I recently heard my U.S. Representative Brad Sherman say on my local NPR station (KPCC Pasadena, CA) that it was the Bush Administration’s policies that not only drove our economy into a ditch, but actually off a cliff. I had hoped the interviewer would have asked “which policies exactly” and “all by themselves?”
Whether a ditch or a cliff, I have heard the metaphor over and over again lately, but never really examined or contested in the press I read.
I assume they are referring to the fact that “regulation did not keep up with financial instruments”. Is there anything else specifically that the Dems are referring to when they make this claim for Bush policies that are necessary and sufficient causes for the recession?
also: I am trying to find out whether any Democrats advocated new regulatory measure for these unregulated, new financial instruments, or any change in these heretofore unidentified destructive Bush policies, especially since the Dems took over Congress in 2008. I can’t find anything.
In brief: A. what exactly is Bush supposed to have done that single-handedly drove the economy somewhere untoward for a car, and B. did the Democrats recommend specific policies that would have averted such a mishap before the meltdown?
Here’s a link to Time magazine’s list of 25 people to blame for the financial crisis. Plenty of blame to go around, but relevant to this thread are the entries for Hank Paulson and Chris Cox, both appointed by the Bush administration, and George W. Bush hiimself.
thanks for that link. I read every entry. The title is “Bush’s economic missteps”, not “causing the meltdown”. The article, in total, seems to exculpate Bush more than incriminate him for the meltdown. Very little of the critique of his economic policies points causes for the financial meltdown (from I have read, deficits had nothing to do with it), except for not regulating new financial instruments. In fact, the Time article says that Sarbanes-Oxley was a good move at regulation.
Did the Democrats suggest any new regulations? I can’t find anything.
I can’t find any convincing data that the deficits under Bush or the Bush era tax cuts led to the financial meltdown, which seems to have been caused mostly by toxic assets from sub prime mortgages, and financial instruments based on those sub prime mortgages.
aside from claiming that the deficits or tax cuts led to the financial meltdown, is there any evidence or consensus? the only consensus I can find is regarding what I mentioned above.
thanks for providing that link, though. I had not seen that.
Are you sure of the original quote, “Bush policies drove the economy into a ditch”? The gist of that list, at least as far as the government is concerned, seems to be threefold; lifting of regulations on commercial banks (which predates Bush), failure to recognize and regulate the emerging derivatives market, and lax oversight of whatever rules were left. So if the SEC didn’t start raising alarms when it should have, maybe you wouldn’t call that a Bush policy, but it still goes as a black mark against the administration.
One factor that is overlooked astoundingly often in apportioning blame to Bush (and praise to Clinton) is the explosion of the d0t-com industry during Clinton’s term and the fact that that bubble burst before Bush was even in office. Clinton did a fairly good job of staying out of the way, and I give him credit for that, but the intense growth period of the internet is phenomenon that no President can take credit for. It’s Bush’s great misfortune that at a quick glance it’s easy to say to see a correlation between the economy and the two administrations and to assume causation.
That said, given the wallop the market and the economy took in 2000, the cost of fighting two wars didn’t help matters.
It’s likely that without the war racking up massive debts, people wouldn’t have been as nervous about the economy when the housing crisis occurred. They simply didn’t believe that the government had the financial strength after trying to buy itself out of the dot-com crash and launching two wars, to also buy ourselves out of the housing crash.
Bush was also, essentially, a lame duck president his last year and a half in office. Instead of leading a charge towards cutting off the housing crisis, the presidential nominees were seen as being the only ones who could handle it. Without the real president leading the way, congress was about 6 months too late in passing the necessary legislation to stop the meltdown, and even once they did, no one realized that they had actually done so, so they all started pulling their money from the market.
Welcome to the SDMB, WmJames. The Election 2010 forum is specifically for discussions of the upcoming fall elections – general political questions, such as yours, belong in Great Debates. You’ll find a description of our forums here. I’ll go ahead and move the thread for you.
Which necessary legislation are you referring to, when you mention that it ‘stopped the meltdown?’
Fannie and Freddie continue to steam along nicely, costing us hundreds of billions each year, with more to come. And the government-backed student loan market is the next turd in the punchbowl.
I don’t think you’re going to find an economic consensus on whose policies caused the economic meltdown. It happened while Bush was president, and well into his second term, so he gets the blame. That’s the way it works.
But the real estate bubble had been building for quite some time, and the oft cited repeal of the Glass-Steagall act happened while Clinton was President. Yes, it was a Republican piece of legislation, but Clinton signed it into law. And who knows how much the financial situation was worsened by the massive deficits and wreckless spending by the Republicans under Bush, but that certainly didn’t help things any.
