From who did Obama "inherit" the economic mess?

[Jim in CT]

Originally Posted by Piscator

I believe it starts from the top down. That being said, Bush left Obama an economy problem. Instead of fixing the problem, Obama made that problem a whole lot worse.
Posted from my iPhone/Mobile device

It starts from the top down, but we have a republic, not a dictatorship, which means the legislature has more say in deciding the agenda than the president.

When the Democrats took control of congress in January 2006, unemployment was at 4.6%, the Dow was at 12,600, and the GDP had been growing like crazy since Clinton balanced the budget. In other words, what the democrats "inherited" in 2006 was a thriving, robust economy. Since 2006, the Democrats had control of all the committees.

It was Democrats who pushed subprime mortgages. In my opinion, the worst you can say about the GOP was that they proposed the de-regulation of financial markets in 1999 (I think it was 99) that Clinton signed. However, no one knew what was going on with those crazy mortgage-backed securities. If it was so clear that Wall Street was abusing the de-regulation, why didn't the Democrats propose to re-regulate Wall Street when they took control in 2006? Answer? No one had a clue what Wall Street was doing. But everyone knew that banks were being reckless by writing so many subprime mortgages, which was based on liberal doctrine that everyone is entitled to a home, even if they can't afford one.

Spence is 100% right when he says there is blame on both sides. I'd love to know what Spence thinks when he sees Obama, time and time again, putting all the blame on the Republicans, who had been out of power for almost 3 years when the economy collapsed. If Spence is right (and he is), then Obama is either an idiot or a liar, and there simply isn't another option. (In my opinion, Obama is BOTH an idiot and a liar).

[spence]

Originally Posted by Jim in CT

When the Democrats took control of congress in January 2006, unemployment was at 4.6%, the Dow was at 12,600, and the GDP had been growing like crazy since Clinton balanced the budget. In other words, what the democrats "inherited" in 2006 was a thriving, robust economy. Since 2006, the Democrats had control of all the committees.

Ummm, I think that's why they called it a "bubble" as it had yet to burst.

It was Democrats who pushed subprime mortgages. In my opinion, the worst you can say about the GOP was that they proposed the de-regulation of financial markets in 1999 (I think it was 99) that Clinton signed. However, no one knew what was going on with those crazy mortgage-backed securities. If it was so clear that Wall Street was abusing the de-regulation, why didn't the Democrats propose to re-regulate Wall Street when they took control in 2006? Answer? No one had a clue what Wall Street was doing. But everyone knew that banks were being reckless by writing so many subprime mortgages, which was based on liberal doctrine that everyone is entitled to a home, even if they can't afford one.

I love it, so the GOP is responsible for de-regulation "the reason why nobody knew what was happening" but it's the insane liberals that really must be under it all...

Think of a big reason why the economy in the mid 2000's was doing well to begin with. A rise in International investment combined with low rates made credit easy to obtain and plenty of investors wanting to cash in on mortgage backed securities which seemed magical considering the housing market which continued to grow. Everybody was in on this, not just the minorities or poor, in fact they represented a fraction of the market.

This drove the bubble that eventually got as big as it could and housing prices -- across the board -- started to decline rapidly for everyone, which resulted in the sub-prime ARM's to ratchet up their rates. Many of which were a result of predatory lending and people not knowing what they were really getting into.

If properly regulated perhaps this could have been controlled (there still would have been a lot of sub-prime foreclosures) but considering the risky loans had been bundled with good loans (and sold off as AAA) nobody knew where the risk really was...and everybody pulled out.

Crash...

When the Dem's took Congress in 2006 they inherited this time bomb waiting to go off.

Not a lot of liberal ideology here, unless you think the entire house of cards was build to satisfy some government mandate, largely during a period where the GOP held both the Executive and Legislative branches of our government.

Oh wait, didn't President Bush push hard for more sub-prime lending because he felt that home "ownership" was good for America? Wasn't this conservative thinking? That the people owning their own home is more stable and responsible than looking for a government handout?

"Fannie Mae, Freddie Mac and the federal Home Loan Banks -- the government-sponsored corporations that handle home mortgages -- will increase their commitment to minority markets by more than $440 billion, Bush said."

Source: Bush aims to boost minority home ownership - CNN

And shortly after the rate of sub prime lending goes through the roof.

The primary Dem opposition to reform (in 2003 and 2006) was driven more by the accounting scandals rather than concerns over sub-prime lending. Some of their issue were valid, some not...but I don't believe much of this reform would have had an impact on the derivatives market and mortgage backed securities.

And when Dems took over in 2007 they immediately pushed for more regulation to help ensure the same issues wouldn't arise again. Bush, focused on the present, was pushing taxpayer funded subsidies to help mortgage holders in over their head! What a RINO

The net is you're basing opinion off of a portion of the story...only a crazy person (i.e. mental disorder) would do this in good faith.

Spence is 100% right when he says there is blame on both sides.

First thing in 3 weeks you've said that's made any sense.

I'd love to know what Spence thinks when he sees Obama, time and time again, putting all the blame on the Republicans, who had been out of power for almost 3 years when the economy collapsed.

I don't believe Obama was sworn in until Jan 2009. By your reconing that would make today January 2nd 2012!

If Spence is right (and he is), then Obama is either an idiot or a liar, and there simply isn't another option. (In my opinion, Obama is BOTH an idiot and a liar).

It's called politics.

