As an uneducated American, I suppose I represent "the" average citizen. Outside of the biased headlines, the experts on both sides of the aisle, and partisan politics, how could anyone figure out how we really get into this recession?
I have a few thoughts - hey, isn't that why you read my blog?
Gas Prices:
I don't think that anyone would disagree that the financial fireworks came in June of 2008 when gas prices topped $4 per gallon (SOURCE: Reuters). Certainly cutbacks in the labor force had already been taking place. G. W. Bush provided tax rebates which came a little too late, and in the face of skyrocketing fuel prices, were ineffective.
Fuel prices continue to be a contributing factor as recovery seems nearly stalled, while the national debt and the weak US dollar are not helping. There is an opposing view HERE.
The crudest explanation is that the price of gas is following the price of oil upward. Oil, like all commodities, has been rising, pushed higher by increased demand and a weak U.S. dollar.
(SOURCE: Washington Post)
But who is really to blame? I put the largest portion of the blame squarely on the US housing market, along with a very loose credit market. A lot of folks would like to blame Wall Street outright, however the inflated housing market has its roots much deeper than that. Wall Street simply responded to the demand - and you can't regulate greed. Lots of hard-working Americans with stable job situations got mortgages commensurate with their ability to pay.
Wall Street:
"Over the past few months, we have become increasingly concerned that the US housing and credit market downturn would trigger not just a growth slowdown and substantial Fed easing -- our long-standing view -- but also an outright recession," Goldman Sachs said in a note to clients Wednesday. (SOURCE: CNBC)
That was the headline as we stood on the precipice of collapse. I think it goes back much further. Let's turn the time machine back to September of 1999.
Housing:
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. SOURCE: New York Times
The idea, that in a time of relative fiscal abundance, that we should let our guard down to make the American Dream more inclusive - more available, was the beginning of the end. My Democratic detractors will point to the Clinton surplus in the budget without mentioning the the dismantling of the Regan military machine, which was; for the most part, responsible for the end of the Cold War and the fall of the Iron Curtain.
Politicians:
Fannie Mae and Freddie Mac, both quasi-government agencies, became the "government guarantee" for mortgages and also paid out handsome dividends to investors. A very nice way of funneling tax funds to a "for profit" entity. Eventually "mortgage backed" securities, which relied on them failed, and Wall Street took the blame for plummeting investments. Honestly, who needs to be regulated, Wall Street or the Federal Government? For fun, let's take a look at who Fannie and Freddie support politically. Here's the top 12.
Dodd, Christopher J - Senate CT Democrat $165,400
Obama, Barack - Senate IL Democrat $126,349
Kerry, John - Senate MA Democrat $111,000
Bennett, Robert F - Senate UT Republican $107,999
Bachus, Spence - Republican House AL Republican $103,300
Blunt, Roy - House MO Republican $96,950
Kanjorski, Paul E - House PA Democrat $96,000
Bond, Christopher S 'Kit' - Senate MO Republican $95,400
Shelby, Richard C - Senate AL Republican $80,000
Reed, Jack - Senate RI Democrat $78,250
Reid, Harry - Senate NV Democrat $77,000
Clinton, Hillary - Senate NY Democrat $76,050
SOURCE: Open Secrets
To top off the government's insatiable appetite for deficit spending, Barny Frank (D-MA) has decided that instead of fixing the problem, we'll just over look it. Why not get rid of the problem and create a new agency that he and his party can claim political and financial success for while abandoning the one that will hurt their November campaigns?
House Financial Services Committee Chairman Barney Frank is calling for the abolition of Fannie Mae and Freddie Mac, the government-sponsored enterprises with a public mandate to boost home ownership, and which were taken into conservatorship during the 2008 financial crisis. (SOURCE: TPM)
George Bush:
Well, if you still want to blame George Bush, who certainly played a part by allowing this charade to go on, you are in the majority.
Former President George W. Bush gets more blame for the country’s economic troubles than his successor or the Democrats who control Congress, according to a Harris poll out Wednesday. SOURCE: Politico
Talk about uneducated!
All in all, it's looking bad for both the Democrats and even some of the Republican cronies in November. I hope that you'll consider voting for folks that can turn this around!
In the final analysis, this economic recession was years in the making. Quick political fixes for financial and political gain are at the root of the current recession; which has cost million of US jobs, and trillions of dollars in debt.
So, you don't believe David Johndrow? HERE are 15 reasons for the melt down given by the experts - but this time, I just happen to think I am right.
What do you say? Who's fault is it, and who is the best person to fix it? And please, spare me the name calling and partisan bigotry - I am looking for solutions.
12 comments:
David;
There are no solutions for our crisis. It can't be fixed.
If you think about it, this out of control spending by Wahsington has been going on since the 60s that I know of.
The time of tax and spend back then. The only problem then was Washington was spending more than they were taxing.
In the 70's I was trying to figure out why gas prices were escalating knowing full well there were numerous ships filled with oil off the coast laying anchor and not bringing the oil to the ports.Still Washington was spending more than the IRS was taking in.
In the 80s and early 90s I learned that NAFTA and the Free Trade agreement had sent many American jobs overseas for cheaper labor and Washington was allowing tax credits to theses businesses to move their plants overseas leaving many Americans out of work. Still Washington was spending more than the IRS was taking in.
In the later 90's and the early 21st. century we got huge tax reductions to kick start the economy that was faltering and showing signs of weakness. Still jobs were being exported overseas at an alarming rate. Still Washington was spending more than the IRS was taking in.
