Whose policies led to the credit crisis?

posted at 9:40 am on September 16, 2008 by Ed Morrissey

The credit crisis and the lack of oversight over government-subsidized lenders like Fannie Mae and Freddie Mac occurred on the watch of George Bush, and many blame his economic team for their lack of oversight in the collapse.  Barack Obama has made this point one of his major campaign themes, arguing that John McCain would provide more of the same failures that Bush did.  However, what many do not recall is that Bush wanted to tighten oversight with a new regulatory board for Fannie Mae, Freddie Mac, and other government recipients for the express purpose of addressing bad loan practices — and Democrats blocked it.

The New York Times reported this five years ago:

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

This should have been a no-brainer, right?  With hindsight, we can see that the Bush administration had accurately diagnosed the problem in the lending market and had a plan to address it.  Fannie Mae and Freddie Mac reluctantly supported the plan.  However, Democrats objected (emphases mine):

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

”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.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Sounds a little like the Democratic denial of problems in Social Security, doesn’t it?  Nothing to see here, no crisis on the horizonEverybody just move along, now.  The Democrats had forced lenders to assume more risk at lower interest rates in the 1990s, as IBD points out today, and they didn’t want to countenance an end to their populist policies:

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street’s most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but “predatory.”

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the ’90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

It was the Bush administration that wanted to rein in the madness in the credit markets, and the Democrats who wanted to extend the Clinton policies that created the crisis we have now.  After the fit hit the shan, as Michelle says, these same Democrats want to shift blame back to the administration that wanted to increase oversight and curtail risk in lending practices while reducing patronage at the giant GSEs.

The Bush administration isn’t blameless in letting this get out of hand, but clearly the origins of the disaster and the efforts to keep bad policies in place fall on the Democrats in this case.

Update: John Lott points me to a March column he wrote at Fox News explaining the underlying causes of the debacle.  Forcing lenders to make questionable loans and blocking tougher regulation of the government-supported entities was a recipe for collapse, and Lott explained it six months before it happened.


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I would like to see McCain give a major speech on this. Lay it out there for everyone to see. Explain how we got here and how he will fix it. Specifics. Name names. No mercy.

And don’t spare any Republicans that were complicit with this national disgrace.

Two weeks later give a national security speech. Make it real and give facts. Talk about real threats and what he will do to protect the US and actions he will take against our enemy.

huckleberryfriend on September 17, 2008 at 7:19 AM

You mention also that “The other part of rising housing prices was the low interest rates. Halve the interest and the price of a house should about double, without any change in the money supply….” Funny you should say that; the low interest rates were the exact mechanism by which the money supply was inflated. By your stating this, whether you know it or not, you are conceding my point.

Are you serious? Do you understand the difference between interest rates and monetary expansion? You can expand the monetary supply all you want, but the fact is that a $200,000 house with an 8% mortgage costs the buyer about the same as a $400,000 house with a 4% mortgage. Given the same income and halving the interest rates about doubles the fair price of the house, as measured by the monthly servicing of the debt. Any price increases due to inflation/monetary expansion would be on top of that.

You mention also that “The other part of rising housing prices was the low interest rates. Halve the interest and the price of a house should about double, without any change in the money supply….” Funny you should say that; the low interest rates were the exact mechanism by which the money supply was inflated. By your stating this, whether you know it or not, you are conceding my point.

Huh?

Mechanisms for expanding/contracting the money supply are not the same as the expansion/contraction of the money supply. There are many other mechanisms for expanding our money supply beyond lowering certain interest rates. But, when interest rates are used, you must be able to discern between effects from the increase in supply and effects from the lowered interest rates. You seem to think that the interest rates have no effect – other than their use to regulate the money supply. That’s just plain silly.

(The part about halving the interest rates doubling the price of housing, BTW, is decidedly untrue–for confirmation, look to Detroit; interest rates there were the same as they were in San Francisco.)

hicsuget on September 17, 2008 at 12:32 AM

Housing prices don’t move the same way in all markets. Detroit is a sh*thole, which has more effect on its housing prices than the interest rates – unless you are saying that there are no qualitative differences between the Detroit housing market and the San Francisco market? I mean, really now.

As to your comments about the tech bubble popping not causing a recession … well DUH! The same way that 9/11 didn’t cause a recession – but we all know that it should have. It was monetary policy that kept us afloat and it was the same for helping us in the aftermath of the destruction of 6 trillion in wealth (though, for some reason you seem to think that losing $6 trillion in wealth would not do anything but cause the stock market to go down).