If you want someone to blame for this mess blame your neighbor for pulling equity from his house to buy a boat he can't afford, the short-term'ism of our markets, shady lenders out to make a quick buck, politicians trying to hold their power, Wall Street, a lack of personal responsibility etc... etc... etc...

Like I've said, there's plenty of blame to go around...

-spence

[Jim in CT]

[Spence -

"didn't President Bush push hard for more sub-prime lending "

No, he did not. He pushed banks to make loans to minorities that could be paid back, based on traditional qualifying criteria. Spence, let's put it out there, OK? If you have evidence to suggest that Bush was a fan of reckless mortgages (subprime), either post it, or admit that you made it up. For the 10th time, Bush was so alarmed by the recklessness of subprime mortgages, that he wanted to regulate Fannie and Freddie, with rules that they couldn't buy those crappy pieces of paper. The Democrats blocked that legislation. I'm sorry, Spence, if that fact doesn't support your personal agenda, but it's a fact nonetheless.

"And when Dems took over in 2007 they immediately pushed for more regulation to help ensure the same issues wouldn't arise again. "

Can you support that please? You may well be right, I have no knowledge. But you seem to take great liberties, at times, in creating your own realities which promote your agenda. If you can't back that up, please admit you made it up.

"I don't believe Obama was sworn in until Jan 2009. By your reconing that would make today January 2nd 2012!"

Do you ever, ever get tired of being 100% wrong? When I say the "Republicans" were out of power, I mean because they LOST CONTROL OF CONGRESS IN JANUARY 2006.

You see, Spence, this country is not a totalitarian dictatorship. It's a democracy with seperation of powers and checks and balances. In our system of government, the LEGISLATURE, not the executive branch, writes legislation.

I also see that once again, you cowardly dodged my other question, which was this. If you say there's blame on both sides (although you go on and on and on about the GOP, I haven't seen you post anything you think the libs did wrong), what do you think of Obama repeatedly saying it was all the Republican's fault?

[Jim in CT]

Spence -

I read that CNN link that you posted. If you had read that link before assuming that it supported your inane conclusion that Bush pushed subprime mortgages, you'd see that the bill called for the feds helping minorities come up with down payments. The bill would have subsidized down poayments for folks that could afford the monthly payment, but who didn't yet have a large enough down payment.

You see Spence, the notion that sufficient down payments be part of a mortgage is NOT what the subprime mortgages were about. That's traditional financial underwriting.

[Jim in CT]

Spence, when the GOP proposed the bill to regulate Fannie and Freddie, here is what senator John Mccain said in support of the bill...

"If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.”

Here is the link...

The Squeaky Wheel: S. 190 - “Federal Housing Enterprise Regulatory Reform Act of 2005”

Here was Barney Frank's response to the proposed bill:

""These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

Here is a link...

Barney Frank's Fannie and Freddie Muddle - Sam Dealey (usnews.com)

And Barney Frank gets re-elected over a brilliant patriotic hero like Sean Bielat!! Kudos to the voters in Frank's district...

[Jim in CT]

Spence, you also say it's just "politics" that Obama puts all the blame on the GOP, even though you think there is blame on both sides. I agree, it's just politics, and most politicians do stuff like that.

But remember, Obama campaigned on some vague notion called "change". He had no accomplishments he could point to, so he promised that HE would be the one to bring change to Washington, HE would be the one to put "politics as usual" aside, He, and only HE, could do things differently.

So I really, really love it when Obama defenders say things like "all politicians do that". Because that should NOT be an acceptable excuse from someone whose entire campaign was based on the promise of "change".

Your response???

[RIJIMMY]

Originally Posted by Fly Rod

When you say banks, you make it sound like all banks when it was the big banks.

Local banks were not pressured to write sub prime loans. Most local banks would not write a loan without twenty per cent down. Mortgage companies were the biggest culprit writing hundred percent loans or eighty-twenty percent loans, holding two mortgages.


If you want to know the root cause of the current subprime crisis, there are
three things you need to understand:
First, the problem was caused by politicians (primarily Democrats) pushing
their "entitlement" agenda in to the free market. It started with "The
Community Reinvestment Act" (CRA) which required banks to make high risk
loans to minorities and others who could not have qualified for a home loan
or business loan under normal circumstances.

Second, Bill Clinton further liberalized the CRA and signed a bill to repeal
the Glass-Stengal Act. This Act was put in place in the 1930s following the
bank failures during the Great Depression. It was designed to keep banks
out of the speculation business.

Third, George Bush proposed major changes in the CRA, FMAE and FMAC in 2003
that would have tightened requirements for these business loans and subprime
home mortgages. The vote went along party lines, the Democrats won and the
proposed changes were defeated.

Why does Spence want to keep blaming Bush?

You're missing the biggest piece. There was a market for the bunding of these loans. Global cash needs to go somewhere and the US housing market was the place to be. The more demand for mortgages resulted in more demand to sell mortgages and it created a vicous cycle. Big banks were packaging and selling, but sophisticated investors were BUYING. Everyone should have known better but, its like fishing in an endless bluefish blitz, eventually you lose all your plugs. Funs over.
Was it Bush's fault? Not directly, but he was the president at the time so he'll get the blame. Was it republican policies? I have seen NO reregulation initiated by repubs that had any impact to the recession. None.

[RIJIMMY]

I've posted this link before - excellent read

Angelo Mozilo - 25 People to Blame for the Financial Crisis - TIME

[spence]

Originally Posted by Jim in CT

No, he did not. He pushed banks to make loans to minorities that could be paid back, based on traditional qualifying criteria. Spence, let's put it out there, OK? If you have evidence to suggest that Bush was a fan of reckless mortgages (subprime), either post it, or admit that you made it up.

