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Mike, there’s a whole lot more going on with the Dow than the little fluctuations you keep quoting (and I note that you never refer to what happened circa January 2008 to January 2009).
Let’s not talk politics; let’s talk sheer, raw economics.
Look at this graph: it’s tremendously more informative than yours:
You can see that there was an ENORMOUS bubble, circa 1980 to 2000. This increase in the Dow was hugely greater than the growth of the companies which make up the Dow and hugely greater than the economy, as a whole. It was sheer speculative bubble.
By 2000, it was obvious that stocks were grossly overvalued. So, when people got their tax cuts, where did they go? Not into stocks. Not into solid new companies. Not into R&D. There just wasn’t anyplace for it to go. So it went into exotic new instruments, such as mortgage backed securities. Which created a huge market for re-financings, equity lines of credit, explosion of credit cards. Who here wasn’t deluged with offers for re-fis, equity lines, credit cards during the past 8 years.
Here’s a truly scary statistic which I heard today on NPR.
Historically, the ratio of US citizen debt to GDP has averaged 0.5. With a GDP of 13 trillion, this means a private debt of 6.5 trillion. Well, between 2000 and 2008, the ratio of private debt to GDP increased from 0.5 to 1.0. We now have a 13 trillion dollar private citizen debt. This is because of the re-fis and credit cards and other types of consumer credit, pushed on all of us by the financial markets, desperate for a place to park their capital, in the presence of a grossly overvalued equities market.
When was the last time US private citizen debt to GDP ratio was 1.0?
Answer: 1929
Sophisticated investors look at the still overvalued stock market and look at the fact that, even if bank lending loosens up, Americans are still in hock to the gills, and it’s hard to see what’s going to be a an economic driver.
I’ve advised people to get out of equities. And it’s got nothing at all to do with Obama and the Democratic budget.
My my… look at that rise of the “over valued” stock market Larry shows us in his graph between 1995 and 2000. That’s where the “ENORMOUS” bubble started being created. Or, as Larry himself puts it.
Larry: You can see that there was an ENORMOUS bubble, circa 1980 to 2000. This increase in the Dow was hugely greater than the growth of the companies which make up the Dow and hugely greater than the economy, as a whole. It was sheer speculative bubble.
By 2000, it was obvious that stocks were grossly overvalued. So, when people got their tax cuts, where did they go? Not into stocks. Not into solid new companies. Not into R&D. There just wasn’t anyplace for it to go. So it went into exotic new instruments, such as mortgage backed securities.
But of course, those over valued stocks have nothing to do with the Clinton/Rubin/Summers era, eh? And the fact those MBS didn’t become infected with toxic mortgages until those “exotic” instruments came into being in those same years.
Tom in CA
15 years ago
Larry,
Thanks for the non-advise. So what do you recommend, investing in our Post Office? How about some ‘exotic’ solar bullshit. Maybe some windmill powered 747’s? Maybe put some money with that big Democrat investor, Mr. Madoff.
Apparently the Bankers Association has had enough of Obama’s crap, notifying him (Obama) today to lay off. Wait until all his Union supporters in the convention business are laid off since companies are terrified to spend any money in Vegas. How about all those spiffy luxury boxes in the NBA and NFL. How many companies will be renewing those leases? ‘Stuff’ is about to hit the fan in the economy Larry. Just how long do you think those voters in the squishy middle are going to listen to ‘it’s W’s fault. I say not long.
Lastly, do your self a favor and turn off NPR. Then you won’t be so scared.
The fact is the fourth quarter contraction in the economy which was originally measured at -3.8% was was increased to -6.2%, markets are still unstable due to the unsure nature of the declines. California posted 10+% unemployment rate for January and insurance company AIG has had not much interest in its operating units.
Millions of Americans have seen their retirement nest egg disappear before their eyes following the election of Obama.
The fact of the matter, this process of deceleration began under Pres George Bush (remember the market was 14,100!). Only simplistic thinking would believe the cause and effect of the markets today are solely the domain of President Obama’s present plan, lack of plan or anything in between. The markets are reacting to the facts on the ground, and most of those facts are related to structural problems that are not going away anytime soon.
Good points Larry#3 made with the personal debt ratio.
But of course, those over valued stocks have nothing to do with the Clinton/Rubin/Summers era, eh? And the fact those MBS didn’t become infected with toxic mortgages until those “exotic” instruments came into being in those same years.
Mata, you are too smart to use the stock market bubble as a gotcha point.
The Clinton/Rubin/Summers economic policy was very conservative. It focused like a laser on deficit reduction, which it achieved through a combination of tax increases and (helped greatly by working with the GOP-controlled Congress) spending restraint. Federal Reserve rates were conservative, meaning that they were not pushed down in an attempt to stimulate the economy. There was no serious capital glut.
What caused the stock market bubble, if not Clinton economic policy or Fed monetary policy? Two things: first, the country was in the middle of a real, solid economic expansion. Secondly, there was first the tech boom and then the dot com boon. This combination of prosperity and real growth in the tech sector spilled over into the broader market.
By the time year 2K hit, however, it was obvious that stocks were overvalued. This was the set up for the perfect storm, which was the double whammy of massive tax cuts, which went largely into the bank accounts of the very wealthy, and the disasterous Federal Reserve policy of forcing down interest rates in an attempt to stimulate the economy to grow fast enough to compensate for the certain deficits to be created by the tax cuts.
This is when the capital glut occurred — well along into Bush’s 1st term and continuing on through to the financial meltdown. With a glut of capital and nowhere for the capital to go, it created the huge push for selling loans, in all their various forms, on the American people, with these loans largely bundled into securities.
Tom in Ca asks me for investment advice:
Since you are in California: the California real estate market is on the verge of recovery. I’d look for foreclosure opportunities in good California neighborhoods.
What caused the stock market bubble, if not Clinton economic policy or Fed monetary policy? Two things: first, the country was in the middle of a real, solid economic expansion. Secondly, there was first the tech boom and then the dot com boon. This combination of prosperity and real growth in the tech sector spilled over into the broader market.
That would be the dot com BUBBLE, Larry… a bubble they let deflate naturally around the turn of the century. Tech stocks tanked for a couple of years and started steadily rebounding. Now, they too, will have their hit since orders for new tech equipment will be curtailed in tight times.
Also, the real estate boom was beginning, starting 1997. If you will notice via a housing chart I have posted over and over, the housing prices have a rise that matches the stock graph you provided.
Lastly, don’t listen to him Tom. The California real estate is still overvalued by at least 20-35%… just as is Florida, Vegas and Arizona. Look for a heck of a deal, because they’ll be upside down for a while yet. They rose faster.. it will take them longer to fall. Unless, of course, Geithner and Obama succeed in their attempts to reinflate the bubble. In which case you’ll have another crash down line.
Here’s another graph that depicts how out of whack housing prices are
Nope, haven’t seen it, Aye. Great map, lousy legend… LOL But it’s not telling me anything I don’t think I already knew. Although I figured if the government didn’t help, we might bottom out a bit sooner.
You do notice that the uptick starts around 1997, right? Can’t keep reminding people of this enough…
Actually, I’ve frantically searching a link I had stored… somewhere in my real estate/economy stuff (loaded to the gills there…) that had an interactive map of the nation with color coding of what places were within reasonable range, and what areas were still over and by how much. Dang if I can’t find it at the moment. grrrr…. I hid it from myself!
Just for your info, the stockmarket in china and most of the big commodities are going up while the US stockmarket remains down and looks like set for possibly still some decline.
One really has no choice but to blame the poor choices and actions of Obama and his admin picks for the poor showing of the US stockmarket.
Goodness knows when it will ever start to firm up—my guess is the Obama admin will continue with its pork-laden marxist corruption and financial incompetence, and these next few years will see US stocks really not going anywhere. I think we’ll only see a real recovery in your stockmarket when Obama is no longer POTUS.
Sometimes I get the feeling that some of the writers here are not living in this reality.
Blaming the Bush tax cuts for the housing collapse is as absurd as I have ever heard. Low interest rates and tax cuts don’t cause a housing collapse, and never have.
It is banks being forced to make financially crazy loans to beggars who can’t pay back under absurd socialist rules foisted upon them by a socialist govt, then those same banks rejoicing when they are able to securitize those loans and sell them away into a market—it’s like making money out of the air, creating subprime loans and selling them away for big bucks. Then having Fannie and Freddie to buy those mortgage-backed securities by the trillions and make a market for them.
Then having the whole mess crash down.
Let’s remember—subprimes created under CRA under Jimmy Carter, subprimes allowed to be securitized and sold under Clinton, and Freddie and Fannie doing unrestricted buying and market-making of subprimes under a democrat-controlled Congress.
That’s what caused this mess. Nothing that Bush did.
May I just say that your democrat party is just about as good as causing a financial crisis as it is in losing the vietnam war after slaughtering millions of vietnamese civilians. Great job.
@sigmundringeck: Thanks for that perspective on world financial markets Sig.
As always, your common sense is a welcome antidote to the regurgitated Democrat talking points that the other side persists in posting.
