Ron Paul in 1999 on the Current Crisis

Especially interesting reading for those who blame, rightly or wrongly, Phil Gramm and his banking regulation reform for our financial mess. Ron Paul, the libertarian Republican, was against Gramm-Leach-Briley back in 1999, and here are some of his reasons why:

today we are considering a bill aimed at modernizing the financial services industry through deregulation. It is a worthy goal which I support. However, this bill falls short of that goal. The negative aspects of this bill outweigh the benefits....

  • The growth in money and credit has outpaced both savings and economic growth. These inflationary pressures have been concentrated in asset prices, not consumer price inflation--keeping monetary policy too easy. This increase in asset prices has fueled domestic borrowing and spending.
  • Government policy and the increase in securitization are largely responsible for this bubble. In addition to loose monetary policies by the Federal Reserve, government-sponsored enterprises Fannie Mae and Freddie Mac have contributed to the problem. The fourfold increases in their balance sheets from 1997 to 1998 boosted new home borrowings to more than $1.5 trillion in 1998, two-thirds of which were refinances which put an extra $15,000 in the pockets of consumers on average--and reduce risk for individual institutions while increasing risk for the system as a whole.
  • The rapidity and severity of changes in economic conditions can affect prospects for individual institutions more greatly than that of the overall economy. The Long Term Capital Management hedge fund is a prime example. New companies start and others fail every day. What is troubling with the hedge fund bailout was the governmental response and the increase in moral hazard.
  • This increased indication of the government's eagerness to bail out highly-leveraged, risky and largely unregulated financial institutions bodes ill for the post S. 900 future as far as limiting taxpayer liability is concerned. LTCM isn't even registered in the United States but the Cayman Islands!
  • ...My main reasons for voting against this bill are the expansion of the taxpayer liability and the introduction of even more regulations. The entire multi-hundred page S. 900 that reregulates rather than deregulates the financial sector could be replaced with a simple one-page bill.

I wonder how many of Jacob Weisberg's favorite economic thinkers and politicians were this prescient this long ago? Add this to the "it's all the libertarians' fault" file.

Reader Bill Rrahmoni called our attention to this statement of Paul's.

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  • *||

    That level of predictive power doesn't come by mere guesswork. It can only be the result of taking a sound principle to its logical conclusion. Paul's economic principles are looking pretty sound about now.

  • PicassoIII||

    Call us Paultards, but some of us simply respect the fact this guy actually has read a thing or two bout economics..
    He may not have all the answers, but he's been pretty good defining the questions.

  • Jacob Brownwood||

    Though I have many reservations supporting Ron Paul (abortion,immigration,"family" values), his nearly perfect record on economics and all-things-fiscal have shown how important he is in the American political discussion.

  • jj||

    It's a tragedy that more attention and respect is not paid to the Doctor's words. It's wonderful to read Doherty's posts here at reason.

  • Seer||

    Would things have been different in the Republican primary if this crisis had emerged last year during the primary season?

    Tragically, I think not.

  • ||

    Hat tip Ron Paul. You don't have to agree with him politically to see that he was on the ball here.

    I didn't see anything about poor people in there.

    I did see this: In addition to loose monetary policies by the Federal Reserve, government-sponsored enterprises Fannie Mae and Freddie Mac have contributed to the problem. The fourfold increases in their balance sheets from 1997 to 1998 boosted new home borrowings to more than $1.5 trillion in 1998, two-thirds of which were refinances which put an extra $15,000 in the pockets of consumers on average

    Refinances? That's not expanding homeownership to people in redlined neighborhoods.

    Screw Freddie Mac and Fannie Mae. If the government wants to help people get mortgages, they should help out community banks. Or - here's a thought - give the poor people the money.

  • Warty||

    Or, like, you know, tax us less. You meant to say that, right, joe?

  • ||

    RTFA, Warty.

  • ||

    I'm sorry, Warty, I misunderstood what you were saying.

    Yes, cutting the taxes paid by poor people would be great. They might not pay what you and I would consider large amounts of taxes, but it's a lot to them.

    I love that idea. I'd totally vote for a candidate who wanted to do that.

  • Warty||

    I did. What am I supposed to be noticing?

  • Warty||

    Ah, yes. I should be more clear when I'm being snarky, but that's not really my style.

    As an aside, I'm pretty damn poor myself. My dinner tonight was some turkey slices and half a cucumber.