Nobody is going to propose lending to people who "can't" pay it back. What the politicians on both sides did was encourage lending into the poorer and minority communities to expand home ownership. This is where the sub-primes exploded as people refinanced into ARMs.

For the 10th time, Bush was so alarmed by the recklessness of subprime mortgages, that he wanted to regulate Fannie and Freddie, with rules that they couldn't buy those crappy pieces of paper. The Democrats blocked that legislation. I'm sorry, Spence, if that fact doesn't support your personal agenda, but it's a fact nonetheless.

If it's a fact then it should be easy to find a link to a Bush proposal to ban Freddie and Fannie from taking sub-prime loans. Please help me out here because I can't find one...

Can you support that please? You may well be right, I have no knowledge. But you seem to take great liberties, at times, in creating your own realities which promote your agenda. If you can't back that up, please admit you made it up.

H.R. 1427, 313-104

Do you ever, ever get tired of being 100% wrong? When I say the "Republicans" were out of power, I mean because they LOST CONTROL OF CONGRESS IN JANUARY 2006.

Earlier you said I was 100% right. I can't be both...

You see, Spence, this country is not a totalitarian dictatorship. It's a democracy with seperation of powers and checks and balances. In our system of government, the LEGISLATURE, not the executive branch, writes legislation.

Yes, I did see School House Rock. Loosing Congress didn't mean that Bush was out of power, just as the GOP taking the House doesn't mean that Obama is not still ultimately in charge. i.e. the buck stops there.

I also see that once again, you cowardly dodged my other question, which was this. If you say there's blame on both sides (although you go on and on and on about the GOP, I haven't seen you post anything you think the libs did wrong), what do you think of Obama repeatedly saying it was all the Republican's fault?

It's always funny when people throw words like "cowardly" around in an Internet discussion without knowing much about the other people.

The fact is (search able in old threads) that I've mentioned mistakes by Democrats many times. And have pretty much described this as a systemic problem in every instance, counter to the assertion that liberal ideology and (gasp) Barney Frank are the root cause of the financial meltdown. This simple isn't founded in the reality you claim is the basis for a clean bill of mental health.

Obama gets to point the finger at the Republicans because he's the President and they're doing it to him. Hell, Obama wasn't even sworn in yet before the GOP was branding it his recession, and has blamed Obama for not being able to magically fix it every since.

Do we really think that a hallmark of Republican party -- lower regulation -- is the answer to preventing a similar calamity with our economy? I'm not sure I know anyone who seriously thinks so.

-spence

[buckman]

From Spence "Yes, I did see School House Rock. Loosing Congress didn't mean that Bush was out of power, just as the GOP taking the House doesn't mean that Obama is not still ultimately in charge. i.e. the buck stops there" The king of blame Bush.LMAO

[spence]

Originally Posted by Fly Rod

Mortgage companies were the biggest culprit writing hundred percent loans or eighty-twenty percent loans, holding two mortgages.

I thought liberal ideology was to blame?

If you want to know the root cause of the current subprime crisis, there are three things you need to understand: First, the problem was caused by politicians (primarily Democrats) pushing their "entitlement" agenda in to the free market.

Oh good lord...

It started with "The Community Reinvestment Act" (CRA) which required banks to make high risk loans to minorities and others who could not have qualified for a home loan or business loan under normal circumstances.

The CRA was meant to keep banks from blindly discriminating against poor communities, but did not legally mandate they take actions that would harm their own operations. I believe studies have shown that lending in poor or minority communities isn't inherently any more risky when proper standards are in place.

I also remember reading a study that showed lending enhanced by CRA wasn't found to be any more risky than prime.

Second, Bill Clinton further liberalized the CRA and signed a bill to repeal the Glass-Stengal Act. This Act was put in place in the 1930s following the bank failures during the Great Depression. It was designed to keep banks out of the speculation business.

The repeal of parts of the Glass-Sengal Act was sponsored by three Republicans. I think Clinton struck a deal that he would sign it, and the Republicans agreed to let Clinton expand the reach of the CRA. I'm not sure how this is further liberalizing the CRA though, unless you think discrimination based on where someone lives is a good thing for development.

Third, George Bush proposed major changes in the CRA, FMAE and FMAC in 2003 that would have tightened requirements for these business loans and subprime home mortgages. The vote went along party lines, the Democrats won and the proposed changes were defeated.

I think you're mixing the 2003 and 2005 proposals. In 2003 given the scandals Bush wanted to move oversight to the Treasury department. Democrats didn't think there was economic risk and therefore didn't see the value. Being politicians I'm sure they didn't want to loose their oversight privileges as well. Frank has openly said this was a mistake.

I do question how serious Bush was about reform though. Considering in 2003 and 2005 the GOP was in control of Congress you'd think they could have gotten something passed if they really wanted.

Additionally, you can't ignore other regulatory changes to the SEC made in 2004 under Bush that allowed all the giant banks to increase their leverage as well. From everything I've read, this pretty much created a pump between F/F and the banks to crank out loans, obfuscate all the risk and make a hell of a lot of money in the process.

Why does Spence want to keep blaming Bush?

Because you just read what you want to hear. I've been pretty consistent that this was a systemic problem. Both sides have pushed for more lending to poor and minority communities. Both sides have opposed regulation and reform.

