Pethokoukis Blaming Congress

by Mike Kimel

Pethokoukis Blaming Congress

From his perch at Reuters, James Pethokoukis writes (and this is his title) about 4 ways Congress caused the financial crisis. He quotes from a paper by Ross Levine. I have not read the Levine paper yet but the abstract does seem to indicate what Pethokoukis wrote. The abstract does not seem to indicate blame is placed with Congress, but rather that the regulatory agencies (which presumably includes Congress) should have seen the signs of the growing fragility of the financial system associated with their policies during the decade before the crisis and yet chose not to modify those policies.

Thus, I don’t know if Levine also blames Congress for the crisis or whether he would merely indicate (as many would) that Congress could have done something to stop it, but the abstract seems to indicate that .

In any case, Pethokoukis quotes 4 reasons this is Congress’ fault:

1. Congress did not prevent ratings agencies from behaving poorly
2. Congress did not prevent bankers from engaging in excessively risky CDS trades
3. When the SEC allowed investment banks to leverage up, Congress did not step in
4. Congress did not engage in enough oversight of Fannie and Freddie

If I understand Pethokoukis correctly, his view is that Congress caused the financial crisis by forcing private sector players to behave recklessly, which it did by not regulating them. Which seems odd to me. Particularly since, having read a lot of what Pethokoukis wrote over the years, I cannot believe he would have advocated having Congress do more regulating of ratings agencies, banks, investment banks, or even Fannie and Freddie. (Which would almost imply Pethokoukis is in favor of financial crises of this magnitude, wouldn’t it?) And he certainly wouldn’t have credited Congress had Congress engaged in more regulating and things turned out well. (Who would?)

As I said – this is seems very odd to me.