How Herman Cain Missed the Biggest Recession of Our Era

Before the financial crisis, he spent months insisting the economy was fine. Then he embraced the bailout and even blamed Wall Street for the crash

Herman Cain speaking - Chris Keane Reuters - banner.jpg

In his pitch to voters, Herman Cain says that his CEO background and time on the federal reserve afford him a better understanding of the economy than D.C. politicians. But his public pronouncements dating back to 2006 show that he was blind to failings of the Bush Administration, dismissive of the impending recession, and wrong about its severity once he acknowledged it.

And when the financial crisis hit? He abandoned the free market principles he usually champions, supported the bailouts, and cheered when taxpayers purchased part ownership in banks. At times, he even "blamed Wall Street" for the crisis, acknowledging that it helped tank the economy.

Let's go back and examine reality as Herman Cain saw it from his perch as a syndicated columnist. One of the earliest columns available, published in the spring of 2006, asserts that President Bush and his leadership team "have generally worked on the right economic problems during his two terms." As that year's midterm elections came and went, Cain would repeatedly defend the strength of the Bush economy, and accuse Democrats of mendacity for questioning its strength. In an October 25 column titled The Sky Is Not Falling, for example, Cain ticked off a bunch of economic indicators, concluding, "The liberal rhetoric about the economy doesn't even approach the realm of 'reasonable people can disagree.' It is a flat-out lie."

Said Cain that November:

They spin false rhetoric about our steadily growing economy and the tax rate reductions that spurred our historic economic growth. The armchair presidents could find a fly in the soup on Da Vinci's "The Last Supper." Washington Post opinion columnist Sebastain Mallaby wrote on September 4, "Economic growth no longer seems to help the majority of workers; the proceeds flow to the top fifth or so of the workforce, and the top within the top has done especially handsomely." Mr. Mallaby and others conveniently overlook the fact that more than 50 percent of workers have some level of investment directly impacted by the economy.

On New Year's Day 2007, Cain noted that home ownership was at an all time high, dismissed the notion that wage growth was only helping the rich, and made these predictions about the coming year: "This vibrant economy will give some workers a boost to their company-sponsored retirement plan in the New Year, and it will give some workers an opportunity to participate in a retirement plan for the first time. Low unemployment means nearly everyone who chooses to work will have a job."
Skip ahead to 2008.

On January 21 of that year, Cain again denounced those who questioned the strength of the economy. Dismissing headlines including "New housing starts down 25 percent in 2007" and "Job picture gloomy, recession feared," Cain wrote:

With exaggerated fears of an immediate recession being proclaimed by the media, the players are the same, the movie plots are the same, the lines are the same, the chase scene near the end will be the same...
Admittedly, there are some components of the economy that are experiencing negative growth versus a year ago, such as construction, real estate and related businesses. And yes, there are some people who are facing mortgage foreclosures due to poor lending practices by lenders on the one hand, and poor spending practices by some consumers on the other. But this is no time to panic, overreact or throw out the baby with the bath water. We are in an economic correction, not an economic recession.

Come March, Cain started to acknowledge the worsening economy, but blamed it partly on Democratic rhetoric. "The media's factually unsubstantiated claims of an impending recession have been going on for over a year," he wrote. "There is no doubt that we are in an economic correction, which is being caused in part by self-inflicted economic turbulence coming from home mortgage issues, a slowdown in real estate and construction, excessive federal spending and consistent promises by Democratic presidential candidates and the Democratic leaders in Congress to raise taxes."

His policy prescription?

"Let the Federal Reserve do its job of controlling inflation," he suggested, "hope that Congress does not pass any new trade barriers, stop the increase in federal spending, and pray that the Democrats in Congress will not raise taxes."

Cain would write a lot about the economy in ensuing months.

March 31, 2008: "Our $14 trillion economy is fragile but not in a recession, and it is certainly not in shambles like our spending addiction."

April 7, 2008: "The mainstream media, Democratic leaders in Congress, Hillary Clinton and Barack Obama, and negative economic elites have talked employers into an 'employment recession'... Some of the negative job growth is undoubtedly due to issues in the housing, construction, mortgage and transportation industries. But this writer believes that a major portion of the job losses are due to media pessimism, and employers who have swallowed the negative outlook."

In that same column, Cain noted that "Barack Obama has suggested that we need another pitiful stimulus package. It's pitiful because if people actually get those checks for a few hundred dollars, it might be enough to cover the increase in their annual gasoline and energy bills due to the increase of the price of oil."

April 21, 2008: "...the current six-year economic expansion dates from November 2001 through the present time, despite some recent slowing. This was the same year George W. Bush took office, so how could these be failed economic policies?"

May 5, 2008: "The housing market, financial markets and our national economy will stabilize because OPEC does not control them directly, yet. We still control the largest and most resilient economy in the world, because the U.S. consumers are still the most resilient and creative people in the world."

July 14, 2008: "Most of our economic woes are a figment of our whiny imaginations. And that's exactly the imagination the mainstream media and the Democratic leaders in Congress want you to have, because it feeds their theme of Bush hate, and that everything is Bush's and the Republicans' fault."

During the summer of 2008, Cain, who says effective leaders focus on the right problems, finally acknowledged that there was a crisis, "...a crisis that no one is talking about. It's not the energy dependence crisis, the spending crisis in our federal government, the imaginary-though-fragile economic crisis nor the mainstream media's it's-not-a-crisis-but-we-are-going-to-make-it-look-like-one banking crisis. America is being sold off to foreigners at a discount. That's a crisis. The latest incident of this dismantling of America was the hostile takeover of Anheuser-Busch."

On September 1, he noted that "we still have not had a recession since 2001, using the standard definition of a recession as two consecutive quarters of negative GDP growth. But don't tell the Democrats and the mainstream media. You might disrupt their imaginary recession."

