First Thing We Do, Let’s Blame ‘Deregulation’

Whenever a disaster strikes, you can bet that a story will soon appear blaming “deregulation.” So it was in the immediate aftermath of the train derailment in East Palestine, Ohio. And so it is now with the collapse of Silicon Valley Bank.

Before most people even knew what had happened over the weekend, the left was blaming President Donald Trump. Sen. Elizabeth Warren, in an op-ed published in Monday’s New York Times, said that a bill Trump signed in 2018 that tweaked some banking rules was responsible for SVB’s failure.

“Had Congress and the Federal Reserve not rolled back the stricter oversight, SVB and Signature would have been subject to stronger liquidity and capital requirements to withstand financial shocks,” she wrote.

The press, of course, immediately picked up on this thread, and is now slamming Republicans for their “opposition to stricter regulations.”

Let’s rewind the clock here.

That 2018 “deregulation” Warren and others are now citing as the culprit was bipartisan legislation to address a serious flaw in the Dodd-Frank bill – the massive new regulatory regime Democrats imposed after the 2008 financial crisis.

That flaw was the fact that Dodd-Frank’s cumbersome and heavy-handed rules and regulations were choking small and community banks to death, leading to even greater consolidation of the banking industry, thereby exacerbating the very risk it was trying to solve, while also suffocating economic growth by making it harder for businesses to get access to financing.

Here’s what we wrote in 2017 when we were with the now-shuttered IBD Editorials page:

Small and midsize banks have been the main source of loans for small businesses, the main employers in America. In 2008, there were 8,345 small banks in the U.S. They made $388.8 billion in small business loans that year. By last year, there were only 5,954 small banks, lending just $308.4 billion. That’s 2,400 banks gone, largely due to Big Bank-friendly regulations such as too-big-to-fail put in place under Obama’s reforms.

This adverse side-effect, we repeatedly pointed out at the time, was directly responsible for the historically sluggish recovery the country suffered during the Obama years.

There was good reason to repair this flaw, which the 2018 law aimed to do. That fix, combined with the 2017 tax cuts and Trump’s other pro-growth policies, set up the economic engine so that it finally began to roar — and it would have kept roaring were it not for the disastrous government response to COVID and Joe Biden’s economic malfeasance.

This exact same deregulation-is-to-blame narrative emerged in the aftermath of the train derailment that spewed toxic chemicals into the air and water of that small eastern Ohio town.

“Congressional Republicans laid the groundwork for the Trump administration to tear up requirements for more effective train brakes,” Andrew Bates, a deputy White House press secretary, said shortly after the disaster.

Once again, the ignorant press picked up this theme, even though the rule that didn’t go into effect wouldn’t have applied to the train that derailed, and even though the National Transportation Safety Board said that those new-fangled brakes probably would not have prevented the wreck.

But blaming deregulation is how the left perpetuates the myth that more government is always the answer, and how it disguises the fact that too much government is often the cause of such disasters.

In the case of SVB, for example, at least part of the blame rests with Biden’s disastrous spend-like-there’s-no-tomorrow economic policies, which fueled inflation that then required interest rate hikes by the Federal Reserve, which upended the business model of SVB and a large number of other banks around the country.

As Ronald Reagan so wisely observed 42 years ago, in most cases government isn’t the solution to our problems, government is the problem.

— Written by the I&I Editorial Board