For the general deregulatory / Laffer curve philosophy that drove Republican economic policy? I see your point, but how much did Gramm influence Greenspan? You can blame Ayn Rand for that.
I agree with you about Bush - he hardly had an independent economic philosophy, after all. His father might have been with it enough to talk about voodoo economics, but he wasn’t.
Before the election several people pointed to studies showing that the economy in general grows far faster during Democratic administrations than during Republican ones. That was even before the Great Recession. Administrations who came in during recessions do better using this metric than ones who come in during times of prosperity - the 2001 recession should have given Bush a leg up in improving the economy during his reign. That things are so much worse is an indictment of conservative economics.
I’m sure someone will post to say Bush wasn’t a real conservative. An economic policy so unstable that the slightest deviation from following it will lead to disaster is not worth much in the real world. That’s standard sensitivity analysis. A circuit designer whose circuit only works if the components are within 0.5% of spec is a piss poor circuit designer. An economic policy that only works if Congress does impossible things like cutting stuff the voters want is a piss poor policy.
But for economic purposes wouldn’t it make more sense to shift the blame by two years? Like a President can neither take credit nor blame for the economic situation in his first two years, and that he gets credit or blame for the economic situation in the first two years of his successor?
Wouldn’t Reagan have to shoulder the burden for the 1990 recession while Bush should get some credit for the turn around in the beginning of the Clinton era?
There aren’t only two choices. There is plenty of room for debate on what is the best path forward. People on both sides made mistakes. And I agree with you about there being a lot of causes for the mess. My objection is to conservatives who got a lot of their program implemented (like deregulation and tax cuts) saw the economy go to hell, and then refuse to admit that their program had anything to do with it. I already mentioned Greenspan as an example of someone who did not do this. Krugman is another. Even though he called the effects of the housing bubble collapsing a long time ago, he admitted that classical economics blew it in general and that behavioral economics is required to understand how markets actually work, and to do away with the myth of the perfectly rational economic actor.
Why only two? Sam Stone was giving Reagan credit for Clinton’s finally getting the budget into surplus, if you didn’t know. Maybe he can do a better job of explaining this “business cycle” stuff.
Agreed, and as long as you aren’t doing the same thing from the opposite angle then I’m happy.
It’s a mess all around, and a lot of people still in charge of the mess were people responsible for causing it.
I hope we did away with the myth of the perfectly rational economic actor. But I doubt it. Really, what’s going to happen in next year’s elections or in 2012 depends entirely on the economy. Economy still bad, Democrats out, Republicans in. Economy good, Democrats keep their jobs.
But at some point it becomes misleading to include certain actors in the blame because it implies a certain quantum of guilt below which the blame is so small that it’s not worth mentioning.
I submit the CRA falls well below this level of blame.
Now, if someone were to attempt to absolve the guilt of those who bought a home to live in that they could not afford (mostly middle class and richer,) I would argue that, while they should share far less than the majority of the blame, they at least deserve a mention.
Amongst the things that are more to blame than bleeding heart insistence on giving loans to the needy:
– Auditor firms lying about the loan packages viability
– The interconnected loan insurance schemes
– Middle class and richer people buying homes they can’t afford
– House flippers
– The housing bubble, as distinct from all of the above (in that the fact that houses rose so far above their “natural” price that the mere fact that they could fall so far is disruptive)
In fact, I only do not completely dismiss the accusation that the CRA played some part in the meltdown because it is not absurd on the face of it. The lack of concrete evidence, however, means that until more evidence is shown, its impact is relegated to trivial to none.
Ludovic I read MOIDALIZE’s cite, and it makes sense. But there might be an argument for it being indirectly responsible. In that the CRA proved that you could make money off of loan populations you wouldn’t immediately expect to, and the banks went out and went above and beyond the call of duty for CRA and experimented willy nilly.
But yes, I think you sum up quite succinctly how it worked out.
I do not think the regulatory tug of war that occurred could have been all that helpful.
I had never thought about that before, and it is certainly plausible that success of the CRA whetted the appetite, as you say, for lenders to make money off of people they previously thought they could not.
But again, (and I’m not necessarily saying you are claiming this verbage,) to insist that the CRA must share part of the responsibility smacks of the blameshifting that goes on when a conservative is caught in a moral scandal: its really the fault of the libs for promoting such a lax moral environment!
Yeah, I think it’s interesting and by no means am I saying that a good program is responsible for excesses it inspires.
Yeah, I don’t go in for that shit, well sometimes I indulge, but I tend to lean liberal, but hover around the center on most issues. I have a problem generally with people who buy their own press hook line and sinker, and that tends to be what draws my ire. ‘We Liberals/Conservatives are awesome!’, posts always irritate me regardless of the merit of the argument. And that’s my bias.
But the real source of the problem is the mechanism by which they made money. In the old days you made money from the long term interest on a loan. The CRA was in response to the perception of red-lining, (whether or not it was a real problem) and the perception that banks were afraid to lend to people in these areas. Therefore banks would still only make loans where they thought they could make money, and stopped assuming they couldn’t make money in poor areas. After all, CRA was in effect for ages with no obvious negative consequences.
In the last few years mortgage writers made money from fees and from splitting up and selling the mortgages. In this case making money had nothing to do with the quality of the loan, as long as you could hide bad loans inside a bushel of good ones. Since they got more money for high interest subprimes, while moving the risk to the suckers who bought the papers, they had an incentive to sell loans to as bad risks as possible, and even to sell subprime loans to people who could qualify for better ones. As long as prices were going up, they wouldn’t get caught.
Well, Bush spent eight years screwing up the economy, and it seems reasonable to allow his successor the same amount of time to try to fix it. Or more, even: You can break things a lot quicker than you can fix them, as a general rule.
