A few weeks ago, I wrote Financing the American Dream. In this post, I talked about the muddling of economic analysis in politics and theorized that the government played a role in our current Mortgage/Credit/Housing/Banking Crisis. Yes, I think we need to choose one name and stick with it. I think that Mortgage Crisis is most appropriate because it is at the root of the problem. Finally, I linked to a few articles by Richard Epstein (of the University of Chicago) and his belief that America was too quickly jumping on the regulation bandwagon.
Today, the Wall Street Journal shed some more light on this and, in my opinion, affirmed my beliefs:
Finally, on the matter of deregulation and the financial crisis, Sen. Obama should consider his own complicity in the failure of Congress to adopt legislation that might have prevented the subprime meltdown.
In the summer of 2005, a bill emerged from the Senate Banking Committee that considerably tightened regulations on Fannie and Freddie, including controls over their capital and their ability to hold portfolios of mortgages or mortgage-backed securities. All the Republicans voted for the bill in committee; all the Democrats voted against it. To get the bill to a vote in the Senate, a few Democratic votes were necessary to limit debate. This was a time for the leadership Sen. Obama says he can offer, but neither he nor any other Democrat stepped forward.
Instead, by his own account, Mr. Obama wrote a letter to the Treasury Secretary, allegedly putting himself on record that subprime loans were dangerous and had to be dealt with. This is revealing; if true, it indicates Sen. Obama knew there was a problem with subprime lending — but was unwilling to confront his own party by pressing for legislation to control it. As a demonstration of character and leadership capacity, it bears a strong resemblance to something else in Sen. Obama’s past: voting present.
Okay, that is a big chunk of the article, but read the whole thing. If you are planning on voting based on our current economic situation (which I largely frown upon), then please, please read this article. Please read the first post that I made and read that editorial with outtakes from Senate hearings. Congress deregulated the mortgage industry through Fannie Mae and Freddie Mac in order to subsidize house ownership in the U.S. Why would they do this? Why would Democrats endorse doing this? Well, on face it seems like a win-win: deregulation for Republicans, helping people with bad credit get homes for the Democrats.
I feel like almost every politician is lying on this issue. Wall Street greed? I thought we got over this in 1987 with the movie aptly titled “Wall Street”. Wall Street firms are staring at computer screens looking for a signal to respond to. If anyone would respond to this crisis quickly it would be a trader on Wall Street looking at indicators updating themselves every second. They are continuously looking at economic data. Continuously. A Congressperson may see these figures once a month. Add people looking for business opportunities (read: make money or greed, if you will) and a government looking to get people owning homes, then you have a mortgage crisis. Giving people sketchy loans to get them inside a house is predicated on the expectation that the market value of the homes will rise. If the value rises, then the sketchy homeowner is building equity and refinancing at a better rate. If the value falls (which happened), then people’s mortgages are worth more than their home and they foreclose.
I want someone to come out and tell us: “Look, we tried to get people in homes, we brought the banking system on-board by guaranteeing the solvency of Fannie and Freddie and the market went bad. We made a decision that looked good in the current market, but was not robust enough to survive a downturn. In the future, we will need stronger oversight of government sponsored enterprises. The mission of deregulating private enterprise is still alive and well, we can use the lessons of this crisis to help us regulate smart, not more.”
Seriously, copy that, go ahead. I will be so happy for the country, that I would not care. Seriously.
The WSJ has also shed some light on Obama’s 95% Illusion:
It’s a clever pitch, because it lets him pose as a middle-class tax cutter while disguising that he’s also proposing one of the largest tax increases ever on the other 5%. But how does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all? There are several sleights of hand, but the most creative is to redefine the meaning of “tax cut.”
For the Obama Democrats, a tax cut is no longer letting you keep more of what you earn. In their lexicon, a tax cut includes tens of billions of dollars in government handouts that are disguised by the phrase “tax credit.”
Again, read the whole article it is worth it. I don’t buy into the 95% claim. Most people do not pay taxes, this is pseudo-welfare. If Obama wants to increase government spending in our current economic condition, he should consider adding clarity to the tax code, not more confusion. Where is Steve Forbes with the flat tax when you need him? For some people, Obama’s tax plan will create an incentive not to earn more money because if they do, then they will stop receiving benefits.
Take an accounting, finance, or economics class, government transfers are different than taxes. This is a transfer of wealth, not a tax cut. They are different things. Obama might just pull a fast one on the American people. (I’m not a fervent anti-Obamaist, just a concerned economist).
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spencerb
Great thoughts. Scary election.
How about “Lending Crisis,” I see this more encompassing.
Forming a committee to study the problem of deficit spending is as good as saying you are going to do NOTHING.