The question the GOP needs to ask the electorate in 2012

myp · Aug 26, 2011

1. Not enough. They would have surely pointed to it after the crisis, esp in 2008 with the election. Fact was they had it low on their own agenda list and they know it. Also, GSEs weren't the only problem.

2. You seriously think there was a point when the government sponsored enterprises weren't politicized?

Also, Clinton didn't support subprime lending although he signed some legislation that would indirectly lead to an increase in it.

3. Yes, it is known as moral hazard. The Reagan deregulation made the moral hazard potent. If he really wanted to deregulate he needed to deregulate the whole thing to make it sustainable. In the same way, Clinton needed to deregulate the whole thing- FDIC and all- with this housing bubble or he was just opening up moral hazard and creating instability (which is what ended up happening). Hindsight is 20/20 of course, but deregulation in a sense did help cause both those crises because it wasn't enough deregulation so again, it put us in an unstable middle- a middle that was very arguably worse than had we just stuck with the original regulation.

Patrick · Aug 26, 2011

myp said:
1. Not enough. They would have surely pointed to it after the crisis, esp in 2008 with the election. Fact was they had it low on their own agenda list and they know it. Also, GSEs weren't the only problem.

GSE's were the root of the problem - they created the market for securitized subprime mortgage bundles. When private banks saw them making money by the trainload, they jumped in. In fact, any large bank which didn't jump in would have been at such a competitive disadvantage, it would have been acquired by one who was in. Without the GSEs, with their implicit government backing, creating the market, the only factor would have been the Fed's easy money policy. Bush was busy with his wars, although GOP officials >>repeatedly<< asked Frank to do something. Trying to equate GOP and dem culpability just doesn't wash - dems created the mess, the GOP didn't try SUPERHARD to end it. Relative blame? dem/GOP = 90/10.

2. You seriously think there was a point when the government sponsored enterprises weren't politicized? Also, Clinton didn't support subprime lending although he signed some legislation that would indirectly lead to an increase in it.

The GSEs were backed by many administrations dem and GOP for decades, and worked just fine before Clinton. How does that make them always politicized?? You're wildly understating Clinton's role. At the behest of black politicians, who had had some success in using such as ACORN threatening a bank or two to provide subprimes for unqualified minority borrowers, Clinton and the dems changed the law in 1992, and Clinton appointed Franklin Raines head of fanny mae with specific orders to GREATLY ramp up the subprime purchases, which he did.

3. Yes, it is known as moral hazard. The Reagan deregulation made the moral hazard potent. If he really wanted to deregulate he needed to deregulate the whole thing to make it sustainable. In the same way, Clinton needed to deregulate the whole thing- FDIC and all- with this housing bubble or he was just opening up moral hazard and creating instability (which is what ended up happening). Hindsight is 20/20 of course, but deregulation in a sense did help cause both those crises because it wasn't enough deregulation so again, it put us in an unstable middle- a middle that was very arguably worse than had we just stuck with the original regulation.

So you say deregulation wasn't the problem per se - not enough deregulation was - fine. The converse promoted by the lib/left is that lots of regulation would have mede things wonderful is clearly false.

myp · Aug 26, 2011

The GSE's did not create the market for mortgage backed securities (I'll abbreviated them MBS) or subprime mortgages. The whole system did. Quite literally the MBSs were the creation of computer algorithms coded by engineers and smart people hired by the big banks. They were made to be sold and there was great market demand domestic and abroad. This high demand for MBSs led to a high demand for mortgages and Wall St. pushed lenders for more loans- some took it far enough to lend to anyone (which is how most of the subprimes originated) because they knew they could sell them to Wall St. The GSEs did not create it, they merely a couple of many, many investors. Large investors yes, but far from the only ones interested. The MBSs and subprimes would both have been originated even without the GSEs.

As for being backed by both parties- who cares? Anything government does is politicized- even their creation was political. They have always been politicized.

Patrick said:
So you say deregulation wasn't the problem per se - not enough deregulation was - fine.

The deregulation that Clinton (and with S&L Reagan) did was the part of the problem still.

Patrick said:
The converse promoted by the lib/left is that lots of regulation would have mede things wonderful is clearly false.

