How TARP Created Trump

First Trust Economics Blog ^ | 24 September 2015 | Brian Wesbury

[9YearLurker]

Exactly.

[LRoggy]

“I disagree with this statement entirely. It’s true that the subprime disaster was a factor in the real estate crash, but it was far from the biggest contributor.”

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If you really think that is true you need to read the annual reports of the big banks in the period and zero in on the Community Reinvestment Act section in the notes where it spells out in detail what percentage of their loans went bad. It’s all there in black and white.

And then note that the geographic areas that were LEAST hit by write-offs where those areas that housed the upper middle and wealthy zip codes.

There’s a reason why the ground zero of the real estate blow up was Miami, the southwest coast of Florida, Las Vegas, Phoenix, etc. It was where the biggest concentration of Latin migration occurred, both legal and illegal.

Latins invest their capital in real estate, not equity markets. Pull aside a banker you know from that period and ask them a simple question: What percentage of your loan write-offs were from Latin borrowers and see if they are willing to answer that question.

Before the crash (I am in Boca) I was introduced to a Latin couple (I am in financial services) and during the discovery interview they told me they held SIX mortgaged properties even though they had only about $20,000 in cash in their bank account. When I asked them why they told me they wanted to rehab them and re-sell them. When I pointed out they didn’t have the resources to be able to do that they asked what they should do and I told them to sell three of the properties and when they actually sold a property after a rehab they could take on another one. I also warned them that real estate is a market and could very well fall in the future due to the rapid rise of the previous years.

Instead of listening to me they asked their Latin friends about the advice and was told by all of them that real estate always goes up and I didn’t know what I was talking about, and they did nothing.

Three years ago, out of the blue, they called me to ask to meet again. After telling me that I was right all along they asked for my help. They were still on the hook for the properties, having held them through the recession, and very underwater. I told them there was nothing I could do and told them they might as well bite the bullet and hand a few back to the banks.

By loosening credit standards at the bottom of the credit risk you obviously loosen them higher up and no one took advantage of this more than the real estate speculators of the middle class, who ended up leveraging equity in their own home with no money down purchases of other properties, which they thought they could flip. Remember the story of how David Einhorn made his reputation? His MAID bragged about the FIVE properties she owned, due to this strategy.

Your scenario did have affect but it was NOT the main reason. An honest banker will point to those ground zero locations and the rest is pretty easy to figure out. I’ve had bankers tell me that the Latin percentage of default was almost 50% of ALL the failures written off, because they put all their money into real estate.

[Buckeye McFrog]

Excellent observation! This race is going to be all about POPULISM, largely due to the TARP bailouts. It resulted in two huge political movements, the Tea Party and OWS. Polar opposites of the political spectrum, but in near full agreement on this issue.

In such a paradigm Trump may be the most Conservative candidate who can actually win. At least he is free of Beltway Republican Chamber of Commerce fingerprints.

[C. Edmund Wright]

Every candidate running is going to have positions and views that some voters are NOT going to like. The perfect conservative candidate does not exist. The trick is to figure out which candidate will do the most to advance and promote conservative values

I agree with that, but I contend there's a big difference between "perfect" and dangerous warning signs of innate liberal reflexes. You see, it's one thing to screw up an issue, it's another to instinctively come at problems from a big government POV. Ford moving to Mexico? Trump immediately goes IRS and big government to punish them - not attacking the EPA and the unions. China trade deficit? Trump goes government first, trade treaties, instead of rolling back government to make manufacturing more palatable here. Obama Care? Trump attacks not government first, but the insurance industry first.

I think we ignore these at a big peril to our Republic. I will not ignore them.

[FreedomNotSafety]

That essay is fantastic. I would expand its scope. TARP is just the proxy for the ideological battle that was won by the left. A laundry list of similar, in ideology, laws or actions could be added.

[mkjessup]

Again, perfectly legitimate and valid concerns. If Trump seems to employ a ‘big government’ approach, it is most likely due to his successful use of ‘big business’ tools to implement whatever his goals have been in the past, this is why it is vital to somehow, some way, get rock solid conservatives into the Trump inner circle. Like another famous New Yorker, Trump is as big a personality as the late Nelson Rockefeller, and I concede that some of Trump’s views would probably have been seen as compatible with those of Rockefeller.

If however, Trump is any student of history at all (he reportedly IS), he will avoid the political pitfalls that did in Rockefeller and he has moderated his views.

[Gritty]

Yep. If the GOP establishment had stuck to honest and sound financial and governing principles, it wouldn’t be in the mess it is and neither would we. This was Bush’s greatest mistake - not getting involved in Iraq. It assured the Democrat Party and the Muslim now in the White Hut would gain total power.

[Eric Pode of Croydon]

We need a President who is determined, from day one, to return the federal government, and in particular the presidency, the regulatory agencies, and the courts, to their original constitutional limits.

I am not convinced that Trump believes this. If I did, I would support him without hesitation.

[crusher2013]

The Crony Capitalist banks and Wall Street are not the free market/main street.

They are the farthest thing from them.

At its core, the Federal Reserve is a wealth transfer mechanism. From the middle class/small business to the Government and Banks.

So the articles premise that the free market failed is false.

[randita]

Food for thought. Can’t say that I disagree much with the author’s viewpoint.

[entropy12]

I support Trump for many reasons, but the over-riding reason is he is unabashedly “America First” candidate, more than any candidate who has appeared on the scene since I became a US citizen in 1970.

[Alberta's Child]

The three states you cited -- Nevada, Arizona, and Florida -- were among the worst places for foreclosures for reasons that had nothing to do with immigration, CRA mandates, or anything of the sort. Nevada and Arizona are "non-recourse" states where banks can only take possession of a foreclosed property in the event of default. In "recourse" states, banks that can't recover the full value of the mortgage after foreclosure can pursue borrowers for other assets as well. As a result, places like Phoenix and Las Vegas have been prime markets for highly speculative residential construction. Why not build a 500-unit subdivision if a bank is willing to lend you 95% of the cost and the worst thing you have to deal with is the possibility that you might have to hand them the keys if the project goes belly-up?

Florida has also been a prime market for speculative real estate for as long as I can remember, but for different reasons. There are a disproportionate number of second homes there (including many owned by foreigners), which means people are more likely to bail on the mortgage when they are in financial distress.