masthead-highres

Monday, March 09, 2009

Congress Blowing Its Next Bubble

Senior Fellow Tom Borelli has an op-ed in the D.C. Examiner: "Congress, corporate lobbyists creating Green Bubble."

It begins:
With President Barack Obama and his allies in Congress pushing for a cap-and-trade regulatory program to reduce greenhouse gases, the future of American energy is at a crossroads — and the creation of an economic “Green Bubble” is in the works.

It’s not surprising that liberal politicians embrace the cap-and-trade cause, but to many it is shocking and surprising to see corporate CEOs joining the crusade. The 21st century business model of these CEOs seems to be: “If you can’t beat ’em, join ’em.”

But their capitulation is likely to lead to history repeating itself, and not in a good way.

If there’s one lesson we all can take from the housing bubble, it’s this: The pursuit of liberal policy goals is not a sustainable business strategy.

The housing crisis developed after businesses yielded to social activism and the seduction of politically-driven and unsustainable economic incentives. It started with the Community Reinvestment Act in 1977, which encouraged banks to lend in poor neighborhoods. The Clinton administration later lowered credit standards, and set subprime lending quotas for Fannie Mae and Freddie Mac.

The Association of Community Organizations for Reform Now (ACORN), the leftist advocacy group, also pressured banks to make loans, and Congress skewed laws to encourage lenders to give mortgages to buyers with poor prospects for ever repaying them.

With the game rigged to make unsound lending practices profitable over the short-term, Wall Street was happy to play in this government-constructed casino. For a time, it was a win-win situation.

Profits were made, ACORN was pacified and lawmakers deemed lenders “responsible” for providing loans to low-income households with nary an eye cast to the soundness of it all. But when the over-inflated housing market collapsed, all the fun came to a crashing halt.

Yet, like hard-core gambling addicts, some CEOs haven’t learned their lesson. Instead of returning to selling good products at market prices, they want to go back to the craps table. They’re lobbying Congress to create yet another “bubble” in which government regulatory policy creates artificial value, this time in a ubiquitous gas, carbon dioxide.

Call this forthcoming disaster the “Green Bubble,” for it’s based on the notion that fortunes can be made buying and selling something for which there is no real-world market, greenhouse gas emissions credits...
Read the rest here.

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Posted by Amy Ridenour at 4:14 PM

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