Whose policies led to the credit crisis?
posted at 9:40 am on September 16, 2008 by Ed Morrissey
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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 horizon. Everybody 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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Gocht is senile, as well as a Troll and a fraud: he claims to have been ‘in the infantry for 3 years in the Republic of Vietnam’ in the 1960s
He’s good at getting Wiki info and other superficial info from other websites, and pretending to be Special Forces, etc
The usual sad, pathetic, crap. Real soldiers don’t use their military service as a platform to make political arguments–right or left
If you respond to him, it only encourages him….
Janos Hunyadi on September 16, 2008 at 3:12 PM
This goes to prove that the 9% approval rating for Congress is too high.
Maxx on September 16, 2008 at 3:15 PM
Wow. A brain-dead Leftist and an ad hominem “argument”. I’m so shocked.
I wonder if water is still wet?
rvastar on September 16, 2008 at 3:28 PM
Manipulation.
“This is what they wanted.”
CNN’s Crowley: Obama Team Wanted ‘Horrific’ Wall Street Headlines
Connie on September 16, 2008 at 3:31 PM
Ain’t it great? I love the logic of liberals.
Case in point:
1. Demonrats cause a problem
2. Repubs try to fix said problem
3. DRats shoot down fix of problem
4. Said problem turns into a crisis
5. DRats blame Repubs for crisis
9% approval. I wonder why???
bryan2369 on September 16, 2008 at 3:55 PM
So why in the world doesn’t the McCain camp use this information in their public information? It doesn’t take a rocket scientist to understand it.
justdianne on September 16, 2008 at 3:55 PM
J:
Idiot. That surplus had more to do with Gingrich than Clinton and it was gone before Bush’s hand was laid on that bible. A lot of that so called surplus was thanks to the dot com bubble that burst at the end of the Clinton term…and it went when the bubble burst.
Terrye on September 16, 2008 at 3:59 PM
And considering the fact that Obama crapped all over Clinton and his economic record anyway, what do you care? Remember the dreaded NAFTA? Clinton.
And Obama wants to spend another 800 billion a year without any real plan on where the money was coming from. Clinton and Gingrich made cuts.
Terrye on September 16, 2008 at 4:01 PM
Lehman, Merrill Lynch and AIG have or are going bankrupt or being sold and you’re focused on the Fannies?
That’s so last week.
Who’s policies caused Lehman, Merrill Lynch and AIG so much trouble?
jim m on September 16, 2008 at 4:07 PM
If I remember correctly… Ron Paul has been talking about this stuff for decades now
I didn’t vote for ron paul but he is right in this case.
Xolom on September 16, 2008 at 4:17 PM
All I know is Barney Frank blew it…
right2bright on September 16, 2008 at 4:20 PM
…”Bush wanted to tighten oversight with a new regulatory board…for the express purpose of addressing bad loan practices — and Democrats blocked it.” REALLY? Just like they have blocked anything that had common-sense, fiscally conservative goals in mind. Wow, no wonder the Congress’s approval rating is under 10%.
The sharks who made it easy for people to sign on loans with adjustable rates, etc., (including non-citizens), are to blame. They must be held accountable!
Yes Terrye, if we get rid of NAFTA, the unfair Value Added Tax and social services to illegal aliens, we will start pulling out of this mess, starting with California.
Christine on September 16, 2008 at 4:21 PM
Think this will find itself in an ad somewhere for someone? :)
ThePrez on September 16, 2008 at 4:28 PM
Dick Polman: “The current crisis, particularly the mortgage meltdown, is the direct result of Republican deregulation policies, the notion that Wall Street and the free market works best when supervised least. In reality, that’s when human greed – the dark side of free enterprise – rises to the fore. Not to get into the weeds here, but the housing bubble burst because the commercial banks, stock firms, and hedge funds were allowed to engage in Ponzi-like mortgage swaps – thanks to two deregulation measures pioneered by Senate Republicans back when they ran the chamber at the end of the Bill Clinton era (and, yes, Clinton signed off). Taken together, these two laws seriously loosened oversight of the financial community.