I don’t get your idea that subprime and ARM loans didn’t appear until 2005. That might be true for the NINJA’s, but that’s it. ARM’s and subprimes have been part of the scene for a long time. Do you remember the first balloon mortgages in California many years ago? Do you remember the mini-housing crisis that developed from those balloons. Balloons are not subprime (though they were invented to extend credit to those who couldn’t get traditional fixed-rate mortgages) but they were part of the same problem of “creative financing” that people used without understanding or caring about the possible/likely consequences. People moved into ARM’s many years ago to try and save a little bit on the interest rate. They assumed that they would never suffer the fate of rising interest rates (which kill housing prices as they go up) and they were just dead wrong.

progressoverpeace on September 17, 2008 at 7:51 AM

hicsuget on September 16, 2008 at 9:33 PM

Not a bad analysis, possibly responsible for some portion of the current problem, but not likely to be the primary problem. The housing boom did not begin in 2003 as you suggest, but rather in 1996-1998. There was no change in interest rates at the time the housing boom began that would explain the increased demand. Rather, the availability of loans to people who previously had no access to them was very much the cause of increased demand for housing, which naturally increased the price of housing dramatically.

THIS statement:

Sub-prime loans were the inevitable consequence of cheap money for mortgages, and would have been lent out (albeit in slightly reduced quantities) regardless of Fannie’s and Freddie’s mandates.

…is sheer nonsense. Banks will not behave in a manner that’s likely to drive up the default rate of loans no matter how cheaply they obtain their capital. Do you have even the slightest idea how much the bank loses if a loan goes into default, even if they manage to sell the house?

Then we get to this:

You mention also that “The other part of rising housing prices was the low interest rates. Halve the interest and the price of a house should about double, without any change in the money supply….” Funny you should say that; the low interest rates were the exact mechanism by which the money supply was inflated. By your stating this, whether you know it or not, you are conceding my point. (The part about halving the interest rates doubling the price of housing, BTW, is decidedly untrue–for confirmation, look to Detroit; interest rates there were the same as they were in San Francisco.)

hicsuget on September 17, 2008 at 12:32 AM

You’re being foolish to dispute progressiveoverpeace here, since you and he/she are actually talking about the same mechanism, you from a macroeconomic point of view, he/she from a microeconomic. Your case in point is pretty silly, comparing housing prices in Detroit and San Fransisco: too many intervening variables for it to make sense. You both got the basic mechanism right.

philwynk on September 17, 2008 at 7:53 AM

huckleberryfriend on September 17, 2008 at 7:19 AM

McCain had better hurry on that speech. The Russian market collapse, and the AIG insurer collapse today are preludes to what may happen in October when financials are reported. That is when American markets historically crash.

The money people have known this for a long time but everyone has been talking it down. I believe because it is hard to deal with emotionally and especially because those in the know are scrambling to re align their own portfolios to survive the slide

It is to McCain’s advantage, and an imperative to help public confidence that he pre empt coming financial reports.

Ed does a great service gathering the evidence. If McCain uses it right now he can help himself and his nation and reduce the panic that can make a crash worse.

The reporting on the Russia shows what happens when people are blindsided and panic. Money dries up because everyone is afraid to lose more.

When money dries up you have a Depression, since banks run on money flow, not on deposits which are sent out the door as soon as the deposit ticket is printed

It is in McCain’s hands now

I am saying a prayer for him. I believe McCain is the better man for the nation on this one. The important message for him is this, that we survived the last Depression without the tools and resources we have today. We have at the Treasury a man who is the expert on the Great Depression, and has written a book on how to handle the situation. The most important message is what seems like a mountain can be tamed into a hill that we can climb

entagor on September 17, 2008 at 8:07 AM

entagor on September 17, 2008 at 8:07 AM

McCain is a feeble, aging, pandering joke of a politician and self proclaimed Luddite when it comes to economics and domestic policy.

In other words; he “has no clue”…!

Until the day before yesterday he was against every banking regulation on the books. Today he pounds the podium with the enthusiasm of a Democrat reformer for sweeping regulations…?

Palin, your supposed GOP energy guru, makes outrageous statements concerning Alaska’s contribution to energy in the US.

People are quickly, getting wise, to her hyperbole and her credibility concerning energy and politics in general is plummeting.

You better be praying for both of them…!

J_Gocht on September 17, 2008 at 8:57 AM

Good post, phil. BTW, I’m a ‘he’. I would only take slight issue with this:

you and he/she are actually talking about the same mechanism, you from a macroeconomic point of view, he/she from a microeconomic.

philwynk on September 17, 2008 at 7:53 AM

I was just stressing that there are separate effects from monetary inflation and interest rate drops even though the two are intertwined and contribute to feedback effects with each other – but they are separate. There is also the idea that interest rate moves to regulate money supply are just far too crude mechanisms, which is part of my argument (as we all remember the Fed switched from its old method of using the cruder discount rate to their newer style of using the fed funds rate to try and take care of this problem of crude action). Personally, I was always pretty ticked that the Fed didn’t use the margin requirements to fine-tune many of the frothier times we’ve had, which was the best tool available to stem “irrational exuberance”, rather than interest rates, which was like killing a fly with a shotgun, IMO.

progressoverpeace on September 17, 2008 at 9:14 AM

Terrye on September 16, 2008 at 3:59 PM

I understand now…

When Bush took the helm in 2000; it was Gingrich’s $281 billion dollar surplus and today it’s Pelosi’s $1.2 trillion dollar deficit…!

