Cain: I didn’t realize in 2005 that the housing bubble existed

posted at 12:45 pm on October 12, 2011 by Ed Morrissey

As Jazz Shaw predicted, the national media has suddenly begun doing a lot of homework on Herman Cain now that he’s riding high in the polls, and the first one to take a crack at the new Not-Romney is NBC’s Chuck Todd.  Todd challenges Cain on a 2005 column he wrote that dismissed concerns of a “bad economy” and a housing bubble, the latter of which at least turned out to be all too true.  Cain admits that he didn’t see it coming, which prompts the obvious follow-up question from Todd about just how good his economic instincts actually are.  This starts about four and a half minutes in, if you want to cut to the chase:

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TODD: All right, you predicted that if — now that you’re in the top tier, you were going to get more questions. I promise you this is not a “pop quiz” about foreign leaders.  I actually want to go into some things that you’ve written.  This is something you wrote in 2005, saying, arguing that there was no housing bubble.  You wrote this in 2005, in Business and Media Institute, you said, “Coverage of the Bush economy reads like a collection of Democratic Party press releases, calling a strong economy everything from struggling to volatile or dicey.  That kind of ignorance makes homeowners fear that their most expensive possession could turn worthless overnight.  That won’t happen.” August 2005.

The housing situation — that did happen, and it only happened within three years.  What did you miss in 2005 about the housing bubble?

CAIN: What I missed in 2005 was just how bad Fannie Mae and Freddie Mac had distorted the housing market.  That’s why I said what I said in ’5.  I further learned later, in terms of Fannie Mae and Freddie Mac — I honestly did not realize just how bad it was, just how bad it was, just how bad the whole bundling and derivatives thing was, and that we were on the brink of a total financial meltdown.  So I learned later on by looking into it deeper that the situation was a lot worse than I thought in 2005.

TODD: Well, in 2008, this is September 1st, 2008, another column you wrote about the economy, and it reads as follows.  You wrote, “The supposed failure of Bush’s economic policies has been a constant theme of the Democrats since the 2006 elections.  When the Democrats regained control of the House and Senate by convincing enough of the voters that the economic sky was falling, and that the war in Iraq could not be won.  Based on all of their convention speeches, they plan to continue those themes right through Election Day on November 4.”

Economic sky was [not] falling, you said September 2008.  Fifteen days later, of course, the Lehman Brothers collapse — we know what happened after that: a total near sky-is-falling moment.  So how — I guess I would say this.  How do you reassure voters that, despite all the experience you’re running on in the business community, your time on the Fed, you missed the housing bubble and you missed the economic collapse.

CAIN: Well, it’s real simple, Chuck.  I have economic advisers working with me now who spend time studying these various analyses.  When I wrote those papers, I was only responding to reports that I, like everybody else, was getting through the media, those kind of public reports.  I wouldn’t –

TODD: Which turned out to be right, by the way.  You were criticizing those reports, but they turned out to be right.

CAIN: Well, yeah.  But what I am saying is I’m going to have, I will have people around me who are going to help me do deeper analyses on some of these things, okay? So yeah, I missed some of these things.  I’m not perfect.  I’m very quick to say I’ve made a mistake or I missed it, but I didn’t have sophisticated analyses helping me to draw the conclusions I was drawing at that time.  And remember, I have admitted that the housing bubble and the economic meltdown of 2008 — it was much worse than I ever realized until the Lehman Brothers situation started, and until more and more was revealed about the depth of the problems at Fannie Mae and Freddie Mac.  I admit I didn’t know all of the details of those situations.

That’s not exactly a confidence builder.  If Cain didn’t have access to “sophisticated analyses,” then why was he drawing conclusions at all?  And how sophisticated an analysis would it have taken to see housing prices had become serious decoupled from inflation starting in 1999?  By 2005, the Bush administration had already warned Congress twice about the housing market, specifically about exposure at Fannie Mae and Freddie Mac, to no avail. It’s not as though the overheating in the housing market was a secret in August 2005.

Given the paper trail, this is as good of an answer that Cain could have produced, but it’s going to stick to him like his Greenspan comment last night.  The saving grace of this issue in the Republican primary is that his main competition didn’t exactly set off warning flares in 2005 or 2008, either — but this will definitely be a big talking point in the general election if Cain is on the ticket.

