Is Bush personally responsible for the mortgage crisis?

[Narkos]

I'm anticipating some of the revisionist history that will be written by future wingnuttia. The market fundies have done a good job blaming the gubmit for the Great Depression. In this case, I anticipate that the righties will try to portray stupid Americans for not being able to read a contract, or they will say that if we had just extended the tax cuts, that the "free market" would have solved everything...perfect replay of 1929. I've read some stuff on the "Ownership Society" in which the chimp's stated goal was to get more people into home ownership. Just so I can correct Uncle Blowhard at the next Festivus, in which he'll try to defend Bush and say he had nothing to do with the mortgage crisis or the recession in general, what are some specific things Bush did or did not do to bring about this crisis?

[ladjf]

1. Al of these bad things keep happening on Bush's watch.

This isn't just a matter of bad luck. The man is an unmitigated disaster for life on this planet.

[aquart]

2. Nope. Bill Clinton signed banking deregulation.

And if you want to say nasty things about it to him, go right ahead. I know I emailed him that he was making an awful mistake. He should have paid attention.

[Fresh_Start]

7. What exactly did he deregulate?

Can you provide a cite, I'd like to read up on it.
Thank you

[rwenos]

9. Repeal of Glass-Steagall

The Glass-Steagall Act, passed in the middle 1930's and signed by FDR, outlawed the simultaneous selling of stocks and acting as a bank. It also empowered the Fed to regulate the currency. Some of that authority was taken away in 1981, in a bill the Democratic Congress passed and Reagan signed.

Big Bill signed a bill repealing Glass-Steagall in 1999, called the Graham-Leach-Bliley Act. Or so sayeth Wikipedia, and that IS how I recall it.

[Fresh_Start]

10. Thank you so the deregulation wasn't to allow

subprime loans or predatory lending practices.

I know about GLB, I just wasn't connecting it to subprime mortgages
I understand how it plays into the credit crises.
It clearly endangered the banks since they will be remarkably stupid every 20 years of so.
But I don't see the direct connection to the subprime lending problem.
There was securitization of consumer credit securities before GLB.

[aquart]

12. THANK YOU!

That was it.

[Celebration]

15. banking deregulation

It started under Carter, and gained momentum under every president since then.

I remember when all banks were LOCAL BANKS. In some states there couldn't even be branches.

I do think the new bankruptcy act hurt, because it led to higher ratings for some of these derivatives, and allowed them to be easily shoved off, oh, I mean marketed. But we can blame a lot of the Democrats for that. Having no usury laws is beyond absurd. Plenty of blame to go around.

There is a purpose for regulation in a capitalist society--but apparently we have to relearn that every few decades.

[aquart]

11. Can't because I blank on things that cause me pain.

No, actually, our Congress in its infinite ability to sell to the highest bidder blithely removed the careful and necessary regulations desperately put in place after the horror of the 1929 crash. It was touted as something wonderful but I just shook my head and moaned.

I have no idea what they named the act: All My Nightmares Come True Act? Rampant Greed Unleashed Act? Just don't know.

[Captain Angry]

3. I can't pin that one on him.

Lending standards were loosened in order to capitalize on "never ending home price appreciation."

Now, if you look at the housing market from 1800-1995, you will see a nice flat increase in value that coincides with inflation. (give or take)

In my opinion, following the dot-com crash, a lot of people took their money out of the market and put it in the one asset that always appreciates over the long term. Real Estate. That led to huge increases in demand, which pushed prices higher.

At the same time, banks began to really begin to restructure those incoming mortgage payments into some interesting new financial instruments. Some people bought these derivatives with little idea of how they worked or the strength of the underlying assets.

Once people get spooked over the true value of the assets, and they don't see perpetual increases in value, demand cools.

People were convinced that the prices would always go up, and they'd probably get a raise at some point, so they could buy a bad loan since it would just get refinanced next year when they made a 10% profit or something.

So, at the end, we see that a lot of people fooled themselves into buying something they would never have been able to afford. The ability to temporarily afford some of those homes was created by looser than normal standards. In the past, if the bank had to worry about a borrower repaying the loan, they wouldn't lend to them. In recent history, banks knew they could resell the loans to be repackaged.

