That's the standard line about our current recession. The story goes "Bush's failed policies and deregulation of the last 8 years caused the financial meltdown."
Sounds good, doesn't it ? Obama repeated it endlessly on the campaign trail.
There's only one problem with the story.
It didn't happen.
I've written previously about how the government pushed the banks into making risky loans for years. Decades even. The number one cause of the financial meltdown is the politically driven agendas of our government. It wasn't Bush's deregulation. The deregulation all happened before Bush even took office. Bush did have the goal of increasing home ownership, just like every other administration, and just like most members of Congress, but to lay the blame all at his feet requires an enormous rewrite of history. Let's insert a few facts into the narrative.
Walter Williams wrote an excellent piece called Congress' Financial Mess, which debunks some of the myths. Let's start with Bush's alleged deregulation:
Professor David Henderson, research fellow at Stanford's Hoover Institution, writes about regulation in "Are We Ailing From Too Much Deregulation?" in Cato Policy Report (November/December 2008). The Federal Register, which lists new regulations, annually averaged 72,844 pages between 1977 and 1980. During the Reagan years, the average fell to 54,335. During the Bush I years, they rose to 59,527, to 71,590 during the Clinton years and rose to a record of 75,526 during the Bush II years. Employees in government regulatory agencies grew from 146,139 in 1980 to 238,351 in 2007, a 63 percent increase. In the banking and finance industries, regulatory spending between 1980 and 2007 almost tripled, rising from $725 million to $2.07 billion.
So, the number of regulations, spending for regulatory agencies, and personnel for regulatory functions all increased dramatically during the Bush administration. I wonder why we've never heard that from our media or from Congress ??? What could the reason possibly be ???
Because it interferes with their phony partisan narrative, that's why. The truth might interfere with the re-elections plans of certain Congressional members, and we can't have that. Oh, no.
Mr. Williams goes on to shed some light on why the banks were forced to make those risky loans:
A New York Times article, "Fannie Mae Eases Credit To Aid Mortgage Lending" (9/30/99), reported, "Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people …" The pressure was the 1977 Community Reinvestment Act that was beefed up during the Clinton Administration. It required banks to make high-risk loans they would not have otherwise made. Failure to comply meant fines and difficulty in getting approval for mergers and branch expansion.
Like I said, the housing bubble was totally driven by politics. Bush didn't try to reverse the policies, you can blame him for that, but he didn't create them either. There's a lot of blame to go around.
And when the financial alarm bells began to go off, there were many members of Congress who claimed it was all much ado about nothing:
When questions began to arise about government policy that intimidated lenders into making high-risk loans, we received congressional assurances. At hearings investigating the solvency of Fannie Mae and Freddie Mac, Rep. Barney Frank [D-CT] said, "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." In a speech to the Mortgage Bankers Association, Frank advised, "People tend to pay their mortgages. I don't think we are in any remote danger here. This focus on receivership, I think, is intended to create fears that aren't there." Protesting against greater controls against lax mortgage lending, Sen. Harry Reid [D-NV]said, "While I favor improving oversight by our federal housing regulators to ensure safety and soundness, we cannot pass legislation that could limit Americans from owning homes and potentially harm our economy in the process."
Guess what Barney Frank and Harry Reid say now that everything has blown up in their faces ??? They say it was all Bush's fault, of course. What Frank and Reid are engaging in is commonly known as 'lying through their teeth." And they have actually been rewarded for it.
The question to ask is, how could our government (all of it, not just Bush) be so god-awful stupid ? The answer is, because they are only politicians. They aren't experts on much of anything. Their goals are to get elected and acquire power. They do that by pandering to the public, not by formulating intelligent policies. So, now that we're up the creek, financially speaking, guess who we're looking to for solutions to the problem ??? The very same people who caused it. Barney Frank is the head of the House Financial Services Committee. Harry Reid is the Senate Majority Leader.
And they are spending trillions of YOUR dollars. Good luck with that.
{ 18 comments… read them below or add one }
You'd think someone would list some of the deregulation stuff Bush pushed through to disprove this wingnut post, King.
Which would you prefer financial deregulation, environmental deregulation or misc. deregulation?
But larry, it's so much simpler just to name-call. It frees one from the burden of thought. One time the Rev came up with something about Bush loweing the SEC debt ratio requirements, but that was pretty weak, and it also happened after the financial horse was out of the barn, so to speak. Other than that, I've heard zip from the usual crowd.
I'm sorry King…..the blog emperor has no clothes.
The arch-conservative supply side deregulation Oracle, himself, said he made a terrible mistake in judgment in believing that financial professionals could be trusted to do the right thing.
You want to argue that Greenspan was wrong about that statement?
Tunnel-visioned economic conservatives simply jettison any truth about what actually created the crisis.
You are wrong….Freddy and Fannie, as all conservative experts agree, played a part, but didn't create the crisis. The Community Reinvestment Act diversion is even more dishonest. And while there are thousands of regulations in place, radical extremists like Bush-Cheney made sure through employment choices that nothing much was actually regulated …..as any sentient being can see for themselves with the SEC.
No, Bush isn't totally responsible…..he's just the last conservative economic nut who was left guarding the economy by permitting an environment of greed-gone-wild and scout's honor professionals to recklessly gamble it all away.
ARM's, interest only loans, sub-prime loans, no money down speculative loans, no appraisal loans, no income verification loans, bundling mortgages as securities, trading (gambling) those securities, creating and selling non-regulated "credit default swaps" as insurance for those securities that no one knew the value of, radically high leverage gambling on Wall Street…..and on and on. That's what caused the crisis. None of it has been corrected. None of it.
Now put some clothes back on and blog the truth…will ya'?
Big Mac,
Is this a trick question ? I don't think I can really answer sufficiently.
