How Did We Get Here?
This is an excellent read from The American Prospect on just how we got into the financial mess we’re in today. It’s from an explicitly liberal magazine, but it’s very well argued, I think, and goes into a lot of detail. The kicker? It was published over a year ago.
September 30th, 2008 at 6:41 pm
The point where it claimed unemployment insurance had weakened reached official wall-banger status.
September 30th, 2008 at 10:43 pm
“Lately, housing prices got an extra nudge from artificially cheap mortgages extended to people who didn’t really qualify for credit…Thanks to deregulation, the entire game operated largely beyond the purview of bank examiners.”
See i thought that the cheap mortgages were pushed because of CRA and the likes of ACORN
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
September 30th, 2008 at 11:26 pm
They were. It’s just that saying that makes it harder for lib/demos to blame it all on conserv/repubs.
Actually itis a little more complicated then that. There are several good youTube video going around that do a pretty good job.
October 1st, 2008 at 12:38 am
cyrus..CRA has nothing to do with it.
October 1st, 2008 at 12:51 am
Also, if you note, it’s not the bad mortgages in and of themselves that were the problem. It’s that the lending banks knew they were bad mortgages, and they sold securities backed by the bad mortgages — a practice that wouldn’t have been allowed under pre-1999 regulations.
Further, as Manish and others have pointed out elsewhere, while the government did in fact encourage subprime lending to expand home ownership, they certainly didn’t mandate the types of “Countrywide” style loans, with low “teaser” rates but exorbitant ARMs later, that are at the core of the mortgage crisis we’ve been facing for the past year. It’s also worth noting, as Manish does, that CRA type lending has little to do with it. Most of the problem involved middle-class and upper-middle-class people trying to live beyond their means and overextending for that four bedroom dream house in the affluent suburbs (hoping that the value would go up and they could refinance before the teaser expired), and/or taking out home equity loans to pay for that vacation or Harley or whatever, not poor minorities buying their first house.
October 1st, 2008 at 2:15 am
I’ve created a write up on this whole CRA argument. (yes, its on Kos..I have no blog and no other place to post anything that I might be thinking about at a particular time, so sue me).
October 1st, 2008 at 8:24 am
Ah, the lies of the Left. They use Fannie Mae and Freddie Mac as cash-cows, fight stronger regulation of them tooth and nail, then blame those goofy wingnuts and their deregulation when it all goes to pot.
Keep pushin’, tgirsh — you will turn me from a Libertarian to a Republican if you keep it up!
October 1st, 2008 at 8:50 am
You know, I think we’re both blaming the lack of regulations.
Except that John McCain (and G.W. Bush) tried to tighten the regulations on a piece of the puzzle (Fannie Mae/Freddie Mac), and powerful CongressCritters told them to shut up.
It may or may not have been a particular party; it was definitely CongressCritters who were good friends with the powerful officials at Fannie Mae and Freddie Mac.
The rest of the banking system exacerbated the problem. The portion of America that thinks that debt is a way to get something for nothing exacerbated the problem.
Want to blame the whole thing on specific de-regulation, when there are so many other pieces to this puzzle?
October 1st, 2008 at 9:06 am
Now this is wierd.
In the WSJ, Bill Clinton is quoted as saying that deregulation didn’t make it any easier for Investment Banks to get themselves into trouble.
Story here.
October 1st, 2008 at 10:28 am
The problem tgirsch is that without the low teaser rate the customer wouldn’t have been able to pay even their *first* payment. You wanted the lenders to extend credit to bad customers, don’t get upset with the lenders when they have to get creative to do what *you* wanted them to.
October 1st, 2008 at 11:30 am
Why do I get the distinct impression that people are commenting without bothering to read the friggin’ article?
October 1st, 2008 at 11:33 am
Oh, and and what point did I (or even “we”) argue that lenders should extend irresponsible home equity loans, or mortgages for massively upsizing pre-existing homeowners? When, exactly, did “we” say we wanted this?
October 1st, 2008 at 11:36 am
And while I’m thinking about it, when, exactly, did I let:
1. Fannie and Freddie, or
2. Democrats
…off the hook?
The deregulation of the late 1990’s passed by a wide bipartisan margin, and was signed into law by Clinton (which is probably why he’s denying its importance now — wouldn’t want to tarnish the legacy, doncha know…). The hands of the Democrats are far from clean here.
And sorry, but while fixing Fannie and Freddie may have lessened the impact here, it would at best have delayed the problem, and little more.
October 1st, 2008 at 11:37 am
October 1st, 2008 at 1:36 pm
Hey SA…glad to see that you are in favor of regulation.
October 1st, 2008 at 4:46 pm
nice try, no cigar. Regulators got us in this. I am more in favor of prosecution.
October 1st, 2008 at 4:47 pm
Now, if you meant to say you are glad I am not in favor of Laissez Faire (sp) you would be correct.
October 1st, 2008 at 5:11 pm
Regulators got us in this.
How, exactly?
October 1st, 2008 at 9:53 pm
I’m not going to repeat it. You have had ample opportunity to read it, not just from me, but much more vetted sources. That you choose to engage in circle argument says all anyone needs to know about the validity of your opinion.
October 1st, 2008 at 10:12 pm
In that very WSJ article, the author of the article notes quite plainly that the banks which are in trouble now…could have done the same thing in 1998, before the de-regulation to which Clinton refers occurred.
Lack of regulations may have been part of the problem, but in the past, banks didn’t have to be told by lawmakers to avoid making bad loans. The market did a good job of curbing such behavior.
I suspect most of the problem was that certain institutions (Feddie Mae/Fannie Mac) behaved as if they could get Uncle Sam to make up the difference with any bad loans that cropped up. That, plus the regulatory/non-regulatory pressures with respect to minorities, led to the creation of no-down/no-documentation/no-credit loans. Once the easy loans were available, many people wanted them (because they were cheaper than standard loans), leading to the credit bubble.
Of course, there’s another specific regulation that made things worse.
Imagine a business in which the owner has to mark the inventory value of all of his stock down because his competitor had a fire-sale, and offered some real bargains.
Congress told all financial institutions to do that with the “Mark-to-market” rule. By itself, it is not responsible for much. In collusion with the bursting of the credit bubble, it turns marginal banks into shaky/insolvent banks rapidly.
I think I’ll take back my statement about us possibly agreeing. Tgirsh, I don’t agree that de-regulation is at fault. At most, it shares fault with specific regulations that were enacted later. At least, it was almost-inconsequential.
October 1st, 2008 at 11:12 pm
The article seems to follow the usual knee-jerk liberal pattern: regulation good, deregulation bad, never mind the substance of the regulation in question or whether it has anything to do with what went wrong.
October 2nd, 2008 at 12:20 am
The market did a good job of curbing such behavior.
You mean like in the late 80’s? Oh, never mind…