The “drove the economy into a ditch” slogan is a marketing tool that the Democrats are using this year. You hear it all the time, often from Obama. Don’t give the keys to the car back to the guys who drove it into the ditch in the first place. It’s clever, and true enough that it should be no surprise they are using it. Problem is, so many people think we’re still in the ditch and they don’t see the Democrats getting the car out. 2 years after his election, and 4 years aafter the Democrats took control of Congress, Obama and his party own the economy whether they like it or not and whether they deserve to own it or not.
I’m pretty sure we’re already giving student loan money. It’s just that we gave it to banks so they could lend it out and extract a profit from it. Us lending directly saves us money by eliminating an honestly useless middleman.
I’m also pretty sure you’ve been told this before, yet you still repeat the same misinformation.
In Reagan’s era many people argued that his policies are what brought America out of the economic troubles it had faced in the late 70s/beginning of the 1980s.
Clinton was given credit for the massive economic gains of the mid-to-late 1990s.
Bush has been given the blame for the “great recession.”
Obama is now being given some blame for the continuing poor market and the “jobless recovery.” His stimulus package is being criticized by many who say it was either a waste or money or too small.
The truth is most of these things were political points being made by political creatures, at the time they were happening.
The truth of the matter is, the President doesn’t have anywhere near the ability to control the economy that people would like to believe. Sadly, there are many people who think economics is like chemistry. It’s complicated, but if you put in the right ingredients at the exact right amount, at the exact right time, under the exact right conditions, you know exactly what you’re going to get as a result. That’s how chemistry works, as long as you follow the same procedures you’ll get the same chemical produced time and time again.
Economics isn’t chemistry though, and it never has been. There are many living persons who have Nobel prizes in Economics that disagree significantly about some of the more fundamental ideas of economics itself. What I can say from history is that the more you try to control an economy, the worse things seem to go. At the same time, “Wild West” style lack of governmental oversight has also lead to bad things happening (look at the post-Civil War gilded age in the United States, ultimately culminating in the Great Depression.)
So is there a balancing point, a point where the government can make the economy run smoothly with nary a hiccup? I don’t know, I’m not an economist. My gut feeling based on my understanding of economics is there isn’t such a point that can be reached by humans. Economies are massive systems in which millions (and in the global economy, billions) of individual humans are making billions to trillions of decisions every year that all have impacts on the shape of the economy as a whole.
Could we have avoided the dot-com bubble/burst? Maybe, who knows. The problem is, it certainly would have put a “damper” on our economic growth in the 90s if we the government had enacted policies that would have minimized the effects of the bubble “bursting.” So that means they probably would not have been politically feasible or popular policies, on either side of the political spectrum.
Some things it is obvious will hurt the economy. Massive government spending or massive government taxation can clearly hurt the economy. Then again, some people think the way to “fix” a struggling economy is for the government to spend as much money as possible as often as possible.
It’s easy to point to things Bush did that were bad for the U.S. budget, but the U.S. budget is not the U.S. economy. The truth of the matter is the economy drives itself, and I’ve never seen any human organizations that were very effective at regulating the economy properly. The problem with bodies like the SEC, is even under a tighter regulatory/legislative framework, it’s become very obvious the SEC is woefully inadequate at its job. The SEC doesn’t get the best and the brightest, Wall Street does. This means sometimes the SEC finds itself trying to regulate and perform oversight on financial instruments and transactions that it doesn’t fully comprehend or understand.
One actual policy that could by laid at President Bush’s feet is a failure to crack down on mortgage fraud, which then lead directly to the bubble inflating far beyond what it otherwise could have sustained. Eliot Spitzer claimed in an editorial in the Washington Post,"
"Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
…
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
…"
Full link
I do not know the validity of his claims, but he was Attorney General and then governor of New York during the formation of the bubble, so he should have some actual knowledge of what was happening.
Hell, I’d say he was a lame duck far longer than that. At the very least from January 2007, when the Democrats took Congress and the press began right away on the 2008 primary coverage and probably even earlier (for most people) in September 2005, when Katrina showed to the general public just how much of the administration was filled with incompetent people placed in positions as political favors or other political concerns.
While I’d say it’s not accurate to lay all the blame on Bush, I think it can be said that we’ve seen Republican policies over the last three decades and that those policies drove the economy into the ditch. Bush, being the President at the time, gets used as the single name to refer to Republican policy from Reagan on.