No not really. For one, there are varying levels of regulation and varying support amongst different people. Same goes for the right. You might say you are for the free market but some might argue that even you are not for the free market if you believe in intellectual property rights enforced by the government or a government at all. In fact, some might see that desire for government or intellectual property rights as regulation too.

That aside, had we stayed on course with the old regulation, it would have been better than chopping half of it down and not the rest as we did.

Patrick · Aug 26, 2011

myp said:
The GSE's did not create the market for mortgage backed securities (I'll abbreviated them MBS) or subprime mortgages. The whole system did. Quite literally the MBSs were the creation of computer algorithms coded by engineers and smart people hired by the big banks. They were made to be sold and there was great market demand domestic and abroad. This high demand for MBSs led to a high demand for mortgages and Wall St. pushed lenders for more loans- some took it far enough to lend to anyone (which is how most of the subprimes originated) because they knew they could sell them to Wall St. The GSEs did not create it, they merely a couple of many, many investors. Large investors yes, but far from the only ones interested. The MBSs and subprimes would both have been originated even without the GSEs.

Absolute distortion. THE pURPOSE OF THE PURELY POLITICIZED CRA WAS TO GO AFTER PRIMARY LENDERS BECAUSE THEY WOULDN'T MAKE THE RISKY LOANS!! The government said they were "redlining", and the CRA provided penalties for primary lenders based upon their "CRA compliance record". If primary lenders wouldn't make the loans, there wouldn't have been anything to securitize in the secondary market! You're confusing way downstream proximate "causes" for the ultimate cause - the CRA.

myp · Aug 26, 2011

Patrick said:
Absolute distortion. THE pURPOSE OF THE PURELY POLITICIZED CRA WAS TO GO AFTER PRIMARY LENDERS BECAUSE THEY WOULDN'T MAKE THE RISKY LOANS!! The government said they were "redlining", and the CRA provided penalties for primary lenders based upon their "CRA compliance record". If primary lenders wouldn't make the loans, there wouldn't have been anything to securitize in the secondary market! You're confusing way downstream proximate "causes" for the ultimate cause - the CRA.

The CRA accounted for a very small percentage of loans made. Most of the subprime loans were not made due to CRA mandates, guidelines, etc. Also why are you bringing that up now if you thought it was so important? I thought you felt it was all the GSEs fault

And don't think twice about some of the organizations which made subprime loans- it was far from under the duress of the CRA- it was all about the $$$. That is especially true for the big ones like Countrywide (and some smaller ones that were clearly in it just for quick $$$ like the infamous one run by a guy who went on to spend it on a street racing movie, nice cars/houses, etc. and was not a legitimate long-term business- unfortunately I can't remember his name right now). If it weren't every lender would have made that many subprimes as a percentage of all loans made- but it wasn't the case. Some banks even stayed away from subprime altogether.

Patrick · Aug 26, 2011

myp said:
The CRA accounted for a very small percentage of loans made. Most of the subprime loans were not made due to CRA mandates, guidelines, etc.

You have absolutely no way to prove that statement. It's like saying "very few of the people who haven't had possessions stolen was because of the laws against theft." The mandate of the CRA to banks, particularly it's 1990s revisions under Clinton, was clear - make the loans to minorities or else.

Also why are you bringing that up now if you thought it was so important? I thought you felt it was all the GSEs fault.

Noooooooo........ Both parts were necessary - the arm twisting of primary lenders to make the risky loans, and the mandate to fanny mae (and later freddie mac) to buy the loans and securitize them. Both policies were engineered by the liberals.

And don't think twice about some of the organizations which made subprime loans- it was far from under the duress of the CRA- it was all about the $$$. That is especially true for the big ones like Countrywide (and some smaller ones that were clearly in it just for quick $$$ like the infamous one run by a guy who went on to spend it on a street racing movie, nice cars/houses, etc. and was not a legitimate long-term business- unfortunately I can't remember his name right now). If it weren't every lender would have made that many subprimes as a percentage of all loans made- but it wasn't the case. Some banks even stayed away from subprime altogether.

You're getting confused by jumbling up the chronology. Listen carefully now:

1. Revisions of the CRA convince primary lenders to make the risky loans.

2. Under Clinton's handpicked fanny mae director, a secondary market is created for such loans.

3. Primary lenders who deal with fanny mae then become eager to make such loans - their attitude is "fanny mae folks must be out of their minds, but if they'll buy these loans, fine with us - we'll make money on the deal, and fanny also pays us to service them. Lotsa profit, no risk - what's not to like? yahooo!!"