The prime mover behind those GOP deregulation efforts was Senator Phil Gramm of Texas. The name might ring a bell. That’s the same Phil Gramm who has long been tight with McCain – and vice versa, since it was McCain who chaired Gramm’s failed run for the presidency in 1996. Gramm, in his current incarnation as a banker, was also serving this year as McCain’s chief economic adviser until he was bounced from the post after referring to Americans as ‘whiners’ suffering ‘a mental recession.’”
KentAllard on September 16, 2008 at 4:46 PM
No Kentard, Uncle Phil is responsible for the boosting of the problem but Beijing Billy and friends are the ones who pressured the banks to make idiotic loans.
sven10077 on September 16, 2008 at 4:48 PM
AIG is trouble partly becase it owned a crapload of Fannie stock.
Lehman and Merrill also got into subprime mortgages with no clue about how to manage the risk. They were greedy and wanted all the profits from origination through securitization. It was an ill-advised attempt at vertical integration. This happens sometimes. It doesn’t always work out the way the company hopes it will. This is called capitalism. You should study it sometime.
Bank of America is a big winner here. It has not written a subprime mortgage since 2000. Wells Fargo hasn’t either, and JPMorgan Chase did very few. Their management was smarter than that of Lehman and Merrill and AIG and IndyMac. They were willing to forego some short term profits because they saw the risk as too great.
There is no law in history that can completely prevent corporate stupidity or poor risk management.
rockmom on September 16, 2008 at 4:50 PM
Dick Polman knows as much about economics and finance as I know about bull riding.
rockmom on September 16, 2008 at 4:50 PM
I should add that another contributing factor to the housing mess is the vast overinflation of home prices in California which has been going on for over 20 years. California is 20% of the national market and several lenders were much more than 20% in California. The exotic mortgage products and declining lending standards evolved as lenders tried to help people there afford these astronomical home prices. (You do the math and see what the monthly payment is on a conventional 30-year fixed rate loan on an average $800,000 house in San Francisco or San Diego.) Decades of bulidng moratoria, environmental restrictions, rent controls, and other nonsensical state and local regulation have led to a severe housing shortage in California which drove up prices over many, many years. When the California market bubble burst, the national market got sick very fast and lenders such as Countrywide and IndyMac which wwre concentrated in California got in trouble quickly.
rockmom on September 16, 2008 at 4:58 PM
Freddie and Fannie had become just one more big piggy bank for Dem cronies: Raines and Johnson, Gorelick, Dem campaigns, etc. They raked in millions through accounting gimmicks that would have sent you and me to jail. All while they were simply biding their time until they could go back to their government jobs (they had golden parachute clauses with Fannie/Freddie that maintained their bonuses if they departed for a government position).
Another aspect I seldom see mentioned is their “foundation” giving. Apparently Fannie (and Freddie?) moved millions into a foundation, thereby paying off the hoi poloi of Washington: the Kennedy Center and other lib favorite causes. If I remember correctly, Johnson is now the Chairman of the Kennedy Center board.
How can it be that the GOP hasn’t gotten all this before the public? I don’t think I’ve seen a single story in the MSM that equates the self-serving practices to the collapse of their stock. Time to shine a light on it.
jeanneb on September 16, 2008 at 5:06 PM
Help me out here RM. I thought AIG was in trouble becuase they were heavy into credit default swaps on the subprime MBS, no?
TheBigOldDog on September 16, 2008 at 5:07 PM
The Wall Street Journal has written dozens of stories and editorials on this over the last 8 years. I used to be pissed at them for running a “jihad” on Fannie Mae. Now I wish more people had read and paid attention to what they were saying.
rockmom on September 16, 2008 at 5:16 PM
Ya, that’s how they got burned:
Far more than other insurers, AIG has been a big player in a complex parallel market called credit default swaps (CDS), financial instruments in which Wall Street companies take out a form of market insurance against the risks of bond default.
These products, often linked to the US real-estate market, are at the heart of the current banking crisis and have led to massive write-downs of assets around the world.
AIG alone has written down 25 billion dollars amid spiking defaults on US mortgage payments in the United States….