Fit fit
15 years ago
Thanks for this post establishing the stock market as an indicator of Obama’s success/failure. I’ll be sure to beat this over your head relentlessly six months from now when the DOW is back in the 9000’s…
It is banks being forced to make financially crazy loans to beggars who can’t pay back under absurd socialist rules foisted upon them by a socialist govt, then those same banks rejoicing when they are able to securitize those loans and sell them away into a market—it’s like making money out of the air, creating subprime loans and selling them away for big bucks. Then having Fannie and Freddie to buy those mortgage-backed securities by the trillions and make a market for them.
Not a single banker or investor from a single failed financial institution has blamed any government policies or “socialist rules” for his own bank’s failing or for the housing collapse. 2/3 of the subprimes went for re-financings, investment homes, and second homes, which the government never foisted onto anyone. Of all the subprimes, 2/3 were made by entirely private institutions, entirely outside the Fannie/Freddie sphere. Fannie/Freddie may be blamed only for making the same bad lending decisions which were made in the entirely private sector, unrelated to Fannie/Freddie.
Of the 1/3 of the subprimes which went for primary residences, only about 1/3 of these were for first primary residences, which were the only mortgages encouraged under government programs to encourage home ownership (which were strongly supported by President Bush, by the way). Of all the bad loans, only a minuscule percentage, probably way less than 1% by loan value, were for actual Community Reinvestment Act loans.
All those loans that are defaulting are NOT loans forced on lending institutions by the government! They were loans made simply because people with an overabundance of capital and no place to put it went looking in unwise places for rates of investment return not available elsewhere.
This is exactly the way that all mainstream economists see it (including Bush appointed Fed Chairman Bernanke).
Find me a single reputable economist (as opposed to political pundit) who blames the financial meltdown on the government forcing lending institutions to make imprudent loans. Find a single officer of a failed bank who blames his own failure on the government “forcing” him to make imprudent loans.
I’ve provided cites before. We keep going over this, over and over and over. The nonsense of Democrats “blocking” regulatory reforms. George Bush and John McCain championing reform of Fannie/Freddie, only to be “blocked” by Democrats. The financial meltdown being caused by banks failing because the government forced them to make loans to deadbeats.
From the same people who still think that Saddam shipped his WMD to Syria for safe keeping, on the eve of the Iraq invasion.
Banker’s tell Obama to stop blaming them for the mess Dems caused:
Bankers to Obama: Stop trashing us
By VICTORIA MCGRANE | 2/27/09 4:01 PM EST
Politico
The American Bankers Association has a message for the president: Stop talking trash about banks.
In his unofficial State of the Union address Tuesday night, Barack Obama said that it’s “unpopular … to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions.”
In a letter to the White House, ABA CEO Edward Yingling says bankers across the country were “disappointed and concerned” with rhetoric like that.
“Mr. President, of the over 8,000 banks in this country, very few ever made a single subprime loan, and they did not engage in the highly leveraged activities that brought down Wall Street firms,” Yingling said.
Yingling referred the president to statements made by Rep. Barney Frank (D-Mass.), the powerful chairman of the House Financial Services Committee, in which he said that the toxic mortgage lending that sparked the current crisis was done by mortgage brokers and others not subject to the strict rules that govern commercial banks.
“Mr. President, the failure to distinguish between Wall Street and the thousands of FDIC-insured banks across the country undermines the confidence in our banking industry, the industry which is the foundation on which our economic recovery must be built,” Yingling said.
“We stand ready to work with your administration to promote policies that will clear the way to do what banks do best: finance business and families that are ready to move the economy forward. But these efforts will only be inhibited by misperceptions about our industry.”
In his speech, Obama said that too many bad loans from the housing crisis have made their way onto the books of too many banks” — and that, “with so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses or to each other.”
But traditional bank lending accounts for a mere third of the entire credit markets, Yingling said in an interview on C-SPAN’s “Newsmakers” program, and the banks’ share actually grew in 2008.
Bush’s fault again? What a surprise. You have no credibility left.
Mike isn’t this the period we call the “Bush Hangover?” You still never answered that question… how long will their be a Bush Hangover, just like the Clinton Hangover which you zealously would talk about.
Look at Aye’s Chart again… look what happened in 2001 and thereafter. That graph is a damming indictment of the previous Administration’s lack of attention, not the past month of the new administration.
So Mike…… are you afraid to set the length of time for the “Bush Hangover?”
Banker’s tell Obama to stop blaming them for the mess Dems caused:
Where in the story does it say that the banks blame the “Dems” for causing the “mess?”
Rather, the banks (the overwhelming majority of which did not make any subprime loans) are blaming the bad judgment of those Wall Street institutions who were the driving force behind the subprime loans. They just don’t like Obama lumping them in with the Wall Street miscreants. They have a good point; I’m certain that Obama will be more careful to make this distinction in his speech the next time he’s discussing the issue.
Mike will go to his grave convinced that somehow the financial meltdown was caused by the evil Democrats, as opposed to arising as a byproduct of a capital glut caused by misguided monetary policy, but that doesn’t require those of us who read actual economists, along with our political pundits, to go along with him.
Larry W: Not a single banker or investor from a single failed financial institution has blamed any government policies or “socialist rules” for his own bank’s failing or for the housing collapse.
Rather stupid to slap the only one willing to give you a handout, don’t you think, Larry? Yet you continue to use this as an excuse to avoid the CRA/Gramm-Leach realities. You really are a partisan disappointment… even tho you purport to be a fiscal conservative at heart. Pile ‘o’ manure, my friend. Rerun that B movie for someone else, please.
Mike will go to his grave convinced that somehow the financial meltdown was caused by the evil Democrats, as opposed to arising as a byproduct of a capital glut caused by misguided monetary policy, but that doesn’t require those of us who read actual economists, along with our political pundits, to go along with him.
I read “actual economists” too, Larry. And this doesn’t come down to a Dem vs GOP issue. It comes down to Clinton required compliance mandates, and free market following those mandates. Also, the free market *taking advantage* of those mandates.
Trust me, I do not give the banks a pass. But I also know those banks wouldn’t have had the opportunity to abuse the mandate were it never in place.
Sooner or later you’ll have to ‘fess up to reality. No one forced the banks to overcompensate for relaxed regulations and increased mandates. Then again, no one told them there was a “cap” on the relaxed regulations and increased mandates either.
And NO ONE will bash the government officials who started it all because it’s only the government officials offering a hand out today.
Duh
Declan Fallon
15 years ago
@blast: Bush’s fault again?
What a surprise.
You have no credibility left.
Unfortunately Mike, you are the one showing no credibility. Maybe if you *studied* the market and the events which caused the crash you would understand Greenspan caused the credit crisis under the “watch” of a dominant Republican administration.
Millions of Americans have seen their retirement nest egg disappear before their eyes following the election of Obama.
Sigh….
If you actually looked at chart of the market (which you helpfully provided) you would see the greatest damage was done in September, well before any election and, funnily enough, the same time Clown Palin came on the scene. Hmmmm… did the electorate put two and two together? Millions of American’s *had* lost their nest egg – BEFORE – the election. Republican’s had their asses handed to them because of this. There is nobody else to blame.
Yes – the market has seen a hit, but in the context of events since the election the market has effectively traded sideways. Even then, leading sectors like Tech and Small Caps have held above November lows; this is typical basing behaviour. Not pretty, but it’s the first steps towards an early recovery.
@Declan Fallon: Another Bush Blamer! What a shocker… Follow it up with another slam at Palin… How original.
Is it a full moon or something?
“sigh?”
I’ve got another sound in mind related to bodily functions that better describes your thinking.
Larry: You simply REFUSE to accept the fact that Democrats in both the House and Senate repeatedly blocked the reforms which might have prevented the financial meltdown of last year.
Nothing new there. You continue to drink the kool aid.
I just hope you wipe the rim of the glass after blast or DF hand it to you before you sip.
Larry: You simply REFUSE to accept the fact that Democrats in both the House and Senate repeatedly blocked the reforms which might have prevented the financial meltdown of last year.
That is total poppycock. If there were an ounce of truth to this claim, the GOP would have made a major campaign issue out of it. When I brought this up last Fall, in my arguments with you, you admonished me to listen to what McCain was going to say in the second debate. I listened, and he said nothing. The entire GOP said nothing. No one made this claim. Everyone said that they lost the election because of the collapsing economy and, funny, all of the Republicans were too polite to blame the Democrats. The only Republicans to make these ridiculous allegations were bloggers and talk radio pundits. It’s exactly analogous to the way that not a single prominent Republican politician ever made the equally outrageous claim that Saddam really had WMD, afterall, only he shipped them to Syria for safe keeping before the invasion. Complete and utter poppycock. Show me a statement from President Bush to support the “safe keeping” allegation. Show me a statement from Mitch McConnell or John Bainard to support the “Democrats blocked reform” allegation. Then I’ll consider the substance of the allegations. But it’s nothing more than contrivance from the same people that want to “take back” the country (to quote Rush Limbaugh’s speech to CPAC). Show me an ounce of proof. Show me something beyond isolated stupid speeches cleverly edited and juxtaposed with isolated wise speeches. It’s beyond ridiculous.
The GOP controlled the House and Senate between 1995 and 2007. The following is the documented truth. I am waiting for you to refute the following facts:
The House passed Fannie/Freddie regulatory reform (Oxley Bill) on a bipartisan vote.
