ECONOMY – “FAILED POLICIES OF THE PAST LED TO MELTDOWN” – TRUTH VS. OBAMA'S MANTRA --- (please go to post “Economy of the '90s, " July 11, 2012, for other major contributing factors to the economy of the '90s, the Clinton presidency.
This article is being posted to give some TRUTH regarding the misleading mantra of President Obama and his supporters about “failed policies of the past" leading to the economic meltdown in 2008.
It is also being posted in anticipation of Bill Clinton's Democratic Convention speech. If his preliminary commentary last week is a measure of what he will say in his keynote or nominating speech, CLINTON WILL MAKE THE SAME CLAIMS in spite of the fact that his executive decision in 1994, with Treasury Secretary Robert Rubin's urging, led to the meltdown of the housing industry....and the general economy.
I posted on July 11, 2012, an article I published in 2004 about the major factors that contributed to the good economy of the '90s – all except the housing bubble that lasted from mid-'90s until the meltdown in 2008. I urge readers to click onto July posts or enter “Economy of the '90s” in the search block at top left of the opening blog page and read the post. I wrote the article to counter the ridiculous claims, of Robert Rubin, that the housing boom resulted from Clinton's tax increases that “took the pressure off the long bond” and the even more ludicrous claim from Robert Reich, Labor Secretary, that “we invested in education and healthcare that made workers more productive.”
So, what's the truth about the housing bubble and the resultant meltdown that took the whole economy down with it? The “Community Reinvestment Act (CRA) of President Carter in 1977 was the precursor. The intent was to get more low-income people into houses. It had a positive, but modest, effect on housing for a long while. Then, in 1994-95 President Clinton, with urging from Treasury Secretary Robert Rubin (of the banking industry), signed and executive order that opened the so-called “house for everyone” funding floodgates. Qualifications for mortgage loans were reduced so low as to be meaningless – even nothing for some. No-document loans (“no-docs”) were common. Fannie Mae and Freddie Mac were the lenders who bought up the mortgages and fed on these excesses.
In 1995, housing sales increased nearly 2.5 times over the year earlier and 4 times any peak seen since 1977. Sub-prime loans became the norm. Banks were intimidated (by the likes of ACORN and others) to grant loans to normally unqualified people. Other banks simply fell in line to feed at the mortgage trough. Mortgage loan production people were even paid bonuses for bringing what has to be called bad credit. People with little qualification were granted variable rate mortgages, loans on which interest rates were increased to give yields to bankers beyond the original rates. The large banks, not known for their great integrity, fed off this opportunity.
Then in 1999, Gramm-Bliley repealed Glass-Stegall and other financial institutions joined the feeding frenzy.
I'll hasten to add that sub-prime mortgages were not the only engine of the housing boom. Sales of all price ranges of houses with all levels of “qualified” buyers boomed. The sub-prime crash took all down all levels.
Wall Street commercial and investment banks took advantage of the housing “bubble.” They bundled mortgages, especially those with increasing variable rates, and sold them to investors as “collateralized Debt Obligations” (CDO's) and “Structured Investment Vehicles,” (SIV's) – in other words, investments with no assets to back them up. Mortgage companies such as Countrywide, run by Angelo Mozillo fed off this trend. So did politicians. Senator Chris Dodd was one such trough feeder. Dodd was one of the Senators charged with regulation of the financial industry. Congressman Barney Frank was his lead partner from the House. Dodd was also a “friend of Angelo” and benefited with a favored mortgage as such. Other politicians were similar. Sen. Kent Conrad was said to be one.
Now, what media and others, especially Obama and those who still want to blame Bush for the meltdown, don't bother to report (forget!) is that George Bush tried to reign in Fannie and Freddie, first in 2003 and again in 2005. Dodd and Frank led the charge in defeating Bush's initiative. Now Dodd has resigned and Frank will not seek his office again, nor will Konrad. Wonder why?
So, when Bill Clinton says “the failed policies of the past are responsible for the economic downturn still being experienced, he will be right with regard to the financial meltdown --- and he will be speaking of himself as the perpetrator in 1994-95. Truth will hurt some who learn this, many will simply ignore it and others will claim I am not telling the truth. I've experienced that more than a few times by those who refuse to face reality.
Please go to “Economics of the '90s”, July 11, 2012, in this blog for details on '90s economics. Thank you.