  • PicassoIII||

    Jacob Brownwood said
    Though I have many reservations supporting Ron Paul (abortion,immigration,"family" values),


    It's given me pause more than once too.
    He's even a fan of intelligent design.
    *shakes head*
    Still, he does come from a religious family, has been hanging out with conservatives most his life and is an obstetrician too. Certain positions are to be expected.
    Having been against the war on poor peo.....uh, drugs since the 80s earns him his stripes as one of the most libertarian elected pols.
    Another favorite who carries such 'belief' baggage is Jeff Flake. Dudes a Mormon and still blasts the WOD, and not bad on pork either.
    Hailing from Chicago i'm most comfortable 'wasting' my vote on Barr, Stafford and Hanson (no L for congress, but the R is pro choice).
    Obama, Durbin and Emmanuel WILL carry though. *sigh*
    At least i can give most of my neighboors crap for towing.....

  • ||

    My bad, Warty. I thought you were blaming the mortgage meltdown on taxes.

  • ||

    I used to be that poor, briefly.

  • ||

    How prescient was Bob Barr?

  • JMR||

    For some reason, I rarely hear that "Paultard" word anymore. "We told you so" are 4 hated words, but a few media outlets are slowly getting it. It must be tough to be a lefty outlet like Newsweak/Slate with an internet out there to intellectually-trounce them. I'll bet they REALLY MISS the '70s & '80s.

  • ||

    Does it really matter what a candidate's views on intelligent design are, if said candidate's platform is to keep such issues OUT of the government's sphere of control? I'll take a hundred creationist libertarians over one evolutionist socialist any day of the week.

  • ||

    Dr. Paul understands better than most the separation of church and state. His religious beliefs are not of concern to me, because of his belief in the Constitution and sound monetary policy. He knows to separate church and state unlike most of the Republocrats. Any politician who runs on their religious beliefs is not suited for office. Too bad the majority of the American public is not educated enough to understand the basic principles of separation of church and state. Our founding fathers knew what they were doing.

  • ||

    Joe and others:

    Here's a link to a video interview of Paul wherein he talks about the effects of currency debasement on the poor, among other issues.

    http://video.google.com/videoplay?docid=-2962369311366680572

    Currency debasement extracts an inflation tax from everyone, which is completely non-progressive, in that it is a completely flat tax on dollar denominated income and assets without any personal exemption. It redistributes wealth from savers to borrowers and from average people to those who are politically well connected (e.g. gov't contractors and others on the dole).

    Sorry, you'll have to cut and paste the above link; I'm too lazy to convert it into a hot link.

  • Jonas||

    Out of curiosity, if this speech is from 1999, why is it addressed to a "Madam Speaker"? I assume there's a logical explanation, but I don't always understand the House of Representatives or its procedures, and I'm pretty darn sure he wasn't addressing our lovely current-Speaker Pelosi.

  • ||

    Brandybuck wrote, "I'll take a hundred creationist libertarians over one evolutionist socialist any day of the week."

    Libertarian Jim wrote, "Dr. Paul understands better than most the separation of church and state. His religious beliefs are not of concern to me, because of his belief in the Constitution and sound monetary policy. He knows to separate church and state unlike most of the Republocrats."

    I completely agree with both statements, and I voted for Ron Paul when he ran for President as a Libertarian, which is why it was such a disappointment that Paul endorsed Baldwin, whose party is pledged to inject (they would say "restore") a fair amount of theocracy into our system. All the admirable libertarian restraint that Dr. Paul has shown over the years, in not using the law to inflict his religious beliefs on others, would pretty much be undone in one fell swoop, were the candidate Paul endorsed to win the White House.

    Still, thanks to Doherty for posting this Ron Paul "oldie." Paul supporters can definitely say "We told you so," in this case. Why don't the guys who were right about the big issues of our day get the kind of respect and media attention (to publicize their views) that they clearly deserve?

    The voters of this country can't make RP the next POTUS, at this point, but they can at least wake up DC and its pet media by giving Bob Barr a "Dewey Beats Truman" moment, in the process saving us from the socialism of Obama and the fascism-lite of McCain (really, not all that far apart on the "net freedom" index).

  • Shane Brady||

    Libertarian Jim,

    Ron Paul has said there is no such thing as a separation of church and state. That's not "understanding" it.

  • Shane Brady||

    I bet if you go back and look Ron Paul's predictions, he says a painful depression/recession is "just a year or two away". If you keep saying something like that every year, eventually you'll be "right."

  • ||

    Jonas - it's a conference report (presumably to reconcile the different versions of the House and Senate) and whoever was the chair of the House conference was a woman.

  • ||

    Jonas,

    The actual Speaker designates people to run the House in his or her stead while she's physically absent, and they are referred to as "Mister or Madam Speaker."

  • matt2||

    Shane, you just made up a quote, attributed it to Ron Paul, then criticized him for being non-specific in his predictions.

    That's probably the laziest argument I've seen on here all day, and that's saying something, because Edward has been posting quite a bit.

  • Bill||

    Here's the link to the actual congressional record http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?position=all&page=29059&dbname=1999_bound_record

  • Shane Brady||

    matt2,

    It's all in the newsletters. I didn't make it up.