It went to the Senate. Bush and the Senate leadership didn’t like the House bill.
The following is an excerpt from letter to the editor of the Wall Street Journal, commenting on a WSJ editorial:
>>In “Paulson’s Fannie Test” (Review & Outlook, July 15), you editorialize, “Had Treasury and Congress acted two years ago, or even three or six months, the current panic could have been avoided.” In fact, the House did act. After a successful committee vote, we passed strong, freestanding GSE reform legislation, H.R. 1461, in the House on Oct. 26, 2005, with a bipartisan vote of 331-90. The bill encountered opposition in the Senate, in the administration, and on the Journal’s editorial page. It died in the Senate.
>>I am proud that the Financial Services Committee acted while the housing economy remained robust. In a noncrisis atmosphere, we produced legislation that would have created a stronger regulator with new powers to increase capital, to limit portfolios, and to deal with the possibility of receivership. Had our legislation become law in 2005, a world-class regulator would have been in place, providing better oversight prior to and during the market downturn.
>>Michael G. Oxley
Washington
>>Michael G. Oxley [R] was chairman of the House Financial Services Committee from 2001 through 2006.
Why didn’t the Senate come up with their own, alternative bill?
Basically, it was Bill Frist who ultimately “blocked” the Senate bill. There were 25 Republican Senators who signed Senator Hagel’s letter and 29 Republicans who did not sign it, including not only the then-GOP majority leader (Frist), but also the current GOP minority leader (Mitch McConnell).
We now have the complete story of the 2005 attempts to regulate Fannie Mae. A regulatory bill passed in the House, with a majority of Democrats joining with a majority of Republicans to approve the bill, despite speeches against the bill by Barney Franks and Maxine Waters. Some Democrats said dumb things, but a majority of Democrats voted in favor. According to the Bill’s sponsor, Republican Michael Oxley, the bill was opposed by the Bush White House and by the Senate.
We now know the details of the Senate opposition. (story above). They caved to lobbying against the bill by a GOP lobbying firm.
Democrats did NOT “block” financial reforms in 2005. Which is precisely why neither John McCain nor any Senate Republican running for re-election (including Mitch McConnell) made that charge! McCain said that he signed a letter supporting reform. We now know what the letter was. And we now know why it didn’t go anywhere.
Yup, Mike. Another one with that “compact fluorescent” light bulb brain power playing amateur hour. After all his /her “studies” on the market, still thinks all this comes down to just one event…. Greenspan’s interest rates. Must be “name that scapegoat!” week.
Okay…..
We’ll just ignore all those other charts with the astronomical rise in housing prices and various stock bubbles that started in 1995 and 1997 here in the States. And of course legislation, and piss poor Fannie/Freddie oversight has no bearing either. No relations whatsoever… Wanna buy a watch? Got plenty up my sleeve.
I’m sure you’re brillant in your round worms specialty, Declan. But you’re suffering from tunnel vision if you think the housing/lending crash, leading to the bank and ensuing crashes, that ultimately spread world wide with toxic assets (of many nations) globally is a product of *far* more than just interest rates.
For a clue, look to your own UK unnatural housing price inflation, and try to blame that on Greenspan. You do, of course, realize your isle has it’s own economic woes, yes? A good deal of it unrelated to the US economy, and attributable to your own events.
I read “actual economists” too, Larry. And this doesn’t come down to a Dem vs GOP issue. It comes down to Clinton required compliance mandates, and free market following those mandates. Also, the free market *taking advantage* of those mandates.
I might agree with you if the housing mortgage collapse was the result of poor people with first home mortgages defaulting on their loans. But this segment of the subprime default market was truly minuscule and monetarily insignificant. The vast majority of the money going sour is in subprimes for re-financings, investment properties, vacation homes, and non-first time home buyers. None of the above were subject to any “mandates” whatsoever! Secondly, the “free market” (non-Fannie/non-Freddie, totally private sector) loans and related securities (the lions share of the total bad assets) were never subject to any “mandates” and were entirely the result of a flood of capital looking for somewhere to roost. This is precisely the way it’s been explained by all mainstream economists, including Ben Bernanke.
Kindly locate a scholarly analysis of the financial meltdown which puts any blame at all on “Clinton required compliance mandates.” The CRA banks actually had, overall, better loan portfolios than non-CRA banks.
Mata quoting me:
Larry W: Not a single banker or investor from a single failed financial institution has blamed any government policies or “socialist rules” for his own bank’s failing or for the housing collapse.
Mata responds:
Rather stupid to slap the only one willing to give you a handout, don’t you think, Larry?
You don’t understand. I was speaking about the scores of financial institutions that already went belly up and are not eligible for a handout.
These are people who royally screwed up — everyone from Lehman Brothers to local, community banks. Not one of these failed banks (and not one of the executives of these banks) has ever blamed “Cinton required compliance measures” or the CRA or pressure from congressional Democrats or pressure from anyone else for their own bad decisions and for their own failures.
@openid.aol.com/runnswim: “If there were an ounce of truth to this claim, the GOP would have made a major campaign issue out of it….you admonished me to listen to what McCain was going to say in the second debate. I listened, and he said nothing. The entire GOP said nothing. No one made this claim.”
Larry, are you smoking crack?
The GOP did make a major issue out of it. McCain mentioned it repeatedly.
How the hell can you possibly make a statment like the one above that is either so ignorant or deliberately misleading or both? If I didn’t know better I’d say you were either stupid, a liar or both!
Senator Obama was silent on the regulation of Fannie Mae and Freddie Mac, and his Democratic allies in Congress opposed every effort to rein them in. As recently as September of last year he said that subprime loans had been, quote, “a good idea.” Well, Senator Obama, that “good idea” has now plunged this country into the worst financial crisis since the Great Depression.
–John McCain, Albuquerque NM October 6, 2008
When I pushed legislation to reform Fannie Mae and Freddie Mac, Senator Obama was silent. He didn’t lift a hand to avert this crisis. While the leaders of Fannie and Freddie were lining the pockets of his campaign, they were sowing the seeds of the financial crisis we see today and enriching themselves with millions of dollars in payments. That’s not change, that’s what’s broken in Washington.
–John McCain, Cedar Rapids Iowa, September 18, 2008
McCain ad from Sept. 18:
My GOD, even Bill Clinton admitted it:
“I think the responsibility the Democrats have may rest more in resisting any efforts by Republicans in Congress or by me as President to put some standards and tighten up on Fannie Mae and Freddie Mac.” –Former President Bill Clinton, September 24, 2008
Larry, if you cant avoid repeating the big lie on this issue I can’t take anything you say seriously. The last miniscule shreds of your credibility are falling away.
Larry#30: I might agree with you if the housing mortgage collapse was the result of poor people with first home mortgages defaulting on their loans.
Larry #28: If there were an ounce of truth to this claim, the GOP would have made a major campaign issue out of it….
Well, Larry… you have just proven why the GOP didn’t make a campaign issue out of the CRA regulations, and their part in the creation of the lower standards for lending. It was utterly predictable that people like you twist criticism of the Congressional affirmative action meddling in the lending world into the mantra – “the GOP blames poor people”.
It’s a sleazy cheap liberal trick, and totally disassociated with the truth of the criticism. Congratulations on your stellar demonstration of the obvious response to an honest debate on whether these regulations are wise. Then again, as I said, liberals are great at street gutter fighting, and for covering their opponent in their own liberal excrement.
Needless to say, for banks and other businesses who may eye government bailout money (even if they don’t have it now…) I doubt they will do the same so you wacky history revision types can villify them as “big bad banking execs who hate minorities and the poor.
Get the drift?
I am not criticizing the “poor people” who got the loans… save the obvious scam artists like Donna Hanks. I *am* criticizing the regulations that required a certain amount of these loans on the books, which required that any bank – CRA or a holding institution that wanted to merge with a bank – develop products and services for the low-income, minority, and underserved markets. This meant standards had to be lowered, and more exotic loan packages created.
That aside… whether the loans were extended by a CRA bank, or not, they are still a bad business risk *for any banking institution*. These packages and lower standards would not have come into being had the regulations not been changed.
Larry: Kindly locate a scholarly analysis of the financial meltdown which puts any blame at all on “Clinton required compliance mandates.” The CRA banks actually had, overall, better loan portfolios than non-CRA banks.
Not like we haven’t posted many links before, Larry…. also not sure what passes your particular “sniff” test as “scholarly”. I’m sure than any institution that puts out an opinion contrary to yours will be demeaned. But here’s a few. There is no dearth of debate on this subject between financial and think tank minds. It’s not such a clear cut issue to absolve CRA’s culpability as playing a part in this crises as you are willing to give.
The Reinvented Community Reinvestment Act an analysis of the rewritten regulations warning of the changes have the effect of forcing banks to make risky loans *before* it happened… rather prescient, don’t you think?
Economist Thomas DiLorenzo is one who believes that the current housing crisis is “the direct result of three decades of policy that has forced banks to make loans to risky borrowers.
Robert Litan of Brookings similarly said the 1990s CRA regulations change may have contributed to the problem. “If the CRA had not been so aggressively pushed, it is conceivable things would not be quite as bad. People have to be honest about that.”
