Don’t blame GOP for this mess

Hoover most certainly did not ignore the problems. Hoover (contrary to his fundamental beliefs) took action. Unfortunately, as explained in Amity Schlae’s “The Forgotten Man,” Hoover “by intervening in business, signing into law a destructive tariff, and by assailing the stockmarket” did damage on all three fronts. You also are apparently unaware of the massive public projects at federal and state level that Hoover pushed for as part of his program to retain employment and high wages. The Republicans did not have a program of “doing nothing” as you stated.

The Republicans do have an alternative budget. They did not, as you state, “offer nothing.” The main points may be found at http://online.wsj.com/article/SB123854083982575457.html. I leave it up to you as to whether you read the full document. If you are like many of our representatives, who I expected to read and understand bills on my behalf, you will not, as they did with the stimulus bill. I would like all our representatives, by the way, to provide an affidavit swearing that they read and understood the Obama stimulus bill before they voted for it. I doubt many will do so.

As for the “blame” in the case of the financial crisis, I have spent the better part of the last two years doing little else but researching the basic data trying to understand how we got to this point. Without doubt the causes of this crisis stretch back into the seventies and involve both parties, many administrations, congress , government agencies and well as financial institutions, mortgage companies, brokers, appraisers, financial ratings firms, and others. The causes are complex, much like the many rivulets that form tributaries which in turn feed what eventually becomes a raging powerful river. Housing, for example, is but one -- a tributary, I think.

Housing and mortgage elements first appeared at the end of the Clinton administration, for example (here I rely on the work done by Yale’s economics professor Shiller, who has gained quite a following as one who correctly predicted both the technical and housing bubbles). I do not imply that Bill Clinton bears major responsibility for the housing bubble. What is inescapable is that certain actions during his administration contributed to the beginnings of the housing bubble.

Presidents Clinton and Bush, and Congress, especially the Democrats and within the Democrats -- the Black Caucus -- pushed well-meant but poorly thought-out efforts that were central to creating and exacerbating the housing-mortgage bubble. Both Bush and Clinton looked for ways to extend home ownership. But what followed quickly was rise of ARMs, interest-only loans, “liar loans,” and other financial sleight-of-hand.

Other major “tributaries” included the criminal mismanagement of Fannie Mae and Freddie Mac, which not only exacerbated the housing bubblebut also the sub-prime crisis, abetted by what I consider unconscionable efforts by certain Democratic members of Congress to impede any real regulatory oversight over these entities. These are documented both in the text of the hearings and the visual recordings available at times on the Web. The efforts (to set in place regulatory controls) disingenuously boasted about by Barney Frank in 2008 were simply those that John Sununu, Chuck Hagel, and Elizabeth Dole, all Republicans, tried to implement earlier (beginning in 2003 with S1508) when they would have had a chance of success.

Meanwhile development of leveraged investment devices commonly referred to as derivatives, which had begun as a small tributary, became an incredibly fast flowing and powerful river in itself. In 1973, Fisher Black and Myron Scholes published a famous paper entitled “The Pricing of Options and Corporate Liabilities.” This paper explained how they derived and solved the Black-Scholes-Merton differential equation, solving a longstanding stock-option pricing problem -- known afterward as the celebrated Black-Scholes formula (Black left academic life in 1984 to become a partner of Goldman, Sachs & Co.).

A number of firms like J.P. Morgan developed financial devices in the 1990s to sell debt associated with securitized mortgages based on their ideas. These began the explosion in liquidity and leverages. The devices are also known as LCDS (loan credit default swaps), CDS of CDOs (credit default swaps of collateralized debt obligations), CFDs (contracts of difference). Basically they are means of placing bets on movements in the markets. The way was open to the floodgates of speculation. But for many years -- indeed since 1933, a measure of protection existed in the form of the Glass-Steagall Act. This act separated speculative investment institutions from the traditional banks.

Robert Rubin (who headed Bill Clinton’s National Economic Council, then served as Clinton’s treasury secretary) pushed to break down the barriers between the traditional bank and the investment institutions. While treasury secretary, Rubin sought the repeal of the 1933 Glass-Steagall Act, which as noted had separated largely unregulated and more speculative investment banks like Goldman Sachs from government-supervised and -insured commercial banks like Citi, which play a key role in the nation’s monetary policy.

Glass-Steagall was designed to prevent the kinds of speculative conflicts of interests that pervaded Wall Street in the 1920s and helped bring about the Great Depression. Congress formally repealed Glass-Steagall, in November 1999, by an act termed in some circles the “Citigroup Authorization Act.” Rubin had stepped down as treasury secretary that July. His new job, announced in late October of that year, was chairman of Citi’s executive committee. Rubin’s initial annual compensation was around $40 million.