  • ||

    Jacob,

    Ron Paul's personal positions on those issues you may not agree with - but he believes these are not National issues and should be decided on the State level.

    Also, I forget who mentioned it but Ron Paul is not a "fan" of intelligent design.. he just understands that it's impossible for humans to *know* the answer to the big questions of life..

    But all in all, the economic factor is the most important issue of all.

  • intellectual slime-mold||

    i like ron paul.. and he obviously has better fiscal policy than a republocrat. out of curiosity, what do you think would be accomplished with a rp or bb as potus. love all my accrnms. wait let me answer myown question.. nothing. perhaps some believe that zero is far better than 'socialism' of obama. i personally would rather have zero than facism-lite [thanks JAM] of mcpalin. im going to give the dem a chance though. you can all laugh at me when he establishes the bureau of departments

  • ||

    Oh, so now Reason calls Ron Paul the "libertarian Republican".... why not the "Racist Ron Paul"?

    Seriously, who can forgive Reason for its sladerous behavior when it most counted during the primary season 2007? I can't. Digging up 20 year old newsletters as "news" and then refusing to get into the issue word for word and defending any of it and instead just sladering it all as "racist". Unforgivable.

    I think Justin Riamondo has you people down.

    You will have to a lot more Ron Paul ass-kissing like this "hit & run", and post up one thousand more positive pieces on Ron Paul to finally make amends with those of us in the R3VOLution.

    In Peace & Liberty,
    Treg

  • ||

    For all my fellow Ron Paul friends out there.

    I found this article today and loved it:
    http://www.lewrockwell.com/orig8/hamilton7.html

    Hope you do too.

  • ||

    Read Paul's other statements at his page on house.gov (http://www.house.gov/paul/). Pay attention to this words. Based on sound economic theory...Austrian school.

  • Invisible Finger||

    If the government wants to help people get mortgages,...

    Stop right there.

    Doesn't anyone question why the fuck the government wants poor people to have MORE debt?

    Suer it's crazy to tell poor people to live within their means, but more and more living within limited means is against the law. A good example is the war on SRO housing. So many private SRO hotels are gone, replaced by government-run SRO's which reuqire all sorts of kowtowing to the state - no drugs, no alcohol, etc. The rooms are cleaner, but the life is unchosen.

    Most poor people would rather be poor-and-left-alone than live slightly-less-poor-and-monitored-by-police; we tax their lives since they have no money to tax.

  • ||

    Yes, cutting the taxes paid by poor people would be great. They might not pay what you and I would consider large amounts of taxes, but it's a lot to them.

    I love that idea. I'd totally vote for a candidate who wanted to do that.


    I agree, with the caveats that:

    (a) the tax cuts for the poor are part and parcel of a larger tax cut for everyone.

    (b) everybody should pay some taxes. Giving an increasingly large sector a complete pass from paying income taxes, for example, is a recipe for kleptocratic democracy.

  • JD||

    "Government policy and the increase in securitization are largely responsible for this bubble."

    How exactly does an increase in securitization cause an asset bubble? Securitization is nothing more than a form of financial technology that allows for a wider dispersion of risk.

  • ||

    Nothing on the private lenders, like Countrywide, who were minimally regulated and made over 80% of the subprime loans in the middle of this decade. Nothing? Hm. Why am I not surprised?

  • ||

    Seriously reason needs to pour themselves a tall, warm glass of shut the f*&k up.

    They could have supported the closest thing this country had to a libertarian presidential candidate with a chance and did not do so.

    For that reason, I am done with reason.

  • ||

    As I told Republictards (my word for Republicans) during my local and county caucuses, if President Bush's approval rating is at 30%, why would a majority of people vote for McCain who mirrors almost all of Bush's policies. What was needed was an anti-Bush for them to win. Upon voicing my support for Paul I was immediately mocked and laughed at.

    Whose laughing now, Republictard fuckwads? Thanks for pissing away whatever majority you had in government by acting like the Socialist Democrats. Maybe after 2 years of Obama they'll find their balls again and win back the house on Taft-like Conservative ideas, but the brand has been so tainted I doubt that.

    The Libertarian party could have positioned themselves to be a viable 3rd alternative, but if there is anyone who ran a worse political campaign than Paul, it is Bob Barr, who has made some of the most bizarre tactical and strategic moves of anyone in recent memory.

  • ||

    Gotta go sorta off topic for one more post.

    RP has also been 'right' on many other
    issues...
    Iraq, Patriot Act, FISA, the internet, etc, etc.