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By the end of WWII, advertisers all promoted prices ending with .99 as if the initial digit were a constant. Today’s public can’t calculate without a computer. 9-9-9 sounds like “9%” rather than mentally visualizing 9+9+9 reaching the base sum of at least 27% taxation from the onset.

9-9-9

By Streiff

You don’t lead an operation that is based on hope.

The plan is unrealistic for two reasons: Congress must pass it and Congress must sustain it.

Mr. Cain is not going to have 60 votes in the Senate to prevent a filibuster and even absent a filibuster the responsibility for taxation lies in the House of Representatives. The House rarely, if ever, shows deference to a president, even one of their own party, when it comes to this core function. Again hope is not a method.

Of course, I could be wrong on that because were I a Liberal Democrat I’d vote for this plan for a simple reason: it provides an additional source of taxation.

You don’t have to be a genius to see how the 9-9-9 movie will end. It will be 10-10-10, 11-11-11, and so on because the plan makes no provision for capping increases.

I know, Mr. Cain has claimed the bill will require 2/3 vote of both the House and the Senate to change it. But just as he doesn’t have a vote, literally, in what the Conress might pass in the way of a revenue bill, he doesn’t control the rules the House and Senate will use to raise or lower the rate.

Absent a Constitutional amendment, which Mr. Cain is not advocating, there is no mechanism to prevent the Congress from changing a 2/3 vote requirement to a simple majority vote in some subsequent piece of legislation.

Conservative support for a sales tax or a VAT has historically been predicated upon the concurrent repeal of the Income Tax Amendment. That this long standing principle should be tossed aside makes no sense.

Cain has proven himself adept with numbers, but adept as well at deception.

The Tea Party agenda was for LOWER TAXES, fewer taxes, less federal bureaucracy, and NO BAIL-OUTS. That’s not Cain’s platform.

The GOP candidate with a constitutional amendment 10% capped flat-tax balanced budget platform has my fiscal support.

maverick muse on October 12, 2011 at 5:01 PM

You know exactly what I mean and that’s not it. It’s also why we get the stiffs currently running the country.

kim roy on October 12, 2011 at 4:55 PM

Actually, I have no idea what you mean.

Unless someone did something horrendously sinister, Sarah Palin isn’t running of her own choice.

MeatHeadinCA on October 12, 2011 at 5:02 PM

The GOP candidate with a constitutional amendment 10% capped flat-tax balanced budget platform has my fiscal support.

maverick muse on October 12, 2011 at 5:01 PM

Generic G.D. Republican isn’t running this cycle, Mav.

gryphon202 on October 12, 2011 at 5:03 PM

The GOP candidate with a constitutional amendment 10% capped flat-tax balanced budget platform has my fiscal support.

maverick muse on October 12, 2011 at 5:01 PM

Generic G.D. Republican isn’t running this cycle, Mav.

gryphon202 on October 12, 2011 at 5:03 PM

Cain admits that he didn’t see it coming, which prompts the obvious follow-up question from Todd about just how good his economic instincts actually are.

OK, anyone who wasn’t screaming about the housing bubble in 2005 is an unelectable idiot.

Now what?

disa on October 12, 2011 at 5:03 PM

Cain is ehmmmm… well, I don’t think he’s doing a great job of convincing me to support him. I doubt I’m alone.

MeatHeadinCA on October 12, 2011 at 2:16 PM

I don’t know if Newt can win, but he is what I’m left with at this point. :-(

Cain lost me with that awful Chris Wallace interview where he tried to weasel out of a “right of return” answer. The guy doesn’t know much outside of 999 which is most troubling. I certainly can’t get behind someone who knows nothing about world affairs — most especially now that Iranian officials are trying to launch terror attacks and targeted assassinations inside the US.

Punchenko on October 12, 2011 at 5:04 PM

maverick muse on October 12, 2011 at 5:01 PM

Surprise, surprise. RickState has reservations about 999.

Seeing as how the latest poll has their golden boy jockeying with RuPaul for fourth place, I’d say they need to focus their energies elsewhere.

KingGold on October 12, 2011 at 5:05 PM

And that, in a nut shell, is what is fatally wrong with this country. Everybody wants their own personal exemptions from what everybody else pays. Everybody is looking to legally steal something from their neighbor. The United Looting States of America.