4. Fanny mae is able to securitize and sell the loans to investors, who believe the risk must be low because GSEs have always been understood by all to be ultimately government backed, and they will be made whole if anything goes wrong. They in fact make huge profits.

5. Investment banks pick up on the fact that people are getting rich on these loans - they jump in.

6. the bubble bursts.

7. What caused it? go back and re-read number 1.

myp · Aug 26, 2011

The CRA was passed in 1977. Most of the subprime mortgages that caused trouble in this bubble were lent out in the 2000s. There is a way to prove that and there is no argument. Something changed. Those things were Fed monetary policy and Glass-Steagall. And I am not saying this alone either- there have been many studies on the effectiveness of CRA, as well as on its role in the subprime crisis (which is relevant here). Most of them conclude that Glass-Steagall and the Fed were the primary stimulants of this bubble that really blew the door open on the moral hazard from other existing programs.

As for your chronological list, the MBSs weren't in and of themselves the problem until they got extremely complex and eventually with the killer CDOs- and it was all Wall St. there. Are you really trying to tell me you think the MBSs the GSEs started in the 70s were the root cause of this bubble? It was where the evolution of MBSs specifically with CDOs in the 2000s by Wall St. that led to the mess we saw.

Patrick · Aug 26, 2011

myp said:
The CRA was passed in 1977. Most of the subprime mortgages that caused trouble in this bubble were lent out in the 2000s.

Now you're just replowing ground I already covered. I ALREADY SAID the original CRA of the 1970s was hamless enough. IT WAS THE REVISIONS IN THE 1990S, TOGETHER WITH CLINTON'S SELECTION FOR FANNY MAE HEAD THAT CHANGED THAT TO A DISASTER IN THE MAKING.

There is a way to prove that and there is no argument. Something changed. Those things were Fed monetary policy and Glass-Steagall.

Already covered that too - the failure of purely investment banks like Lehmann Brothers PROVES that couldn't have been the cause, otherwise they wouldn't have failed as well. Get it? GET IT???

As for your chronological list, the MBSs weren't in and of themselves the problem until they got extremely complex and eventually with the killer CDOs- and it was all Wall St. there.

That's laughable - the creation of derivatives etc was WAYYYYYYY downstream of the root of the problem - the lib establishment trying to overturn the laws of economics by forcing banks to give loans to people who weren't able to pay them.

skeptic-f · Aug 27, 2011

I said a couple of years ago on another forum that President Obama was guaranteed re-election if the economy recovered somewhat and the Republicans picked a bad Presidential candidate; that he was toast if neither of those things happened, and that it was 50/50 if one of the two occurred.

So the ball is now in the court of the Republican Party. Instead of being flushed with the arrogance of anticipated victory, they should assume a tough fight and pick a candidate who will guarantee President Obama will lose his bid for a second term. Given the behavior of the Republicans over the past couple of years, I put the odds of that happening at about 50/50 as well.

DodgeFB · Aug 27, 2011

skeptic-f said:
I said a couple of years ago on another forum that President Obama was guaranteed re-election if the economy recovered somewhat and the Republicans picked a bad Presidential candidate; that he was toast if neither of those things happened, and that it was 50/50 if one of the two occurred.

So the ball is now in the court of the Republican Party. Instead of being flushed with the arrogance of anticipated victory, they should assume a tough fight and pick a candidate who will guarantee President Obama will lose his bid for a second term. Given the behavior of the Republicans over the past couple of years, I put the odds of that happening at about 50/50 as well.

I agree. The Republicans are digging their own hole. We need to get serious when we pick candidates and not pick people that spout feel good slogans.

Patrick · Aug 27, 2011

skeptic-f said:
I said a couple of years ago on another forum that President Obama was guaranteed re-election if the economy recovered somewhat and the Republicans picked a bad Presidential candidate; that he was toast if neither of those things happened, and that it was 50/50 if one of the two occurred.

So the ball is now in the court of the Republican Party. Instead of being flushed with the arrogance of anticipated victory, they should assume a tough fight and pick a candidate who will guarantee President Obama will lose his bid for a second term. Given the behavior of the Republicans over the past couple of years, I put the odds of that happening at about 50/50 as well.