-spence

[Jim in CT]

Spence -

"Do we really think that a hallmark of Republican party -- lower regulation -- is the answer to preventing a similar calamity with our economy? I'm not sure I know anyone who seriously thinks so."

Spence, I don't think less regulation is what's needed. We need regulation to prevent financial institutions from selling mortgage-backed cecurities the way it was done before.

But your memory is unbelievably selective. Part o fthe problem was subprime mortgages. I posted a link to a bill that the GOP proposed that would have tightened the controls a bit at Fannie and Freddie. That bill was defeated by the Democrats. Therefore, it seems to me that "less regulation" isn't an ide athat the GOP has a monopoly on.

You keep bending over like a contortionist to avoid criticizing Obama. Obama has never conceded that the Democratic party did anything to cause the recession. All he does is blame Democrats. Yet you do admit that both sides were at fault. If you think the Democrats were partly to blame, but Obama says it was all the GOP's fault, why can't you criticize Obama for his stance?

Answer? You are not rational. There is no fairy tale or excuse you won't hang your hat on to avoid critizing the Messiah. Obama's party controlled the legislature since January 2006, yet in his inauguration speech, all he did was blame Bush.

[Piscator]

Guys, does anyone think the people who signed up for these mortgages should be the ones to blame the most? I'm sick of hearing people saying they were mislead and they didn't know what they were signing up for. They are the ones most at fault. When you sign something, you have to do some due diligence and look into what you are signing. I bought my current house during the high peak of the market, I looked at what I made and what I could afford. Could I have bought a bigger house then? sure I could have but I didn’t get greedy and take a gamble on an adjustable rate staying where it was. I went with a fixed rate and a monthly payment I could afford (even re-financed since to a much lower fixed rate). Many people these days don’t take ownership for their actions and when things change (adjustable interest rates going up for example), they cry poor me and blame someone else (mostly looking to the Government to fix their problem). If they took 20 minutes to read about adjustable rates and how it effects monthly payments they should have been able to figure out the enormous risk. We wouldn’t need regulation and Government intervention if it weren’t for all these idiots running around buying houses they can’t afford. Since we have too many people in this Country without a clue, we now need the Government to step in once again and manage the rules. What a shame.
Am I being unreasonable here?

[Jim in CT]

Originally Posted by Piscator

Guys, does anyone think the people who signed up for these mortgages should be the ones to blame the most? I'm sick of hearing people saying they were mislead and they didn't know what they were signing up for. They are the ones most at fault. When you sign something, you have to do some due diligence and look into what you are signing. I bought my current house during the high peak of the market, I looked at what I made and what I could afford. Could I have bought a bigger house then? sure I could have but I didn’t get greedy and take a gamble on an adjustable rate staying where it was. I went with a fixed rate and a monthly payment I could afford (even re-financed since to a much lower fixed rate). Many people these days don’t take ownership for their actions and when things change (adjustable interest rates going up for example), they cry poor me and blame someone else (mostly looking to the Government to fix their problem). If they took 20 minutes to read about adjustable rates and how it effects monthly payments they should have been able to figure out the enormous risk. We wouldn’t need regulation and Government intervention if it weren’t for all these idiots running around buying houses they can’t afford. Since we have too many people in this Country without a clue, we now need the Government to step in once again and manage the rules. What a shame.
Am I being unreasonable here?

I agree that the folks who took out these mortgages bear a big part of the blame. However, part of the problem wasn't just the mortgages themselves, but the complex financial instruments that were created to bundle and sell these mortgages (credit default swaps, collateralized debt obligations, really complicated stuff), and the homeowners obviously had no idea this was going on.

What ticks me off is that these people acted stupidly, and now there are govt programs to modify those loans so those idiots can afford them. I get no pleasure from seeing someone lose their house. That being said, it's not fair that those who did the right thing still have to work our fingers to the bone to stay in our homes, and those that acted stupidly get rewarded.

[Jim in CT]

Originally Posted by Piscator

Many people these days don’t take ownership for their actions and when things change (adjustable interest rates going up for example), they cry poor me and blame someone else (mostly looking to the Government to fix their problem).

You just summed up the liberal agenda in a nutshell. As long as someone belongs to a protected class of "victims", they are not responsible for their actions.

Instead, Democrats create massive entitlement programs for these "victims" that must be paid for by those who did absolutely nothing wrong. Then when the next election comes around, democrats (and the media, with the exception of one TV network) tell those victims that the scary republicans want to take away their welfare, so they better get out and vote democrat.

It's a very effcetive political strategy. It's so effective that our culture takes it for granted that liberals care more about the poor than conservatives. That's despite the fact that (1) study after study shows that conservatives give more time and money to charity than liberals, and (2) conservatives want poor people to become successful; liberals want the poor to stay poor, so that there is a permanent underclasss (of democrat voters) that's addicted to the welfare that liberals promise. The last thing that liberals want is for poor people to get wealthy, because if they did...they'd vote Republican!

[spence]

Originally Posted by Jim in CT

Spence, I don't think less regulation is what's needed. We need regulation to prevent financial institutions from selling mortgage-backed cecurities the way it was done before.

I believe the Democrats have delivered on a lot of this this summer.

But your memory is unbelievably selective. Part o fthe problem was subprime mortgages. I posted a link to a bill that the GOP proposed that would have tightened the controls a bit at Fannie and Freddie. That bill was defeated by the Democrats. Therefore, it seems to me that "less regulation" isn't an ide athat the GOP has a monopoly on.