Spizer forced out AIG’s founder, Hank Greenberg in 2005 and once Hank was out, the new crew ran wild with these derivatives without really understanding what the heck hey were getting themselves into. Greenberg was distraught today at what they did to his “baby” and lost something like $7B of his own net worth in this collapse…
TheBigOldDog on September 16, 2008 at 5:27 PM
In the mean time, we are forced to bail out the scum that gave out the loans, the boneheads that took loans knowing they couldn’t pay.
Then the dems stand in front of all the cameras they can find, pointing at the reps with one hand while hiding crossed fingers behind their backs.
Does that about sum it up?
SanFranNan was right. This is the most transparrent congress in history.
oakpack on September 16, 2008 at 5:41 PM
Social engineering……………….. works everytime!
When are the Democrats going to be held accountable for all the damage they have done to this country?
Seven Percent Solution on September 16, 2008 at 5:42 PM
So the almost total deregulation of Wall Street is a significant contributor to the problems. See this article from the March 23, 2008 NYT–almost 6 months ago:
WASHINGTON — As Congress and the Bush administration struggle to contain the housing and credit crises — and prevent more Wall Street firms from collapsing as Bear Stearns did — a split is forming over how to strengthen oversight of financial institutions after decades of deregulation.
In Congress, Democrats are drafting bills that would create a powerful new regulator — or simply confer new powers on the Federal Reserve — to oversee practices across the entire array of commercial banks, Wall Street firms, hedge funds and nonbank financial companies.
The Treasury Department is rushing to complete its own blueprint for overhauling what is now an alphabet soup of federal and state regulators that often compete against each other and protect their particular slices of the industry as if they were constituents.
But the two sides strongly disagree about whether, after decades of a freewheeling encouragement of exotic new services and new players like hedge funds, the pendulum should swing back to tighter control.
One central battle is likely to be over tightening supervision of the risk-management practices of Wall Street investment banks and perhaps requiring them to keep higher cash reserves as a cushion against unexpected trading losses.
The Democratic proposals would subject Wall Street firms to the kind of strict oversight that banks have had for decades. If firms like Goldman Sachs and Merrill Lynch were required to set aside substantially bigger capital reserves, they would have that much less available for lending, trading and underwriting new securities.
Wall Street firms played a central role in packaging and financing trillions of dollars in high-risk home mortgages, and the losses tied to those mortgages are at the heart of the deepening crisis in the financial markets that has pushed the economy to the brink of a recession.
“You need regulation that is adequate to the scope of innovation and to the scope of activity,” said Representative Barney Frank, the Democrat of Massachusetts who is chairman of the House Financial Services Committee.
Mr. Frank said last week that Congress should consider creating a new regulator — or giving the Federal Reserve greater powers — to oversee all financial markets and intervene when necessary.
Mr. Frank, saying that government had failed to keep up with the explosion of new financial instruments, said regulators needed to re-examine capital reserves, risk-management practices and consumer protection without regard to whether companies were commercial banks, investment banks or nonbank mortgage lenders.
“You do it right, and it’s pro-market,” Mr. Frank said in an interview. “Right now, we have an investors’ strike going on, and restoring investor confidence is a top priority.”
But industry groups warn that heavy-handed regulation could dry up investment capital just when the economy needs it most.
……
But both President Bush and Mr. Paulson, a former chief executive of Goldman Sachs, remain philosophically opposed to restrictions and requirements that might hamper economic activity.
“What we’re looking at in our blueprint is how to make our regulatory structure more efficient, less duplicative and more in line with today’s capital markets,” said David G. Nason, assistant secretary of the Treasury for financial institutions. “We’ve got five regulatory agencies focused on depository institutions. We’re one of the only countries in the world that separates securities from futures, and our regulation of insurance is solely at the state level.”
jim m on September 16, 2008 at 5:43 PM
Only a party like the Dems could have a leading member like Barney “THE TURD BURGLAR” Frank
pherrman on September 16, 2008 at 5:49 PM
The bank regulatory structure in the U.S. has not changed fundamentally since the Depression. There are two different types of bank charters and two agencies that regulate them; the FDIC runs the deposit insurance fund for all banks; and the Fed regulates large bank holding companies. The only thing that was “deregulated” was the types of activities that banks could engage in. This was done under Bill Clinton, by the way, so that Citibank could legally buy Travelers Insurance. The Fed and Treasury have authority under this law to define what constitutes a “financial service” that banks may engage in. If not for this deregulation, Bank of America would have been probibited from buying Merrill Lynch yestreday and Merrill would have failed. Chase would have been prohibited from buying Bear Stearns as well.