What is a "bad" GOP candidate?

What is a "good" GOP candidate?

I don't think most republicans have ever thought a presidential election would be easy - they've usually been at a registration disadvantage, and other permanent disadvantages such as the absolute guarantee of minority support for the democrats, plus the democrats' advantage of the giant liberal media acting as a multi-billion dollar cheerleading section for them not subject to campaign finance laws.

myp · Aug 27, 2011

The (seemingly) lucrative CDOs pushed the market for more loans and led to more subprime. Mostly everyone knowledgeable or credible on the topic accepts it, as do I, and I will not argue it with you.

Either way, let's say you were right and it was all the GSEs- even then, the investment banks took on that risk by trading those securities and it is undeniable they had tons of toxic assets (from subprime mortgages) on their books. It is also undeniable that they leveraged themselves to ridiculous and foolish levels. It was these two things that ended up freezing them up, ended up having them crying to the government for help, and ended up being a threat to the global credit markets. Let's not pretend it was all government at fault.

Patrick · Aug 27, 2011

myp said:
The (seemingly) lucrative CDOs pushed the market for more loans and led to more subprime. Mostly everyone knowledgeable or credible on the topic accepts it, as do I, and I will not argue it with you.

Your "knowledgeable" reference is just argument to authority, and where were these experts before the crash? This type argument analogously reminds me very much of anti-Reagan historical revisionism by the lib establishment - in order to diminish credit to Reagan for bringing down the soviet union, they try to portray last-stage proximate causes for the actual fundamental cause. Likewise, the CDOs are something that never would have come into being had not the whole disaster been set in motion by MUCH earlier government policies - they were just artifacts way down in the chain of causality leading to the ultimate debacle.

Either way, let's say you were right and it was all the GSEs

Your apparent inablility to get this correct is becoming tiresome. I said it was the UNPRECEDENTED policy of the GSEs, formerly something they didn't do, to act as a secondary market for bad loans, PLUS the use of the CRA to coerce banks to make the primary loans to the democrat party's political clients.

even then, the investment banks took on that risk by trading those securities and it is undeniable they had tons of toxic assets (from subprime mortgages) on their books. It is also undeniable that they leveraged themselves to ridiculous and foolish levels. It was these two things that ended up freezing them up, ended up having them crying to the government for help, and ended up being a threat to the global credit markets. Let's not pretend it was all government at fault.

SURE, the private investment banks can be blamed for getting involved in a government - caused train wreck. The point is that the whole mess started with >>GOVERNMENT<< meddling in the housing financial markets - if they hadn't done it, the whole thing never would have happened. That's what makes it ABSURD to claim that the problem was "lack of regulation", or that "capitalism" was the fault - both the standard lib media lines, and what got obama elected, with all the calamity that THAT has caused.

myp · Aug 27, 2011

I agree it was caused by government (as I said before). But it was caused by careless deregulation by government. And that careless deregulation was pushed by both parties driven by the special interest money. Even if you want to pinpoint it on Clinton or whoever, through all those votes you had GOP members in Congress vote yes too. And you completely let Bush off the hook despite saying in another thread how Obama is responsible for what happens in his 4 yrs regardless of previous events. Why the special treatment for Bush?

You are stuck in a political game where you see the GOP as the hero and the Dems as the villain. In reality, both are a lot more similar than you think, both have increased the size of government tremendously in recent decades, and both have hindered the natural price mechanism of the market. Both parties sold out long ago. Ironically, you being stuck in the political limbo as the tea party is is just what big finance wants as it diverts attention away from them while their crimes don't even get tried in court and while they continue to take billions in taxpayer money. Both parties are at fault for our current problems. When even the likes of Bush and Obama admit it, I don't see how you can't.

Patrick · Aug 27, 2011

myp said:
I agree it was caused by government (as I said before). But it was caused by careless deregulation by government.

But do you see what the left does? They try to distort the history, which is fairly complex, to leave in people's minds a fuzzy notion that "more regulation is better" - people learn the wrong lesson from the crash, which has bad consequences for the country.

And you completely let Bush off the hook despite saying in another thread how Obama is responsible for what happens in his 4 yrs regardless of previous events. Why the special treatment for Bush?