Thanks for the heads-up…!

I’ll be checkin’ with you Terrye; from time to time for the very latest…?

J_Gocht on September 17, 2008 at 9:17 AM

phil, before you accuse me of lying again, read some more about this and educate yourself.

AIG was, accordin to what was posted, “overwhelmed by protection it sold investors on $441 billion of fixed-income investments, including $57.8 billion in securities tied to subprime mortgages.” So the subprime part of this was less than 15% of its entire problem. And Lehman’s exposure was about 70% commercial real estate-related rather than residential real estate-related.

I demand an apology.

jim m on September 17, 2008 at 9:58 AM

And here’s from Merrill Lynch’s last 10-Q. You’ll see that Its residential real estate losses were about 20% of its overall problems.

“The substantial reduction in our net revenues and net earnings during the quarter was primarily driven by net losses generated by FICC. Net revenues were materially impacted by a challenging market environment that continued to deteriorate during the quarter, resulting in net losses that included $3.5 billion related to U.S. asset-backed securities collateralized debt obligations (“ABS CDOs”) and $2.9 billion of credit valuation adjustments related to hedges with financial guarantors, about half of which related to U.S. super senior ABS CDOs. Other significant net losses included $1.7 billion in the investment securities portfolio of Merrill Lynch’s U.S. banks, as well as $1.3 billion from certain residential mortgage exposures.”

Again, apologize, or you’ll be a walking example of how someone who doesn’t know what s/he’s talking about resorts to personal insults.

jim m on September 17, 2008 at 10:05 AM

You claim that sub-prime, ARM, and NINJA (No Income, No Job, No Assets) loans were the cause of the collapse, but, as I mentioned earlier, they were merely a symptom—they didn’t even come onto the scene in earnest until 2005.

As progressoverpeace noted, this is simply incorrect, except for maybe the NINJA loans.

I worked for a mortgage company from 2002-2007 as a project manager in the company’s marketing business implementation group. From the day I started, I sat in on meetings where our loan officers and LOB managers were screaming for the company to offer more subprime and ARM products so that they could better compete with other lenders, who were “making a killing”. Our CEO refused, telling them that he wanted to keep our portfolio of such loans as small as possible because they were too risky. “Interest-only” loans were as far as he wanted to go in terms of pushing “alternative” financing; other than that, he wanted fixed-rate loans to remain our primary offering.

In 2002, that company was ranked approximately 15th in mortgage loan origination. Six years later, they are now in the top 5. They, like just about every other mortgage originator, have taken their lumps with the market crash; however, by keeping their sub-prime portfolio rather small, they’ve been able to absorb the losses rather well. Now, through simple attrition, they will be in a position to significantly increase their market-share when the markets return to more normal conditions.

And those same loans officers and managers who were screaming at the CEO, should be lined up at his door everyday, lips properly lubed and puckered for some serious a$$-kissing :)

And isn’t it funny how we don’t hear too much about that kind of CEO in our news media?

rvastar on September 17, 2008 at 10:19 AM

J_Gocht on September 17, 2008 at 9:17 AM

hey J, did you see the other post on hotair??

As for the political implications, polling conducted last night shows that 49% trust McCain more than Obama on economic issues while 45% trust Obama.

all your lies and BS aren’t working. give it up loser!! BWAHAHAHAHHAAHAHAHHAH

right4life on September 17, 2008 at 10:35 AM

I would like to see McCain give a major speech on this. Lay it out there for everyone to see. Explain how we got here and how he will fix it. Specifics. Name names. No mercy.

And don’t spare any Republicans that were complicit with this national disgrace.

Two weeks later give a national security speech. Make it real and give facts. Talk about real threats and what he will do to protect the US and actions he will take against our enemy.

huckleberryfriend on September 17, 2008 at 7:19 AM

Agreed. It would be a bold move and would terrify the left. The problem is, McCain simply won’t attack his enemies with the vigor required to make the point.

JIMV on September 17, 2008 at 10:55 AM

right4life on September 17, 2008 at 10:35 AM

Trust of and feeling for McSame’s economic policies will vanish “like a fart in a whirlwind” once folks start checkin’ their quarterly 401K and IRA statements in early October.

r4l, Johnny Mc will be just another proverbial “political pig in a poke sack”…!

J_Gocht on September 17, 2008 at 11:02 AM

J_Gocht on September 17, 2008 at 11:02 AM

your savior obama is toast. can’t wait till November, and hearing your wailing and gnashing of teeth…

don’t worry though, your real savior will soon raise his wounded head, and you’ll be able to receive your mark of loyalty…

right4life on September 17, 2008 at 11:06 AM

Right, because people who take it in the shorts on their 401(k)s in October are automatically going to run to vote for someone with no record and no experience on any economic issues, who picked the head of the Foreign Relations Committee as his running mate because he got scared after Russia invaded Georgia. And who was the #2 recipient of campaign cash from Fannie Mae and Freddie Mac.

