The dangers of deep denial

THE DANGERS OF DEEP DENIAL…. Paul Krugman takes a stroll down memory lane today, noting the recent history deregulating banks and the financial industry. It was a system created in the wake of the Great Depression, and worked well to prevent catastrophes.

But in time, conservatives were able to remove safeguards. The results were disastrous, producing, among other things, last year’s crash.

Given this history, you might have expected the emergence of a national consensus in favor of restoring more-effective financial regulation, so as to avoid a repeat performance. But you would have been wrong.

Talk to conservatives about the financial crisis and you enter an alternative, bizarro universe in which government bureaucrats, not greedy bankers, caused the meltdown. It’s a universe in which government-sponsored lending agencies triggered the crisis, even though private lenders actually made the vast majority of subprime loans. It’s a universe in which regulators coerced bankers into making loans to unqualified borrowers, even though only one of the top 25 subprime lenders was subject to the regulations in question.

Oh, and conservatives simply ignore the catastrophe in commercial real estate: in their universe the only bad loans were those made to poor people and members of minority groups, because bad loans to developers of shopping malls and office towers don’t fit the narrative.

In part, the prevalence of this narrative reflects the principle enunciated by Upton Sinclair: “It is difficult to get a man to understand something when his salary depends on his not understanding it.” As Democrats have pointed out, three days before the House vote on banking reform Republican leaders met with more than 100 financial-industry lobbyists to coordinate strategies. But it also reflects the extent to which the modern Republican Party is committed to a bankrupt ideology, one that won’t let it face up to the reality of what happened to the U.S. economy.

That pep rally, by some measures, should have been one of the year’s biggest scandals. A year after the financial industry nearly collapsed the global economy, more than 100 of its lobbyists huddled with Republican lawmakers to reject safeguards, accountability, and oversight of the industry. When an imperfect bill came to the floor, every single House Republican rejected it.

Dems hope to capitalize on this, and it shouldn’t be too hard. Indeed, in a saner system, last week would be a game-over, thanks-for-playing moment for GOP midterm hopes — the party rallied with lobbyists representing the same industry that created the economic nightmare that we’re still struggling to overcome.

The only way to find this acceptable is to accept the “bizarro universe” Krugman described.