Then of course, there is financial analyses like Investment Business Daily and Wall Street Journal Op-Eds.. most of which have been linked to already in my past posts and comments. You can find those by looking thru the “read all posts” by MataHarley under the authors link above. Or use the “categories and archives” link and search the Sept-Oct archives when most of these posts appeared by all of us.
Google them yourself… at this point, I’m tired of going thru my massive link collection to find the specifics. This is such old news.
The debate is guaranteed to be depressed because your side will constantly scream discrimination, racism, and that the banks and GOP hate poor people. Nice move… as I said above… very sleazy of you all, and counterproductive to examining what *not* to do in the future.
Of course now your side is busy trying to reinflate the bubble… another debate that you all will no doubt quash with a puppet media propaganda campaign.
Larry, I forgot to add yet another Peter Wallison article that I archived from the American Spectator. Wallison (in case you didn’t click on his bio link) is not a pundit. He was general counsel for the Treasury Dept under Reagan and his WH Counsel in the last couple of years. He holds the Arthur F. Burns Chair in Financial Market Studies, and is co-director of AEI’s program on financial market deregulation.
You may also keep in mind… which I think you don’t… is that I have never purported the abuse of the CRA/Gramm-Leach regulations as the ONLY perpetrator in this housing crash. Only a very integral part that got the dominos started falling.
Two narratives seem to be forming to describe the underlying causes of the financial crisis. One, as outlined in a New York Times front-page story on Sunday, December 21, is that President Bush excessively promoted growth in home ownership without sufficiently regulating the banks and other mortgage lenders that made the bad loans. The result was a banking system suffused with junk mortgages, the continuing losses on which are dragging down the banks and the economy.
The other narrative is that government policy over many years–particularly the use of the Community Reinvestment Act and Fannie Mae and Freddie Mac to distort the housing credit system– underlies the current crisis.
~~~
There really isn’t any question of which approach is factually correct: right on the front page of the Times edition of December 21 is a chart that shows the growth of home ownership in the United States since 1990. In 1993 it was 63 percent; by the end of the Clinton administration it was 68 percent. The growth in the Bush administration was about 1 percent. The Times itself reported in 1999 that Fannie Mae and Freddie Mac were under pressure from the Clinton administration to increase lending to minorities and low-income home buyers–a policy that necessarily entailed higher risks. Can there really be a question, other than in the fevered imagination of the Times, where the push to reduce lending standards and boost home ownership came from?
The fact is that neither political party, and no administration, is blameless; the honest answer, as outlined below, is that government policy over many years caused this problem. The regulators, in both the Clinton and Bush administrations, were the enforcers of the reduced lending standards that were essential to the growth in home ownership and the housing bubble.
THERE ARE TWO KEY EXAMPLES of this misguided government policy. One is the Community Reinvestment Act (CRA). The other is the affordable housing “mission” that the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac were charged with fulfilling.
~~~
In 1995, the regulators created new rules that sought to establish objective criteria for determining whether a bank was meeting CRA standards. Examiners no longer had the discretion they once had. For banks, simply proving that they were looking for qualified buyers wasn’t enough. Banks now had to show that they had actually made a requisite number of loans to low- and moderate-income (LMI) borrowers. The new regulations also required the use of “innovative or flexible” lending practices to address credit needs of LMI borrowers and neighborhoods. Thus, a law that was originally intended to encourage banks to use safe and sound practices in lending now required them to be “innovative” and “flexible.” In other words, it called for the relaxation of lending standards, and it was the bank regulators who were expected to enforce these relaxed standards.
The effort to reduce mortgage lending standards was led by the Department of Housing and Urban Development through the 1994 National Homeownership Strategy, published at the request of President Clinton. Among other things, it called for “financing strategies, fueled by the creativity and resources of the private and public sectors, to help homeowners that lack cash to buy a home or to make the payments.” Once the standards were relaxed for low-income borrowers, it would seem impossible to deny these benefits to the prime market. Indeed, bank regulators, who were in charge of enforcing CRA standards, could hardly disapprove of similar loans made to better-qualified borrowers.
Remember how I repeatedly told you that to create this reduced standards mortgages for the financially challenged “minority” neighborhoods, and NOT offer them to the rest of the solvent borrowers would be a violation of fair lending laws and basically illegal?
Now, note the relationship between the National Homeowners Strategy and the CRA. How about some confirmation right from the horses mouth. From the NYT’s “Reckoning” series… the Building Flawed American Dreams piece on Henry Cisneros:
As the Clinton administration’s top housing official in the mid-1990s, Mr. Cisneros loosened mortgage restrictions so first-time buyers could qualify for loans they could never get before.
Then, capitalizing on a housing expansion he helped unleash, he joined the boards of a major builder, KB Home, and the largest mortgage lender in the nation, Countrywide Financial — two companies that rode the housing boom, drawing criticism along the way for abusive business practices.
And Mr. Cisneros became a developer himself. The Lago Vista development here in his hometown once stood as a testament to his life’s work.
Joining with KB, he built 428 homes for low-income buyers in what was a neglected, industrial neighborhood. He often made the trip from downtown to ask residents if they were happy.
~~~
But Mr. Cisneros rarely comes around anymore. Lago Vista, like many communities born in the housing boom, is now under stress. Scores of homes have been foreclosed, including one in five over the last six years on the community’s longest street, Sunbend Falls, according to property records.
While Mr. Cisneros says he remains proud of his work, he has misgivings over what his passion has wrought. He insists that the worst problems developed only after “bad actors” hijacked his good intentions but acknowledges that “people came to homeownership who should not have been homeowners.”
~~~
He reflects often on his role in the debacle, he says, which has changed homeownership from something that secured a place in the middle class to something that is ejecting people from it. “I’ve been waiting for someone to put all the blame at my doorstep,” he says lightly, but with a bit of worry, too.
~~~
It was, he argues, impossible to know in the beginning that the federal push to increase homeownership would end so badly. Once the housing boom got going, he suggests, laws and regulations barely had a chance.
“You think you have a finely tuned instrument that you can use to say: ‘Stop! We’re at 69 percent homeownership. We should not go further. There are people who should remain renters,’ ” he says. “But you really are just given a sledgehammer and an ax. They are blunt tools.”
~~~
He had President Clinton’s ear, an easy charisma and a determination to increase a homeownership rate that had been stagnant for nearly three decades.
Thus was born the National Homeownership Strategy, which promoted ownership as patriotic and an easy win for all. “We were trying to be creative,” Mr. Cisneros recalls.
Under Mr. Cisneros, there were small and big changes at HUD, an agency that greased the mortgage wheel for first-time buyers by insuring billions of dollars in loans. Families no longer had to prove they had five years of stable income; three years sufficed.
And in another change championed by the mortgage industry, lenders were allowed to hire their own appraisers rather than rely on a government-selected panel. This saved borrowers money but opened the door for inflated appraisals. (A later HUD inquiry uncovered appraisal fraud that imperiled the federal mortgage insurance fund.)
There’s a full side story of Cisneros later most excellent adventures with KB Homes and Countrywide. Like Robert Rubin, he took his regulatory changes to the private sector banking industry (plus, in Cisneros’ case, the developer role) and managed to run both thoses places into the ground as Rubin did with CitiGroup.
But of course, their regulatory actions in the Clinton admin has nothing to do with the financial crisis according to you…
@MataHarley: “It’s a sleazy cheap liberal trick, and totally disassociated with the truth of the criticism. Congratulations on your stellar demonstration of the obvious response to an honest debate on whether these regulations are wise. Then again, as I said, liberals are great at street gutter fighting, and for covering their opponent in their own liberal excrement.”
Thank you Mata… It needed to be said.
In addition to that rather sharp retort you offered Larry additional “scholarly” information that I fear is unlikely to make a dent into what we know by now is his ardent and unquestioning obedience to the Dem party line.
That’s also about the same time that BHO/Biden came on the scene…..no?
Except it wasn’t the Democrats who needed to distract the electorate to the government under whose ‘watch’ this mess was created. The electorate were not fooled.
@Mike’s America
I’ve got another sound in mind related to bodily functions that better describes your thinking.
Sadly I have yet to read an ounce of reasoning to any of your comments; in that respect your prolific in a disturbed bodily function way. Given your resume it’s disappointing.
For a clue, look to your own UK unnatural housing price inflation, and try to blame that on Greenspan. You do, of course, realize your isle has it’s own economic woes, yes? A good deal of it unrelated to the US economy, and attributable to your own events.
Well – my isle hasn’t been part of the UK for a while now, but ignorance seems to be common amongst those whose views are shallow and self-serving. I did not try and blame Greenspan for the UK or any other countries economic woes. Low interest rates provided the environment for greed and corruption.; it doesn’t matter what country that is. The music eventually stopped and now we are all paying the price; Republican and Democrat, Conservative and Liberal. The countries may be different, but the suffering is all the same.
Declan: Well – my isle hasn’t been part of the UK for a while now, but ignorance seems to be common amongst those whose views are shallow and self-serving.
Last I looked, the British Isles (to which I referred with my “isle” comment) still included the republic of Ireland. But then, your comment make me look up specifics of you IP in Dublin, Declan. You did, after all, provide the scrutiny invitation with your comment.
My “isle” statement is geographically correct since your IP is Dublin area – and still part of the British Isles. But you are also correct that Dublin is not part of the UK. My error is assuming you may be part of Northern Ireland. Compromise, my int’l friend.