You're still going to ignore the increasingly frantic warnings to the Frank committee by the GOP about fanny mae? Hokayyyyyy.......

You are stuck in a political game where you see the GOP as the hero and the Dems as the villain. In reality, both are a lot more similar than you think, both have increased the size of government tremendously in recent decades, and both have hindered the natural price mechanism of the market. Both parties sold out long ago. Ironically, you being stuck in the political limbo as the tea party is is just what big finance wants as it diverts attention away from them while their crimes don't even get tried in court and while they continue to take billions in taxpayer money. Both parties are at fault for our current problems. When even the likes of Bush and Obama admit it, I don't see how you can't.

As I've pointed out, when you look at the history in detail, the "both parties are equally to blame" theory collapses like a cheap card table. And you need to know me better before you can presume to hold forth on what I think. Bush, and the GOP establishment since Reagan left are RINOs, I'm the last one to defend them in general - I'm a conservative.

myp · Aug 27, 2011

As President he could have done more than warn. He could have made an appeal to Congress to do something, he could have made a speech to the American people. If he really felt strongly enough about it we probably would have seen an interview or something where he talked about it and most definitely post-crisis Bush supporters would have pointed to that video. That doesn't exist because he didn't know. There is no way he saw the bubble coming- he would most definitely have said something to save his own ass if he had.

As for you thinking Bush and Reagan are RINOs- fine, but it seemed like you were placing no blame on them.

Either way, this is not a problem with just the left- it is a problem with both. You admit there are RINOs and I assume you think they do add to the problem (hence the name RINO)- at the end of the day they are still registered Republicans and represent the party of today- and there a lot of them that fall into that don't know what is going on/sellout group. I'd say stop standing by the GOP emblem and historic past because it doesn't matter and look at it for what the party is today- a sellout just like the Dems.

Patrick · Aug 27, 2011

myp said:
As President he could have done more than warn. He could have made an appeal to Congress to do something, he could have made a speech to the American people. If he really felt strongly enough about it we probably would have seen an interview or something where he talked about it and most definitely post-crisis Bush supporters would have pointed to that video. That doesn't exist because he didn't know. There is no way he saw the bubble coming- he would most definitely have said something to save his own ass if he had.

As for you thinking Bush and Reagan are RINOs- fine, but it seemed like you were placing no blame on them.

Either way, this is not a problem with just the left- it is a problem with both. You admit there are RINOs and I assume you think they do add to the problem (hence the name RINO)- at the end of the day they are still registered Republicans and represent the party of today- and there a lot of them that fall into that don't know what is going on/sellout group. I'd say stop standing by the GOP emblem and historic past because it doesn't matter and look at it for what the party is today- a sellout just like the Dems.

The president IS responsible for what happens on his watch, but to try to equate Bush's inaction with obama's failures is just wildly off the mark. EVERYONE KNOWS FOR SURE THERE IS A RECESSION and has been since obama took office, on the contrary, few saw the crash coming in the housing market till it happened, in the last couple months of Bush's eight years - did YOU? If you did, presumably you are now a billionaire from short-selling bank stocks.

myp · Aug 27, 2011

I was in my early/mid teens at the time and not interested in these things unfortunately

But people did see it and it was foreseeable and should have been by a man at that position (especially if he really thought the GSEs would lead to instability). Some notables that did include Barry Ritholtz and Peter Schiff.

Patrick · Aug 27, 2011

myp said:
I was in my early/mid teens at the time and not interested in these things unfortunately But people did see it and it was foreseeable and should have been by a man at that position (especially if he really thought the GSEs would lead to instability). Some notables that did include Barry Ritholtz and Peter Schiff.

All kinds of "experts" are giving all kinds of mutually contradictory economic advice and predictions all the time.

Harry Truman got so tired of economists telling him "on the one had blah blah blah, on the other hand blah blah blah", that he said he wished he could find a one-handed economic adviser.

myp · Aug 27, 2011

Patrick said:
All kinds of "experts" are giving all kinds of mutually contradictory economic advice and predictions all the time.

Harry Truman got so tired of economists telling him "on the one had blah blah blah, on the other hand blah blah blah", that he said he wished he could find a one-handed economic adviser.

It doesn't mean it wasn't predictable though

And I'll take academically honest studies over politician whims any day.

The question the GOP needs to ask the electorate in 2012

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