Rubin’s links with the current administration are very strong. Although he ceased his personal fund-raising activities for political candidates, he remained very close to others in the Wall Street Democratic money machine, and to its party conduits, particularly Sen. Chuck Schumer, who headed the Democratic Senate Campaign Committee, and then Rep. Rahm Emanuel, Schumer’s House counterpart in the 2006 campaign, now Obama’s chief of staff.

Rubin enjoyed such privileged status among Democrats that when the Democrats took back the House in 2006, incoming Speaker Nancy Pelosi advised the new Democratic caucus that its first two briefings would include one on defense, with three experts of differing views. On the economy, Robert Rubin would be appearing, solo.

After Obama’s election, the president-elect chose as his top economic advisers Timothy Geithner as treasury secretary, Lawrence Summers as senior White House economics adviser, and Peter Orszag as budget director -- all of whom are past proteges of Rubin. Even the headhunters for Obama have Rubin ties: Michael Froman, Rubin’s chief of staff in the Treasury Department, who followed him to Citigroup; and James Rubin, Rubin’s son. On Jan. 9, Citigroup announced his resignation, after having been criticized for his performance. He received more than $126 million (I could be off a few million here and there) in cash and stock during his eight years at Citigroup. I am sure you are aware of the costs to the taxpayer stemming from bailout funds paid to this firm.

I do not have a conclusion as yet. I suspect that hidden in all the other actions, such as those described above, the slow loss of well-paying skilled worker and lower-to-middle management jobs as our industrial base shrank and service-related jobs began to dominate the economy may be key to understanding our present situation.

I think there is enough blame to go around. But understanding of the facts are important if we are to understand the origins of this crisis and to develop reasoned approaches to solving the crisis.

False. 90% of Democrats voted FOR amnesty. Amnesty failed because conservative Republicans opposed it.

Please don't forget who championed the bill.....McCain and Bush.

Last I heard, they were republicans.

Then, they attempted to push amnesty through a second time.

Not to be stopped there, Bush attempted to get the bill segmented off into other bills to get some of it passed.

Then there's the REPUBLICAN governor of Texas, Rick Perry which has done nothing on the border.

The republicans in the house and senate bowed to the pressure of the American OUTCRY...if ya remember correctly.

In fact, right before the congressional elections, it was republicans and democrats that passed a bill to build hundreds of miles of fence.

Lo and behold, after the election, our legislators on both sides of the isle began talking down legislation appropriating the funds for the fence.

Congress with the help of republicans voted to PASS Bush's stimulus.

Distortion of the facts???? We are in the shape we are in as a nation because the republican leadership lacked backbone and core conservative values.

Sorry, that's fact......sorry if it hurts.

“Really? Exactly what legislation did they ram through before this cyclical downturn started that caused the entire mess?”

- The Dems passed a minimum wage in 2007, and within 12 months job grwoth stopped; this is not coincidental
- The Dems covered for Fannie Mae in 2005 when the issue of oversight in the loans they secured was raised; doing so enabled Fannie to gorge on sub-prime loans
- The Dems fought for restrictions on drilling offshore and they attacked oil co CEOS; it gave OPEC the green light to jack up oil prices via restricting supply, knowing we would do nothing about it except attack our own Oil cos!
- The Dems signalled in 2007 that we would end the Bush tax cuts; That meant long-term investor sentiment would be worse; it meant a recession loomed and it was only a matter of time. This killed the bull market.
- The Dems pushed for phony stimulus in Dec 2007 and rejected Bush’s pro-growth offerings, we got a feeble check in Q2 2008 instead of a REAL progrowth agenda
- The Dems increased spending rapidly in 2007 and 2008, overspending in every possible area and forcing Bush to veto multiple pork-filled bills; even despite the vetoes a huge number of earmarks and pork was passed
- The Dems wanted failure at home and abroad to stick around bush’s neck so they constantly ‘talked down’ the economy, to the point where in June 2008 Sen Schumer caused a run on IndyMac bank with his comments, and it forced the bank to close(!). In October 2008, SEn Reid made similar dangerous comments about the insurance companies.
- Higher taxes on corporations, on hedge funds, on smokers, cutting back on ‘loopholes’ aka investment tax breaks, and of course the tax hikes targetting the oil industry - all together, it is harmful to economic activity and jobs; and as mentioned more tax hikes awaint around the corner and investors have trimmed sails in anticipation of that
- the uncertainty the Dems created by pushing for ‘mortgage cramdowns’ has been VERY DAMAGING to the entire secondary market for mortgage securities, a key underlying problem that caused the financial crisis!! In other words, when Barney Frank and others in 2008 decided to ‘bail out’ deadbeat mortgage holders, they did things and threatened other things that make the value of those CMO (collateralized mortgaged obligations) less certain. Markets hate uncertainty and the markets soured further.
- similar to the above, the october 2008 bailout included things, written by Dems Barney frank and Chris Dodd, that added to uncertainty and made the financial sector less secure and certain. The Dems are meddlers who took away with one hand what they were giving with another.
- They raised the ethanol mandate which set off a huge run on grain prices globally which in turn made beef and chicken go up in price. This also bankrupted at least one company, Pilgrims Pride (look it up) and damaged many other companies. The ethanol mandate and other feel-good Green subsidies created economic dislocation and inefficiencies.