That said, how’s your housing market? Here’s a graph to help you out…. based on percentage LOST in housing value as opposed to increasing prices v value.
Now, I agree that it doesn’t matter what country we are in… we all suffer at the hands of stupid government official decisions. However let’s not abandon totally your criticism:
Unfortunately Mike, you are the one showing no credibility. Maybe if you *studied* the market and the events which caused the crash you would understand Greenspan caused the credit crisis under the “watch” of a dominant Republican administration
So if Greenspan couldn’t possibly have caused your credit crisis and housing inflation… what did?
The electorate wasn’t fooled? This distraction has been around for quite some time:
Looming Liabilities
Ben Wildavsky January 20, 1998
The quasi-governmental organizations known as government- sponsored enterprises, or GSEs, provide still another example of what Kettl has called “the budgetary twilight zone.” A recent study for the libertarian Cato Institute calls the two largest GSEs — Fannie Mae, the home-financing company; and Freddie Mac, the Federal Home Loan Mortgage Corp. — “financial time bombs.” These two GSEs, which buy mortgages from lenders, package them into securities and then resell them to investors, don’t receive taxpayer funds directly. But the study contends that the implicit federal guarantee behind the GSEs exposes taxpayers to “potential contingent liability that could ultimately cost tens of billions of dollars to rectify” should a bailout ever be required.
Mata: So if Greenspan couldn’t possible have caused your credit crisis… what did?
I want a piece of this… I tend to think the lack of regulation in the area of credit default swaps and derivatives coupled with monetary policy over leveraged nearly every part of the economy.
Is that “lack of regulation”, blast. Or have you considered it can also be detrimental regulation?
Hard to tell the difference sometimes, I know. When there is any given industry, screaming “regulation” in general doesn’t necessarily cure the evils. And, in fact, can cause the problem.
Larry, you are living not in this reality. Even your own american financial publications all generally go along with the view I expressed above.
Cite sources?? I can’t be bothered. Why should I enlighten people who are interested in remaining ignorant? It doesn’t hurt me if you or anyone else wants to go along with mistaken beliefs—if you work in finance and think absurdly, then you will be slaughtered.
Financial Times?
Investor’s Business Daily??
Wall Street Journal???
Chinese Government???
Nouriel Roubini??
Jim Rogers???
All of the above would roughly have the same picture as I expressed above. What I said is the consensus, whether you agree with it or not.
There is a chinese dialect saying: If you go to a zoo, do not try to argue with the chimpanzee.
———————————————
For REAL-TIME PROOF of how democrat-guided actions are destroying your financial markets and economy, just watch how your Dow goes down to a new record low everytime Obama or his minions announce some new measure, be it another porky so-called stimulus or some ineffective bailout.
This is was the Democrat Housing Collapse now turned into the Obama Recession turning into the Obama Depression.
I think this says it all and cannot be argued against.
@sigmundringeck: “Why should I enlighten people who are interested in remaining ignorant?”
I feel the same way. Readers of these threads can see how much time and effort we invest trying to educate our liberal friends only to have them ignore it as they continue parroting the shopworn shibboleths that substitute for intellectually honest discourse.
Missy
15 years ago
I read Nouriel Roubini’s column yesterday. Twas not for the faint of heart.
Thanks for your time Sigmundringeck, I appreciate your “on the job” wisdom.
I first came across Nouriel Roubini’s writings in early 2007. He got it right, but his timing was off, he had been calling for the collapse to start years back. Also many people would have had the same idea as him, but his job is that of an economic commentator and forecaster, so he was trying to make as much noise as he could. Booms and collapses are the nature of the markets, so there is nothing really new except getting the causes and timing right.
My sense is that he will have described the reasons and stages of the collapse, but he will miss the start of the recovery, because he specialises in the bear mode, he’ll miss the bull mode.
Also he does not make his money from the markets, he makes money TALKING about the markets. Many investors I know avoided the first stages of the collapse, but reinvested their money too early, they got the severity and depth of the crash wrong. To make good money we have to avoid the collapse, or short it right, then get the bottom right also.
Let’s see how it goes. I have been building up asian oil stocks, but your US market really is a drag on all markets. Also the probably temporary US dollar strength due to safe-haven status and US dollar carrytrade unwinding plus euro fears is dampening commodities for the moment.
I really dislike what Obama has in store for your country. It’s incredible that he actually had financial people supporting him. These same people must be kicking their behinds now.
China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its “only option” in a perilous world, a senior Chinese banking regulator said on Wednesday.
China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world’s largest holding of Treasuries.
However, the increasing US budget deficit and its potential impact on the dollar have raised questions about the future Chinese appetite for US debt.
Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York that China would continue to buy Treasuries in spite of its misgivings about US finances.
Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said:
“Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”
Mr Luo, whose English tends toward the colloquial, added:
“WE HATE YOU GUYS. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we HATE you guys but there is nothing much we can do.”
However, Mr Luo said Chinese officials would encourage its banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries: “There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books.”
@sigmundringeck: “There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books. “
Obama’s phony budget must give the world the idea that we are either complete imcompetants or fraudsters or both.
Missy
15 years ago
Not just the books in our banks, AIG is busy forking over our tax dollars to banks all over the world, so, their books too. Apparently, Geithner doesn’t have the staff to investigate but is coming back for more for AIG. They did snag Merrill Lynch London for a $400 million ‘ahem’ discrephency. This mess is growing by the day.
Hey Mike, I left a reply to this, but it went to spam. Can you dig it out? Thanks. – L
Larry: Something happened to the comment. Not sure what. I hit approve but it’s not here.
I will post it again for you.
Larry’s comment:
Mike, there’s a whole lot more going on with the Dow than the little fluctuations you keep quoting (and I note that you never refer to what happened circa January 2008 to January 2009).
Let’s not talk politics; let’s talk sheer, raw economics.
Look at this graph: it’s tremendously more informative than yours:
http://ihateinvesting.biz/Pilot_files/MaxDJI.png
You can see that there was an ENORMOUS bubble, circa 1980 to 2000. This increase in the Dow was hugely greater than the growth of the companies which make up the Dow and hugely greater than the economy, as a whole. It was sheer speculative bubble.
By 2000, it was obvious that stocks were grossly overvalued. So, when people got their tax cuts, where did they go? Not into stocks. Not into solid new companies. Not into R&D. There just wasn’t anyplace for it to go. So it went into exotic new instruments, such as mortgage backed securities. Which created a huge market for re-financings, equity lines of credit, explosion of credit cards. Who here wasn’t deluged with offers for re-fis, equity lines, credit cards during the past 8 years.
Here’s a truly scary statistic which I heard today on NPR.
Historically, the ratio of US citizen debt to GDP has averaged 0.5. With a GDP of 13 trillion, this means a private debt of 6.5 trillion. Well, between 2000 and 2008, the ratio of private debt to GDP increased from 0.5 to 1.0. We now have a 13 trillion dollar private citizen debt. This is because of the re-fis and credit cards and other types of consumer credit, pushed on all of us by the financial markets, desperate for a place to park their capital, in the presence of a grossly overvalued equities market.
When was the last time US private citizen debt to GDP ratio was 1.0?
Answer: 1929
Sophisticated investors look at the still overvalued stock market and look at the fact that, even if bank lending loosens up, Americans are still in hock to the gills, and it’s hard to see what’s going to be a an economic driver.
I’ve advised people to get out of equities. And it’s got nothing at all to do with Obama and the Democratic budget.
– Larry Weisenthal/Huntington Beach, CA
Larry: Stop spinning before you fall down!
thank you. (comment #4 was pretty good, didn’t exactly lol but I did chuckle ol). – L
My my… look at that rise of the “over valued” stock market Larry shows us in his graph between 1995 and 2000. That’s where the “ENORMOUS” bubble started being created. Or, as Larry himself puts it.
But of course, those over valued stocks have nothing to do with the Clinton/Rubin/Summers era, eh? And the fact those MBS didn’t become infected with toxic mortgages until those “exotic” instruments came into being in those same years.
Larry,
Thanks for the non-advise. So what do you recommend, investing in our Post Office? How about some ‘exotic’ solar bullshit. Maybe some windmill powered 747’s? Maybe put some money with that big Democrat investor, Mr. Madoff.
Apparently the Bankers Association has had enough of Obama’s crap, notifying him (Obama) today to lay off. Wait until all his Union supporters in the convention business are laid off since companies are terrified to spend any money in Vegas. How about all those spiffy luxury boxes in the NBA and NFL. How many companies will be renewing those leases? ‘Stuff’ is about to hit the fan in the economy Larry. Just how long do you think those voters in the squishy middle are going to listen to ‘it’s W’s fault. I say not long.
Lastly, do your self a favor and turn off NPR. Then you won’t be so scared.
The fact is the fourth quarter contraction in the economy which was originally measured at -3.8% was was increased to -6.2%, markets are still unstable due to the unsure nature of the declines. California posted 10+% unemployment rate for January and insurance company AIG has had not much interest in its operating units.
The fact of the matter, this process of deceleration began under Pres George Bush (remember the market was 14,100!). Only simplistic thinking would believe the cause and effect of the markets today are solely the domain of President Obama’s present plan, lack of plan or anything in between. The markets are reacting to the facts on the ground, and most of those facts are related to structural problems that are not going away anytime soon.