What other jokes do you have for us today, J_Gocht?

rockmom on September 17, 2008 at 11:15 AM

rockmom on September 17, 2008 at 11:15 AM

you ought to check out Markman’s article on moneycentral…

scary stuff

right4life on September 17, 2008 at 11:16 AM

I demand an apology.

jim m on September 17, 2008 at 10:05 AM

Will pistols at dawn satisfy you, or must we do this bare-fisted?

Seriously, Jim M, I don’t know if you’re lying or not, so you have my apology for that, but I’m still trying to get what your game is. Maybe you can explain this to me, from Merrill Lynch’s 10-Q statement that you quoted:

…net losses that included $3.5 billion related to U.S. asset-backed securities collateralized debt obligations (”ABS CDOs”) and $2.9 billion of credit valuation adjustments related to hedges with financial guarantors, about half of which related to U.S. super senior ABS CDOs. Other significant net losses included $1.7 billion in the investment securities portfolio of Merrill Lynch’s U.S. banks, as well as $1.3 billion from certain residential mortgage exposures.”

What’s got me confused is all those ABS CDOs. A CDO is a collateralized debt obligation. An ABS is an asset-backed security. What do you suppose the assets were that were backing those ABS CDOs????

If you can show me from the same statement that the assets behind those CDOs were something OTHER THAN real estate, you’ll have made your point. From where I sit, that statement says that at least 66% of their problem was related to the housing collapse, and that’s not counting the $1.7 billion in losses from Merrill’s banks, which probably were also real-estate-related. A link will suffice, I think I can read a 10-Q well enough.

Let’s not forget, the problem is not just sub-prime loans in default at a rate of 20% or more, it’s also rapid and alarming devaluation of the asset value of homes with perfectly good mortgage loans on them, and of commercial real estate as well. That’s not an unrelated problem; demand produced by way of the flood of sub-prime loans inflated the price of all real estate, and the correction since 2006 is affecting all real estate as well. So, investment houses are sitting on assets that suddenly and unexpectedly decreased in value by 30% or more, simply because the housing bubble burst.

philwynk on September 17, 2008 at 11:51 AM

I was just stressing that there are separate effects from monetary inflation and interest rate drops even though the two are intertwined and contribute to feedback effects with each other – but they are separate.

progressoverpeace on September 17, 2008 at 9:14 AM

Thanks for the compliment, p.o.p.

Hicsuget was saying that a drop in the central bank’s interest rate defines monetary expansion, and I see his point. They can’t be separate if they’re identified by definition.

I do see that there are two separate effects. In the first, dropping the prime rate expands the amount of money banks are willing to loan, thus putting more buying power in the home-buyer’s hands. In the second, changes in the interest rate increase the price the buyer is willing to pay, with a sort of mechanical effect on the market price, the price reflecting net economic value that’s a combination of P and I. However, hics wasn’t differentiating, just saying “expansion equals inflation,” which accurately describes reality, and happens to include the inflationary mechanism you described.

philwynk on September 17, 2008 at 12:21 PM

huckleberryfriend on September 17, 2008 at 7:19 AM

I second JIMV’s sentiment, but I actually see an even bigger opening…for McCain, for Republicans, and for our nation. What we have in front of us – on many different levels – is a perfect storm of opportunity. A chance to really change this country’s political landscape and to deliver a death-blow to the far-Left that has taken control of the Democrat party.

McCain is viewed – rightly, I believe – as someone who’s a straight-shooter. Most Americans would agree that when he says what he really thinks and does what he really, truly believes is best – even though his stances on this issue or that may be wildly unpopular, even in his own party. And because of this trait; and because politics in this country has basically devolved into shouting matches, childish pouting and posturing, and “gotcha!”; and because I think that the American public is truly, really sick of it all (as is evidenced by the abysmal Congressional approval ratings) – McCain has a rare opportunity to do something that is literally unheard of in politics.

He can simply tell the truth. And what’s even better is that I truly believe that the vast majority of the American people are ready for it. He took the first tentative steps during the Republican convention when he had the b@lls to call out the Republican party for losing it’s way recently:

I fight to restore the pride and principles of our party. We were elected to change Washington, and we let Washington change us. We lost the trust of the American people when some Republicans gave in to the temptations of corruption. We lost their trust when rather than reform government, both parties made it bigger. We lost their trust when instead of freeing ourselves from a dangerous dependence on foreign oil, both parties and Sen. Obama passed another corporate welfare bill for oil companies. We lost their trust when we valued our power over our principles.

Was he crucified for doing so? Hardly. While it may have been hard to hear, I think that Republicans were so disillusioned with the party – due to the scandals, spending, and cronyism of the past few years – that they were ready to clear the air. And by coming clean like that, McCain has given the party a chance to reclaim it’s core principles and to present itself as a respectable, responsible alternative to the far-Left for independents and moderate Democrats.