There was never a law or regulation that prohibited investment banks like Lehman and Merrill and Bear from buying mortgage companies. There was the self-regulation of executives and directors and shareholders who maintained the philosophy that long term profitability was more important than maximizing short term gain.
There is no federal regulation of insurance companies at all. Insurance regulation has always been done at the state level.
rockmom on September 16, 2008 at 5:57 PM
No, “deregulation” is not the problem. The problem is that Fannie and Freddie are semi-government bodies, at the Democratic parties insistence. That is why we the taxpayers are on the line here, not because of some non-existent “deregulation”.
The same Barney Frank who opposed increased oversight back when it might have done some good.
flenser on September 16, 2008 at 6:01 PM
How would you suggest that they do that?
flenser on September 16, 2008 at 6:02 PM
John Gibson just did an excellent commentary on this fiasco on FNC with extra special attention to the Triumvirate of Raines/Gorelick/Johnson.
Buy Danish on September 16, 2008 at 6:04 PM
It’s not the Fannies alone that caused the current problems. It was the bad investments and bad decisions that the investment banks made.
But the current problems could have been alieviated if Bush would have allowed more oversight and required more collateral cushions of the investment banks.
jim m on September 16, 2008 at 6:08 PM
FM/FM absolutely created this crisis. Non federal safety netted banks had to compete with FM/FM who had altered risk ratios in order to “help the poor”. Money got too cheap and firms stayed too greedy.
The system has worked, the market regained 1/4 the loss and the losers lost.
A free market has to have freedom to fail to establish risk valuation properly.
sven10077 on September 16, 2008 at 6:11 PM
Hillary Clinton Palin is exciting but she isn’t me:) video
http://abcnews.go.com/Politics/5050/story?id=5813133&page=1
Dr Evil on September 16, 2008 at 6:35 PM
Mel Watt…from NC…what a rasist POS he is. Oh, he’s also stupid.
SouthernGent on September 16, 2008 at 6:39 PM
Sven, here’s a summary of AIG’s problems from the WSJ. You’ll see actual mortages–created by the Fannies or not– (as opposed to insuring mortgages) appear to be only a small part, so long as they didn’t invest mostly in residential real estate in the US:
Why is AIG in crisis?
1) CDS: Unlike most other insurance companies, AIG plunged into the market for credit default swaps, which are contracts that act like insurance by protecting investors against default in a range of assets, including subprime mortgages and corporate bonds. Swap buyers make regular payments to sellers like AIG, who in turn have to make payouts if a default or bankruptcy occurs. As the risk of default on the assets has increased, AIG has had to write-down the value of the protection it sold and post collateral to its counterparties.
2) MORTGAGES: AIG also has other businesses that are exposed to the troubled housing market, including a unit that makes mortgage loans to consumers and a unit that promises to make payouts to lenders if a borrower can’t pay the mortgage.
3) INVESTMENTS: Like any insurance company, AIG funnels premiums paid by policyholders into myriad investments aimed at generating profits to fund future claims. Amid the upheaval in the markets, some of those investments
jim m on September 16, 2008 at 6:40 PM
Some Democrat calling himself “Jim M” seems intent on trying to defend his buddies, but he seems to have a hard time with facts. Vis:
Democrats. AIG, Lehman et al are suffering from the same problems that caused the housing collapse — politically correct over-regulation of mortgages, forcing lenders to make loans to marginal borrowers in low-income areas upon threat of civil rights lawsuit. Their own stupidity got them into sub-prime mortgage-backed securities, but the presence of those securities, the proliferation of subprime loans, and the gross over-inflation of housing prices that are now correcting downward, are the direct result of insane do-gooder policy, that forced banks to behave in a manner that made no economic sense — a sure prescription for an eventual collapse. As usual, liberals tried to create Utopia with a wave of a magic wand, and the poor suffer more as a consequence. Nice.
