Who caused the financial meltdown? Peter Schweizer points his finger directly at the Left in his new book, Architects of Ruin: How Big Government Liberals Wrecked the Global Economy — and How They Will Do It Again If No One Stops Them. He sat down with NRO’s Kathryn Jean Lopez to lay out the case for the guilt of the Left.
KATHRYN JEAN LOPEZ: Isn’t it a bit much to blame the Left for the entire economic mess?
PETER SCHWEIZER: No, not at all. Liberal social engineering caused the crisis. There were two major factors in the financial meltdown last year: the mortgage crisis and massive speculation on Wall Street. The Left sparked the mortgage crisis by pushing aggressively for banks to lower their lending standards. ACORN and others, for example, wanted welfare payments to be counted as income. As I point out in the book, this led to trillions of dollars in bad loans’ being made. The second factor, Wall Street speculation, was also fueled by the Left. People forget that the Clinton administration bailed Wall Street out repeatedly in the 1990s for highly speculative investments that went bad. No less than six times did they use taxpayer money to help Wall Street investment houses from facing huge losses. And in each instance they saw to it that Wall Street’s profits remained intact! Capitalism should be about profit and loss. If you bail people out from irresponsible behavior, guess what — you get more irresponsible behavior.
LOPEZ: You’re guaranteed to be a Tea Party hit now though, aren’t you?
SCHWEIZER: I love the tea-party crowd. They’re among the few in America willing to stand up and say, “Enough is enough.” And they instinctively understand the root of the problem — liberal social engineering.
LOPEZ: There are architects of ruin on the Right, too, aren’t there? And folks who haven’t helped matters in and out of office?
SCHWEIZER: Yes, there are conservatives and Republicans that went for the liberal message on housing and bank loans and warmed up to the big firms on Wall Street. As conservatives, we must remember what Milton Friedman said: There is a huge difference between being pro-business and pro–free market. Too many conservatives and/or Republicans have been coopted by business interests at the expense of being pro-free market.
LOPEZ: There are some drawbacks to capitalism though, aren’t there? Cautions and needs for regulation?
SCHWEIZER: The best way to deal with the excesses of capitalism is to let those who engage in them suffer from the consequences of their actions. Speculators who bet wrong should be wiped out, not bailed out by Washington. The Clinton administration really started all of this. Up until 1994, when they decided to rescue Goldman Sachs and other investment houses from bad bets on Mexican bonds, the federal government had never bailed out Wall Street. (The S&L bailout was different; the federal government is required to guarantee bank deposits.) Many of the complex financial instruments causing problems on Wall Street today were created in part to get around regulatory requirements or for tax purposes. More regulation will simply encourage more complexity.
LOPEZ: What’s the deregulation myth? Why should we believe you?
SCHWEIZER: Banks are the most highly regulated business in America today, with the possible exception of the nuclear-power industry. The conventional narrative, that free-wheeling capitalism caused this crisis, was written by people with an agenda, which is to grow the size and power of government. At the time of the Great Depression, the conventional wisdom was the same. Only later did scholars such as Milton Friedman and others show that the real problem was the money supply. All I ask is: Don’t just accept the conventional wisdom; actually look at the facts.
LOPEZ: Isn’t it a bit much to come up with a housing-crisis “axis of evil”?
SCHWEIZER: Look, you have a cluster of people — including Bill Clinton, Jesse Jackson, Barney Frank, Robert Rubin, and Barack Obama — who pushed the line that banks were not making loans to poor minority neighborhoods because they were racist. (What they ignored, however, was clear evidence that black-owned banks were even less likely to make loans in those neighborhoods than white-owned banks.) So they shook the banks down and demanded they make risky loans to absolve the banks of their sins. And there is plenty of evidence that at least some of these individuals knew that these loans would fail. And yet, they proceeded anyway and left us paying the bill. Pretty awful and cynical stuff, if you ask me.
LOPEZ: A jihad against American banks? Come on.
SCHWEIZER: Well, for the Left, it was a holy war. It was Saul Alinsky who identified banks as the center of gravity in a capitalist economy and said the Left should focus its attention on them. There have been shakedowns going on for decades. Demands that banks loosen their lending standards, allow higher debt ceilings, etc. Look at what was happening with left-wing activists in the 1980s and the successes they were having against the banks, and you see the beginning of subprime lending. These activists might not have strapped on bombs, but they did blow a big hole in the American financial system.
LOPEZ: How do you suggest the global economy be fixed?
SCHWEIZER: The best way to fix it is to leave it alone, allow for free trade, free flow of capital, and deregulation. Global capitalism is not perfect by any means, but whenever elected officials start to tinker, they cause enormous problems and distortions in the market.
LOPEZ: Did the stimulus fail?
SCHWEIZER: What stimulus? I didn’t notice a stimulus. Did you?
LOPEZ: Was the bailout a disaster?
SCHWEIZER: One could argue that there was a panic in the global market last November and we needed to steady nerves. But that should simply have been temporary, a response to the distortions in the economy caused by government intrusions in the first place.