And it bothers me that the first thing my so-called side does to counter Cain’s plan, is to attack it from the left.

MNHawk on October 12, 2011 at 4:45 PM

I don’t know where you’ve come from, but I’m not from the left, nor am I using any left talking points. I wasn’t talking about exemptions in my comment. Read it again. The only one trying to steal from the American people’s income is the Government. I’m speaking of a TAX.

bluefox on October 12, 2011 at 5:05 PM

First, they came for Palin, then Perry, and now Cain. They will save their very best stuff for after we are stuck with Romney.

tims472 on October 12, 2011 at 2:19 PM

Romney can handle the pressure. The media has done this with everyone since at least Reagan, and I don’t see too many Hot Air people that are afraid of the media.

We would just surrender right now if we were.

scotash on October 12, 2011 at 5:07 PM

“Only those of us who knew that the housing bubble was going to hit in late 2008 were right about it.”

“…those of us…” ? Thanks for that, Nostradamus.

I appreciate Mr. Cain’s candor. Nobody knew what was going on until much later. I’m not looking for some “smarty pants” candidate who claims to know everything and to be right about everything. That’s what most of the career politicians do now. Those guys/gals are frauds and I don’t trust them.

ncjetsfan on October 12, 2011 at 5:10 PM

I don’t know if Newt can win, but he is what I’m left with at this point. :-(

Cain lost me with that awful Chris Wallace interview where he tried to weasel out of a “right of return” answer. The guy doesn’t know much outside of 999 which is most troubling. I certainly can’t get behind someone who knows nothing about world affairs — most especially now that Iranian officials are trying to launch terror attacks and targeted assassinations inside the US.

Punchenko on October 12, 2011 at 5:04 PM

Hey, your boy just had a strong interview on Hannity where he pointed out the problems with Herman’s plan. I’m leaning towards Newt right now and he doesn’t want you to just be for him. He wants you to stand with him.

MeatHeadinCA on October 12, 2011 at 5:21 PM

Bush never vetoed any bill that would have stopped the process and forced people to take another look…look it up…

right2bright on October 12, 2011 at 2:05 PM

I thought they only had hearings; don’t recall Congress passing anything regarding FM & FM. Do you?

bluefox on October 12, 2011 at 5:24 PM

Only a few people saw the bubble coming in 2005.

Rightyismighty on October 12, 2011 at 4:49 PM

How many saw it as early as 2001?

I know of ONE.

iamse7en on October 12, 2011 at 5:29 PM

I like Cain’s moxy. And his personal story. And his business background. But he seems not to have a deep understanding of a lot of issues.

What was wrong with Tim Pawlenty and Mitch Daniels again? They could both talk policy without sounding like they just learned it off the back of a cereal box. And they didn’t have huge skeletons in their closet.

I’m almost ready to toss my eggs in the Gingrich basket. At least until he thinks the wind is changing direction, he’ll be a real conservative.

Is it too much to ask for a decent conservative candidate in a GOP primary?

hawksruleva on October 12, 2011 at 5:34 PM

I appreciate Mr. Cain’s candor. Nobody knew what was going on until much later. I’m not looking for some “smarty pants” candidate who claims to know everything and to be right about everything. That’s what most of the career politicians do now. Those guys/gals are frauds and I don’t trust them.

ncjetsfan on October 12, 2011 at 5:10 PM

I agree with you there. But Cain needs to have more going for him than “I’m not a politician”. Do you want to trust the Federal government with a 9% national sales tax?

hawksruleva on October 12, 2011 at 5:36 PM

First, they came for Palin, then Perry, and now Cain. They will save their very best stuff for after we are stuck with Romney.

tims472 on October 12, 2011 at 2:19 PM

That’s true. But if you can’t stand up to Chuck Todd, how will you deal with China and Iran? If Charlie Rose confuses you, how will you handle the endless stream of lobbyists and Congressmen pressured by lobbyists?

I want a President that can survive the fire. Romney might be the only one in our field who has that quality. But if we’re stuck with him, we’ll need to be really vocal about what we want and don’t want from him.

hawksruleva on October 12, 2011 at 5:39 PM

Do you want to trust the Federal government with a 9% national sales tax?

hawksruleva on October 12, 2011 at 5:36 PM

That’s a better idea than nothing, which is exactly what the rest of the field is trying to sell us. “I’m not Obama” is not exactly what I’d consider a substantive policy position even if it is enough to run on in 2012.

gryphon202 on October 12, 2011 at 5:45 PM

Beyond 999, he’s got nothing. Heck, even with 999, he’s got nothing.