The article does not say anything of the sort. Reread it; it says the problem is not deregulation, but badly coordinated regulation.
Did you not read the article to which this discussion is attached? He tried. Democrats stopped him. What part of that do you dispute, and on what basis? Please be specific.
philwynk on September 16, 2008 at 6:41 PM
Oh, and another:
Yesterday’s WSJ article on the impending collapse of Merrill and Lehman said that AIG devalued its books downward by $20 billion yesterday as a result of revaluing its mortgage portfolio. That’s a devaluation of more than 60% from face value. Here’s the link to the article if you’re interested in the facts.
philwynk on September 16, 2008 at 6:45 PM
You need to be registered to get onto the full WSJ.com site.
Here’s from Lehman’s earnings release last week. It was their commercial real estate exposure–which doesn’t involve the Fannies–that did them in:
Significant Reduction in Residential Mortgage and Commercial Real Estate
Lehman Brothers took several steps to significantly reduce its real estate portfolio in the third quarter. The Firm reduced its residential mortgage exposure by 31% to $17.2 billion. Further, Lehman Brothers is formally engaged with BlackRock Financial Management, Inc. to sell approximately $4.0 billion of the Firm’s UK residential mortgage portfolio and expects to complete the sale within the next few weeks. Pro forma for this transaction, the Firm’s residential mortgage exposure is expected to be reduced by 47% to $13.2 billion. Lehman Brothers also reduced its commercial real estate exposure by 18% in the third quarter from $39.8 billion to $32.6 billion.
Spin-Off of Commercial Real Estate Assets
The Firm intends to spin off to its shareholders $25 billion to $30 billion of its commercial real estate portfolio into a separate publicly-traded company, Real Estate Investments Global (“REI Global”), in the first quarter of 2009. The spin-off of REI Global will strengthen Lehman Brothers’ balance sheet while preserving the value of the commercial real estate (“CRE”) portfolio for shareholders.
jim m on September 16, 2008 at 7:01 PM
I see that jim is cutting-and-pasting the same talking points on every thread.
Hey, we all have to make a living!
flenser on September 16, 2008 at 7:17 PM
I hope you’re not holding your breath waiting for jim to respond. He’s off looking for something else to cut-n-paste.
flenser on September 16, 2008 at 7:19 PM
Best not to mention illegals to terrye. She’s a refugee from the Democratic Party and still retains many of her more silly prejudices, including a love for all mankind. (As long as they’re not conservative.)
flenser on September 16, 2008 at 7:22 PM
All of this, I dispute, because it doesn’t deal with commercial real estate, which was by far the largest problem that Lehman had: “politically correct over-regulation of mortgages, forcing lenders to make loans to marginal borrowers in low-income areas upon threat of civil rights lawsuit. Their own stupidity got them into sub-prime mortgage-backed securities, but the presence of those securities, the proliferation of subprime loans, and the gross over-inflation of housing prices that are now correcting downward, are the direct result of insane do-gooder policy, that forced banks to behave in a manner that made no economic sense”
jim m on September 16, 2008 at 7:27 PM
Because he went Haaaveeerd.
Maxx on September 16, 2008 at 7:31 PM
That’s your opinion.
You seem blissfully unaware of where that “insane do-gooder policy” originated. It was, of course, in your own party.
flenser on September 16, 2008 at 7:33 PM
“our heart was in the right place, racists”
//donk
sven10077 on September 16, 2008 at 7:41 PM
flenser, I appreciate the work you’re doing here. Your posts are very helpful.
Loxodonta on September 16, 2008 at 7:43 PM
Luckily, today, Pelosi explained that the Democrats had nothing to do with this…they apparently was absent at all committee meetings, all votes, and they did not know, until just a week ago, these things called Fannie Mae and Freedie Mac. She thought they were a band.
So that explains it too everyone…I repeat, Pelosi says the Democrats have done nothing wrong, nothing.
