the rise of exotic financial instruments. Deregulation was certainly an important factor, but as the government commission concluded, the blame for that lies across administrations, not just in the last Republican one.

Moreover, it is rather strange for the campaign to cite as its source an article that, according to the author, does not support this assertion.”

The Obama campaign, licking its wounds after a floundering debate performance on Wednesday, has settled on a surreal line of attack, claiming that the Mitt Romney on stage presented a series of proposals at variance with what the Republican nominee has been running on for 18 months – in essence, calling Romney a liar. Indeed, Team Obama is up with an ad buy in all the swing states accusing Romney of intentional dishonesty on Wednesday night.

Yet, if you peruse Kessler’s fact-checking, here and on other topics, it is Obama’s charges and assertions that don’t hold water.

If Team Obama were an addict, now would be a good time for an intervention.  Rock bottom is not far off.


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