Good points Larry#3 made with the personal debt ratio.
Mata, you are too smart to use the stock market bubble as a gotcha point.
The Clinton/Rubin/Summers economic policy was very conservative. It focused like a laser on deficit reduction, which it achieved through a combination of tax increases and (helped greatly by working with the GOP-controlled Congress) spending restraint. Federal Reserve rates were conservative, meaning that they were not pushed down in an attempt to stimulate the economy. There was no serious capital glut.
What caused the stock market bubble, if not Clinton economic policy or Fed monetary policy? Two things: first, the country was in the middle of a real, solid economic expansion. Secondly, there was first the tech boom and then the dot com boon. This combination of prosperity and real growth in the tech sector spilled over into the broader market.
By the time year 2K hit, however, it was obvious that stocks were overvalued. This was the set up for the perfect storm, which was the double whammy of massive tax cuts, which went largely into the bank accounts of the very wealthy, and the disasterous Federal Reserve policy of forcing down interest rates in an attempt to stimulate the economy to grow fast enough to compensate for the certain deficits to be created by the tax cuts.
This is when the capital glut occurred — well along into Bush’s 1st term and continuing on through to the financial meltdown. With a glut of capital and nowhere for the capital to go, it created the huge push for selling loans, in all their various forms, on the American people, with these loans largely bundled into securities.
Tom in Ca asks me for investment advice:
Since you are in California: the California real estate market is on the verge of recovery. I’d look for foreclosure opportunities in good California neighborhoods.
– Larry Weisenthal/Huntington Beach, CA
Can someone dig my comment # 9 out of spam? Thanks, – Larry W
@blast: Bush’s fault again?
What a surprise.
You have no credibility left.
Larry, INRE your graph and comment via #9…
That would be the dot com BUBBLE, Larry… a bubble they let deflate naturally around the turn of the century. Tech stocks tanked for a couple of years and started steadily rebounding. Now, they too, will have their hit since orders for new tech equipment will be curtailed in tight times.
Also, the real estate boom was beginning, starting 1997. If you will notice via a housing chart I have posted over and over, the housing prices have a rise that matches the stock graph you provided.
Lastly, don’t listen to him Tom. The California real estate is still overvalued by at least 20-35%… just as is Florida, Vegas and Arizona. Look for a heck of a deal, because they’ll be upside down for a while yet. They rose faster.. it will take them longer to fall. Unless, of course, Geithner and Obama succeed in their attempts to reinflate the bubble. In which case you’ll have another crash down line.
Here’s another graph that depicts how out of whack housing prices are
Hey Mata,
Have you seen this housing price chart?
I know you probably have.
Nope, haven’t seen it, Aye. Great map, lousy legend… LOL But it’s not telling me anything I don’t think I already knew. Although I figured if the government didn’t help, we might bottom out a bit sooner.
You do notice that the uptick starts around 1997, right? Can’t keep reminding people of this enough…
Actually, I’ve frantically searching a link I had stored… somewhere in my real estate/economy stuff (loaded to the gills there…) that had an interactive map of the nation with color coding of what places were within reasonable range, and what areas were still over and by how much. Dang if I can’t find it at the moment. grrrr…. I hid it from myself!
Full size link of Aye’s chart:
Just for your info, the stockmarket in china and most of the big commodities are going up while the US stockmarket remains down and looks like set for possibly still some decline.
One really has no choice but to blame the poor choices and actions of Obama and his admin picks for the poor showing of the US stockmarket.
Goodness knows when it will ever start to firm up—my guess is the Obama admin will continue with its pork-laden marxist corruption and financial incompetence, and these next few years will see US stocks really not going anywhere. I think we’ll only see a real recovery in your stockmarket when Obama is no longer POTUS.
Sometimes I get the feeling that some of the writers here are not living in this reality.
Blaming the Bush tax cuts for the housing collapse is as absurd as I have ever heard. Low interest rates and tax cuts don’t cause a housing collapse, and never have.
It is banks being forced to make financially crazy loans to beggars who can’t pay back under absurd socialist rules foisted upon them by a socialist govt, then those same banks rejoicing when they are able to securitize those loans and sell them away into a market—it’s like making money out of the air, creating subprime loans and selling them away for big bucks. Then having Fannie and Freddie to buy those mortgage-backed securities by the trillions and make a market for them.
Then having the whole mess crash down.
Let’s remember—subprimes created under CRA under Jimmy Carter, subprimes allowed to be securitized and sold under Clinton, and Freddie and Fannie doing unrestricted buying and market-making of subprimes under a democrat-controlled Congress.
That’s what caused this mess. Nothing that Bush did.
May I just say that your democrat party is just about as good as causing a financial crisis as it is in losing the vietnam war after slaughtering millions of vietnamese civilians. Great job.
@sigmundringeck: Thanks for that perspective on world financial markets Sig.
As always, your common sense is a welcome antidote to the regurgitated Democrat talking points that the other side persists in posting.
Thanks for this post establishing the stock market as an indicator of Obama’s success/failure. I’ll be sure to beat this over your head relentlessly six months from now when the DOW is back in the 9000’s…
@Fit fit: That’s only going to work if you recognize that George Bush was behind the big runup in the Market throughout much of his term.
Otherwise, you’ll be called a HYPOCRITE!
And not for the first time.
Not a single banker or investor from a single failed financial institution has blamed any government policies or “socialist rules” for his own bank’s failing or for the housing collapse. 2/3 of the subprimes went for re-financings, investment homes, and second homes, which the government never foisted onto anyone. Of all the subprimes, 2/3 were made by entirely private institutions, entirely outside the Fannie/Freddie sphere. Fannie/Freddie may be blamed only for making the same bad lending decisions which were made in the entirely private sector, unrelated to Fannie/Freddie.
Of the 1/3 of the subprimes which went for primary residences, only about 1/3 of these were for first primary residences, which were the only mortgages encouraged under government programs to encourage home ownership (which were strongly supported by President Bush, by the way). Of all the bad loans, only a minuscule percentage, probably way less than 1% by loan value, were for actual Community Reinvestment Act loans.
All those loans that are defaulting are NOT loans forced on lending institutions by the government! They were loans made simply because people with an overabundance of capital and no place to put it went looking in unwise places for rates of investment return not available elsewhere.
This is exactly the way that all mainstream economists see it (including Bush appointed Fed Chairman Bernanke).
Find me a single reputable economist (as opposed to political pundit) who blames the financial meltdown on the government forcing lending institutions to make imprudent loans. Find a single officer of a failed bank who blames his own failure on the government “forcing” him to make imprudent loans.
I’ve provided cites before. We keep going over this, over and over and over. The nonsense of Democrats “blocking” regulatory reforms. George Bush and John McCain championing reform of Fannie/Freddie, only to be “blocked” by Democrats. The financial meltdown being caused by banks failing because the government forced them to make loans to deadbeats.
From the same people who still think that Saddam shipped his WMD to Syria for safe keeping, on the eve of the Iraq invasion.
– Larry Weisenthal/Huntington Beach, CA
Banker’s tell Obama to stop blaming them for the mess Dems caused:
mikeA:
Mike isn’t this the period we call the “Bush Hangover?” You still never answered that question… how long will their be a Bush Hangover, just like the Clinton Hangover which you zealously would talk about.
Look at Aye’s Chart again… look what happened in 2001 and thereafter. That graph is a damming indictment of the previous Administration’s lack of attention, not the past month of the new administration.
So Mike…… are you afraid to set the length of time for the “Bush Hangover?”
Where in the story does it say that the banks blame the “Dems” for causing the “mess?”
Rather, the banks (the overwhelming majority of which did not make any subprime loans) are blaming the bad judgment of those Wall Street institutions who were the driving force behind the subprime loans. They just don’t like Obama lumping them in with the Wall Street miscreants. They have a good point; I’m certain that Obama will be more careful to make this distinction in his speech the next time he’s discussing the issue.
Mike will go to his grave convinced that somehow the financial meltdown was caused by the evil Democrats, as opposed to arising as a byproduct of a capital glut caused by misguided monetary policy, but that doesn’t require those of us who read actual economists, along with our political pundits, to go along with him.
– Larry Weisenthal/Huntington Beach, CA
Rather stupid to slap the only one willing to give you a handout, don’t you think, Larry? Yet you continue to use this as an excuse to avoid the CRA/Gramm-Leach realities. You really are a partisan disappointment… even tho you purport to be a fiscal conservative at heart. Pile ‘o’ manure, my friend. Rerun that B movie for someone else, please.
I read “actual economists” too, Larry. And this doesn’t come down to a Dem vs GOP issue. It comes down to Clinton required compliance mandates, and free market following those mandates. Also, the free market *taking advantage* of those mandates.
Trust me, I do not give the banks a pass. But I also know those banks wouldn’t have had the opportunity to abuse the mandate were it never in place.
Sooner or later you’ll have to ‘fess up to reality. No one forced the banks to overcompensate for relaxed regulations and increased mandates. Then again, no one told them there was a “cap” on the relaxed regulations and increased mandates either.
And NO ONE will bash the government officials who started it all because it’s only the government officials offering a hand out today.