Each thing the Dems did helped weaken the economy, an economy which was weak trying to digest the housing bubble bursting. taken together, the Democrats’ agenda was the ‘straw that broke the camels back’ that tipped us into Lehman bankrupcy and then unraveling of the financial markets.

The above is just what I recall off the top of my head. I am sure they did more damage here and there. For example, regulations in healthcare and other areas.

“Ideals are more important than party.”
Yes they are. And the Democrats ideas are about attacking business and corporations and the free market. As a result, the Democrats have created an environment that is hostile to job creation and economic growth. THAT is why the job market stopped in Dec 2007 and wont pick up again - perhaps not until we have a Republican Congress for all we know.

Minimum wage? Are you serious? Oil? I'm sorry, but this mess began long before 2007. It goes back at least 15 years.

Dems were primarily responsible for Fannie and Freddie. That goes back to 1999. Republicans had 6 years to do something about it. They did not.

Republicans were responsible for the repeal of Glass-Steagall via GLB. That helped in large part to create the CDS weapons of mass economic destruction. Even so, there was an opportunity to regulate this crap. The Bush administration did not do so, the Fed did not do so, and Congress did nothing to force the issue.

Both Dems and Republicans pushed this idiotic policy of home ownership for everyone.

Greenspan and Bernanke were both Republican nominees. Low interest rates drove excessive debt.

The bailout plan was largely driven by Paulson.

The problems with mortgage backed securities has nothing to do with any talk of cramdowns. It has everything to do with the fact that policies from both parties drove home prices to completely unrealistic levels. Which drove debt to unsustainable levels. That's a bubble. It's bursting. It should. It must.

Point being, this was not created overnight. The bursting bubble was created years ago, and the bursting was inevitable. The government had ample opportunity to cut it off before it got too big all through the last 8 years. It did not. In fact, it strove to make it bigger.

Talking down the economy? I must have missed where talking created $25 trillion in excess debt. IndyMac was cooking its books. It should have been seized much earlier on. The FDIC has consistently shirked its responsibilities.

Both parties are guilty. This was not caused by democrats, it was not caused by republicans. They both created it in different sectors with completely idiotic policies and no regulation. Most everything that has been done in the last year or so is akin to rearranging the deck chairs on the Titanic.

The American public has been looted by the banks with the assistance of the government. Again, that's both parties. It took both parties to pass that bailout package, for even more looting.

I'm sorry that doesn't fit with your world view that Republicans are all angels and Democrats are all evil, but the fact is that BOTH parties have given us all the royal screwing.

Being a conservative requires honest analysis, not blind obedience to a party label. This mess transcends party affiliation. It's tied to corruption and sadly that applies to the majority of all of our elected officials, not just one party or another.

That also means that the solution must transcend the usual partisan party crap. Otherwise its just business as usual.

DEMS RULED THE SENATE UNTIL JANUARY 2003.

DASCHLE WAS MAJORITY LEADER FOR THE GLASS-STEGALL ACT. CLINTON WAS PRESIDENT AND SIGNED THE BILL.

BARNEY FRANK WAS, AHEMM, HIS LOVER, HERB MOSES, WHO WAS ON FREDDIE MAC BAORD.

http://www.businessandmedia.org/articles/2008/20080924145932.aspx

RAHM EMANUAL WAS DIRECTOR OF FREDDIE MAC AND EARNED $32O,000 FOR THE 14 MOS. STING. HE ALSO RECEIVED $52,000 IN CONTRIBUTIONS.

http://abcnews.go.com/Blotter/story?id=6201900

http://www.swamppolitics.com/news/politics/blog/2009/03/rahm_emanuels_freddie_mac_prof.html

YOU ARE LIKE A LIBERAL...BLAME REPUBLICANS FIRST.

