IJR Opinion is an opinion platform and any opinions or information put forth by contributors are exclusive to them and do not represent the views of IJR.
You might have won a good chunk of change if you bet against “The Big Short” to take this year’s top prize at the Oscars. The odds were stacked in its favor to win Best Picture. But like the historically stable housing market before the Great Recession, the movie lost big and only a few lucky speculators might have seen it coming.
Blaming the financial meltdown solely on Wall Street greed, “The Big Short”, starring Brad Pitt and Christian Bale, left out a key character in its depiction of what led to the nation’s 2008 economic meltdown: Big Government. Hollywood conveniently left this out of the film because it didn’t fit its narrative that Wall Street speculators and big banks were exclusively to blame. This is about as intellectually sound as the mortgages of millions of Americans who suffered as a result of the government’s role in creating the crisis.
For years, the Federal Government glamorized home ownership, holding it up as a fundamental tenant of the American Dream. Replacing the goal of fostering a stable housing market, based on free enterprise and personal responsibility, was a new goal – increasing minority home ownership – something politicians eager to woo minority voters could hold up as proof of their compassion and efficacy in government. Politicians and the bureaucrats were so consumed by this “dream sequence” that it became the nightmare that no one saw coming. But when have you ever heard that narrative coming soon to a movie theater near you?
If you watched “The Big Short” you never even heard the names of two government sponsored enterprises which would become household names as the crisis unfolded: Fannie Mae and Freddie Mac. Thanks to political incentives, Fannie and Freddie’s underwriting standards became so relaxed that people could get a mortgage without showing any documents to verify their income. The result was that thousands of people bought homes they could not afford. Fannie and Freddie got away with this by packaging – or “securitizing” – those mortgages and then selling them off to the market as gold. When banks and investors realized the true value of these loans, no one wanted to buy them anymore because they could no longer guarantee what was in them. Couple this with an asset devaluation issue: these mortgages were no longer worth the value on the books and so began the rippling effect that turned into the financial crisis. A few greedy executives on Wall Street did not cause that, they took advantage of it.
Winston Churchill said, “history shall be kind to me, for I intend to write it.” Sadly, we have allowed moviemakers, the liberal media, and politicians with dirty hands in the crisis to perpetuate a false narrative. But this isn’t just a question of artistic license. Getting the story wrong means getting the policy prescription wrong. In short, it means not protecting Americans from another financial crisis.
In fact, we’re already seeing this happen. The legislative reaction to the 2008 financial crisis was the massive Dodd-Frank bill, which re-wrote our financial system. Meant to protect taxpayers from another big bail out and prevent banks from becoming “Too Big To Fail”, it has actually exacerbated the problem. Today, America has fewer and bigger banks than it did before the law was enacted.
Curiously, the liberal politicians and Hollywood stars who claim to champion the stories of “the little guy” seem disinterested in the millions of Main Street businesses and families who have become the helpless collateral damage of Dodd-Frank. Thanks to thousands of pages of new financial regulations, we’ve witnessed a staggering 40 percent decline in small community banks. These banks, often rural, had nothing to do with the crisis, but because they cannot afford the compliance costs, they no longer exist. When they shut down or consolidate with a bigger bank, access to credit tightens for families and America’s small and midsize businesses.
Washington’s response to grow government and hire more regulators has not addressed its root causes. We had plenty of regulators back in 2008, and they all failed to get ahead of the crisis. Allowing the story of the financial crisis to be fictionalized by the very politicians who created the problem and liberal Hollywood writers and producers looking for a simplistic and profitable Wall Street greed story, makes for easy viewing in a theater, but it does nothing to protect American families from another financial crisis.
Sadly, in this story, the future of America’s free markets and financial systems are at stake. Big Government advocates stand ready to do to finance what they have already done to health care: take it over. In their ideal world, government will decide how our capital markets work, just as they have taken over the major decisions in our health care system. Make no mistake, President Obama, Hillary Clinton and Senators Elizabeth Warren and Bernie Sanders want to fundamentally alter the free-market system that has made our country the envy of the world. As conservatives, we must do a better job of correcting the misinformation they are actively perpetuating. Yes, it’s tough when you are up against a liberal media and a Hollywood blockbuster movie, but we can’t give up. We can’t afford to be timid or lazy about telling the truth and exposing the real culprits.
Coming soon to a television near you: the House Financial Services Committee will pursue legislation that will bring us a safer, freer financial system. We can’t promise you Brad Pitt, but we’ll show you the villains Hollywood refused to let you see – Fannie, Freddie, and their crony, corrupt accomplices in Washington DC. Get the popcorn; it is going to be a great show.