Obama Wrong: Housing Policy, Not Tax Policy, Caused Recession

IBD ^ | 12/06/2012 | Paul Sperry

[SeekAndFind]

President Obama argues Republicans want to go back to pre-recession policies of cutting "taxes for the folks at the very top" and rolling back "regulations on big banks."

He warned: "We tried that top-down approach. It's what caused the mess in the first place."

Did it, though?

Most economists agree the recession was caused by the subprime mortgage crisis, which had little if anything to do with tax policies.

In fact, real economic growth accelerated after 2003, when the Bush tax cuts for top earners and small businesses fully went into effect. The 73-month economic boom of the 2000s didn't end until December 2007, when the housing market collapsed.

So what killed housing?

To hear Obama, greedy bankers were allowed to run amok, rubber-stamping loans for practically anyone with a pulse.

He's right that underwriting was a joke, and as someone who advocated for easier home lending, he would know. Clinton's Role

Only, it wasn't because regulators looked the other way. Quite the opposite; they encouraged lenders to make risky loans.

Shoddy subprime lending expanded due in large part to federal housing regulations that institutionalized "flexible" mortgage underwriting standards for loan originators and government-backed mortgage giants Fannie Mae and Freddie Mac.

And they, under pressure from Congress and their Housing and Urban Development "mission" regulators, wound up underwriting nearly half the risky subprime and other nonprime mortgages outstanding, fueling the financial market for subprime securities.

While Bush is commonly blamed for the historic housing bubble that burst in 2007, housing experts now agree it began 10 years earlier in 1997 — under a Democratic administration.

The easy-credit orgy that took place over that decade was fed by federal housing policies designed to pump up homeownership rates.

It had a name: the National Homeownership Strategy.

[palmer]

You are correct. Funny how Greenspan just happened to reign over the dot com boom and bust and the housing boom. The commodity boom in 2008 was the latest, but it won’t be the last.

[9YearLurker]

You keep ‘telling me’, but the eventual excesses—with banks bundling knowingly bad loans into inaccurately rated securities—developed out of and after banks were forced to lower their lending standards.

And Bush was right in there ignoring and encouraging it as that got worse and worse. You are being willfully or otherwise ignorant here.

[9YearLurker]

The CRA certainly did force banks to make loans that they didn’t want to make. Banks were merging and acquiring like crazy through the whole period and if they didn’t have an exemplary CRA score they wouldn’t get their acquisitions approved. In actuality, banks had to fork out bad loans.

Also, the FDIC was requiring banks to drop traditional lending requirements that had disparate racial impact. That was forcing banks to make bad loans.

[griswold3]

government debt/gdp 1945 / 2008
compare private debt / national gdp levels of 1929 and 2008
both 300$
government stepped in a made the banks whole as promised (moral hazzard)

[SunkenCiv]

Thanks SeekAndFind.

Shoddy subprime lending expanded due in large part to federal housing regulations that institutionalized "flexible" mortgage underwriting standards for loan originators and government-backed mortgage giants Fannie Mae and Freddie Mac. And they, under pressure from Congress and their Housing and Urban Development "mission" regulators, wound up underwriting nearly half the risky subprime and other nonprime mortgages outstanding, fueling the financial market for subprime securities... the historic housing bubble that burst in 2007... began 10 years earlier in 1997 -- under a Democratic administration. The easy-credit orgy that took place over that decade was fed by federal housing policies designed to pump up homeownership rates. It had a name: the National Homeownership Strategy.

[Intolerant in NJ]

All true (read Morgenson and Rosner’s “Reckless Endangerment” for the whole gruesome story) - but I’ve never heard one prominent Republican stand up and assert the falsehood of the blame of Bush, including Romney in the campaign when he was accused of wanting to return to the “failed policies” of the last administration - pathetic......

[trebb]

The problem was not Bushs creation,but certainly his lack of outrage and failure to expose the Depth of this problem as well as the rest of the republican establishment IS to blame.

Agree - he made a number of attempts to get them to rein in Freddy and Fannie, but he never told the People what was going on or what it would cause. he should have said what it was and let them continue with the "Freddy/Fannie are fine" BS like they did until about 6 weeks before it crashed. A little publicity and warning would have gone a long way instead of letting them own the narrative.