Wrap up this thread, it is all over…this person who leads a group with a 9% approval rating, who walked out on the energy crises, has told us all we need to know…the Democrats know nothing.
So I say this: Don’t pick on the Democrats, they haven’t done anything.
right2bright on September 16, 2008 at 7:53 PM
Sent this off to Jay Severin this morning (before 10:00 am) as interesting reading. Guess what the topic was on his show at 3:00pm (96.9 WTTK Boston) he took no prisoners calling out the fat bastards and the more than culpable media lap dogs. Could have been coincidence, but its nice to see this story breaking on multiple fronts!
dmann on September 16, 2008 at 7:55 PM
How does a person like Barney Frank even get elected to Congress to begin with? He’s a middle-aged homosexual with the same speech impediment as Scooby Doo who had a male prostitution ring being run out of his DC residence. He later claimed that his boy-toy was running the male hoes without his knowledge. Jeez.
Travis Bickle on September 16, 2008 at 8:03 PM
Didn’t see it mentioned but in February, Pelosi pushed to increase the size of loans FNM/FRE back from 417K to 730k. This was aimed at the allowing them to assume even more risk in the collapsing CA markets. Why do financial reporters have such a hard time remembering this stuff?
deadman on September 16, 2008 at 8:07 PM
BOD: If my memory serves, wasn’t Rubin a big supporter of Hillary Clinton early in the presidential run? I don’t know how long he was behind her, but I do remember the connection of their names.
onlineanalyst on September 16, 2008 at 8:14 PM
Bill O’Reilly blaming Bush for the mess, then a little poke at congress, mind you just before a feature on Michelle Obama. I just sent him this email:
Bill,
Stop your clueless lying about the Mortgage meltdown, the president did try to reel the Mortgage companies in but congress block it. Fact checking is a lost art, read it and try to be a journalist!
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print
Regards,
dmann on September 16, 2008 at 8:22 PM
That’s pretty funny…
I prefer to trust Oxley on this issue. He is a Republican, was head of the finance committee, and he is pretty clear over how the Administration responded.
http://www.ft.com/cms/s/0/8780c35e-7e91-11dd-b1af-000077b07658.html
lexhamfox on September 16, 2008 at 8:24 PM
dmann on September 16, 2008 at 8:22 PM
Nice. I am getting so sick of his BS. What is up with the Obama Chronicles segments? Will there be a McCain Chronicles segment? I got the impression that there won’t be the way he glossed over it the other night quickly saying everyone already knows McCains story. He is such a blowhard.
Loved the way Neil challenged him. That was fun. LOL
And Wow I couldn’t believe my ears. Was that really Willy Brown??? He was more fair and balanced than Bill.
artchick on September 16, 2008 at 8:37 PM
lexhamfox on September 16, 2008 at 8:24 PM
It appears everyone had their hands on the toilet paper but didn’t want to get smelly fingers. The liberal social engineering (vote buying) fostered by the Clinton administration was the first turd in the bowl. Thanks for the link, sadly the NYT and FT are both fish wrap!
dmann on September 16, 2008 at 8:43 PM
I’m trying to figure out what Jim M’s game is. He seems intent on blowing an ink cloud to obscure the plain facts of the situation.
Jim M, this entire crisis is about subprime-mortgage-backed securities going sour, and about downward revaluing of mortgage assets — and the mortgage crisis is the result of brain-dead liberal policies in the Clinton administration, amplified by corrupt Democrats in Congress. Why the hell are you trying to pretend it’s about anything else?
Other players bear some blame — greedy homeowners, weak-spined Republicans, etc. — but the crisis was caused by failures of Democratic policy.
AIG is in trouble because they issued insurance backing mortgage-backed securities. See Bloomberg:
Lehman is in trouble because of $60 billion in bad real estate holdings. See portfolio.com:
Merrill Lynch is in trouble because of about $20 billion in write-downs of mortgage-backed investments. See Bloomberg:
philwynk on September 16, 2008 at 8:44 PM
First of all, flenser, I wrote about this accurately on my own blog back in February. I do not EVER cut-and-paste, as you call it. You’re a liar.