The 2005 proposal was abandoned. By what I've read the Dems on the Senate committee objected to a cap on the size of Fannie/Freddie holding but agreed to the increased oversight. Instead of negotiating the issue the Senate Republicans dropped it rather than take to the floor.

Considering that Bush had a majority in the Senate and the House, it would seem odd that they would drop such a substantial issue as they could have clearly gotten something passed had they wanted.

The only reasonable analysis is that both sides still didn't get it.

You keep bending over like a contortionist to avoid criticizing Obama. Obama has never conceded that the Democratic party did anything to cause the recession. All he does is blame Democrats.

I think you meant Republicans.

Yet you do admit that both sides were at fault. If you think the Democrats were partly to blame, but Obama says it was all the GOP's fault, why can't you criticize Obama for his stance?

You need to post some quotes in context to make an accusation like this. Considering your propensity to just regurgitate baseless talking points I'm not sure I'd trust any of your assertions.

Answer? You are not rational. There is no fairy tale or excuse you won't hang your hat on to avoid critizing the Messiah. Obama's party controlled the legislature since January 2006, yet in his inauguration speech, all he did was blame Bush.

And there you go again...

-spence

[Jim in CT]

Originally Posted by spence

You need to post some quotes in context to make an accusation like this. Considering your propensity to just regurgitate baseless talking points I'm not sure I'd trust any of your assertions.

-spence

OK Spence, let's be really, really clear. You're going to honestly claim that you have no idea what I'm talking about, when I say that Obama has repeatedly blamed Republicans for the economic situation? You have never, not once, heard Obama say that the GOP "drove the car into the ditch"?

Spence, go ahead and google this...

" Obama republicans drove car into ditch", and see how many hits you get.

Obama: GOP Drove The Country Into A Ditch. 'Now They Want The Keys Back' (VIDEO) | TPM LiveWire

OK, Spence. Time to see if you have a shred of intellectual honesty. Since you claim that both sides are to blame (and I agree), and you now know that Obama blames only the GOP (unless syou can show me a link where admits that liberal policies were also at fault), what do you think? What do you think of Obama putting all the blame on the GOP?

Please Spence, don't say "that's what politicians do", OK? Because Obama, remember, campaigned on some vague notion called "change". So he can't do that stuff and say it's "just politics", because he said he'd be different.

Good luck with this one. And good luck convincing yourself that you didn't already know what I was talking about.

[Jim in CT]

Originally Posted by Jim in CT

OK Spence, let's be really, really clear. You're going to honestly claim that you have no idea what I'm talking about, when I say that Obama has repeatedly blamed Republicans for the economic situation? You have never, not once, heard Obama say that the GOP "drove the car into the ditch"?

Spence, go ahead and google this...

" Obama republicans drove car into ditch", and see how many hits you get.

Obama: GOP Drove The Country Into A Ditch. 'Now They Want The Keys Back' (VIDEO) | TPM LiveWire

OK, Spence. Time to see if you have a shred of intellectual honesty. Since you claim that both sides are to blame (and I agree), and you now know that Obama blames only the GOP (unless syou can show me a link where admits that liberal policies were also at fault), what do you think? What do you think of Obama putting all the blame on the GOP?

Please Spence, don't say "that's what politicians do", OK? Because Obama, remember, campaigned on some vague notion called "change". So he can't do that stuff and say it's "just politics", because he said he'd be different.

Good luck with this one. And good luck convincing yourself that you didn't already know what I was talking about.

Finally Spence, you claim to not understand why, in 2005, the GOP couldn't get the regulation of Fannie and Freddie through, since they had the majority? The Dems fillibustered it, as I pointed out. And at the time, the loons in the media weren't calling the Democrats the "party of no", back then it was patriotic to fillibuster. Now it's obstructionist.

[RIJIMMY]

Originally Posted by spence

The repeal of parts of the Glass-Sengal Act was sponsored by three Republicans. I think Clinton struck a deal that he would sign it, and the Republicans agreed to let Clinton expand the reach of the CRA. I'm not sure how this is further liberalizing the CRA though, unless you think discrimination based on where someone lives is a good thing for development.



-spence

Phil Gramm, a democrat, was responsible for pushing this through. See my link above.

[spence]

Originally Posted by RIJIMMY

Phil Gramm, a democrat, was responsible for pushing this through. See my link above.

Huh? He switched parties in 1983.
Posted from my iPhone/Mobile device

[fishpoopoo]

Guess I am late to the thread.

In my opinion, which I'd be happy to back up with a !@#$load of facts , President Obama did indeed inherit this mess.

Culprits: Jimmy Carter, Bill Clinton and Alan Greenspan.

[scottw]

Originally Posted by fishpoopoo

Guess I am late to the thread.

In my opinion, which I'd be happy to back up with a !@#$load of facts , President Obama did indeed inherit this mess.

Culprits: Jimmy Carter, Bill Clinton and Alan Greenspan.

great article:

January 11, 2011

Let Them Eat Widescreen TVs and I-Phones
Monty Pelerin

The disparities in income between the lower and middle income Americans and those doing well continues to widen. In addition to the debt time-bomb, these income disparities represent another potential explosion.

Ambrose Evans Pritchard provides some data:
The retail data can be quirky but it fits in with everything else we know. The numbers of people on food stamps have reached 43.2m, an all time-high of 14pc of the population. Recipients receive debit cards - not stamps -- currently worth about $140 a month under President Obama's stimulus package.