Now, he should continue in that same vein and give Americans honest, straightforward appraisals of the different challenges facing the country. For example, on the subject of the mortgage crises, he could say something along the line of this:

So who is to blame for this mess? My friends, we are all to blame.

Democrats are blame because this problem began in the 1990′s under the Clinton Admininstration, when Democrats and affiliated leftist organizations began pressuring banks and mortgage lenders to provide housing loans to borrowers who did not meet traditional credit criteria.

Republicans are to blame because, although we sounded alarms when this began in the ’90s, we were content to sit back and let the good times roll while we had near total control of the federal govt between 2000 and 2006…and did nothing.

Financial institutions are to blame because once the easy money began flowing in, they allowed it to overwhelm their basic sense of business fundamentals – creating more and more increasingly risky loan products.

And finally, we as Americans are to blame. We all know the basic tenets of financial responsibility: to live within our means…spend responsibly…save money rather than opting for easy credit. But with the Information Revolution of the ’90s – and the resultant economic boom that accompanied it – we allowed ourselves to go on a free-for-all spending spree, thinking that the good times would just keep rolling along. Well, they never do. And now the bill is due.

All of us – Democrats and Republicans, corporations and citizens – got ourselves into this mess. And it’s going to take all of us, working together, to get ourselves out of it. But make no mistake: we are Americans and solving problems is what we’re best at. And I have absolutely no doubt that together, we will weather this storm. I invite all of you to work with me – to fight beside me – in accomplishing this very important task.

How would it go over? I believe that the American public – except for the far-Left – would absolutely eat it up. Can you imagine Republicans not liking that speech – with it’s appeals to personal responsibility, accountability, and American positivity? Same goes for independents and moderate Democrats – with it’s even-handedness and plain, simple honesty? And the best part? It sets a perfect trap for Obama and the far-Left – one which they have absolutely no way out of because it leaves them caught between two equally devastating choices.

One the one hand, Obama could choose to get onboard with the idea. This option will be good for the country, but it leaves him looking like a Johnny-Come-Lately, which is always good. But more importantly, it also entails a complicit admission that Democrat/leftist social tinkering may hold hidden dangers that, regardless of how noble they may sound at the time, can come back to cause very serious problems later. And eventually, this will give Republicans – led by McCain, whom the public will trust to be an honest public servant – the opening and political capital needed to realistically begin talking with the American people about the coming trainwrecks of Social Security and Medicaid/Medicare. The hard Left will go absolutely nuclear, but the dynamic will have changed so that they come off looking like stodgy reactionaries who stubbornly put their ideological dogma ahead of the country’s well-being.

On the other hand, Obama could choose not to get onboard, in which case he simply exposes himself as the utterly partisan, far-Left hack that he really is. A few more stops by McCain on the “Truth Express” – for instance, on Iraq: “Of course we made mistakes, but we were honestly trying to ensure American security and to give the people in the Middle East an opportunity to chart a new direction for themselves…and once there, we were honor-bound – as Americans of goodwill and conscience – to stand between the innocent Iraqi people and the nihilistic murders who were doing everything they could to break the Iraqis spirits and to chain them to the divisions and oppressions of the past” – Obama would lose the election by a landslide. And that would allow the more centrist elements amongst the Democrats to reassert control over the party, which would only be a good thing for the country.

As Morgan Freeman so eloquently stated in The Shawshank Redemption, “If only…”

rvastar on September 17, 2008 at 1:22 PM

McCain is viewed – rightly, I believe – as someone who’s a straight-shooter pig-headed. Most Americans would agree that when he says what he really thinks and does what he really, truly believes is best – even though his stances on this issue or that may be wildly unpopular be completely and utterly wrong and a disaster for America.

Fify.

flenser on September 17, 2008 at 2:00 PM

““Of course we made mistakes, but we were honestly trying to ensure American security and to give the people in the Middle East an opportunity to chart a new direction for themselves…and once there, we were honor-bound – as Americans of goodwill and conscience – to stand between the innocent Iraqi people and the nihilistic murders who were doing everything they could to break the Iraqis spirits and to chain them to the divisions and oppressions of the past”
rvastar on September 17, 2008 at 1:22 PM

That is pure unadulterated bovine feces…

Even the olde man agrees with me…!

What do we have today; 700 billion dollars of debt owed to the Chinese and filthy rich Arabs that was pounded down that damn desert rat hole of Iraq, with unmitigated glee and aplomb by the Bush and Cheney, neocon, warmongers, that insisted on unrestrained borrowing and spending against our country’s future.

How’s your 401K, IRA or tax free municipal bonds doin’ today ravastar…?

Do you have any children or grandchildren…?

