Who Caused the Economic Crisis?

FactCheck.org:

Who Caused the Economic Crisis?
October 1, 2008
MoveOn.org blames McCain advisers. He blames Obama and Democrats in Congress. Both are wrong.
Summary

A MoveOn.org Political Action ad plays the partisan blame game with the economic crisis, charging that John McCain’s friend and former economic adviser Phil Gramm “stripped safeguards that would have protected us.” The claim is bogus. Gramm’s legislation had broad bipartisan support and was signed into law by President Clinton. Moreover, the bill had nothing to do with causing the crisis, and economists – not to mention President Clinton – praise it for having softened the crisis.

A McCain-Palin ad, in turn, blames Democrats for the mess. The ad says that the crisis “didn’t have to happen,” because legislation McCain cosponsored would have tightened regulations on Fannie Mae and Freddie Mac. But, the ad says, Obama “was notably silent” while Democrats killed the bill. That’s oversimplified. Republicans, who controlled the Senate at the time, did not bring the bill forward for a vote. And it’s unclear how much the legislation would have helped, as McCain signed on just two months before the housing bubble popped.

In fact, there’s ample blame to go around. Experts have cited everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan…

… What Gramm-Leach-Bliley did was to allow commercial banks to get into investment banking. Commercial banks are the type that accept deposits and make loans such as mortgages; investment banks accept money for investment into stocks and commodities…

… The Real Deal

So who is to blame? There’s plenty of blame to go around, and it doesn’t fasten only on one party or even mainly on what Washington did or didn’t do. As The Economist magazine noted recently, the problem is one of “layered irresponsibility … with hard-working homeowners and billionaire villains each playing a role.” Here’s a partial list of those alleged to be at fault:

* The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.

* Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.

* Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.

* Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.

* The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.

* Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.

* Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.

* Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.

* The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.

* An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.

* Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.

The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation. Claiming that a single piece of legislation was responsible for (or could have averted) is just political grandstanding. We have no advice to offer on how best to solve the financial crisis. But these sorts of partisan caricatures can only make the task more difficult.

–by Joe Miller and Brooks Jackson…

http://www.factcheck.org/elections-2008/who_caused_the_economic_crisis.html

Thomas B. Edsall

HuffpPost Reporting From DC

October 1, 2008

Conservatives Seek To Shift Blame For Crisis Onto Minority Housing Law

Blame for the current economic crisis has been laid on many doorsteps, including the Gramm-Leach-Bliley Financial Services Modernization Act of 1999; credit default swaps; hedge funds; the Commodity Futures Modernization Act of 2000; Alan Greenspan; and Phil and Wendy Gramm.

But it has fallen to right-wing pundit Ann Coulter to blaze a truly simple path through the maze of credit derivatives, collateralized loan obligations, tranches, securitization transactions, and Thomson Financial League Tables.

This gentle lady spells out the source and origin of the current economic crisis:

“THEY GAVE YOUR MORTGAGE TO A LESS QUALIFIED MINORITY!”

http://www.huffingtonpost.com/2008/10/01/conservatives-seek-to-shi_n_131020.html

The neocons, with their history of pitiful performances, once again needs to pin the results of their poor performance on others. Their financial leadership, a “train-wreck” is now on display. The train-wreck status of America’s economy cannot be denied although, apparently, it cannot be named. America may need to fall back on the procedure used to identify a DUCK(quack, quack).

America’s economy, during the neocon’s rein, was at one time -robust. The neocons inherited a robust economy. Thanks to hard-working Americans wearing both blue and white collars, America thrived. President George W. Bush, at his 2003 State of the Union address, put it this way:

Our economy is healthy and vigorous, and growing faster than other major industrialized nations. In the last two-and-a-half years, America has created 4.6 million new jobs — more than Japan and the European Union combined. (Applause.) Even in the face of higher energy prices and natural disasters, the American people have turned in an economic performance that is the envy of the world.

http://www.whitehouse.gov/news/releases/2006/01/20060131-10.html

But on the way to 2008, something BAD happened. The journey to 2008 included these kinds of things:

National Debt Graph: Bush Sets 50-Year Record

Double Whammy: 50-Year Record on Sept. 22. $10 Trillion on Sept. 30, 2008.

The gross national debt compared to GDP (how rich we are) reached its lowest level since 1931 as Reagan took office. It skyrocketed for 12 years through Bush I. Clinton reversed it at a peak of 67%. Bush II crossed that line on Sept. 22 and hit 69% on Sept 30. That’s the highest it’s been since 1955 (53 years ago).
Bush did three things to skyrocket the debt from $5.7 trillion to $10 trillion:

1. He lowered taxes on the rich (by far the biggest item).
2. He invaded Iraq instead of winning in Afghan-Pakistan (another $600 B).
3. He loosened controls on Wall Street.

As it happens, McCain backed all three policies: (1) He backed Bush’s tax cuts for the rich and now wants to give them bigger tax cuts. (2) He was gung-ho for the Iraq war from the start. (3) When Katie Couric asked Sarah Palin to name one time McCain suggested regulating Wall Street, she couldn’t—because he never did. He crowed in the Wall Street Journal how he was always against regulation.

Obama opposed the first two and said Wall St. needed regulating.
(Sources for graph.)

http://zfacts.com/p/318.html

The neocons following President Reagan, likely, could not beat his record of firing 11,000 American workers. But there were other ways the neocons could relate to the American worker. The below graph shows how the neocons related to the American worker. The neocons did not fire the American worker. But somehow America workers, on the neocon’s watch, lost out in the wage and productivity growth department. While productivity continued to grow, wage-growth stayed flat. The above and the below graphs do a good job of cutting through neocon rhetoric and exposing performance.

See the graph here:

http://news.bbc.co.uk/2/hi/business/5303590.stm#graph

See the news story here:

http://news.bbc.co.uk/2/hi/business/5303590.stm

At the end of the 2008 journey to America’s economic meltdown, Mr. Bush said:

“Entire Economy Is In Danger”

At the end of the 2008 journey to America’s economic meltdown, Ann Coulter said:

“They gave your mortgage to a less qualified minority !”

Tags: john mccain, Bush, Train-wreck, Obama, 2003, Democrats, 2008, president clinton, ann coulter, economic crisis, government oversight, robust economy, 2003 state of union address, lowered taxes on rich, invaded iraq, adjustable rate mortgages, national debt graph, wage and productivity graph, entire economy is in danger