Hoover Daily Report

Letter: Taylor Nails Federal Responsibility

via Wall Street Journal
Sunday, November 10, 2013

John Taylor recaps the federal government's policy missteps that contributed to (if they weren't the sole cause of) the 2008 financial crisis, and he builds a solid case that "Economic Failure Causes Political Polarization" (op-ed, Oct. 29). As Washington reacted to problems that it helped create (with low-income housing mandates and easy money from the Federal Reserve), the resultant regulations, interventions and unprecedented Fed accommodation served to expand government power, heighten private business uncertainty, dampen economic activity and intensify political partisanship.

America's largest banks repaid all TARP funds to the Treasury shortly after the recession ended, and the federal government realized a decent profit on the loans. Yet an additional $100 billion or more will be extracted from bank-shareholder value primarily because banks overzealously (and, in retrospect, irrationally) embraced subprime lending at the behest of Washington. Meanwhile, TARP is the recession gift that keeps on giving in public animosity toward banks, a perception that capitalism is rigged, and as an excuse for all sorts of federal programs.

A half-dozen federal financial regulators, all newly required by Dodd-Frank to monitor racial and gender diversity practices at banks, just proposed new standards for assessing performance: commitment to diversity, profile of workforce, outreach to minority groups and diversity of suppliers. The banking sector has been walloped by Washington's micromanagers and pocket-pickers, and bankers now are more worried about regulators and the Fed than about facilitating economic recovery. The health-care and energy sectors are subject to similar disruptions.

The left is committed to our postrecession new normal, while the right wants no part of it. Given that there would be no new normal without failed economic policies, Mr. Taylor's logic is unassailable.

Mark Adams

Atlanta