No kidding, this allegiance to a party (republicans) regardless of their inept leadership and relentless drift from core conservative principals found within the party just twenty years ago bewilders me.

No matter what, we have to support the republican party if we want to realize ANY hope to reverse the liberal policies of the left.

Well, that's just poppycock!!!! A flawed notion that will lead to the destruction of this nation.

It is indeed time for a new party. A party that subscribes to a platform of an America first. Rebuilding American manufacturing, rebuilding the American standard of living, strong borders, protection of our way of life. Smaller Federal entity, lower taxes, shaving down the scope of ALL federal spending.

The constitution STILL matters!

We have folks in this country that have no damn idea what is contained within the constitution.

If you read the writings of our forefathers, not just the constitution, but personal writings, Declaration of independence, federalist papers, you will see that the creator of all gave to these guys a divinely inspired foresight that spans the ages.

God wrote those documents through these men....go on, read’em, you'll see the creators hand all over it!

They knew all this would happen once again. They knew tyranny would raise it's ugly head once again....and it has, it is!!

This is why the quote, “The tree of liberty must be refreshed from time to time with the blood of tyrants and patriots.

Not should be, not may be, not has been.......but MUST be!

They could see the future through the inspiration of the creator.

The tree of liberty is a gettin thirsty!

Partisan hackery based on party label doesn't qualify as thought. Doing the internet equivalent of screaming doesn't make what you have to say any more correct.

A republican lemming is no more useful than a democrat lemming.

Last I checked Gramm was a republican. So was Leach. And Bliley. Or did the democrats force them to put their names on the bill, then write it too, at gunpoint?

Again, being a conservative requires honest assessments. You're lying to yourself just like they've all lied to us.

The GOP has morphed into Democrat Lite. Not all of them, but a lot of them. Or they throw what's right under the bus for what's good for their political buddies. Or is your next claim going to be that the R beside their name means they can't be just as corrupt as the next guy?

We've excused such behavior for far too long.

Thank you.

Not many of us students of the Constitution, DoI, and other writings of our founding fathers left in the country at all these days.

My deepest concern is the two political parties have such a death grip on our political process, that when combined with the ignorance of a vast majority of citizens of our republic, the job of turning things around is daunting if not impossible.

Our Constitution gives us the power to make the change. However, that predisposes we have an informed majority of Constitutionally motivated citizens who will, through due process, make the change.

Armed revolt, without the support or acquiescence of the military and National Guard, won't happen, nor do I honestly believe it would ever be attempted, given the demographics and knowledge of the masses.

I am likewise not certain if our founding fathers envisioned the size of the republic and numbers of citizens when they inferred that the citizenry could or should rise up in rebellion once again.

Long way around of saying I don't have much hope for our Constitutional Republic's future.

“Minimum wage? Are you serious? Oil? I’m sorry, but this mess began long before 2007.”

“Republicans were responsible for the repeal of Glass-Steagall via GLB” - signed by Clinton... and it had nothing to do with our current recession. had that bill not been in place the same financial crisis could have and would have played out.

I’m sorry but blaming a car crash on a wrong turn you took the Sunday before last is very poor analysis. I cited numerous job-killing and economy killing activities of the Democrats in the 2 years running up to the meltdown, all these things definitely did contribute to the mess we are in.

Generally the ‘its deregulation fault’ is based on the false marxist theory that the free market cant handle itself. The fact that you yourself point to numerous points of Govt action that was wrong indicates you know that its wrong too. You know Obama is lying when he blames deregulation and not easy Fed policy combined with a Govt push for sub-prime lending. You should know that since mortages have been collateralized for decades its not the securitization of mortages that is to blame per se.

“Greenspan and Bernanke were both Republican nominees. Low interest rates drove excessive debt.” - This had an impact, yes. But its main impact was to create a bubble... that burst well BEFORE THE RECESSION. The reason why this is important is that USA was weathering the bursting of that bubble okay, with some bumps along the way, until 2008.

If the bursting of the housing bubble was the sole driver of the recession, why didnt the economy die in 2007 when the housing bubble burst? What was the straw that broke the camel’s back of the economy in 2008? Ignoring the price of food, oil, and the rest of the economy in 2008 for making a n economy weakened by the burst housing bubble is folly.

The answer is that it took several acts of inappropriate Govt meddling IN RESPONSE TO THE BURSTING OF THE HOUSING BUBBLE(*), and several vectors of attack on our economy by the Democrats in Congress, to make our strong economy die. The bursting of the housing bubble was not enough by itself.

(*) interest rates; the faux stimulus of Q2 2008, Bear Stearns, Fannie Mae takeover, the ‘housing stimulus’, big Govt Democrat spending, and then AIG and Lehman.