J_Gocht on September 17, 2008 at 2:43 PM

Bush and Cheney, neocon, warmongers, that insisted on unrestrained borrowing and spending against our country’s future.

so its BUSH’S fault huh? then tell me how many spending cuts did that heroic democRATic congress make, to save from Bush’s profligate ways?

oh yeah and who was in charge of fannie mae??? and how much money did your savior obama get from them??? hmmmm?? *snicker*

right4life on September 17, 2008 at 3:54 PM

I want to hear someone say the US is not a socialist country. No…I dare you to say it.

If Joe Schmoe needs unemployment he’s a ‘leech’. When A.I.G. gets $85 billion of his tax money they’re what?

TBTF. “Too Big To Fail!”

If they fell it would have taken out thousands of businesses world wide. This hurts in the *short term*. It is a great lesson in the *long run*.

Now they are bailed out – again – and there is not a word of how they will be regulated to prevent them continuing on their insane practices that is ruining the world. They get the free ride on the gravy train forever while the sneered at tax payer gets ever less.

Gold mine and shaft. Socialism for the rich, capitalism for the poor.

Dark-Star on September 17, 2008 at 4:07 PM

I want to hear someone say the US is not a socialist country

uhhhhh ummmmmmm errrrrrr its not

(doing my best impression of obama….so of course its a lie)

right4life on September 17, 2008 at 4:18 PM

J_Gocht on September 17, 2008 at 2:43 PM

Ran across this report about you.

right2bright on September 17, 2008 at 4:49 PM

What do we have today; 700 billion dollars of debt owed to the Chinese and filthy rich Arabs that was pounded down that damn desert rat hole of Iraq, with unmitigated glee and aplomb by the Bush and Cheney, neocon, warmongers, that insisted on unrestrained borrowing and spending against our country’s future.

And dont’ forget to thank the Democrats…who also voted to go into that “desert rat hole”. And thank you for being that rarest of Leftists: one who’ll admit that you were willing to leave the Iraqis high and dry just because you hoped for a political advantage out of it. Your nobility is a shining example for everyone to see :)

How’s your 401K, IRA or tax free municipal bonds doin’ today ravastar…?

Just fine. Yours?

Wait, scratch that. I forgot that you Leftists live off of “Hope” and “Change”.

Do you have any children or grandchildren…?

Yes, I do. I would ask you the same but I’m pretty sure that any you would have had probably ran up against a “choice” and didn’t make it.

Unluckily for mine, though, $700 billion is going to seem like a nice trip to the park compared to the $50+ TRILLION supernovas called Social Security and Medicaid/Medicare that are going to explode in their lifetimes, consuming $1 out of every $5 that this country produces by 2050 and saddling the average American with tax rates of over 50%.

But let me guess: Bush went back in a time machine and set that juggernaut in motion, right?

rvastar on September 17, 2008 at 5:01 PM

Notice the PATTERN of the past two dozen or so posts?

Rational and intelligent adults who know their subject present reasoned ideas. Liar and fraud J Gocht throws out half-wit insults, slogans, and talking points

Gee, that’s never happened here before……

/

Janos Hunyadi on September 17, 2008 at 5:49 PM

Are you serious? Do you understand the difference between interest rates and monetary expansion? You can expand the monetary supply all you want, but the fact is that a $200,000 house with an 8% mortgage costs the buyer about the same as a $400,000 house with a 4% mortgage. Given the same income and halving the interest rates about doubles the fair price of the house, as measured by the monthly servicing of the debt. Any price increases due to inflation/monetary expansion would be on top of that.

Huh?

Mechanisms for expanding/contracting the money supply are not the same as the expansion/contraction of the money supply. There are many other mechanisms for expanding our money supply beyond lowering certain interest rates. But, when interest rates are used, you must be able to discern between effects from the increase in supply and effects from the lowered interest rates. You seem to think that the interest rates have no effect – other than their use to regulate the money supply. That’s just plain silly.

progressoverpeace on September 17, 2008 at 7:51 AM

I told you that arguing against economic science would get you into trouble.

A reduction in the Fed Funds rate increases the demand of banks for federal funds, which increases the supply of loans made to the banks. The banks borrow this money for the purpose of loaning it out to their customers at higher rates. Lower fed funds rate = increase in money supply expansion. End of story. My purpose here is to inform you what economics says, not to prove to you why it is right to say it. You can, as I suggested, check out some of the works I cited if you want more detail.

I cited the Detroit and San Francisco cases as a refutation of your blanket assertion that halving the interest rates doubled housing prices. Apparently your position was more nuanced than you seemed to indicate. My apologies.

You say that “a $200,000 house with an 8% mortgage costs the buyer about the same as a $400,000 house with a 4% mortgage.” Did you not take math in high school? I suggest you double-check the numbers through this mortgage calculator on Yahoo finance.

Even if you were correct that halving the interest rate halves the cost of purchasing a house, it still would not necessarily double the price at which the housing market cleared. Halving the price of hot dogs, for instance, does not double hot dog consumption, and doubling the price of oil does not halve oil consumption.

