Green Room

How Bush Destroyed the Economy In Only Eight Short Years

posted at 2:50 pm on October 24, 2010 by

The conventional wisdom among the denizens of the left is that George W. Bush took a surplus and destroyed the economy in only eight short years. The following illustrated story shows just how he pulled off this difficult task.

In 1997 President Clinton’s HUD secretary, a man named Andrew Cuomo, claimed Fannie Mae had exhibited “racial discrimination” and proposed that 50 percent of the GSEs’ (Fannie and Freddie) mortgage loan portfolio be made up of loans to low- and moderate-income borrowers by 2001.

In August of 2008, Wayne Barrett at the Village Voice wrote, “[Clinton appointee] Andrew Cuomo… made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that… helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration…into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded ‘kickbacks’ to brokers that have fueled the sale of overpriced and unsupportable loans.”

At the time, Cuomo said “GSE presence in the subprime market could be of significant benefit to lower-income families, minorities, and families living in underserved areas.”

As the housing market unravelled thanks to these policies, even The New York Times‘ Paul Krugman admitted that, “homeownership isn’t for everyone,” adding that “as many as 10 million of the new buyers are stuck now with negative home equity… So many others have gone through foreclosure that there’s been a net loss in home ownership since 1998.”

From 2001 to 2008, the Bush administration tried more than 18 times to bring Fannie and Freddie under heel.

For example, Richard Banker opened testimony on October 6, 2004 in the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises with an almost unbelievable summary of a report entitled, “Allegations of accounting and Management Failure at Fannie Mae.”

“[This] is indeed a very troubling report… it is a report of extraordinary importance [to] the taxpayers of this country who would pay the cost of cleanup. ….[the report questions] the validity of previously reported financial results, the adequacy of regulatory capital, the quality of management supervision, and the overall safety and soundness of the Enterprise…”

“We all know that the Enterprise is very thinly capitalized, but the potential effect of requiring a responsible capital level would be to adversely affect earnings per share, and consequently make the payment of bonuses [to Fannie executives] much less likely

…I also wish to inform members of the Committee of another troubling incident… About a year ago, I corresponded with the Director’s office making inquiry about the levels of executive compensation at the enterprise for the top twenty executives…

…Now I understand why the Enterprise [Fannie Mae] was so anxious not to have public disclosure of compensation of an entity that was created by the Congress, and supported by the taxpayer… As a direct result of abhorrent accounting practices, executives have been able to award themselves bonuses they did not earn and did not deserve.”

In 2003, the effort to rein in Fannie began in earnest with a GOP bill (“H.R. 2575—THE SECONDARY MORTGAGE MARKET ENTERPRISES REGULATORY IMPROVEMENT ACT“). The bill would have strengthened an independent regulator that did not have to kowtow to the political establishment. Like most efforts aimed at reformation of Fannie, the committee votes were typically on the straight party line.

Rep. Barney Frank (D-MA): “I think it is clear that Fannie Mae and Freddie Mac are sufficiently secure so they are in no great danger… I don’t think we face a crisis; I don’t think that we have an impending disaster. …Fannie Mae and Freddie Mac do very good work, and they are not endangering the fiscal health of this country.”

Rep. Maxine Waters (D-CA): “I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn’t broke. [sic] …These GSEs have more than adequate capital for the business they are in: providing affordable housing. As I mentioned, we should not be making radical or fundamental change… If there is anything to fix or improve, it is the [regulators].”

Rep. David Scott (D-GA): “…affordable housing goals for both Freddie Mac and Fannie Mae require that 50 percent of units should be built for low-and moderate-income home buyers, and 20 percent for very low-income families… Yet, from 1998 to 2002, African-American home ownership rates only rose from 45.6 percent to 47.3 percent, less than 2 percent compared with the white average increase from 72 percent to 74.5 percent, huge gap remains. Clearly, the mission of Freddie Mac, and especially Fannie Mae, is to close that gap…

Rep. Gregory Meeks (D-NY): “…I have to go to another hearing, I will try to be just real quick… I am just pissed off at [the regulator] because if it wasn’t for you I don’t think that we would be here in the first place. …we are faced with is maybe some individuals who wanted to do away with GSEs in the first place, you have given them an excuse to try to have this forum [to change the] mission of what the GSEs had, which they have done a tremendous job… There has been nothing that was indicated is wrong, you know, with Fannie Mae… The question that then presents is the competence that your agency has with reference to deciding and regulating these GSEs.”

