How A 2005 Law to Prevent Bankruptcies Led to the 2008 Recession

[Drunken Irishman]

22. It's a trickle...

Reagan's economic agenda wasn't entirely felt until the late 80s, early 90s, when the US was plunged into recession well after his presidency had ended. it was delayed, though, since it's very unlikely legislation can take effect that quickly. The person who got the blame, though, was Bush - not Reagan - because his presidency had ended by that point.

That delay killed Bush's reelection chances. Ironically, though, that same delay is just as much prevalent in combating a recession as it is starting one. Bush broke his 'no new taxes' pledge early in his presidency as he compromised with Democrats and raised taxes, which some economists believed helped pull the US out of the recession. Except that was delayed, too, as Bush signed the Omnibus Budget Reconciliation Act of 1990 in November, 1990, but the ending of the recession wasn't entirely realized, or at least felt, until three-to-four years later, when Clinton was already into his presidency, one he largely won because of economic conditions during the 1992 presidential election. Ironically, the recession actually technically ended in June, 1992. But the damage would carry for multiple years.

Legislation takes time. Especially something of this magnitude. The 2007 recession was built out of many things - the lack of overall growth coming out of the early 00s recession, the bubble economics that dominated the 90s and 00s, including the housing bubble and, of course, the subprime mortgage crisis. A great deal of the subprime mortgage crisis was due to housing prices dipping moderately in 2006 (shortly after this bill was signed) and higher interest rates (which is not tied to any of this), which made it impossible for many homeowners to refinance their houses. It's too simplistic to just point to one reason for the Great Recession. It was a perfect storm.

There was predatory lending. Overbuilding. Lack of regulation. Government relaxing rules so just about anyone could get a mortgage and buy a house.

But no, this bill didn't trigger the Great Recession. Had it never been signed, the recession still would have happened.