Secondly, I know PRECISELY which party originated this insane do-gooder policy. It was driven down the nation’s throats by leftist activists, who threatened lawsuits against banks that failed to make enough loans to blacks in low-rent neighborhoods, and then backed in spades and doubled by Clinton’s appointed cronies at Fannie Mae — same ones who cooked the books to pad their pockets. You should read what I wrote about it 6 months ago to get yourself an education, which you appear to lack. Here ya go.
philwynk on September 16, 2008 at 8:51 PM
I’m really mystified. How do guys like flenser and Jim M live with themselves? They have to know that they’re lying through their damned teeth to protect their party. How can they do it and still consider themselves human beings? I know for damn sure I couldn’t do that, not even for a good living. I’d sooner starve than lie for a living.
philwynk on September 16, 2008 at 8:53 PM
You mean Oxley is trying to wash the blood from his hands? I’m shocked!
TheBigOldDog on September 16, 2008 at 8:57 PM
I no longer watch O’Reilly even semi regularly.
TheBigOldDog on September 16, 2008 at 8:58 PM
Alan Greenspan and Christopher Cox helped to throw gasoline on the fire.
dedalus on September 16, 2008 at 9:04 PM
I believe that you don’t cut and paste. But if you read more carefully you’ll see I was responding to jim m, not to you.
flenser on September 16, 2008 at 9:29 PM
If you’re alleging that I’m a Democrat, that is simply not true–I believe in giving credit, and blame, where either is due.
The mainstream, Keynesian, notion regarding inflation is that inflation is an increase in the price level. The classical and Austrian conception of inflation is that inflation is an increase in the money supply, and that an increase in the price level is merely a symptom of inflation rather than the disease itself.
Based on the false Keynesian notion is the idea that inflation affects all participants in the economy equally, whereas the classical conception is that inflation benefits the immediate recipients of the newly minted money and hurts those to whom it trickles down/up/across to afterwards. According to the classical conception, the lowering of the Fed Funds rate to 1% helped most those in a position to borrow the new money first (banks), helped those next-most in a position to borrow second (takers of mortgage loans in 2003), and hurt the rest of us.
It was the increased availability of money that caused property values to skyrocket, as more and more people began bidding on the same fixed (in the short run, anyway) supply of housing. Eventually, the increase in the money supply manifested itself in a falling dollar, which meant that the nominal (dollar-denominated) price of oil and other imports rose.
Eventually the rising prices in housing and energy caught up with the economy, as building materials, luxury goods purchased with home equity loans, and even food increased in price as the inflationary policies initiated in 2002 worked their way through the economy. In response to the rising prices, which the Fed, acting under a post-Keynesian mindset, viewed as inflation, it raised interest rates, thus cutting off the flow of money. This deflationary reduction in the money supply triggered the present collapse, which began in 2006. 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.
This is not to say that I blame the Bush administration for pushing for a lower Federal Funds rate in 2002. The cheap money it afforded staved off a recession in 2002 that would have been directly attributable to the 9/11 attacks, thus preventing a propaganda victory for al Qaeda. However, it made the eventual fallout worse than it would have been had the recession been allowed to run its course.
Cf: John Stuart Mill, Principles of Political Economy, Bk 3 Ch 8
Ludwig von Mises, “The Causes of the Economic Crisis,” Ch. II.
Ludwig von Mises, Human Action, Ch. XX Sec. 9.
hicsuget on September 16, 2008 at 9:33 PM
More important than any of that nonsense, he tells you what you want to hear. That’s your favorite sort of Republican.
flenser on September 16, 2008 at 9:34 PM
He’s from Massachusetts. I think that says all that needs to be said. Hell, those people elect John Kerry and Ted Kennedy. Teddy could die and they’d elect his moldering corpse to the Senate. Arguably they’ve already been doing this for some time.
flenser on September 16, 2008 at 9:39 PM
You are partly correct. Staving off the 9/11 recession was certainly one of the contributing factors (and it needed to be done). But there was also the staving off of the tech bubble recession and the earlier saving of Long Term Capital Management in 1998 (when all of the general risk problems became known to every man, woman and child on Earth – though no one seemed to have cared).