Franklin Raines, former Clinton official and then-Chairman and CEO of Fannie Mae: “…In 1994, we launched our trillion-dollar commitment, a pledge to provide $1 trillion in financing for 10 million underserved families before the decade was over… In 2000… we launched a redoubled new pledge… to provide $2 trillion for 18 million underserved families before this decade is over. …we are one of the best capitalized financial institutions in the world, when compared to the risk of our business… …these assets are so riskless that their capital for holding them should be under 2 percent.”

Rep. Barney Frank (D-MA): “I don’t see any financial crisis.”

Rep. Artur Davis (D-AL): “A concern that I have… is you are making very specific… broad and categorical judgment about the management of this institution, about the willfulness of practices that may or may not be in controversy. You have imputed various motives to the people running the organization… That sounds to me as if you have gone from being a dispassionate regulator to someone who is very much involved and has a stake in this controversy… And I will follow up on Ms. Waters’s point because I think it is very well taken: Her observation is that the political context surrounding your investigation was that serious doubts were being raised about OFHEO… In fact, frankly, doubts were raised about your leadership of OFHEO. And all of a sudden, the response to that is to produce an enormously critical report.”

Late in 2008, even ex-President Clinton admitted that the Democrats were guilty of destroying Fannie and Freddie… and responsible for the current crisis that threatens to bring the entire U.S. economy to the brink of depression: “I think that the responsibility that the Democrats have may rest more in resisting any efforts by the Republicans and the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac.”

And who were the top recipients of Fannie Mae’s money-dispensing leaf-blower? The top three were Chris Dodd (D-CT), Barack Obama (D-IL) and John Kerry (D-MA).

And where are these Fannie Mae executives — all former Clinton administration officials — now? Are they serving time in prison as they likely deserve? No. They’re enjoying their riches:

  • Franklin Raines ($90 million in compensation): Democrat adviser and one-time adviser to Barack Obama
  • Jamie Gorelick ($26 million): left-wing lawyer and Democrat fundraiser
  • James Johnson ($21 million): Democrat adviser and one-time adviser to Barack Obama

These Democrat crony capitalists — and their friends in Congress — greased each others’ palms in a series of scandals, accounting frauds, and skulduggery that would make Bernie Madoff blush. When Fannie Mae and Freddie Mac collapsed thanks to their actions, AIG and Lehman Brothers soon followed, their portfolios undergirded by investments in the “ultra-safe” GSEs.

* * * * * * * * * * * * * * * * * *

Oh, on second thought, the title of this piece is incorrect. Bush didn’t cause the economic meltdown. In fact, he tried to fight it — on at least 18 separate occasions.

More importantly, the conventional wisdom among liberals — the dishonest talking points — are completely and utterly wrong. That is, if you rely upon history, facts, logic and reason. Which appears to be a stretch for many liberals.

No matter your political affiliation, if you value the truth you will vote next Tuesday to fire these Democrats, these career politicians who destroy everything they touch.

 
Hat tips: Naked Emperor News, Ann Coulter, Barking Moonbat, Country Store (“Jamie Gorelick: the pinup girl for Democrat foolishness strikes again”) and Gateway Pundit.   Cross-posted at: Doug Ross @ Journal.

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Just shared this with one of my more open-minded liberal friends…I want to see what he thinks.

SgtSVJones on October 24, 2010 at 3:10 PM

And look how insistently and capably the Bush administration and republicans made this argument to inform Americans of the truth, and look at how persuasively they are making this argument now during the campaign season! Why, it’s just shocking that so many Americans don’t know the true story of the economic collapse! Republicans are so adept and fierce and unyielding in their public communication and education about the truth and about the Left!

How did we ever lose control of the House and Senate and presidency! Shocking!

rrpjr on October 24, 2010 at 3:41 PM

PERFECT … JUST PERFECT!

O’Donnell, Fiorina and whitman should distribute this material all over California.

TheAlamos on October 24, 2010 at 3:45 PM

Bush received a negative growth economy and stimulated it to its greatest heights ever with a war and tax cuts. The real problems with the economy outlined in your post were hidden by the stimulus.

PrezHussein on October 24, 2010 at 3:46 PM

It’s very good but way too incomplete. The GSE’s are the powder-keg.