-Aslan’s Girl

Aslans Girl on October 12, 2011 at 5:56 PM

That’s a better idea than nothing, which is exactly what the rest of the field is trying to sell us. “I’m not Obama” is not exactly what I’d consider a substantive policy position even if it is enough to run on in 2012.

gryphon202 on October 12, 2011 at 5:45 PM

This National Sales Tax will benefit higher incomes. The middle class & the poor will pay increased taxes.

I can’t handle 9% additional tax on my Income plus 9% additional tax on everything I need to buy, even basics like Food. Seniors on Social Security and others on Fixed Income will be it the hardest.

bluefox on October 12, 2011 at 5:56 PM

“the” hardest hit.

bluefox on October 12, 2011 at 5:57 PM

Hint to armchair geniuses: nobody knew it was a bubble. A few people argued that it was, and they were a vocal minority. As I recall one analyst loudly proclaiming on CNBC around 2005 in one of those rapid-fire debate formats, “No, no, no. I don’t sell real estate, I buy real estate.”

That’s the thing about bubbles. They’re unknown and lightly (at best) recognized. If people realize it’s a bubble, it’s not a bubble.

HitNRun on October 12, 2011 at 6:06 PM

These establishment types like Cain and Bush were all into that ownership society hooey back then. Give the people a stake in society and they will lose their parasitic ways and become conservatives. Uh huh. When you give the parasites something, it only whets their appetite to demand more things be given to them.

Buddahpundit on October 12, 2011 at 6:30 PM

That is my main concern, since this is current. Newt was just on Hannity’s radio show a few minutes ago and questioned that 9% National Sales tax on S.S. Income and limited Income. 9% on the Income & 9% of purchases. Newt didn’t mention Food, but that is taxed at 9% also.

bluefox on October 12, 2011 at 4:32 PM

Despite my previous quote fail, you seem to be complaining because it doesn’t have exemptions for SS Income, exemptions for what appears to be elderly purchases. Food? Appears that you are complaining that isn’t exempt.

So a timebomb because it isn’t the same screwed up mess of exemptions, favors, and giveaways for the connected out current system is?

MNHawk on October 12, 2011 at 7:02 PM

10. He also said he will sign no bill over 4-5 pages. This reveals a dangerous naivete about the realities of the political system in
Washington, DC.

…..

PhiKapMom on October 12, 2011 at 4:17 PM

Perhaps it is the career politician in DC who has a “dangerous naïveté” about what the average taxpayer will tolerate when they are looking at a debt of ~ $14,800,000,000… and rapidly climbing.

I can remember the vocal groan I made after watching Pelosi say, “… we must pass this bill to find out what is in it.” Am I being naive to believe that there was not a single member of Congress who read, and understood, the Affordable Healthcare Act, prior to voting on it? The only person who would register a “maybe” would be Paul Ryan. Otherwise, whoever else saying yes to that question would be lying.

If you can’t put what you want down on 10 pages or less, nor could be able to clearly explain it to a 16 year-old or 85 year-old person, then perhaps it has no business being sent to the President’s desk for signing into law… The rest of us are constantly paying for the crap in the fine print of a 1500+ page bill…years later after it was signed into law.

Danny on October 12, 2011 at 7:11 PM

Only a few people saw the bubble coming in 2005.

Rightyismighty on October 12, 2011 at 4:49 PM

I’ve been in construction since 1977 and I was telling all of the subs to start saving their money and downsize their operations. Many of us in the construction industry who were being honest saw it coming in Mid-05.

darwin-t on October 12, 2011 at 7:43 PM

This National Sales Tax will benefit higher incomes. The middle class & the poor will pay increased taxes.

I can’t handle 9% additional tax on my Income plus 9% additional tax on everything I need to buy, even basics like Food. Seniors on Social Security and others on Fixed Income will be it the hardest.

bluefox on October 12, 2011 at 5:56 PM

How do you figure that? Hypothetical: If you are paying 20% income tax right now, dropping to 9% benefits you. If you are paying nothing, then I see your point, but isn’t that part of the problem – the 47% that pay nothing?

