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The "Saved or Created" Illusion
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Anonymous
Clearly the problems go back decades. I am definitely not an expert on the economy, but my hypothesis is that nobody really is. You have people who know a lot about what has gone on, but I don't believe anyone actually understands the full complexity, so nobody can make dependable predictions. All sorts of contradictory predictions are made, and some come true because for every outcome there is someone who predicted it. But you don't know which until it's over, and even then you don't know how other choices might have turned out. Whatever happens as a result of government policy, you can either extol the policy on grounds that even worse things would have followed otherwise or attack it on grounds that even better things would have followed; both reactions will come from the usual suspects. Basically, I think the choice was either to take drastic action on the theory that people needed to see government decisiveness or to wait and see on grounds that the economy basically does what it is going to do and government should not interfere. Obama took the former road, McCain might have taken the other. In any case, Obama was (a) clearly wrong (if you are conservative or strongly progressive) or (b) deserves the benefit of the doubt (if you are moderate to liberal). We'll never know, but many of us will be quite confident that we do. I especially love the knee-jerk response of attacking the other side's "knee-jerk response"! As for the pundits, the most credible thing I have read in the last year (I wish I recalled who wrote it) was that the best record of successful prediction came from less well-known. less interesting, less partisan, more nuanced writers who don't attract readers because they are less well-known, less interesting, less partisan, and more nuanced. The modern catch 22: if they are interesting enough to keep your attention, they don't deserve it! |
Anonymous
You are correct, one only need to go back 10 years to Clinton in 1999 to see how the whole mortgage mess sparked this off and started this domino effect, here we have a winner who's crystal ball was working: In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's. ''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'' Check out the fully NYT article from 1999 here. It reads like a prophecy and should be required reading for all Americans no matter how much it offends their sense of political correctness: http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html?sec=&spon=&pagewanted=all I wonder how many articles are being written now that predicting the next calamity. If I were a betting person, I would double down on massive inflation. |
Anonymous
| The problem now is that we are on a course that will be dificult if not impossible to undue. Obama is set on the government running everything and no matter what he says, this is what he is doing. There is a lot of evidence now that the great depression lasted much longer than it should have because of government intervention and now we are doing we happened then times 1000. We are addicted to now helping ourselves and it is sad. I feel bad for what I am turning over to my children because I had a chance to be successful and they don't. |
Anonymous
Oh, please. You will find the same criticisms of Bush, Reagan, and even Carter. It is naive to pretend that Clinton kicked it all off. Everyone had a hand in this, including the Republicans, who have for decades have wanted to expand home ownership as a means to attract working class and minority votes. If you want to look at something more objective, look at budget deficits under each Administration. That should tell you who is minding the store. And before you fire off about Obama, check today's NYT to see where the next deficits are really coming from. |
Anonymous
I was going to say the same thing. I find it hard to believe the move toward deregulation of banking industry fostered during the last administration played so little role in this current downturn. If people are concerned about deficit spending and debt, okay, I get that, let's discuss. But where was this cry and hue when it was Bush pouring trillions of dollars into Iraq? Those monies were spent "off budget," to boot. |
Anonymous
| It wasn't the deregulation of banking per se, it was the pushing banks to lend to unqualified lenders that started this problem. I do agree that lenders should never have been able to mix money from low credit mortages with regular mortgages. As for Iraq--if you were mad about that spending, you should be really mad at spending 1 trillion dollars in basically a day and talking about more spending without stopping to come. Iraq debt built up over year and years and is nowhere close to this. |
jsteele
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The stimulus bill was less than a trillion dollars, but that is the only thing about which you could possibly be talking. If so, you appear to be of the belief that the entire amount was spent in one day. Yet, we are also being told that only 6% of the stimulus funds have been spent. So, which is it? Was all the money spent in one day or was only 6% spent to this point? |
Anonymous
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Interesting, Rasmussen reports that a plurality of those surveyed (45%) wants the Fed. to stop stimulus spending now. I can only find this covered in right leaning publications - is there more to the story?
http://washingtontimes.com/news/2009/jun/11/45-in-poll-want-stimulus-spending-halted/ |
Anonymous
No one pushed banks to create "no income no asset" loans. Nor did anyone compel investors to purchase insecure mortgage-backed securities. |
Anonymous
The stimulus package came to $787 billion. Well over $800 billion - again, not accounted for in the budget - has been spent on the wars in Iraq and Afghanistan. |
Anonymous
| Both the wars have taken place over eight years and not one day with no end to spending in sight. Also, can be argued that we needed the war to protect the country since we are killing the terrorist over there and not here-obviously a lot of strong feelings on that but that is the reason. The Stimulus package was put together on false pretenses-we were told it was an emergecy to "stimulate" the economy and it was so such thing--I would love for that money that while not spent yet is good as spent, to come back since it was not a stimulus package but a grab back of entitlements and paybacks to a lot of unions. |
Anonymous
No one but ACORN picketing outside banks claiming racism because poor urban families could not qualify for loans that required the traditional 10 - 20% down payment. No one but the Community Reinvestment Act (http://en.wikipedia.org/wiki/Community_Reinvestment_Act). The securitization of Community Reinvestment Act loans first occurred in 1997 and with the implied AAA rating backed by the full faith and credit of Uncle Sam they were exceptionally popular. Home ownership has long been the American dream and both Democrats and Republicans took great pride in the rising rates of homeownership in the 90's and this decade. So long as it was a good thing, there of course was pressure to increase the mortgage base, and once you run out of qualified buyers, and so long as the mortgages were guaranteed by Freddie Mac, as a bank you are going to have to eventually accept liar loans if you want to meet your CRA objectives. |
Anonymous
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Community Reinvestment Act had nothing to do with subprime crisis
BusinessWeek Aaron Pressman September 29, 2009 Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie. The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.” Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf). Finally, keep in mind that the Bush administration has been weakening CRA enforcement and the law’s reach since the day it took office. The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks. The Federal Reserve, too, did nothing but encourage the wild west of lending in recent years. It wasn’t until the middle of 2007 that the Fed decided it was time to crack down on abusive pratices in the subprime lending market. Oops. Better targets for blame in government circles might be the 2000 law which ensured that credit default swaps would remain unregulated, the SEC’s puzzling 2004 decision to allow the largest brokerage firms to borrow upwards of 30 times their capital and that same agency’s failure to oversee those brokerage firms in subsequent years as many gorged on subprime debt. (Barry Ritholtz had an excellent and more comprehensive survey of how Washington contributed to the crisis in this week’s Barron’s.) There’s plenty more good reading on the CRA and the subprime crisis out in the blogosphere. Ellen Seidman, who headed the Office of Thrift Supervision in the late 90s, has written several fact-filled posts about the CRA controversey, including one just last week. University of Oregon professor and economist Mark Thoma has also defended the CRA on his blog. I also learned something from a post back in April by Robert Gordon, a senior fellow at the Center for American Progress, which ends with this ditty: It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. That’s because CRA didn’t bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA — or any federal regulator. Law didn’t make them lend. The profit motive did. And that is not political correctness. It is correctness. http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html |
Anonymous
Once and for all, it was THEIR fault, not OURS. So stop wasting time! 
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Anonymous
| It wasn't the CRA itself - it was the securitization of Community Reinvestment Act loans - the ability to "package" risky loans for investors to purchase, with the implicit belief that the loans were guaranteed by the US govt. Once the banks could safely and profitably unload the risky loans, they had zero incentive to stop making them. |