The myth of Herbert Hoover and the Great Depression

October 3, 2:35 PMBaltimore History ExaminerMark Newgent

Previous Next

1 comment Print Email RSS Subscribe

Subscribe

Get alerts when there is a new article from the Baltimore History Examiner. Read Examiner.com's terms of use.

Email Address   Include other special offers from Examiner.com Terms of Use

He's no Adam Smith 

There is a lot of horse manure going around about how a lack of government regulation caused the current financial crisis, and that only massive government intervention into the markets is the answer to the problem.  

Historical ignorants shackle free -marketeers with the ghost of Herbert Hoover while pining  for some new form of the New Deal to save us from a  looming second depression. This is complete nonsense.

First, let's get something straight.  Herbert Hoover was no "hands off" "do nothing" president.  After the 1929 crash, Hoover cattle prodded businesses to keep wages and prices artifically high:

In 1932, Hoover in effect repealed Calvin Coolidge’s tax cuts, increasing the rates for the poorest taxpayers by more than 100 percent and hiking the top rate from 25 percent to 63 percent. Worse, contrary to his own better instincts, Hoover signed the disastrous Smoot-Hawley trade bill that raised protectionist walls at precisely the moment the world needed trade the most.

FDR merely came in and extended and amplified Hoover's internventions into the market.  As I argued before The New Deal did not end the depression, it prolonged and exacerbated it.  See the depression within the depression. Government meddling made things worse.

Yet, Maryland politicians continue this absurd line of argument.

Some of you may have seen Governor O’Malley on WBAL TV last night offering his “analysis” of the current financial crisis. WBALTV.com does not have the video posted so I can’t give you his exact words, but it was his usual progressive schtick. O’Malley laid the blame on a lack of government regulation.

To say that O’Malley’s “analysis” is severely flawed would be an understatement. It lacks grounding in fact or reality.

Lack of government regulation? Indeed, it was government regulation that caused the credit crunch, more precisely regulations altered by O’Malley’s own political benefactor, Bill Clinton.

The Clinton administration played identity politics with credit standards. With threats of accusations of redlining, from the Clinton administration and allies like ACORN, they forced banks to loosen their lending policies and approve subprime mortgages to people, who could not afford to repay the loans (ACORN got a lot of scratch out of the deal too).
Democratic created and protected government sponsored enterprises (GSE) Fannie Mae and Freddie Mac bought billions of dollars in subprime loans. The GSEs then worked with Wall Street to sell the loans to investors as mortgage-backed securities, and you know the rest.

Governor O’Malley, just in case you didn’t read that right the first time, GSE stands for GOVERNMENT sponsored enterprises.

President Bush, O’Malley’s second favorite stand in for all things bad, tried to reform the GSEs, but Democrats blocked that effort. Democrats stood against reform even after Fannie and Freddie executives (Jamie Gorelick, Franklin Raines, and Jim Johnson) overstated earnings by $10.6 billion in order to line their own pockets.

Long story short: progressive regulations flout reality, lead to financial meltdown, Pelosi's of the world blame free markets, call for more progessive regulation.

To heed Governor O'Malley's "analysis" would invite more of the same thing that got us into this mess in the first place.