I'd like regulation over both the financial and environmental areas in general, but we have to insure the regulations don't cause more problems than they prevent. When it comes to finances, there are certain regulations that make sense, like reserve requirements, and there are others that wouldn't. I wouldn't want the federal government to mandate how much money people in private industry can make, for instance. That's none of the government's business.
Rev,
After all your standard name-calling, you finally got around to something substantive in your last paragraph.
"ARM's, interest only loans, sub-prime loans, no money down speculative loans, no appraisal loans, no income verification loans, bundling mortgages as securities, trading (gambling) those securities, creating and selling non-regulated "credit default swaps" as insurance for those securities that no one knew the value of, radically high leverage gambling on Wall Street…..and on and on. That's what caused the crisis. None of it has been corrected. None of it."
I agree with pretty much all of that, but then you deny the very reason all those things came into existence (almost all prior to Bush, btw), along with the reason that none of it has been corrected – because to reverse them would severely LIMIT MORTGAGE LOANS TO THOSE WITH LOW INCOMES, which nearly all Democrats and many Republicans see as non-PC. You're looking at the effect without examining the cause. Put another way, increasing home ownership among the poor is the forest. Those practices you cited are the trees. It takes a willful act of denial not to acknowledge that.
And the Clinton update of the Community Reinvestment Act is precisely what created the environment for the housing speculation bubble and the sub-prime crisis, by allowing investment banks into an arena that only commercial banks played in before. That's when Wall Street went wild, and that's why all the major investment banks no longer exist or changed their charters.
Btw, the Clinton update was originally proposed by some Republicans, so you should get on board with criticizing it. It's not like you to miss an opportunity to blame the GOP for something. You don't need to deny reality in this area.
No….and….no.
Community Reinvestment Act critique = 21st Century "Willie Hortonization" of the credit collapse.
Read Emma Jordan's second paragraph!
http://www.pbs.org/moyers/journal/10032008/transcript2.html
[excerpt]
LARRY KUDLOW (tape):It's time for the Congress, Republicans and Democrats, to stop encouraging, exhorting, and forcing banks to make low income loans with no documentation. Stop that. The community reinvestment act which was passed in the mid nineties, which was extended in the early 2000s, literally pushed these lenders to make low income loans.
BILL MOYERS:Lending to minorities and risky people. Do you see this, are they seeing this as issues of race and class?
EMMA COLEMAN JORDAN:Absolutely. And it's a cynical manipulation. It's reprehensible. And, in the worse tradition of Lee Atwater, and the-
BILL MOYERS:Lee Atwater.
EMMA COLEMAN JORDAN:-Willie Horton ad, to use race as a wedge issue to make people who pay their mortgages believe that the people who are getting the benefit of the 700 billion dollars, that we're being asked to pay, are poor, minority people who caused the crisis.
This is unconscionable. This problem is not a problem that was caused by the Community Reinvestment Act. The data is very clear that the Community Reinvestment Act loans were being offered in a way to people that were much more responsible and had none of the characteristics of default that are being attributed in this discussion. And what this does is to say, this problem is a problem that was caused by black people.
And it means that it gives an opportunity to bring up that old wedge. But I think the people in the country are smarter today. I just don't think it's going to fly. I think that people understand that the enemy is not a person who got a home loan and was tricked into getting that loan by a fast-talking broker who originated the loan but that the problem was the securitization process, the high leveraging that Wall Street was doing, the lack of regulation.
[/excerpt]
It's not lending to minorities and risky people. It's forcing banks to make 'creative loans' available to anybody, as Maxine Waters likes to call them.
But I'm shocked a black academic would play that failed old race card on PBS.
***ARM's, interest only loans, sub-prime loans, no money down speculative loans, no appraisal loans, no income verification loans, bundling mortgages as securities, trading (gambling) those securities, creating and selling non-regulated "credit default swaps" as insurance for those securities that no one knew the value of, radically high leverage gambling on Wall Street…..and on and on. That's what caused the crisis. None of it has been corrected. None of it***
Rev, was Bush actually responsible for all those things? How did he find time to deal with all that along with the war in Iraq, the terrorists constantly plotting to destroy something else big in the US and all the crap that people like you continually put out. I don't think that even your hero, Bubba Clinton could have done all that, even in 8 years. Most, if not all, those things must have been done before Bush came along. Yep, I think they were.
Bush also started global warming. He's the most productive president in our nation's history.
Tom,
Yeah, it was really the wealthy people who defaulted on their mortgage loans. We don't need any loan standards at all. Let's just keep on being PC and not worry our pretty little heads about financial matters. It's worked out so well up to now.
Roy,
Don't forget about Bush's wind machine that caused Hurricane Katrina, or how Bush built those subpar levees in New Orleans.
Da King obviously didn't read my January 15th, 2009 / 4:12 pm post.
Maybe you should take another month off.
That's the post I was commenting on, Tom.
Did someone pee in your Wheaties or something ?
Your right about it beginning with a homeowner push by Clinton. However, the 80's was when Congress changed the securities regulations allowing mortgage swaps. This was never a financial instrument until then.
Then Clinton and the Dems pushed for more home ownership. But it didn't really take off until Bush's administration and the non-belief in Gov't oversight. Unwatched capitalism. The Clinton push to more ownership could be responsible for the subprime mtg problem.
And the Bush adm could be responsible for the much larger mtg problem. Walstreet is the real blame and no one else.
Walstreet got congress to change the laws allowing mtgs to become financial instruments. Walstreet facilitated the buying and selling of these products. I won't go into detail for it would be a short book.
When a bank is forced to take on a toxic asset such as a mortgage it knows won't be repaid, it will have to pass on that asset in order to survive, and whoever buys it will be forced to do the same. The creation of creative financial instruments was inevitable.