Duh
Unfortunately Mike, you are the one showing no credibility. Maybe if you *studied* the market and the events which caused the crash you would understand Greenspan caused the credit crisis under the “watch” of a dominant Republican administration.
Sigh….
If you actually looked at chart of the market (which you helpfully provided) you would see the greatest damage was done in September, well before any election and, funnily enough, the same time Clown Palin came on the scene. Hmmmm… did the electorate put two and two together? Millions of American’s *had* lost their nest egg – BEFORE – the election. Republican’s had their asses handed to them because of this. There is nobody else to blame.
Yes – the market has seen a hit, but in the context of events since the election the market has effectively traded sideways. Even then, leading sectors like Tech and Small Caps have held above November lows; this is typical basing behaviour. Not pretty, but it’s the first steps towards an early recovery.
DJF
http://www.blog.fallondpicks.com
@Declan Fallon: Another Bush Blamer! What a shocker… Follow it up with another slam at Palin… How original.
Is it a full moon or something?
“sigh?”
I’ve got another sound in mind related to bodily functions that better describes your thinking.
Larry: You simply REFUSE to accept the fact that Democrats in both the House and Senate repeatedly blocked the reforms which might have prevented the financial meltdown of last year.
Nothing new there. You continue to drink the kool aid.
I just hope you wipe the rim of the glass after blast or DF hand it to you before you sip.
That is total poppycock. If there were an ounce of truth to this claim, the GOP would have made a major campaign issue out of it. When I brought this up last Fall, in my arguments with you, you admonished me to listen to what McCain was going to say in the second debate. I listened, and he said nothing. The entire GOP said nothing. No one made this claim. Everyone said that they lost the election because of the collapsing economy and, funny, all of the Republicans were too polite to blame the Democrats. The only Republicans to make these ridiculous allegations were bloggers and talk radio pundits. It’s exactly analogous to the way that not a single prominent Republican politician ever made the equally outrageous claim that Saddam really had WMD, afterall, only he shipped them to Syria for safe keeping before the invasion. Complete and utter poppycock. Show me a statement from President Bush to support the “safe keeping” allegation. Show me a statement from Mitch McConnell or John Bainard to support the “Democrats blocked reform” allegation. Then I’ll consider the substance of the allegations. But it’s nothing more than contrivance from the same people that want to “take back” the country (to quote Rush Limbaugh’s speech to CPAC). Show me an ounce of proof. Show me something beyond isolated stupid speeches cleverly edited and juxtaposed with isolated wise speeches. It’s beyond ridiculous.
The GOP controlled the House and Senate between 1995 and 2007. The following is the documented truth. I am waiting for you to refute the following facts:
The House passed Fannie/Freddie regulatory reform (Oxley Bill) on a bipartisan vote.
It went to the Senate. Bush and the Senate leadership didn’t like the House bill.
The following is an excerpt from letter to the editor of the Wall Street Journal, commenting on a WSJ editorial:
http://wsj.net/article/SB121746628592499215.html?mod=todays_us_opinion
Why didn’t the Senate come up with their own, alternative bill?
http://www.msnbc.msn.com/id/27266607/ (nb. This is an MSNBC link, but it’s an AP story, which ran in all the news media)
Basically, it was Bill Frist who ultimately “blocked” the Senate bill. There were 25 Republican Senators who signed Senator Hagel’s letter and 29 Republicans who did not sign it, including not only the then-GOP majority leader (Frist), but also the current GOP minority leader (Mitch McConnell).
We now have the complete story of the 2005 attempts to regulate Fannie Mae. A regulatory bill passed in the House, with a majority of Democrats joining with a majority of Republicans to approve the bill, despite speeches against the bill by Barney Franks and Maxine Waters. Some Democrats said dumb things, but a majority of Democrats voted in favor. According to the Bill’s sponsor, Republican Michael Oxley, the bill was opposed by the Bush White House and by the Senate.
We now know the details of the Senate opposition. (story above). They caved to lobbying against the bill by a GOP lobbying firm.
Democrats did NOT “block” financial reforms in 2005. Which is precisely why neither John McCain nor any Senate Republican running for re-election (including Mitch McConnell) made that charge! McCain said that he signed a letter supporting reform. We now know what the letter was. And we now know why it didn’t go anywhere.
– Larry Weisenthal/Huntington Beach CA
Yup, Mike. Another one with that “compact fluorescent” light bulb brain power playing amateur hour. After all his /her “studies” on the market, still thinks all this comes down to just one event…. Greenspan’s interest rates. Must be “name that scapegoat!” week.
Okay…..
We’ll just ignore all those other charts with the astronomical rise in housing prices and various stock bubbles that started in 1995 and 1997 here in the States. And of course legislation, and piss poor Fannie/Freddie oversight has no bearing either. No relations whatsoever… Wanna buy a watch? Got plenty up my sleeve.
I’m sure you’re brillant in your round worms specialty, Declan. But you’re suffering from tunnel vision if you think the housing/lending crash, leading to the bank and ensuing crashes, that ultimately spread world wide with toxic assets (of many nations) globally is a product of *far* more than just interest rates.
For a clue, look to your own UK unnatural housing price inflation, and try to blame that on Greenspan. You do, of course, realize your isle has it’s own economic woes, yes? A good deal of it unrelated to the US economy, and attributable to your own events.
I might agree with you if the housing mortgage collapse was the result of poor people with first home mortgages defaulting on their loans. But this segment of the subprime default market was truly minuscule and monetarily insignificant. The vast majority of the money going sour is in subprimes for re-financings, investment properties, vacation homes, and non-first time home buyers. None of the above were subject to any “mandates” whatsoever! Secondly, the “free market” (non-Fannie/non-Freddie, totally private sector) loans and related securities (the lions share of the total bad assets) were never subject to any “mandates” and were entirely the result of a flood of capital looking for somewhere to roost. This is precisely the way it’s been explained by all mainstream economists, including Ben Bernanke.
Kindly locate a scholarly analysis of the financial meltdown which puts any blame at all on “Clinton required compliance mandates.” The CRA banks actually had, overall, better loan portfolios than non-CRA banks.
Mata quoting me:
Mata responds:
You don’t understand. I was speaking about the scores of financial institutions that already went belly up and are not eligible for a handout.
http://www.fdic.gov/bank/individual/failed/banklist.html
These are people who royally screwed up — everyone from Lehman Brothers to local, community banks. Not one of these failed banks (and not one of the executives of these banks) has ever blamed “Cinton required compliance measures” or the CRA or pressure from congressional Democrats or pressure from anyone else for their own bad decisions and for their own failures.
– Larry Weisenthal/Huntington Beach CA
Mata, my reply to Mike’s #27 went to spam. Can you dig it out?
– L
@openid.aol.com/runnswim: “If there were an ounce of truth to this claim, the GOP would have made a major campaign issue out of it….you admonished me to listen to what McCain was going to say in the second debate. I listened, and he said nothing. The entire GOP said nothing. No one made this claim.”
Larry, are you smoking crack?
The GOP did make a major issue out of it. McCain mentioned it repeatedly.
How the hell can you possibly make a statment like the one above that is either so ignorant or deliberately misleading or both? If I didn’t know better I’d say you were either stupid, a liar or both!
McCain ad from Sept. 18:
My GOD, even Bill Clinton admitted it:
Larry, if you cant avoid repeating the big lie on this issue I can’t take anything you say seriously. The last miniscule shreds of your credibility are falling away.
Well, Larry… you have just proven why the GOP didn’t make a campaign issue out of the CRA regulations, and their part in the creation of the lower standards for lending. It was utterly predictable that people like you twist criticism of the Congressional affirmative action meddling in the lending world into the mantra – “the GOP blames poor people”.
It’s a sleazy cheap liberal trick, and totally disassociated with the truth of the criticism. Congratulations on your stellar demonstration of the obvious response to an honest debate on whether these regulations are wise. Then again, as I said, liberals are great at street gutter fighting, and for covering their opponent in their own liberal excrement.
Needless to say, for banks and other businesses who may eye government bailout money (even if they don’t have it now…) I doubt they will do the same so you wacky history revision types can villify them as “big bad banking execs who hate minorities and the poor.
Get the drift?
I am not criticizing the “poor people” who got the loans… save the obvious scam artists like Donna Hanks. I *am* criticizing the regulations that required a certain amount of these loans on the books, which required that any bank – CRA or a holding institution that wanted to merge with a bank – develop products and services for the low-income, minority, and underserved markets. This meant standards had to be lowered, and more exotic loan packages created.
That aside… whether the loans were extended by a CRA bank, or not, they are still a bad business risk *for any banking institution*. These packages and lower standards would not have come into being had the regulations not been changed.
Not like we haven’t posted many links before, Larry…. also not sure what passes your particular “sniff” test as “scholarly”. I’m sure than any institution that puts out an opinion contrary to yours will be demeaned. But here’s a few. There is no dearth of debate on this subject between financial and think tank minds. It’s not such a clear cut issue to absolve CRA’s culpability as playing a part in this crises as you are willing to give.
Government Policies and the Financial Crisis by Peter Wallison
The Heritage Foundation has several papers and articles:
The CRA Cover Up in Oct of last year.
