Douthat: Still Clueless about Regulation
A number of very smart people have pointed out that Ross Douthat is all wet when it comes to marshaling an argument that Conservative policies are better than Liberal policies by comparing the economic travails of California and Texas. Douthat's thesis was that California's propensity to regulate has been a critical factor in its current troubles. Whereas Texas, the regulatory free-spirit, is doing much better.
[I]n state capital after state capital, the downturn has highlighted the weaknesses of liberal governance — the zeal for unsustainable social spending, the preference for regulation over job creation, the heavy reliance for tax revenue on the volatile incomes of the upper upper class.
Must prove that less regulation is better, right?
Wrong. Because one of the reasons Texas is doing better right now is because it more strictly regulated the mortgage market than California or a number of other states after being hit hard by the S&L crisis which directly led to why Texas weathered the mortgage bubble collapse better. Here's the way Bloomberg described it in October of last year when remarking on how remarkable it was that the states that had the biggest problem with the bad mortgages were the same states with the most rampant speculation under the S&L crisis. All except one, Texas.
A Bloomberg map of the hardest-hit areas shows that, with the exception of Nevada, regions with the highest foreclosure rates also had the most savings-and-loan failures, according to the Federal Deposit Insurance Corp.
The overlap shows that the aggressive lending and speculation that ignited the savings-and-loan meltdown persisted, at least in those areas, according to Paul E. Johnson, who was mayor of Phoenix from 1990 to 1994.
"From where I sit, the areas that were hit by the S&L crisis and those struggling with subprime look pretty much the same," said Johnson, now president of Southwest Next Capital Management, a real estate investment fund based in Arizona.
Texas, where failed thrifts in the Dallas and Houston areas had assets of more than $45 billion in the 1980s and 1990s, has largely sidestepped the subprime crisis by learning a lesson from the S&L scandal and ratcheting up regulation.
"We had no regulation of mortgage brokers before 1990 and now we have some of the most robust requirements in the country," said Doug Foster, commissioner of the Texas Department of Savings and Mortgage Lending in Austin.
Funny how a little regulation staved off the worst of the crisis in Texas. Makes one think that Douthat is blowing smoke when he comes up with his "theories."