You didn’t get into the who was involved in repealing Glass/St and who was involved in the Commodities Futures Modernazation Act (Credit Default Swaps etc.)……..these two things allowed a huge disaster to become a gigantic disaster and both were during Clinton. Robert Rubin being involved in both.

AYNBLAND on October 24, 2010 at 4:37 PM

Why are Greenspan and Bernanke not included here?

America’s Second Great Depression would not have been possible without the filthy Fed.

Rae on October 24, 2010 at 5:08 PM

Depression Within A Depression

Keynesian policies failed during the Great Depression, and they are failing today. An economic catastrophe caused by loose monetary policies, crushing levels of debt, and appalling lending practices cannot be solved by looser monetary policies, issuance of twice as much debt, and government commanding banks (or, in the case of Fannie and Freddie, “commandeering”) to make more bad loans.
[...]
The Great Depression was caused by Federal Reserve expansion of the money supply in the 1920s that led to an unsustainable credit-driven boom. When the Federal Reserve belatedly tightened in 1928, it was too late to avoid financial collapse. According to Murray Rothbard, in his book America’s Great Depression, the artificial interference in the economy was a disaster prior to the depression, and government efforts to prop up the economy after the crash of 1929 only made things worse. Government intervention delayed the market’s adjustment and made the road to complete recovery more difficult.

The parallels with today are uncanny. Alan Greenspan expanded the money supply after the dot-com bust, dropped interest rates to 1%, encouraged a credit-driven boom, and created a gigantic housing bubble. By the time the Fed realized they had created a bubble, it was too late. The government response to the 2008 financial collapse has been to expand the money supply, reduce interest rates to 0%, borrow and spend $850 billion on useless make-work pork projects, encourage spending by consumers on cars and appliances, and artificially prop up housing through tax credits and anti-foreclosure programs. The National Debt has been driven higher by $2.7 trillion in the last 18 months.

The government has sustained insolvent Wall Street banks with $700 billion of taxpayer funds and continues to waste taxpayer money on dreadfully run companies like Fannie Mae, Freddie Mac, General Motors, and Chrysler. The government is prolonging the agony by not allowing the real economy to bottom and begin a sound recovery based on savings, investment, and sustainable fiscal policies. President Obama continues to scorn business by creating more burdensome healthcare, financial, and energy regulations.

Rae on October 24, 2010 at 6:00 PM

Both parties did it. Anyone blaming the left or the right for the debacle are deluded. We could have had a softer landing than we did as we managed massive international merchant bank failures in the past without letting it spiral out of control as it did with Lehman Bros.

lexhamfox on October 24, 2010 at 9:47 PM

@lexhamfox – Both parties my a$$.

The Democrats’ great social engineering experiments — Social Security, Medicare, Medicaid, Great Society, Fannie Mae, Freddie Mac, the FHA — have bankrupted the United States for generations.

directorblue on October 24, 2010 at 10:01 PM

Both parties did it.

lexhamfox on October 24, 2010 at 9:47 PM

The long and short of it.

I hope we’ve learned our lesson this time…but I’m not optimistic.

Dark-Star on October 24, 2010 at 11:32 PM

Rep. Artur Davis (D-AL): “A concern that I have… is you are making very specific… broad and categorical judgment about the management of this institution, about the willfulness of practices that may or may not be in controversy. You have imputed various motives to the people running the organization… That sounds to me as if you have gone from being a dispassionate regulator to someone who is very much involved and has a stake in this controversy… And I will follow up on Ms. Waters’s point because I think it is very well taken: Her observation is that the political context surrounding your investigation was that serious doubts were being raised about OFHEO… In fact, frankly, doubts were raised about your leadership of OFHEO. And all of a sudden, the response to that is to produce an enormously critical report.”

FYI, Davis and the other Black Caucus members on that Committee were bought and paid for by Fannie Mae, which ran a deliberate campaign to imply that attacks on Fannie Mae were racist, both because its CEO was black and much of its affordable-housing money went to minority communities. The architect of this campaign was Tom Donilon, longtime Democratic fixer who is now Obama’s national security advisor.

rockmom on October 25, 2010 at 12:39 AM

Late in 2008, even ex-President Clinton admitted that the Democrats were guilty of destroying Fannie and Freddie… and responsible for the current crisis that threatens to bring the entire U.S. economy to the brink of depression: “I think that the responsibility that the Democrats have may rest more in resisting any efforts by the Republicans and the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac.”