There are plenty of other errors in your post, but there already exist numerous works on economics that could do at least as well as I could to dispel the fallacies on which you have based your position. I suggest you try reading some.

hicsuget on September 17, 2008 at 7:01 PM

hicsuget on September 17, 2008 at 7:01 PM

You’re kidding, right? That wasn’t a serious post, I assume. I especially liked your idiotic attempt to analogize housing prices and hot dog consumption. Think much?

I suggest that you go back and recheck the other asinine assertions you’ve made. Let me be very clear with you, though, lower interest rates != expansion of the money supply. Lower interest rates place pressure on the money supply to expand, but supply cannot be expanded by interest rates alone. One needs money to be created to increase the supply – you do understand that there must be MORE MONEY to have the supply expanded, right? Interest rate cuts don’t create money (yes, that’s a difficult concept, I know). They create a demand for money. Do you understand the difference? I’m not going to waste any more time hitting the keyboard to explain this, as anyone discussing this topic should already be aware of it. Now, once you go and check this out and find the various mechanisms that are used to affect the actual expansion of the supply, then you might start to understand something about the situation.

progressoverpeace on September 17, 2008 at 7:30 PM

You’re kidding, right? That wasn’t a serious post, I assume. I especially liked your idiotic attempt to analogize housing prices and hot dog consumption. Think much?

I suggest that you go back and recheck the other asinine assertions you’ve made. Let me be very clear with you, though, lower interest rates != expansion of the money supply. Lower interest rates place pressure on the money supply to expand, but supply cannot be expanded by interest rates alone. One needs money to be created to increase the supply – you do understand that there must be MORE MONEY to have the supply expanded, right? Interest rate cuts don’t create money (yes, that’s a difficult concept, I know). They create a demand for money. Do you understand the difference? I’m not going to waste any more time hitting the keyboard to explain this, as anyone discussing this topic should already be aware of it. Now, once you go and check this out and find the various mechanisms that are used to affect the actual expansion of the supply, then you might start to understand something about the situation.

progressoverpeace on September 17, 2008 at 7:30 PM

I never kid about economics, and I think all the time. I even think before I leave comments on Hot Air–hence your apparent bewilderment.

You sound like you audited an economics course or two a few years ago. Maybe you remember the concept of price elasticity of demand? You assumed that housing prices are unit elastic across an enormous range of prices; I was merely giving examples of other goods whose price elasticities of demand are not unit elastic. It is not a difficult concept to understand unless you have difficulty understanding that it is a concept.

You are 100% correct when you say that lowered interest rates do not by themselves expand the money supply. However, I was not talking about interest rates in general; I was talking about the Federal Funds rate in specific. The Federal Funds rate is maintained at a certain level the same way a nation’s currency is kept pegged to some other currency–that is, not by fiat, but by supply expansion or restriction.

When the Fed picks an interest rate, it has to actually provide funds at that rate, or else its policies have no effect whatsoever. A lowered rate increases demand for money, but unless the additional quantity of money demanded is supplied by the Fed, general interest rates will rise of their own accord.

You seem reluctant to read the economic works I cited; perhaps you can be bothered to read the first paragraph of the Wikipedia article I linked to:

In the United States, the federal funds rate is the interest rate at which private depository institutions (mostly banks) lend balances (federal funds) at the Federal Reserve to other depository institutions, usually overnight. Changing the target rate is one form of open market operations that the Chairman of the Federal Reserve uses to regulate the supply of money in the U.S. economy.
[emphasis mine]

hicsuget on September 17, 2008 at 9:10 PM

hics,

All I said was that interest rates have strong effects on housing prices, all on their own, without any change in the money supply. That’s a trivial fact. The rest of what I was saying was that these other effects of low/lowering interest rates were impactful on a far wider scope than just their use for releasing liquidity into the system.

progressoverpeace on September 17, 2008 at 10:13 PM

progressoverpeace on September 17, 2008 at 10:13 PM

Fine, but you have the scope reversed. Inflationary expansion of the credit supply is seen by the Austrian school as the sole root cause of the business cycle. From Human Action, Ch XX, Sec 8:

The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

What differentiates credit expansion from an increase in the supply of money as it can appear in an economy employing only commodity money and no fiduciary media at all is conditioned by divergences in the quantity of the increase and in the temporal sequence of its effects on the various parts of the market. Even a rapid increase in the production of the precious metals can never have the range which credit expansion can attain. The gold standard was an efficacious check upon credit expansion, as it forced the banks not to exceed certain limits in their expansionist ventures. The gold standard’s own inflationary potentialities were kept within limits by the vicissitudes of gold mining. Moreover, only a part of the additional gold immediately increased the supply offered on the loan market. The greater part acted first upon commodity prices and wage rates and affected the loan market only at a later stage of the inflationary process.