The actual number of jobs contracted by 260,000 to 153,690,000. The "labour participation rate" for working-age men over 20 dropped to 73.6pc, the lowest the since the data series began in 1948. My guess is that this figure exceeds the average for the Great Depression (minus the cruellest year of 1932).

The US Conference of Mayors said visits to soup kitchens are up 24pc this year. There are 643,000 people needing shelter each night.

Jobs data released on Friday was again shocking. The only the reason that headline unemployment fell to 9.4pc was that so many people dropped out of the system altogether.

This schism continues to widen in American society. The well-off are doing just fine thank you. Many of the rest continue to descend into the abyss of joblessness, hopelessness, homelessness, poverty and bankruptcy. Social cohesion will not hold on our current path.

A thesis that I offered several years ago is that the credit expansion was a deliberate attempt to cover up America's structural decline. Ironically, by not facing up to the structural and incentive problems ten to twenty years ago when they were tractable (economically if not politically), the political elite created this current crisis. It was not their intent to create a crisis, merely to avoid hard decisions. They did so by "kicking the can down the road" using credit as their vehicle.

This "solution" enabled people to live beyond their means. "Let them buy widescreen TVs and I-phones" was the modern version of "bread and circuses." Pritchard points out a similar view:

Raghuram Rajan, the IMF's former chief economist, argues that the subprime debt build-up was an attempt - "whether carefully planned or the path of least resistance" - to disguise stagnating incomes and to buy off the poor.

"The inevitable bill could be postponed into the future. Cynical as it might seem, easy credit has been used throughout history as a palliative by governments that are unable to address the deeper anxieties of the middle class directly," he said.

Now, "let them eat widescreen TVs and I-phones" appears to be the solution. It is equivalent to the "let them eat cake" remedy, with the same potential ending.

The clock is ticking on the debt burden. It is only a matter of time before we are openly recognized as just another version, albeit a very large one, of the PIIGS. Just as important, however, is the ticking clock on social cohesion in this country.

The sense of entitlement cultivated by government over the years may be as intractable as the debt problem. It has corrupted the spirits and souls of men. It has destroyed the family structure. It has left a generation or two without skills and no reason to obtain them. It has transformed human beings into zombie-like creatures with little purpose in their lives. Removing them from the government teat is equivalent of separating a new-born from its mother.

There is no way out, as Pritchard alludes:

There is no easy solution to creeping depression in America and swathes of the Old World. A Keynesian `New Deal' of borrowing on the bond markets to build roads, bridges, solar farms, or nuclear power stations to soak up the army of unemployed is not a credible option in our new age of sovereign debt jitters. The fiscal card is played out.


The government is insolvent, both financially and morally.

[fishpoopoo]

Originally Posted by scottw

great article:
A thesis that I offered several years ago is that the credit expansion was a deliberate attempt to cover up America's structural decline. Ironically, by not facing up to the structural and incentive problems ten to twenty years ago when they were tractable (economically if not politically), the political elite created this current crisis. It was not their intent to create a crisis, merely to avoid hard decisions. They did so by "kicking the can down the road" using credit as their vehicle.

I don't think this entirely the case. Parts of it ring true.

History will show (has shown?) that Alan Greenspan's extraodinarily accommodative monetary policy was the fuel for the crisis (which, by the way, is not over). The dry tinder poised to set off the fuel was a dumbing down of lending standards via "Affordable Housing" goals, starting with the enforcement of the Community Reinvestment Act late in Bush I, and then even more aggressively through Clinton's term.

CRA and affordable housing ultimately led to bad loans being made. Low interest rates led to a lot of bad loans being made. And, low interest rates led to massive leverage in the corporate sector as well. But it started with housing and consumer spending.

As far as the Federal Reserve (which is neither, by the way), people have been trying to figure out why Alan Greenspan acted so recklessly, bringing interest rates to near zero percent from 2001-2004, even as the recession ended in 2001. Did he abandon his free market beliefs? Was he just plain dumb? Or was there another reason?

John Williams of Shadowstats posits an interesting theory, and it is worth posting here:

Shadow Government Statistics : Home Page

Crises Brewed by Federal Government and Federal Reserve Malfeasance.

The crises have been generated out of and are centered on the United States financial system, triggered by the collapse of debt excesses actively encouraged by the Greenspan Federal Reserve. Recognizing that the U.S. economy was sagging under the weight of structural changes created by government trade, regulatory and social policies — policies that limited real consumer income growth — Mr. Greenspan played along with the political and banking systems. He made policy decisions to steal economic activity from the future, fueling economic growth of the last decade largely through debt expansion. The Greenspan Fed pushed for ever-greater systemic leverage, including the happy acceptance of new financial products, which included instruments of mis-packaged lending risks, designed for consumption by global entities that openly did not understand the nature of the risks being taken. Complicit in this broad malfeasance was the U.S. government, including both major political parties in successive Administrations and Congresses.

As with consumers, the federal government could not make ends meet while appeasing that portion of the electorate that could be kept docile by ever-expanding government programs and increasing government spending. The solution was ever-expanding federal debt and deficits.

Purportedly, it was Arthur Burns, Fed Chairman under Richard Nixon, who first offered the advice that helped to guide Alan Greenspan and a number of Administrations. The gist of the wisdom imparted was that if you ran into problems, you could ignore the budget deficit and the dollar. Ignoring them did not matter, because doing so would not cost you any votes.

Back in 2005, I raised the issue of a then-inevitable U.S. hyperinflation with an advisor to both the Bush Administration and Fed Chairman Greenspan. I was told simply that "It’s too far into the future to worry about."