And on September 22, 2008? Suddenly his attitude began to change: "The nation's financial system has a severe migraine headache," he wrote. "We can take our $700 billion in aspirin now, or wait for a $700 trillion surgery if the economy tanks.The first option might prevent an economic recession. The second option would put us in a depression due to the ripple effect of doing nothing."

Suddenly Democrats didn't bear primary blame -- in fact, he blamed Wall Street! "There is plenty of blame to go around for the crisis on Wall Street, starting with the CEOs and directors of the wounded businesses, followed by failed congressional oversight that they have and did not use properly." He seemed to grasp that his regular readers might not like that particular column:

Admittedly, these Wall Street bailouts and "special loan arrangements" by the U.S. Treasury and the Federal Reserve seem inappropriate and excessive to the typical citizen, but if the Bush Administration had done nothing, Mike and Mary Mainstreet would have been outraged once the ripple effect knocked on their door. The mainstream media has done a good job of scaring the public about how serious our economic situation is, and a poor job of reporting the possible ripple effects if nothing is done.

Some people do not believe that such a scenario could happen. Yes it could. Ask Russia. Or study the history of how a series of bad decisions and indecisions led to the Great Depression of 1929. That time was no economic migraine headache with unemployment nearly 25 percent and the stock market losing over 80 percent of its market value. Let's hope at this point the do-nothing, blame-game, lowest-rated Democratic-led Congress in history stays out of the way to give the billions in aspirin a chance to work. At least a do-something president with the right attitude gives us a chance to avoid the worse case scenario.

On September 29, 2008, Cain continued to believe that some people on Wall Street ought to be held accountable. "The biggest issue that must be addressed is failed accountability by Congress, some CEOs and some boards of directors," he wrote. "I am less concerned about CEO compensation than I am about CEO performance and board accountability to its shareholders. And now with the 'deal', those companies and their boards who choose to participate are also accountable to the taxpayers."

He defended the Bush Administration's actions again in a subsequent column. And on October 13, 2008, he explained the factors that caused the stock market to tank, including "risky financial instruments, called derivatives, which are used by financial professionals. Over-valued and bundled mortgage-backed securities are examples of such derivatives, which have backfired and imploded on some lending institutions' balance sheets." He singled out Fannie Mae and Freddie Mac. And in his next column he proceeded to defend part taxpayer ownership of banks:

Earth to taxpayers! Owning stocks in banks is not nationalization of the banking industry. It's trying to solve a problem. The unprecedented financial crisis has caused the Treasury of the United States to take unprecedented measures to help solve the problem of frozen credit and cash flow for U.S. businesses.

Most of us had dreams of what we wanted to be when we grew up as children. Some of us wanted to grow up and become a fireman, a policeman, a doctor, a nurse, a lawyer, a teacher, an actor, an engineer, a writer, a dancer, a chef or any number of other professions. But some of us wanted to own a bank because that's where the money is! Wake up people! Owning a part of the major banks in America is not a bad thing. We could make a profit while solving a problem.

To the many "free market purists" who objected, Cain lectured dismissively, "the mainstream media and the free market purists want you to believe that this is the end of capitalism as we know it. It is not for several reasons that they have conveniently not explained. The free market purists' objection to this is that it smacks at government control of the banking industry, which is called nationalization. They are correct. It smacks, but it is not nationalization because that would require the government to own at least 51 percent of the entity for an indefinite period of time."

And on October 27, he seemed to conclude that there was a direct line connecting Wall Street mistakes and pain on Main Street:

When some banks finally admitted that their balance sheets had gotten out of balance (too many liabilities for too little in assets), they stopped lending to each other. Go figure! Not all banks were in deep trouble, but too many of them had over extended themselves. If banks are not lending to each other then there's a slim chance to none that they are going to make loans to you and me and Joe the Plumber. Thus, the flow of credit and cash froze up domestically and around the world. It's called a recession, and it is here.The financial crisis has caused historic levels of volatility in stock markets around the world. It is also going to cause some financial pain on Main Street with job losses we have not seen in the last 50 years.

But he wasn't bothered much by those infamous bonuses at bailed out AIG:

The melodrama has produced a "Bully Bill" passed by the House, and under consideration in the Senate, to place a surtax of 90 percent on those evil undeserved bonuses. The Bully Bill is just another example of how Congress can use the insanely complicated and unfair tax code to reward or punish people they like or dislike.

Cain would ultimately conclude that TARP, which he supported, "yielded questionable results" and that Treasury mishandled the funds.

Cain was hardly alone in failing to anticipate the financial crisis. But it reflects poorly on his judgment that he spent months ridiculing and dismissing those who saw evidence of a recession before he did, questioned their character, and even insisted that the truly important crisis was the purchase of a beer company by a foreign buyer.

His columns are the work of a partisan ideologue who spent months echoing Republican Party talking points, not a savvy reader of economic trends with more relevant experience than Washington insiders and an independent attitude. The exceptions, the columns he wrote at the height of the financial crisis, aren't the work of an ideologue. They are earnest attempts to assess real world events. But the solutions Cain proposed contradict the economic philosophy he articulated both before the crisis and after it. It is also noteworthy that, months after himself blaming Wall Street and its poor decisions for a historic economic fiasco, he reacted with incredulity to the notion that protestors in New York City and elsewhere are angry at the big banks.

Based on his columns, it's hard to see why voters would trust his ability to read the economy, and it is difficult to understand why Tea Partiers would trust him to refrain from bailouts in future times of crisis. If history repeated itself, a President Cain would fail to see economic disaster coming and react to it by grasping at solutions impossible to predict based upon his avowed principles.

Image credit: Reuters