Bush’s speech on Wall Street today is a most peculiar thing — a mixture of free-market platitudes, cryptic code, and outright weirdness. For instance, what does this mean?
One vital principle of reform is that our nations must make our financial markets more transparent. For example, we should consider improving accounting rules for securities, so that investors around the world can understand the true value of the assets they purchase.
"Accounting rules for securities" — that sounds like mark-to-market, right? But even the people who want to abolish mark-to-market accounting don’t go so far as to say that doing so will improve transparency or make "the true value of assets" more obvious. This statement is the kind of thing which would be made by someone urging a move to mark-to-market accounting, not a move away from it. Does Bush think there isn’t enough mark-to-market accounting?
Bush then continues:
We should move forward with other significant reforms to make the IMF and World Bank more transparent, accountable, and effective. For example, the IMF should agree to work more closely with member countries to ensure that exchange rate policies are market-oriented and fair.
Is this a reference to China? Is Bush really trying to outsource to the International Monetary Fund responsibility for getting China to play nice with its exchange rate?
After that, Bush gets downright disingenuous:
We must recognize that government intervention is not a cure-all. For example, some blame the crisis on insufficient regulation of the American mortgage market. But many European countries had much more extensive regulations and still experienced problems almost identical to our own.
Yes, George — because they bought American mortgages! But he’s not done with this theme:
History has shown that the greater threat to economic prosperity is not too little government involvement in the market – but too much. We saw this in the case of Fannie Mae and Freddie Mac. Because these firms were chartered by Congress, many believed they were backed by the full faith and credit of the United States government. Investors put huge amounts of money in Fannie and Freddie, which they used to build up irresponsibly large portfolios of mortgage-backed securities. When the housing market declined, these securities plummeted in value. And it took a taxpayer-funded rescue to keep Fannie and Freddie from collapsing in a way that would have devastated the global financial system. There is a clear lesson: Our aim should not be more government – it should be smarter government.
Oh, come on. The problem with Frannie wasn’t "government involvement in the market" — it was government deliberately exempting Fannie and Freddie from the capital-adequacy rules which applied to everybody else, and thereby encouraging them to maximize the amount of leverage they took on — all in the name of "encouraging homeownership". What we needed was precisely more government: a Frannie regulator with teeth, and a government which refused to let nominally-private corporations lever up to obviously-dangerous levels. The implicit government guarantee wouldn’t have been a problem if it wasn’t for the amount of leverage involved.
But even if you concede Bush’s point about Frannie, it’s still weird how contentious and cryptic he’s being elsewhere in the speech. What’s the signal he’s trying to send, and who is he trying to send it to? Does he really think that the G20 summit is going to be full of people lauding the merits of the economic system in Cuba? I’m rather puzzled by the whole thing.