BTW, I never absolved Bush or all Republicans (see above list - it was a Pelosi, Paulson, Bernanke, Bush tag team). I merely was arguing against the very false (and IMHO even absurd) claim that the majority DEMOCRAT Congress throughout 2007 and 2008 had no hand in it. How could they NOT have a hand in creating a recession, when their ENTIRE program was built on things that damage the economy?!?

“The bailout plan was largely driven by Paulson. “ - THE BILL WAS WRITTEN BY FRANK AND DODD. It was passed by the Democratic Congress. Why are you afraid to admit pesky details like this?

“The problems with mortgage backed securities has nothing to do with any talk of cramdowns.” - Yes it does, as I said, Government intervention has made those security values less certain. Same with the Fannie Mae takeover, which incited the fall of Lehman. GOVT MEDDLING CREATED UNCERTAINTY. THAT UNCERTAINTY PRECIPITATED BANKRUPCIES AND THE FINANCIAL MELTDOWN.

Again, you are engaging in weak and shallow analysis if you ignore this very salient point. Numerous Govt interventions in 2007 and 2008 made the problem worse and the Pelosi Congress was in on almost all of them. Looking backwards 15 years while ignoring the past 15 months is foolish.

“Again, being a conservative requires honest assessments. “

I agree.

And its very dishonest to blame this crisis on ‘deregulation’ or a Gramm-supported Clinton-signed bill of over 10 years.

Dont be a lemming learn the truth.

http://www.marginalrevolution.com/marginalrevolution/2008/09/did-the-gramm-l.html

Did the Gramm-Leach-Bliley Act cause the housing bubble?

No. That is one common myth among the progressive left. Because it involves financial deregulation and the unpopular Phil Gramm, the Act is vilified and assumed to be part of a broader chain of evil events. Here are some of the articles which promulgate the myth that the Act caused or helped cause the housing bubble. One version of the claim originates with Robert Kuttner, but if you read his article (and the others) you’ll see there’s not much to the charge. Kuttner doesn’t do more than paint the Act as part of the general trend of allowing financial conflicts of interest.

Most of all, the Act enabled financial diversification and thus it paved the way for a number of mergers. Citigroup became what it is today, for instance, because of the Act. Add Shearson and Primerica to the list. So far in the crisis times the diversification has done considerably more good than harm. Most importantly, GLB made it possible for JP Morgan to buy Bear Stearns and for Bank of America to buy Merrill Lynch. It’s why Wachovia can consider a bid for Morgan Stanley. Wince all you want, but the reality is that we all owe a big thanks to Phil Gramm and others for pushing this legislation. Brad DeLong recognizes this and hail to him. Megan McArdle also exonerates the repeal of Glass-Steagall.

Here is a good critique of GLB, on the grounds that it may extend “too big to fail” to too many institutions. That may yet happen but not so far.

The Act had other provisions concerning financial privacy.

Maybe you can blame some conflict of interest problems at Citigroup and Smith Barney on the Act. But again that’s not the mortgage crisis or the housing bubble and furthermore those problems have been minor in scale. Ex-worker has a very sensible comment. The most irresponsible financial firms were not, in general, owned by commercial banks. Here’s lots of informed detail on GLB and the bank failure process. Here is another good article on how GLB didn’t actually change Glass-Steagall that much.

OH, now you are reduced to lying about what you wrote.

You blamed GLB - FALSELY - of creating CDS ... “.... GLB. That helped in large part to create the CDS weapons of mass economic destruction.”
What made them such evil things if they didnt help incite the housing bubble?

Marginal Revolution is a top-notch economics site.

“If you’re going to maintain that raising the minimum wage, excessive oil prices caused a housing bubble”
BZZZT. Strawman alert! Read my post carefully. I blamed the Democrat actions and related things for WEAKENING THE ECONOMY.

“he other bits of window dressing done in the last 12-18”

Again, rather poor economic thinking and bad logic. Here you are blaming a wrong turn taken a few weeks back for a car crash and not the 10 to 12 things you did RIGHT BEFORE THE CRASH HAPPENED. A recession was more than avoidable as of Jan 2007. The idea that the fall of AIG, Lehman and the bailout was inevitable as of late 1990s and there was nothing that could have been done in 2007- 2008 to fix it is absurd blame-passing. Unless you are Pelosi staffer I cant imagine why you would assert such a fantasy.

Agin my core assertion is true, valid, and based on clear and manifest facts and logic: Had the Democrats not been attacking the economy since jan 2007 with bad policies, we might have weathered the economic storm much better.

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