However, the continuous increase in the quantity of commodity money exercised a steady expansionist pressure on the loan market. The gross market rate of interest was, in the course of the last centuries, continually subject to the impact of an inflow of additional money into the loan market. Of course, this pressure for the last hundred and fifty years in the Anglo-Saxon countries and for the last hundred years in the countries of the European continent, was far exceeded by the effects of the synchronous development of circulation credit as granted by the banks apart from their–from time to time reiterated–straightforward endeavors to lower the gross market rate of interest by an intensified expansion of credit. Thus three tendencies toward a lowering of the gross market rate of interest were operating at the same time and strengthening one another. One was the outgrowth of the steady increase in the quantity of commodity money, the second the outgrowth of a spontaneous development of fiduciary media in banking operations, the third the fruit of intentional anti-interest policies sponsored by the authorities and approved by public opinion. It is, of course, impossible to ascertain in a quantitative way the effect of their joint operation and the contribution of each of them; an answer to such a question can only be provided by historical understanding.

What catallactic reasoning can show us is merely that a slight although continuous pressure on the gross market rate of interest as originating from a continuous increase in the quantity of gold, and also from a slight increase in the quantity of fiduciary media, which is not overdone and intensified by purposeful easy money policy, can be counterpoised by the forces of readjustment and accomodation inherent in the market economy. The adaptability of business not purposely sabotaged by forces extraneous to the market is powerful enough to offset the effects which such slight disturbances of the loan market can possibly bring about.

hicsuget on September 17, 2008 at 11:38 PM

Fine, but you have the scope reversed. Inflationary expansion of the credit supply is seen by the Austrian school as the sole root cause of the business cycle. From Human Action, Ch XX, Sec 8:

[ ... ]

hicsuget on September 17, 2008 at 11:38 PM

The business cycle is different from the housing market and we were specifically talking about the housing market. But, with respect to the article, it points out, essentially, that the only limit for expansion of credit is the market, itself, and that that fact allows credit expansion to go beyond the point of no return. There’s nothing revolutionary in that. But credit expansion also occurs as a tool to stave off a normal business cycle, so I don’t buy into the whole “cause of business cycles” idea (i.e. you’re about to go broke for other reasons so you start borrowing …). Credit expansion/control allows business cycles to be more violent, and to be, to some extent, more predictable, if desired. The general problem is that credit is usually used to eradicate the cycle, hence the problem. The same problem that we had with forests when we used to not allow any wildfires to come through and clean them out.

For me, the expansion of credit must be commensurate with the growth of real wealth – and real wealth can be created out of thin air, as with new inventions. It is when the expansion of credit becomes detached from the growth rate of the true underlying wealth that it becomes a problem. But that’s just my take on things.

And, I have no idea what “catallactic reasoning” is, but I don’t like it :)

progressoverpeace on September 18, 2008 at 12:54 AM

the business cycle is different from the housing market

The terms “business cycle” or “trade cycle” refer to the pattern of boom and bust, the oscillation between prosperity and depression, that has marked industrial economies for the past century and a half. The heady days of the housing bubble and the misery we are now experiencing as that same bubble is bursting are nothing other than manifestations of that phenomenon.

Contra Keynes, inflation does not affect all market participants equally—some industries are the target du jour for the spending of the new money, and others are not. In this case, housing just happened to be where all the newly-created money ended up.

FYI, what I quoted earlier was not an “article”; it was a few paragraphs from a 900-page treatise on economics. Here, though, we have a short article explaining in full the Austrian Theory of the Trade Cycle

(Also, as a mostly-unrelated aside, von Mises spoke of what we call economics as two different, related sciences—catallactics, which deals with monetary transactions, and praxeology, which deals with non-monetary human action. The “catallactic reasoning” you don’t like is nothing other than non-Keynesian economics.)

hicsuget on September 18, 2008 at 7:05 AM

hicsuget on September 18, 2008 at 7:05 AM

:eyeroll:

Everything seems to go over your head, but that doesn’t appear to stem your pretentiousness. Are you European, or something?

progressoverpeace on September 18, 2008 at 8:17 AM

your statements aren’t going over my head; they’re going under my feet. I happen to be an economist, you see.

hicsuget on September 18, 2008 at 12:08 PM

I happen to be an economist, you see.

hicsuget on September 18, 2008 at 12:08 PM

It was quite obvious that you work in the soft-sciences.

progressoverpeace on September 18, 2008 at 12:33 PM

It was quite obvious that you work in the soft-sciences.

progressoverpeace on September 18, 2008 at 12:33 PM

Very funny. I had you pegged as a cocktail waitress.

hicsuget on September 18, 2008 at 4:46 PM

I see far too many people trying to flex their knowledge on economics when the primary influence here is political.

YES! Lenders made predictably bad loans when directed to do so by Clintoon and his fellow socialist morons.

Democrats then blocked all republican attempts to correct the situation, democrats feigned actions to cover their @ss in the event it all went to hell…AND here we are.

No more ludicrous macrorectum definitions of economics, thank you.

Winghunter on September 25, 2008 at 12:16 PM

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