The Reinvented Community Reinvestment Act an analysis of the rewritten regulations warning of the changes have the effect of forcing banks to make risky loans *before* it happened… rather prescient, don’t you think?
Economist Thomas DiLorenzo is one who believes that the current housing crisis is “the direct result of three decades of policy that has forced banks to make loans to risky borrowers.
Robert Litan of Brookings similarly said the 1990s CRA regulations change may have contributed to the problem. “If the CRA had not been so aggressively pushed, it is conceivable things would not be quite as bad. People have to be honest about that.”
Then of course, there is financial analyses like Investment Business Daily and Wall Street Journal Op-Eds.. most of which have been linked to already in my past posts and comments. You can find those by looking thru the “read all posts” by MataHarley under the authors link above. Or use the “categories and archives” link and search the Sept-Oct archives when most of these posts appeared by all of us.
Google them yourself… at this point, I’m tired of going thru my massive link collection to find the specifics. This is such old news.
The debate is guaranteed to be depressed because your side will constantly scream discrimination, racism, and that the banks and GOP hate poor people. Nice move… as I said above… very sleazy of you all, and counterproductive to examining what *not* to do in the future.
Of course now your side is busy trying to reinflate the bubble… another debate that you all will no doubt quash with a puppet media propaganda campaign.
Larry, I forgot to add yet another Peter Wallison article that I archived from the American Spectator. Wallison (in case you didn’t click on his bio link) is not a pundit. He was general counsel for the Treasury Dept under Reagan and his WH Counsel in the last couple of years. He holds the Arthur F. Burns Chair in Financial Market Studies, and is co-director of AEI’s program on financial market deregulation.
You may also keep in mind… which I think you don’t… is that I have never purported the abuse of the CRA/Gramm-Leach regulations as the ONLY perpetrator in this housing crash. Only a very integral part that got the dominos started falling.
This is also repeated by Mr. Wallison. From his article, The True Origins of this Financial Crisis
Remember how I repeatedly told you that to create this reduced standards mortgages for the financially challenged “minority” neighborhoods, and NOT offer them to the rest of the solvent borrowers would be a violation of fair lending laws and basically illegal?
Now, note the relationship between the National Homeowners Strategy and the CRA. How about some confirmation right from the horses mouth. From the NYT’s “Reckoning” series… the Building Flawed American Dreams piece on Henry Cisneros:
There’s a full side story of Cisneros later most excellent adventures with KB Homes and Countrywide. Like Robert Rubin, he took his regulatory changes to the private sector banking industry (plus, in Cisneros’ case, the developer role) and managed to run both thoses places into the ground as Rubin did with CitiGroup.
But of course, their regulatory actions in the Clinton admin has nothing to do with the financial crisis according to you…
@MataHarley: “It’s a sleazy cheap liberal trick, and totally disassociated with the truth of the criticism. Congratulations on your stellar demonstration of the obvious response to an honest debate on whether these regulations are wise. Then again, as I said, liberals are great at street gutter fighting, and for covering their opponent in their own liberal excrement.”
Thank you Mata… It needed to be said.
In addition to that rather sharp retort you offered Larry additional “scholarly” information that I fear is unlikely to make a dent into what we know by now is his ardent and unquestioning obedience to the Dem party line.
@Declan Fallon:
That’s also about the same time that BHO/Biden came on the scene…..no?
Sarge
@Sarge
Except it wasn’t the Democrats who needed to distract the electorate to the government under whose ‘watch’ this mess was created. The electorate were not fooled.
@Mike’s America
Sadly I have yet to read an ounce of reasoning to any of your comments; in that respect your prolific in a disturbed bodily function way. Given your resume it’s disappointing.
@MataHarley
Well – my isle hasn’t been part of the UK for a while now, but ignorance seems to be common amongst those whose views are shallow and self-serving. I did not try and blame Greenspan for the UK or any other countries economic woes. Low interest rates provided the environment for greed and corruption.; it doesn’t matter what country that is. The music eventually stopped and now we are all paying the price; Republican and Democrat, Conservative and Liberal. The countries may be different, but the suffering is all the same.
Declan
Last I looked, the British Isles (to which I referred with my “isle” comment) still included the republic of Ireland. But then, your comment make me look up specifics of you IP in Dublin, Declan. You did, after all, provide the scrutiny invitation with your comment.
My “isle” statement is geographically correct since your IP is Dublin area – and still part of the British Isles. But you are also correct that Dublin is not part of the UK. My error is assuming you may be part of Northern Ireland. Compromise, my int’l friend.
That said, how’s your housing market? Here’s a graph to help you out…. based on percentage LOST in housing value as opposed to increasing prices v value.
Also, here’s another graph for Ireland housing prices related to the continent. Ireland is up 156%+ for the past 10 years. Your own housing boom.
Now, I agree that it doesn’t matter what country we are in… we all suffer at the hands of stupid government official decisions. However let’s not abandon totally your criticism:
So if Greenspan couldn’t possibly have caused your credit crisis and housing inflation… what did?
@Declan Fallon:
The electorate wasn’t fooled? This distraction has been around for quite some time:
Comment in spam, P&T.
I want a piece of this… I tend to think the lack of regulation in the area of credit default swaps and derivatives coupled with monetary policy over leveraged nearly every part of the economy.
Is that “lack of regulation”, blast. Or have you considered it can also be detrimental regulation?
Hard to tell the difference sometimes, I know. When there is any given industry, screaming “regulation” in general doesn’t necessarily cure the evils. And, in fact, can cause the problem.
Larry, you are living not in this reality. Even your own american financial publications all generally go along with the view I expressed above.
Cite sources?? I can’t be bothered. Why should I enlighten people who are interested in remaining ignorant? It doesn’t hurt me if you or anyone else wants to go along with mistaken beliefs—if you work in finance and think absurdly, then you will be slaughtered.
Financial Times?
Investor’s Business Daily??
Wall Street Journal???
Chinese Government???
Nouriel Roubini??
Jim Rogers???
All of the above would roughly have the same picture as I expressed above. What I said is the consensus, whether you agree with it or not.
There is a chinese dialect saying: If you go to a zoo, do not try to argue with the chimpanzee.
———————————————
For REAL-TIME PROOF of how democrat-guided actions are destroying your financial markets and economy, just watch how your Dow goes down to a new record low everytime Obama or his minions announce some new measure, be it another porky so-called stimulus or some ineffective bailout.
This is was the Democrat Housing Collapse now turned into the Obama Recession turning into the Obama Depression.
I think this says it all and cannot be argued against.
@sigmundringeck: “Why should I enlighten people who are interested in remaining ignorant?”
I feel the same way. Readers of these threads can see how much time and effort we invest trying to educate our liberal friends only to have them ignore it as they continue parroting the shopworn shibboleths that substitute for intellectually honest discourse.
I read Nouriel Roubini’s column yesterday. Twas not for the faint of heart.
Thanks for your time Sigmundringeck, I appreciate your “on the job” wisdom.
I first came across Nouriel Roubini’s writings in early 2007. He got it right, but his timing was off, he had been calling for the collapse to start years back. Also many people would have had the same idea as him, but his job is that of an economic commentator and forecaster, so he was trying to make as much noise as he could. Booms and collapses are the nature of the markets, so there is nothing really new except getting the causes and timing right.
My sense is that he will have described the reasons and stages of the collapse, but he will miss the start of the recovery, because he specialises in the bear mode, he’ll miss the bull mode.
Also he does not make his money from the markets, he makes money TALKING about the markets. Many investors I know avoided the first stages of the collapse, but reinvested their money too early, they got the severity and depth of the crash wrong. To make good money we have to avoid the collapse, or short it right, then get the bottom right also.
Let’s see how it goes. I have been building up asian oil stocks, but your US market really is a drag on all markets. Also the probably temporary US dollar strength due to safe-haven status and US dollar carrytrade unwinding plus euro fears is dampening commodities for the moment.
I really dislike what Obama has in store for your country. It’s incredible that he actually had financial people supporting him. These same people must be kicking their behinds now.
Excerpt from FT:
Mainlanders saying they “HATE” the Obama Admin
http://www.ft.com/cms/s/0/ba857be6-f88f-11dd-aae8-000077b07658.html
———————————————-
China to stick with US bonds
By Henny Sender in New York
Published: February 11 2009 23:33
China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its “only option” in a perilous world, a senior Chinese banking regulator said on Wednesday.
China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world’s largest holding of Treasuries.
However, the increasing US budget deficit and its potential impact on the dollar have raised questions about the future Chinese appetite for US debt.
Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York that China would continue to buy Treasuries in spite of its misgivings about US finances.
Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said:
“Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”
Mr Luo, whose English tends toward the colloquial, added:
“WE HATE YOU GUYS. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we HATE you guys but there is nothing much we can do.”
However, Mr Luo said Chinese officials would encourage its banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries: “There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books.”
(excerpt)
@sigmundringeck: “There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books. “
Obama’s phony budget must give the world the idea that we are either complete imcompetants or fraudsters or both.
Not just the books in our banks, AIG is busy forking over our tax dollars to banks all over the world, so, their books too. Apparently, Geithner doesn’t have the staff to investigate but is coming back for more for AIG. They did snag Merrill Lynch London for a $400 million ‘ahem’ discrephency. This mess is growing by the day.