LOPEZ: On Sunday, the New York Times criticized the Obama administration for not doing enough for job growth and suggested another stimulus bill as a solution. Is that the answer? How can the Architects of Ruin message get out in a place like this?
SCHWEIZER: That’s a great idea: It didn’t work last time, so let’s keep doing it. Architects of Ruin should be a cautionary tale. Politicians need to stop picking favorite areas of the economy that are in need for “improvement.” They did this with housing, and look where it got us. Now they are doing it with the green economy. I think we all know where that will end. Prediction: Liberals and the mainstream media will be whining about the green-tech bubble a few years from now.
LOPEZ: Your last book was about liberal hypocrisy. Are you obsessed with the Left?
SCHWEIZER: I’m obsessed with protecting our country.
LOPEZ: Did your book help Al Franken to the Senate?
SCHWEIZER: Kathryn, that was low. Could you have said anything worse to me? What got Franken elected were those ballots “discovered” in the trunk of that car in North Minneapolis.
LOPEZ: Is ACORN rotten to the core? What can and should happen to it?
SCHWEIZER: ACORN is basically a revolutionary organization. It is interested in transforming American society. ACORN should receive no government funds, period. And banks and other corporations should have some courage and stand up to their shakedown tactics and declare, “We’re not paying you off anymore.” It’s funny how the Left says corporate America is so conservative. They give far more to the likes of ACORN than they do to conservative think tanks.
LOPEZ: How can a black-owned business be racist to blacks?
SCHWEIZER: Hmm . . . you’ll have to ask President Obama that question. In 1994, he sued Citibank and declared that they had violated the Fair Lending Act and the 13th Amendment to the Constitution (which abolished slavery) because they would not make loans to people who had poor credit. He declared that they were racist. But actually black-owned banks have an even worse record of making such loans. So ask him at his next press conference.
LOPEZ: Why do you have to join the pile-on against Saul Alinsky?
SCHWEIZER: Saul Alinsky deserves everything he’s getting. He is more dangerous to this country than Karl Marx ever was because he believes in deception, lying, and pure power to achieve his goals. He has a lot to answer for when it comes to causing the subprime crisis.
LOPEZ: Why do you target the Community Reinvestment Act? Who doesn’t want to reinvest in the community?
SCHWEIZER: The CRA is really affirmative action in lending. Banks want to make loans to whoever will pay them back. But activists step in and say, no, you are denying people loans because you hate black people and the poor. So banks now have to sign agreements with activist groups like ACORN and commit to making these high-risk loans. The sums are enormous. In the nine years running up to the 2008 financial meltdown, CRA commitments totaled $4.2 trillion. That’s four times the size of the current health-care bill before Congress. It’s a frightening number. And these loans typically have a failure rate that is four times the national average. It is completely outrageous that Washington is looking to expand the CRA. Read more here.
LOPEZ: Why must Chris Dodd go?
SCHWEIZER: Dodd represents the worst type of politician in Washington: economic populist, coddler of Wall Street insiders, all the while personally benefitting from his “service.”
LOPEZ: When will Charlie Rangel go? What will ultimately do him in?
SCHWEIZER: Charlie Rangel will never go. Criticism of him is a reflection of latent racism. Besides, Nancy Pelosi is a machine politician. As long as he stays loyal to her, it’s hard to see her cutting him loose. If he crosses her . . . .
LOPEZ: Of everything you wrote about in the book, what most surprised you?
SCHWEIZER: I really went into this project with a healthy respect for Wall Street. While there are still great financiers at work there, I was really stunned at how dependent the big “capitalist” houses like Goldman Sachs and J. P. Morgan have come to rely on taxpayers to pull their chestnuts out of the fire. In the 1990s, they started joking about “Government Sachs.” Not too far from the truth.
LOPEZ: What do you most want people to know?
SCHWEIZER: That capitalism and the free market did not fail us. Our leaders failed us. And that the very people who got us into the mess and now telling us they are going to clean it up. Truly frightening.
LOPEZ:Is housing a right? Is this assumption a problem?
SCHWEIZER: Housing is not a right. (Neither is health care.) The problem is that the Left believes that not only is housing a right, but so is a mortgage. There is a big push by the Left these days to compel private businesses to advance their social agenda by demanding things from them that the government cannot afford to provide. Giving someone a house and the mortgage does not make them responsible.
LOPEZ: And so the worst is yet to come?
SCHWEIZER: I think the worst is yet to come because all the wrong lessons have been learned. Government creates bubbles. They created the housing bubble and the speculation bubble on Wall Street. But rather than recognize that fact, Washington is pushing for greater government intrusion into the market. The so-called Green Market has all the signs of becoming a bubble in a few years. Government mandates, tax credits, and grants are creating a bubble that the market simply won’t sustain.
LOPEZ: How can it be stopped?
SCHWEIZER: What we need to do is break the bubble of Washington. We need to take the government back from the Left. But we also need to stop Republicans from engaging in their own form of social engineering.