If John Kerry buys his yacht, then he pays sales tax. Maybe more so than he pays now, right. It depends what you are buying in order to get that difference between the less income tax versus the sales tax.

I do agree that all food, even junk food, should not be taxed. There’s plenty out there and food should be exempt.

Most states already pay sales tax. If that stays the same (given percentage differentials), then what changes is the income tax rate. Now if we are talking a *FEDERAL* sales tax on top of *STATE* taxes, then there’s a big problem. Not sure about that part, but if it is just the one tax, then really the net gain is from lower income taxes.

kim roy on October 12, 2011 at 7:44 PM

Uhm, if the housing bubble was so obvious to everyone, then shouldn’t *all* of the candidates feel embarrassed for not having predicted it?

SuperBunny on October 12, 2011 at 8:37 PM

I’m sure someone posted the links to Romney’s and Perry’s 2005 predictions about the coming housing crash, but I don’t want to read the thread. . .

Can someone help me out?

Jason Coleman on October 12, 2011 at 8:42 PM

Why flog Cain on this issue? Almost NOBODY understood the bubble as early as 2005, certainly none of the top talking heads we see blathering about it now with perfect 20/20 hindsight.

EasyEight on October 12, 2011 at 8:53 PM

In defense of Cain in 2005, at the time the extent of the subprime problem had been concealed, and continued to be concealed as it was made worse by Fannie and Freddie because these risky loans were being quietly packaged with traditional sound mortgages in bunches as securities. When mortgage-backed securities began to become popular, it was because the lending practices were standardized across the industry and it was very easy to predict a high performance rate for the underlying loans.

Some were declaring a bubble in 2005, but most of them were the same folks who had been predicting collapses of this or that market for years. The fact they were finally right about something is more due to the stopped analog clock being right twice a day than their understanding of markets or the economy. So Cain should get a pass.

999 is a different matter. It doesn’t add up at all, would add huge amounts to the deficit even if it could be enacted, and is only offered as a “transitional step” towards the Fair Tax, which is a genuinely Looney Tunes idea.

Frankly, if your understanding of economics and federal revenues comes from Boortz, you are an idiot.

Adjoran on October 13, 2011 at 12:02 AM

What newspapers did he read?

Kissmygrits on October 13, 2011 at 9:58 AM

If Cain and any other candidate is promising to reduce the size of govt, then why do they need so much money coming in. Our state does not have sales tax and the people here are strongly against one. We do have an income tax, and I have to pay an accountant to do both the fed and state forms. Whoever promises to make this process less confusing gets my vote.

Kissmygrits on October 13, 2011 at 10:03 AM

Cain should have seen this coming — I sure did.

My barometer was nothing more than the disparity between what my house was worth and what I could afford to buy were I entering the housing market for the first time.

It was to the point where only a fairly wealthy person could afford my 1920-era Spanish style duplex — I couldn’t even afford to buy my own place at its valuation. I did take out an equity loan — but only enough so I could repurchase the place if I had to by paying off the loan. I’ve lived in this house for 32 years and expect that I will die in it — as did the last owner.

I still can’t afford to buy it at its valued price — housing prices haven’t fallen enough yet. A lawyer just bought the place next door as his primary residence — so that says something right there.

Cain is right on the reason — whatever market the Government enters, it warps and distorts. We still have other markets which will crash in the coming years — the education market and the healthcare market.

Be ready.

unclesmrgol on October 13, 2011 at 12:36 PM

In 2005 weren’t the democrats (obama was in the senate) claiming there was nothing wrong at all with FM and FM? Have ANY “reporters” EVER asked ANY democrat this same question?

runawayyyy on October 13, 2011 at 2:15 PM

Picking on Cain over this is pretty much nonsense.

Recognizing the existence of a “housing bubble” or the problems with the GSEs wasn’t the point, it was predicting the effects of a crash that mattered; the effects of the securitization of mortgages and the widespread exposure of the international banking system to those securities. Did you see that in 2005, Ed? If you did you should get a prize, because you are in a very small and elite minority. Please.

In reality not many did. The aforementioned Schiff was one of the few.

Dreadnought on October 13, 2011 at 10:44 PM

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