Clinton is talking about “the responsibility that the Democrats have” – he’s not saying that the Democrats are solely responsible for the entire financial crisis.

aengus on October 25, 2010 at 5:52 AM

Both parties did it. Anyone blaming the left or the right for the debacle are deluded. We could have had a softer landing than we did as we managed massive international merchant bank failures in the past without letting it spiral out of control as it did with Lehman Bros.

lexhamfox on October 24, 2010 at 9:47 PM

There is an element of truth there, but at the end of the day, which party supported increased funding for these broken social programs and which party tried to reign it in?

That’s the bottom line.

WitchDoctor on October 25, 2010 at 11:43 AM

Why are Greenspan and Bernanke not included here?

America’s Second Great Depression would not have been possible without the filthy Fed.

Rae on October 24, 2010 at 5:08 PM

Eh?

Count to 10 on October 25, 2010 at 11:48 AM

Rae on October 24, 2010 at 6:00 PM

Anything the Fed does with the money supply is pretty quickly adjusted to (so long as they aren’t hyperinflating). What turned the stock market crash into a financial crash was that banks could not pass the devaluation of their investments on to the people that invested in them — they had individual accounts with set monetary amounts that had to be redeemed rather than a floating value — and what turned the financial crash into an employment crash was that, following the wage-price spiral theory, Hoover and FDR worked with CEOs and unions to artificially prop up wages, sending a quarter of the country out of work.

Count to 10 on October 25, 2010 at 11:56 AM

For the new generation of conservative leaders, it is essential to recognize the role of RINOs and the Bush dynasty as the pavers of the road of good intentions. Leftists set the country on fire and liberal Republicans kept pouring on the fuel.

Officials recognized the housing problem and blathered about it during the Bush II years, and the Republicans did nothing. Bush II’s baby, Medicare D, destroyed prescription drug insurance for those who had it, becoming the Mini-Me prequel of Obama’s DeathCare.

None of this diminishes the culpability of the Democrat left, but truth is bipartisan and sunshine is the best disinfectant.

Feedie on October 25, 2010 at 4:03 PM

wait, so where does the ditch and slurpees fit into this analysis?

joeindc44 on October 25, 2010 at 5:17 PM

Well … people need to ask themselves a few questions …

1. If Bush “destroyed” the economy in the United States – then don’t you have to give him credit for destroying the economy of THE ENTIRE WORLD? Since the economy of virtually every nation of the world crashed along with the United States?

2. If Bush indeed “destroyed” the economy of the entire world – how did he manage to crash the economies of Russia and a host of other nations where the US has little influence?

3. If Bush indeed “destroyed” the economy of the entire world – how did he do it in only eight years? Wouldn’t this kind of efficiency require a deliberate effort to cause a worldwide depression? How can a “bumpkin” who made “C’s” in school, and is proclaimed the dumbest American President by liberals be this ingenious?

4. The liberals claim that Bush did all this by giving “tax breaks to the rich”. Really? Did he give tax breaks to the rich in Russia? England? Belgium? France?

Let’s get real here. The US wasn’t the only economy to fail – everyone else did too – and it’s pure “whack job conspiracy theorist” to believe that Bush and Cheney were responsible for it.

HondaV65 on October 25, 2010 at 5:19 PM

You forgot to add Kirsten Gillibrand as Cuomo’s deputy.

http://www.youtube.com/watch?v=NznIQcdwTyY

Joe DioGuardi is challenging Gillibrand for her Senate seat, and has a good chance to win. You can help him out here.

YehuditTX on October 25, 2010 at 8:44 PM

Bush received a negative growth economy and stimulated it to its greatest heights ever with a war and tax cuts. The real problems with the economy outlined in your post were hidden by the stimulus.

PrezHussein on October 24, 2010 at 3:46 PM

Two wars, prescription drugs and Katrina.

WoosterOh on October 26, 2010 at 8:39 AM

Count to 10 on October 25, 2010 at 11:56 AM

What you’re missing is the origin of the crisis, which began with the Fed keeping interest rates too low for too long, as well as Greenspan’s shilling home ownership (along with the Republicrats), which created the housing bubble. Apparently, he took Krugman’s advice.

Fear the boom and bust, baby. Or just keep humping our most powerful central planner, that being the filthy, fascist Federal Reserve (which is also the most cruel and vicious taxer of them all).

Rae on October 26, 2010 at 12:20 PM