    As for the classic social conservative label.
    "Voted NO on restricting interstate transport of minors to get abortions. (Apr 2005)
    Voted NO on making it a crime to harm a fetus during another crime. (Feb 2004)
    Voted NO on forbidding human cloning for reproduction & medical research. (Feb 2003)
    Voted NO on federal crime to harm fetus while committing other crimes. (Apr 2001)
    Voted NO on barring transporting minors to get an abortion. (Jun 1999)
    Rated 56% by the NRLC, indicating a mixed record on abortion. (Dec 2006)"
    Ron Paul on the issues.

    Even the 'moderate' McCain voted YES on all those, earning a 'better' 75% by the NRLC (Dec 2006).

    Yeah, reason piled on at THE worst possible moment with the newsletters. He wouldn't have gotten the nomination either way, but maybe he could have influenced the platform.
    Instead we are left 'hoping' for the collapse of the GOP in it's current state.
    *sigh*

  • Bill||

    @JD

    Ron Paul ascribes to the heterodox Austrian school of economics and points the finger at the Fed (As the venerated mainstream Anna Schwartz now does). I guess his argument would be that with the Fed pumping money through the system banks were pressured to get as much of the capital out in the form of loans as possible. What securitization does (I assume he's referring the MBS in which I believe Freddie Mac..A GSE is the main or only player) is make it that much easier for banks to get the loan (and risk) off its books and focus on approving loans. In a normal market this may be okay but in a distorted market(b/c of Fed monetary expansion and GSE's guaranteed by the government) this leads to higher multiples of leveraging and poses a systemic risk.

    An example of the banks getting rid of capital as soon as they got during a central bank monetary expansion is the Japanese asset bubble. According to the wikipedia article They would even dump capital in their competitors banks just to get rid of it b/c it was at negative interest rates. I wish some economist would take on this argument as a parallel for the current position. I hardly see it being mentioned only offhandedly dismissed.

    Paul's position (I believe) was that partially deregulating would make the bubble bigger and when it burst the taxpayer would be left footing the bill (he cited the bailout of LTCM as a precedent). He essentially characterised the "deregulation" as the mantra that we have today "Privatizing Gain and Socializing losses"

    Anyway that's my theory. Sorry for the long meandering post.

  • ||

    There's nothing wrong with Ron Paul's presidential campaign that 1200% inflation can't cure.

  • ||

    (a) the tax cuts for the poor are part and parcel of a larger tax cut for everyone.

    Wow, quite the humanitarian. I get mine, or nobody gets none, no matter how much more they need it.

    (b) everybody should pay some taxes. Giving an increasingly large sector a complete pass from paying income taxes, for example, is a recipe for kleptocratic democracy.

    What's so special about income taxes? Payroll taxes, sales taxes, and property taxes aren't real taxes?

  • ||

    How exactly does an increase in securitization cause an asset bubble? Securitization is nothing more than a form of financial technology that allows for a wider dispersion of risk.

    You are correct. This is akin to blaming the murder rate on guns. Banks have been securitizing mortgages since 1975 and other consumer loans (cars, cards, etc.) since 1985, and obviously we have gone through other recessions since then without breaking the banking system. The current problems are due to (1) Garbage-In-Garbage-Out, i.e., the large number of highly-risky loans pushed through the system in the 2003-2006 years, and (2) the compounding of these risks through opaque and highly-leveraged re-repackaging of these risky loans to satisfy investment banks' hunger for fees and their clients' (big institutions and wealthy individuals, chiefly via hedge funds) hunger for yield in a low-interest-rate environment. Plain vanilla securitizations are actually an effective and efficient way for banks to recycle funds for new loans without ballooning their balance sheets and capital, and as well it allows for prudent diversification risk systemwide. Unfortunately the past decade the investment banks got "too clever by half" and will no doubt be responsible for an over-regulatory response and a lot of babies being thrown out with the bathwater.

  • ||

    Income taxes are special because they don't pay for infrastructure.

    Yeah. I said it.

  • ||

    This level of prescience is also found in Ron Paul's pre-Iraq War speeches. One of our few great statesman left.
    http://www.youtube.com/watch?v=PLV7zDhKzDY&feature=related

  • JB||

    "But, but, but I'm a Democrat and I'm retarded! Go Obama! Evil deregulation is to blame!"

  • ||

    There's nothing wrong with Ron Paul's presidential campaign that 1200% inflation can't cure.

    LOLLLLLLLLLL.

    The great thing about the deflation/hyperinflation dichotomy we face is, either we get deflation, which is ultimately the less painful way out of this mess, or we get hyperinflation, and I can give everyone who called me a dinosaur for buying gold a big wet sloppy "told you so!"

  • Dogbreath||

    God forbid the sheep in this country wake up and elect a President with insight that fights for liberty.

  • wizard of oz books||

    With many new announcement about the wizard of oz movies in the news, you might want to consider starting to obtain Wizard of Oz book series either as collectible or investment at RareOzBooks.com.

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