Indeed, pushing the big problems into the future appears to have been the working strategy for both the Fed and recent Administrations. Yet, the U.S. dollar and the budget deficit do matter, and the future is at hand. The day of ultimate financial reckoning has arrived, and it is playing out.

Takeaway: Alan Greenspan acted the way he did to foil the encroachment of increasing government regulation that was, in his mind, stifling economic growth.

[justplugit]

"It's too far into the future to worry about."

And there in lies the problem.

Politicians only look out over 4 years
and what they need to do to get re-elected,
afraid to take bold and courageous stands for the benefit of the country.

Not even a 5 year plan.

[scottw]

[COLOR="Red"]Recognizing that the U.S. economy was sagging under the weight of structural changes created by government trade, regulatory and social policies — policies that limited real consumer income growth


ask yourself: has the "weight of structural changes created by government trade, regulatory and social policies —
increased...or decreased.....and what does that mean for the future and real consumer income growth

[fishpoopoo]

We can definitely show that real incomes are down ... if you're using a true cost deflator (i.e., measure of inflation).

The CPI as published by BLS sure as hell ain't it.

[spence]

Originally Posted by fishpoopoo

The dry tinder poised to set off the fuel was a dumbing down of lending standards via "Affordable Housing" goals, starting with the enforcement of the Community Reinvestment Act late in Bush I, and then even more aggressively through Clinton's term.

CRA and affordable housing ultimately led to bad loans being made. Low interest rates led to a lot of bad loans being made. And, low interest rates led to massive leverage in the corporate sector as well. But it started with housing and consumer spending.

Here's the Barney Frank response to this point...

I've not found a video of the testimony to assess the context, but I do know that David John is a die hard conservative in the Heritage Foundation. I'd like to see a detailed analysis of this...

Conservatives who push an anti-regulatory agenda on America are trying to avoid blame for the financial crisis brought about by that lack of regulation.

Turning reality on its head, they are claiming that it was caused by too much government intervention -- specifically liberal opposition to unfair discrimination in bank lending. In their myth, the Community Reinvestment Act, enacted in 1977, forced institutions to make the irresponsible subprime loans that are a major factor in this crisis.

In fact, the CRA mandates no such thing, and covers only those regulated banks which were not the institutions which made the subprime loans. Every bank regulator, including those in the Bush administration, repudiated this idea.

But myths die hard when they are in the service of an ideology. It’s therefore important to note that in the Financial Services Committee hearing on how best to protect consumers from unfair financial practices, the witness selected by the Republican members of the committee, from the conservative Heritage foundation, reaffirmed his repudiation of this fallacy.

Congressman Brad Miller of North Carolina, who has done a good deal of research on this subject and who has been a leader in opposing unfair lending practices, asked the Republicans’ witness, David John, if he agreed with a statement he had made in a previous hearing, in which John said that the CRA had a negligible effect on the financial crisis.

John’s answer – “Absolutely.”

See the entire exchange below.



Mr. Miller: Thank you Mr. Chairman.

Mr. Castle said in his opening statement that the worst sub-prime loans, the bulk of the bad sub-prime loans, were not made by depository institutions that were fairly closely regulated but by non-depository institutions, independent lenders.

Mr. John, you testified earlier, a few months ago, before the Investigation and Oversight Subcommittee of the Science and Technology Committee which I chair, on the role and ne issue that came up was the role of the Community Reinvestment Act. Mr. Castle is right. A relatively small number of the bad sub-prime loans were made by depository institutions subject to the Community Reinvestment Act, and in fact, a study by the Federal Reserve Board found that only about 6% of all the sub-prime loans were made in “assessment” areas, or in the neighborhoods where CRA encouraged lending, or to borrowers that CRA encouraged lending to.

You agreed then that CRA had a negligible effect on the sub-prime crisis and the financial crisis generally. Is that still your view?



Mr. John : Absolutely.

-spence

[scottw]

been waiting for a follow up to this...not sure I've seen the loans as a result of the expansion of the CRA cited as the cause of the crash but the expansion of the CRA is certainly the turning point that can be cited as the beginning of government forcing banks to abandon long held lending practices in order to expand home ownership and in order to not be punished by the government...lenders became creative and translated that to the rest of the market, the government was essentially insuring their risk.....Fannie and Freddie became a repository for questionable loans...the sheer number of loan writing institutions and the risky instruments grew exponentially out of that...

as your friend Thomas Sowell said recently...banks were doing fine for nearly a hundred years prior with established lending practices...

"Prior to the rapid escalation of home prices, federal bank regulators began using the 1977 Community Reinvestment Act (CRA) to press for racial equality. The issue was the statistical difference in approval rates, not a claim that most blacks could not get mortgage loans. New regulations required that the banks not just look for qualified buyers, but make a requisite number of loans to low and moderate income buyers (quotas). Then, when legislation was proposed in 1999 to permit banks to diversify into selling investment securities, the Clinton White House urged "banks given unsatisfactory ratings under the CRA be prohibited from enjoying the new diversification privileges." The Congress happily obliged. Another factor was HUD's beginning legal action in 1993 against mortgage bankers that declined a higher percentage of minority applicants. HUD also set a 42% target for Freddie Mac and Fannie Mae (FM & FM) to buy mortgages for people whose income were less than an area's median. Banks, sensing that FM & FM were implicitly guaranteed, where only too happy to not only issue these mortgages, but to buy FM & FM debt as well. (In 2003, about 3,000 banks held FM & FM debt for 100% of their capital requirements.) The "icing" was FM & FM's creative accounting that misclassified $11 trillion of sub-prime assets. Then in 2002, Bush II urged Congress to pass the American Dream Down Payment Act, subsidizing down payments of prospective buyers with incomes below a certain level.