As best I can tell, as of May 2007, approximately 7.5 million people had a subprime mortgage. About 2/3rds of these were adjustable rate mortgages (ARMs), or roughly 5 million people. The rate of deliquency on these was about 11%, almost double that of the previous low. But the question is, how much money is this?
For a $200,000 loan at 8.5% interest for a 23 year term (assuming half of everyone goes for a 15 year loan and half go for a 30 year), the average monthly payment would be about $1,944 according to mortgagecalculator.com. At 11%, it would be $2,286. 8.5% is the average starting rate of subprime ARMs (lasting about two years), and 11% is the rate these loans would have been starting in 2008 after they left the starting rate. A difference of $342 per month is a significant difference by anyone’s measure, and of course subprime ARMs were largely targeted at people with poor credit scores to begin with.
But so, if all of these people had simply defaulted on their loan, we’re looking at this much money lost:
(5,000,000 people X $1,944 X 2 years) + (5,000,000 people X $2,286 X 21 years) = $259,470,000,000
Or roughly, $260 billion.
Again, this is the value to outright pay off the full loans, plus interest, of all subprime ARM loan holders. The Housing and Economic Recovery Act of 2008 set aside $300 billion to help these people.
However, it can be assumed that the borrowers felt they could cover their loan at the starting rate (8.5%), so if they had been able to continue at that rate, they would have been able to continue on without excessive default rates. This gives us two numbers, the amount that the borrowers would pay at this rate, and the amount that banks had expected to earn:
5,000,000 people X $1,944 X 23 years = $223,560,000,000 paid
5,000,000 people X $342 X 23 years = $39,330,000,000 more expected
If, in August of 2007, President Bush had simply said that all sub-prime ARMs will be covered by the United States government, with legislation to this effect presumably passing in December 2007, the taxpayers would be liable for $39 billion.
Let us consider how much this is in practical terms.
The average salary in the US is about $25,000. There are about 145 million Americans employed. The average tax burden is perhaps around 40%. This is a total value, per year, of $1.5 trillion. To cover a further $39 billion in one year, the tax rate would need to be raised 1.08% or about $22.50 per month to the average tax payer. Since the creditors were not expecting to receive this value in a single year, but rather over 15-30 years, we actually only need to raise 1/23rd of this value per year. That is to say, we would be indebted about 98 cents per month in extra taxes for the next 23 years, and with the way that taxes are balanced across those making a wage, for most it would be even less.
As pointed out, the worst case scenario (presuming that the numbers I found where near accurate) to simply buy all mortgages was $260 billion. The actual amount needed to avert the crisis was probably more like $39 billion. By either measure, the The Housing and Economic Recovery Act of 2008 (HERA08) should have been more than sufficient to make all the worries go away. But, it came too late, and more importantly nobody was actually aware that it was fairly cheap to end the mortgage crisis, let alone that HERA08 was more than sufficient for that purpose. We all pulled out of the market, put our money in savings, and tanked the banking system based on a general view that everything was hopeless.
That feeling of hopelessness was due to Bush’s overspending, the double-wars, and the view that we had no one leading the nation anymore.
I personally think it would be more fair to say that President Bush continued a long tradition of reducing the effectiveness of the economies breaks by by further weakening oversight by the federal agencies and dug the ditch deeper by cutting taxes and going to war at the same time. An ideal president may have found a way to stop it, but one who was doing his job (with a congress letting him) should have helped the economy recover faster.
Any list of the top 25 people responsible for the economic crisis which does not manage to include either Barney Frank or Chris Dodd is a joke. Both of them actively impeded attempts to correct the excesses of Fannie Mae and Freddie Mac. Both of them actively pushed policies designed to put more mortgages in the hands of people who were ill-equipped to handle them. Both put the government stamp of approval on mortgage-backed securities and vehemently denied there was any problem with them when questioned.
As for the Bush administration’s failures - yes, there were failures. But why does it escape people’s attention that Bush was basically engaging in Keynesian stimulus? Not just in 2008, but all the way back to the start of his presidency. He enacted big tax cuts and big spending increases, and paid for it with borrowed money. The Fed under his watch carried out a very loose monetary policy. That is almost pure textbook Keynesianism. It didn’t work then for the same reason it’s not going to work this time.
What it did do is probably moderate the initial downturn from the first recession, making it relatively mild, at the expense of growth and job creation in the out years of his presidency. The loose money policy encouraged the formation of a bubble in real estate. When that popped, the situation became more dire because Bush had already dug a bigger hole for the economy.
And so it will go with this round of attempts to stave off the fundamental correction the economy has been trying to undergo for a decade now. The stimulus may have slightly eased the depths of this recession, at the expense of setting everyone up for an even bigger crash in a few years.