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Home > Blogs > Ian Fraser > "Blindsided" by crisis, Bush denies all responsibility for its fomentation

"Blindsided" by crisis, Bush denies all responsibility for its fomentation

US financial crisis | Ian Fraser

George W Bush's memoirs Decision Points provide a fascinating and revealing insight into the thinking - or the lack of it - that helped inspire the former US president's decision-making during his eight years in the Oval Office.

I can't pretend to have read all 500 pages of Bush's partially successful attempt to defend his legacy. However from a business, financial and economic perspective, the following passage stands out:

"We were blindsided by a financial crisis that had been more than a decade in the making."

Interesting use of language, here. I believe the word "blindsided" comes from American football and, in its passive form, means "to be caught unaware" or "to be unpleasantly surprised".

So why was Bush caught with his pants down by the economic and financial crisis of 2008? He tells us, he had just sort of assumed that the bodies that are supposed to notice if there is an excess of credit in the system were doing their jobs properly. In the book, he writes that until the crisis his focus

"had been kitchen table economic issues like jobs and inflation. I had assumed any major credit credit troubles would have been flagged by regulators or ratings agencies."

Passing the buck to Alan Greenspan, the former chairman of the Federal Reserve, other financial regulators and to the ratings agencies (whose job is, after all, to verify credit risk for the benefit of lenders) is quite a nifty piece of footwork by Bush. But to me it doesn't quite wash.

In a separate interview with Kim Strassel of the Wall Street Journal, Bush insisted that a lack of regulation was not behind the crisis. He said he believed that the only area where regulation should have been tighter was "the extent to which Fannie and Freddie were allowed to run wild..." Otherwise he insisted:

"This was a regulated house of cards - regulators were watching it all... This was a crisis that was caused in large part by bad business decisions."

This contrasts sharply with the views of Bill Clinton (and, indeed, Viewpoint contributor Bill Hambrecht) . Both have accused the Bush administration of fuelling the crisis with its laissez-faire approach regulation. Clinton told ABC's This Week in April 2010 that under Bush “[t]he SEC and the whole regulatory apparatus was just let go."

In the WSJ interview Bush conceded that his administration became "pretty risk-averse" at the height of the crisis in September and October 2008 and when putting together the Troubled Asset Relief Program. This he said, was partly because they were so terrified of additional dominos falling in the event of another leading bank or car-maker such as General Motors failing.

Strassel asked Bush why his administration had injected the TARP funds directly into the banks rather than pursuing the original idea of buying up their toxic assets (by the way, this U-turn by Bush's government is explored by Hernando de Soto in his recent QFINANCE viewpoint). Bush replied by saying:

"Because it was too cumbersome. It was an interesting idea, but it wasn't going to work quickly enough. Whose assets? How do you buy them?... We didn't have a lot of time."

Bush told Slesser the advantage of capital injections into the failing banks was that the money went "boom, right into the system."

But de Soto for example warns you cannot rectify a dangerously polluted and corrupted system simply by injecting government money. In fact, as de Soto warns in his viewpoint article, the West's failure to properly record the ownership of derivatives represents a ticking time-bomb for all developed economies.

Slesser concluded by asking George W Bush, would the fact the worst economic crisis since the Great Depression had happened on his watch undermine his "accomplishments" in the war on terror? Dubya replied:

"Naaaaah. I think history will eventually say that the Bush administration dealt with this in a way that saved the economy... We didn't have a depression - and I thought one was coming. I did."

Oh, the hubris!

Further reading on the US financial crisis and the economic legacy of President George W Bush:

Tags: Alan Greenspan , derivatives , Federal Reserve , financial crisis , regulation , US
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  1. arosarosa says:
    Fri Nov 12 06:11:21 GMT 2010

    During the Bush administration, the SEC went to pot. Proof: A whistleblower named Harry Markopoulos reported suspicious activity by a certain Madoff no less than four times, from 2002 to 2008. The SEC ignored every warning. Finally, when the credit crunch forced Madoff's scheme to collapse, they remembered him (His book is called "No one would listen"). So much for the strong regulators of the Bush era! ar

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