Sowell has now set the stage, and readers have no problem understanding what happened. Interest-only teaser rate ARMs rose to counter rising prices and down-payments. By 2005, interest-only mortgages had risen to 31% of all new mortgages, up from less than 10% in 2002. In Denver, Seattle, and Phoenix it was 40%, and 66% in the S.F. Bay area. Speculators jumped into the fray (28% in 2005, 22% in 2006) adding further fuel to the fire, and happy homeowners took out $1.13 trillion in home equity loans in 2007. However, the storm on the horizon was the rise of interest rates to avoid inflation (1% in 2004, to 5.25% in 2006), making monthly payments more expensive and reducing the demand and prices for housing, and everyone takes a loss - including the banks (about $40,000 per foreclosed house), and especially speculators, minorities, and those with ARMs and interest-only loans. (Interesting Note: As of October, 2008, 7% of Bank of America's mortgages were CRA lendings, and 24% of its defaults.) Bailing out FM & FM, with their sub-prime laden inventories, cost the government more than that for all the private banks put together.

Sowell also has no problems believing that many sub-prime loans were foisted upon unaware and uninformed buyers by predatory lenders - especially involving contracts for repairs or remodeling on credit.

Bottom Line: The law of unintended consequences strikes again - helping minorities was a good intention, but backfired. We're all to blame, though admittedly some more than others. Deregulation was not the problem, rather misguided regulation.

the government is now doing the same thing for healthcare

[fishpoopoo]

Originally Posted by spence

Here's the Barney Frank response to this point...

I've not found a video of the testimony to assess the context, but I do know that David John is a die hard conservative in the Heritage Foundation. I'd like to see a detailed analysis of this...



-spence

Barney is full of mancustard. As one of the fiercest proponents and protectors of affordable housing, he of course has a vested interest in passing the blame.

The CRA itself was a fairly innocuous law signed by Jimmy Carter in '77. It wasn't until the Boston Federal Reserve came out with a flawed study in 1992 (late in Bush I's term) that banks were discriminating against Black people re: home loans, that it began to be enforced.

There were a slew of lawsuits that accelerated after that Fed report came out, under the auspices of the CRA.

For example, AG Reno (Clinton I) sued several banks in 1993 (First National Bank of Vicksburg and Blackpipe State Bank for racial discrimination and in 1994 sued Chevy Chase Federal Savings Bank.

Furthermore, the fed was under pressure to use CRA as a stick for banks seeking to open new branches and ATM machines and merge with other banks. For example, in 1993, the federal reserve denied an application by Shawmut to acquire New Dartmouth Bank. The transaction was only allowed to proceed after it paid a million fine to compensate minority applicants who may have been denied loans. This arrangement was squeezed out of the bank by AG Reno.

And so on (I won't list all the lawsuits and enforcement actions here).

Most people don't know this, but in 1995, at the behest of Pres Clinton, CRA regulations were revamped to give it more teeth.

The rules became more performance-based and established clearer and more objective performance standards for determining whether a bank was in compliance with CRA standards. “The new rules went into effect January 31, 1995 and featured: strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups [like ACORN – FWW] to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to target to groups to collect a fee from the banks (as of 2000 $9.5 billion had been paid to such nonprofit groups). The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were ‘risky mortgages.’” Clinton Administration Changes of 1995

I could on and on and on ... but the enforcement of CRA, that really began in earnest with Clinton, basically bullied banks into lending to deadbeats.

[spence]

Originally Posted by fishpoopoo

I could on and on and on ... but the enforcement of CRA, that really began in earnest with Clinton, basically bullied banks into lending to deadbeats.

I'm not sure the data really demonstrates this though. Clearly that's not the position of the Heritage Foundation expert I quoted above. My assumption is that he's undertaken a very thorough and conservative analysis of the situation.

There are a good number of articles by economists (i.e. not pundits or pundit economists ) that basically come to the same conclusion. That the CRA hasn't changed much since 1995, yet the sub-prime issue didn't inflate until a decade later, that the default rate of sub-prime loans originated under CRA regulation was about the same as prime, and that a huge % of sub-prime lending was actually made by banks outside of CRA regulation.

Sowell is being a bit misleading when he tosses out numbers like "HUD also set a 42% target for Freddie Mac and Fannie Mae (FM & FM) to buy mortgages for people whose income were less than an area's median."

This was certainly true from 1997-2000, although lending "below median" is a pretty big group and doesn't necessarily indicate sub-prime borrowers. The target for those actually considered "low income" was only 14% and nothing in the CRA stipulates a bank has to knowingly make a bad loan.

Interestingly enough, both these numbers were actually raised in 2001 (50% and 20% respectively) while Denny Hastert was Speaker.

Further, the act that started these targets was put into place in 1992. I believe the general idea is to keep the GSE's aligned with what they believe the market will actually be doing over the coming few years. In other words, it's reactive rather than proactive.

The net being that these regulations have been around for a while, but didn't seem to cause any problems until just recently. While the CRA may certainly be a factor -- as any regulation impacting the mortgage market would be -- it doesn't seem to deserve the "root cause" status that pundits like to give it.

Sowell is going to oppose anything that smells of free market intervention, although I'd note that the first commercial bank in the USA was a government run institution

-spence