Now the banks that built the derivatives by buying those loans are unable to borrow from each other to create new instruments, the rating agencies are being more realistic about the contents of those derivatives, banks won't buy those derivatives, etc.

It's a lesson in greed and delusion.

Some people bought into homes that they knew their income couldn't cover.
Some people sold homes to people by telling their customer that home prices would keep going way up.
Some banks lent to anybody they could find since they would resell that loan.
Some institutions bought bad loans and built new financial instruments that they could resell for even more.

It's a total disaster, and it's going to take a serious retreat and cooling off before the housing market gets back to something stable.

Some major reforms need to take place.

[rhett o rick]

4. Banks were lending money to those that were high risks and hoping for the best. nm

[Captain Angry]

5. No hope involved.

For a while, they could resell that loan to be bundled into something else.

Due to the way a mortgage backed security is created, most of the risk was able to be designed out of the product. That is, unless there was a HUGE drop in demand and lending.

Under *normal* circumstances, the MBS could be designed such that early payments or late payments were funneled to appropriate pieces of the new security. The people who wanted early money could get it, the people who wanted money eventually could have that too.

But when everything hit the fan, the safety bonds that are built into an MBS were killed and the parts of the MBS that were for actual investment got nailed.

[Fresh_Start]

6. Totally agree after dot com crash ppl looked for a safer

investment. Thats why there was this absolute glut of second home purchases, people were buying investment not properties to live in.

30 miles northeast of here, there were entire communities where the majority of the purchasers were investors. Its much easier to walk away from an investment property than your own home. Those places with godawful commutes so they have little probability of recovering anytime soon.

[Captain Angry]

8. Whole swaths of the country were investment havens.

There are going to be ghost towns. And municipalities that created thousands of building permits will be wondering why they just aren't getting any property tax checks.

It's a total disaster. If anything, it would be interesting to see homes that were 2nd homes/investment properties bought by the local government for pennies on the dollar from the bank holding the lien. That home could then be given/sold as low-income housing to homeless/working poor.

There are cities where teachers and police departments are made up of nonresidents. These people have to commute to work because there is no local affordable housing. Some of these houses could be made available to these types of local infrastructure workers.

[aquart]

13. Is repackaging and reselling loans something we should continue?

Because I would be happy to see it banned but I don't know the consequences.

[Celebration]

16. probably shouldn't ban it

The market of course is supposed to take care of things like this, but segmenting the market for various aspects of the derivatives meant that nobody really had full knowledge of what they were buying. Then the market doesn't work so well.

I should have realized what was going on over two years ago. The wife of my massage therapist was making $150,000 per year working in the mortgage industry and she quit her job. Why, you ask?? It was because her boss wanted her to sell the most profitable mortgages, and those were the ones that she was worried that people did not have the means to pay back. I thought it was weird at the time that people would want to give loans out that couldn't be paid back, but for some reason there was a disconnect between that and all the rebuilding activity all over town.

There should be some rather strict disclosure guidelines on these products. But I don't see them gaining favor for another generation or so anyway. By then the lessons would be forgotten of course.

[gravity]

17. Repackaging and reselling loans isn't bad in itself

It is that people didn't realize the risks involved with the investments.

[Narkos]

18. Nice insights there

What kind of restructuring do you think needs to be done?

[unhappycamper]

14. Well, $12,000,000,000 a week

down the rabbit hole of Iraq does not help the situation. The total cost of this adventure will be somewhere between $2,400,000,000,000 and $3,500,000,000,000; at some point in time these numbers will bite us in the ass.

[Warpy]

19. No, the entire blame lies with the GOP

just like it did in the Great Depression. Their core philosophy of a small, non regulatory government, low wages, low taxes on the rich, and easy credit for the rest of us always leads to a meltdown.

Put the blame where it belongs, squarely onto the shoulders of Reagan, Bush I, Clinton (who could have done something in his first 2 years but didn't, leaving the GOP Congress to block everything for 6), and Stupid.

[Narkos]

20. The Fed knew this was coming..

Edward M. Gramlich, a former Fed member, repeatedly warned Greenspan about the risks of not reining in the subprime market as early as 2000....I hope Alan "The Wizard" Greenspan can enjoy the fruits of his free market ideology!
http://www.nytimes.com/2007/12/18/business/18subprime.html?_r=2&oref=slogin&oref=slogin