Free-Marketeers Say Administration Stumbled When Financial Crisis Hit

By Matt Cover | December 17, 2008 | 8:59 PM EST

Treasury Secretary Henry Paulson and Ben Bernanke, chairman of the Federal Reserve Board

( – Conservative and free-market economists were critical of the Bush administration for its handling of the economy, giving it mixed reviews overall while saving their strongest criticisms for the most recent actions of Treasury Secretary Henry Paulson.
A recent poll found that 70 percent of Americans disapprove of how Bush is handling the economy. The same poll showed that 57 percent of Republicans approve of the way Bush is doing his job.
Heritage Foundation Senior Fellow David C. John said that the administration got high marks for effort, but those marks declined after the bailout.

“It is entirely true that the financial regulatory system entirely missed the housing bubble,” John  explained. “On the other hand, once the problems developed, the Bush administration was very good at seeking out appropriate responses and to head off overreactions by Congress.”
But Bush’s response derailed when the administration implemented the Troubled Asset Relief Program (TARP), John said.
“Unfortunately, they didn’t know when to stop,” he noted. “From that point on, they made a series of missteps that not only didn’t help anything but they may have made things worse.”
Columbia business school professor Charles W. Calomiris gave the administration, particularly the Treasury Department, similar reviews – “They’re not going to get an A and they’re not going to get an F.”
“It’s a complicated question, (because) the level of difficulty is very high,” Calomiris told said. “I’ve been very critical. I think that they’ve put forth an effort, but I don’t think the performance has been as good as it could have been.”
Up to Sept. 18, the administration earned high marks, Calomiris said -- “I would give them really high grades; I would give them something like an A-.”
Sept. 18 was the day the Secretary of the Treasury decided that he wanted a comprehsnsive approach – and announced the asset-purchases approach.
“The way he handled his whole set of requests before Congress was extremely poorly done and invited a terrible mishmash of congressional ideas that were added on to what he was asking for,” Calomiris explained.
Paulson made fundamental economic and political miscalculations about the way to shape policy once he decided on a comprehensive plan, Calomiris said.

" He wasted many weeks trying to work through the politics and the bad ideas and then changed course – now he has to use the parts of TARP written by Congress.”
Peter J. Wallison, a senior fellow at the American Enterprise Institute, told that the administration’s performance during the financial crisis had earned a “C” – though President Bush has not had much involvement.
“Most of it has been handled at the Treasury by Paulson, and I’m not sure how much Bush has really been involved in this,” Wallison said.
“I’d give Paulson a C, because of his inconsistency in how he’s been using the TARP funds.”
“They were originally supposed to be used to buy mortgage assets and then he decided to use them to invest in bank equity and then he said he wasn’t going to buy mortgage assets anymore. All of which created enormous confusion and did not improve things at all in the financial markets,” Wallison explained.
The lowest grade came from Chris Edwards at the Cato Institute, a libertarian think-tank in Washington, D.C.

Edwards said that Bush had earned an “F” for having a market policy as bad as Richard Nixon’s.

“I would give him an ‘F’ because he has done enormous long-term damage to federal policy (through) such a large expansion of government in his last year in office,” Edwards, Cato’s director of tax policy studies said.

“All the focus has been on the short term; doing anything they possibly can to hold off a recession. I think that’s completely the wrong focus.” 

“Federal policy should be focused on long-term growth and it’s clear that the administration’s economic leaders have no idea what they’re doing,” Edwards said.

"Just like Richard Nixon ended up having an anti-market record on the economy, I think George W. Bush will go down as having one of the most anti-market records amongst presidents in recent decades.”