The other part I take issue with is your claim that increasing the money supply led to the skyrocketing housing prices. This is untrue. The real culprit for the bubble-formation capabilities of the housing market was the ease of securing loans without provable means of servicing the loans. This is what opened up the housing market.
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, as the daily cost for servicing the two loans would be about the same in absolute dollars.
progressoverpeace on September 16, 2008 at 9:49 PM
Who do you believe will benefit more politically from today’s news of a bank meltdown?
Barack Obama is the clear political winner when it comes to the current financial crisis on Wall Street. That’s the verdict according to the Online100, the most authoritative survey of the blogosphere. The Online100 panel consists of 100 leading online voices from across the US, divided between mainstream media, national blogs and statewide blogs.
Tav on September 16, 2008 at 10:00 PM
Yep, good points. It’s funny that LTCM taught us that models don’t account for every variable and that lots of leverage can kill you fast. Of course that was 10 years ago and everyone forgot.
dedalus on September 16, 2008 at 10:13 PM
So nine out of ten lefties think that their guy will somehow benefit from the bank problems. Especially if they have anything to do about. And since they are in the MSM, they do.
flenser on September 16, 2008 at 10:42 PM
Voting for Democrats to fix this mess is like blindly hiring the arsonist(s) that burned down your house to repair it.
electric-rascal on September 16, 2008 at 11:54 PM
One of the nice things about living in America is that one is free to take whatever side of an argument one wishes. However, if one takes the side of an argument that runs counter to the teachings of economic science, one will find that one has taken the side of error.
The tech bubble had long since burst before the Fed Funds rate was lowered to 1%. Further, the bursting of that bubble did not cause a recession; it merely caused a stock market crash. A recession is defined (by most people) as two consecutive quarters of GDP contraction. Most of the tech companies that went belly-up in 1999 and 2000 had no revenues and no profits, so for them to go under did not much affect GDP. (The capital that was foolishly transferred to them in the run-up of the bull market was thereby rendered unavailable for future production, but that’s a mostly separate issue.)
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. Blaming them for the current crisis is like blaming pneumonia for the death of an AIDS patient.
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.)
Try reading some sections of one or more of the economic works I linked to. You may find that a little enlightenment can be a positive thing.
hicsuget on September 17, 2008 at 12:32 AM
Are you the same flenser who posted at Captain’s Quarter’s long ago?
You seem to have had a lobotomy if so.
Domino on September 17, 2008 at 12:43 AM
History seldom repeats but it often rhymes.
“The economy is fundamentally sound” – Herbert Hoover (1930)
“The economy is fundamentally strong” – John McHoover (2008)
KentAllard on September 17, 2008 at 12:49 AM
Mike Oxley is full of shit on this one. He would not move that bill until there was a consensus (he prided himself on always passing bills with lots of Democratic support, which most of the time was a good thing), and Democrats successfully watered it down to the point where the White House threatened a veto. The House bill did not contain a crucial provision allowing the regulator to take action if the GSEs’ portfolios presented a systemic risk — exactly the situation we are facing today. The GSEs’ cheerleaders at the time believed that this would allow the regulator virtually unlimited authority to order the GSEs to stop buying loans and/or sell off their portfolios, and they wanted that authority limited to only ensuring the safety and soundness of the GSEs. The Administration knew they were already too big and presented a huge risk to the taxpayers and it fought hard for the authority to do something about it. Oxley was too concerned about producing something the GSEs and their Democrat cheerleaders would support.
rockmom on September 17, 2008 at 1:37 AM
Soros has been handing out the blogger troll money hasn’t he?
mylegsareswollen on September 17, 2008 at 2:04 AM
Lies are dead ringers though…
“I can get this fixed right quick…” FDR-Depression lasted a decade
“I can get this fixed right quick” OBS-wants to make a potnetial recession a depression
sven10077 on September 17, 2008 at 2:14 AM
All I know is Barney Frank blew it…
right2bright on September 16, 2008 at 4:20 PM
I’m not grasping the subtlety of your argument. Can you be more specific? Is this a “nuance” thing?
SKYFOX on September 17, 2008 at 6:17 AM
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