Insider trading on Wall Street was making billionares out of white collar crooks. Fannie Mae and Freddie Mac was born during the 21st. century. Insiders were getting rich. Any body living and breathing got money for a house they could not afford. Still Washington was spending more than the IRS was taking in.
The Obama era.We got health care no body wanted that will cost 9 trillion dollars. Inflation is quiclky rising, jobless rates are skyrocketing, Companies and banks that were run poorly in the first place got hundreds of billions of dollars in bail out money and they are still run poorly. Still Washington was spending more than the IRS will ever be able to take in.
However there were jobs created in Washington that supports this administration's agenda but the working public is still out of work possibly never to ever work again. Those jobs went overseas or the company folded. Still Washington wis spending more than the IRS will ever be able to take in.
We Americans have to live with in our means or untill we max out our credit cards. We don't get Washington bail outs. We have to budget our finances to cover our expenses.
What I think Washington has to realize is the money tree is picked clean and bears no more fruit. They can only print so much worthless paper before the collector comes to demand payment. If we have to have fisical responsibility in our finances, the Government ( which hasn't) has to do the same. There in lies the quagmire.
“Who’s to blame?” The short answer is President Bush.
President Bush was the President of the United States, leader of the Free World, and philosopher King of the major conservative political party, the Republicans. As the Head of State, when the sun rises, you may claim credit. But when the sun sets, you get the blame. So that’s the short answer – the sun set on his watch, so Bush == Hoover.
“Whose fault is the sagging economy?” The short answer is President Obama. Once again, the man with the green tabs (that’s Commander, in US Army speak) gets the blame when things go wrong.
Once Obama got the nomination, he had a very expectation of winning the election, so he started planning what he needed to accomplish to save the country early. Jonathan Alter’s “The Promise: President Obama, Year One” is a well sourced (but synchophantic) coverage of the terrible problems facing the not yet President, how he prioritized, and what he mapped out.
Personally, I think that the major reason for the 2008 depression was the overleveraging of mortgage assets through an increasingly byzantine scheme. There are many minor villains here, including Congressman Barney Frank (that’s my applause line).
Government regulations get bad press. Think of these as the guard on a chain saw. When the guard is on, it’s a lot tougher to cut your fingers off. But it can argued that a chain saw guard can slow you down. And who should know better – the pro running the chain saw, or some lame-o Washington w*ss handing down edicts from afar?
In 1998 (or so), the Republican Congress and Democratic President abolished the chain saw guard that kept mortgages tied to the lending institutions that initiated same. That meant that banks could issue mortgages, then sell same to other financial institutions that could use the assets as capitol for other actions. It also meant that the bank which issued the mortgage has a greatly reduced interest in whether a specific mortgage was Game or Lame.
In 2000, the stock market was booming (due in part to deregulation under President George H. Bush, which peaked under President Clinton). Then suddenly – boom. Recession, just in time to help President George W. Bush take over. With stocks suspect, people poured their money into real estate – and the price went up and up. Until 2008, when suddenly – boom.
The collapse of prices in the heavily over leveraged US housing market brought the immediate collapse of their insurer, Lehman Brothers. When your insurance company for multiple trillions of dollars in hard assets tanks, then you know it’s bad. The nation of Iceland (Iceland! For crying out loud!!) had invested everything in financial assets that were based ‘way down the food chain on those mortgages. And when a bubble collapses, so do prices (and I know from bubbles – I lost about a half million in 2000 on high tech, which never ever came back).
So who’s to blame for the 2008 crash? My opinion:
- The Republican Congress and President Clinton for wrecking the Fed firewall linking mortgages to the direct lender
- President Bush II and the Republican Congress for not monitoring the ballooning housing prices, and the increasingly heavily leveraged house of cards of Wall Street
- Congressman Barney Frank and Senator Chris Dodd, as straw men for Democratic efforts to expand Federal lending for marginal home buyers
That’s how we got where we’re at now. To recap, the collapse of the high tech bubble in 2000 brought us President Bush II, instead of President Gore. It also burned a lot of people on stocks, who instead sunk their dough into real estate, a hard asset.
President Bush II inherited a recession, and his solution was to pass a major tax reduction in 2001 that would end in 2010. Then you got 9/11 which changed everything. Except the stock market. The DOW was just under 10,000 when President Bush came in, and about 8000 when he left office (I’m too lazy to look up the exact prices). While the stock market did adequately well under President Bush II, it never did well enough to divert individual investors into the market in large volume. And so, people invested in something solid, their own homes (and second homes, and their kid’s homes, and rental properties).
And we know what happened to real estate prices.
Tomorrow: Mighty Obama has struck out
Wow, lots of thoughtful comments. Thenks all for the history lesson, and personal perspectives that spread the blame around -as it should be.
Yesterday, I discussed the Owners of the 2008 meltdown. Today, I’ll cover the failure of the recovery, which lies squarely on the feet of President Obama.
By June 2008, Senator Obama had enough delegates to secure his primary, and had high confidence that he could win the election. Although he did not become complacent, he did something unusual for Presidential candidates: setting up an advance planning team for his first year in office. Through the formal election, President Bush was extremely open and even handed with Senators McCain and Obama. In part, it was because Bush was completely out of his element in dealing with the 2008 meltdown, and he needed the support of his successor, whoever that would be. Once Obama was elected, President Bush personally ensured an extremely high degree of cooperation with the incoming Democrats. The combination of Bush’s graciousness with Obama’s planning were key to keeping the American economy from crashing into a debt crisis, like with Iceland (2008) or Argentina (2001).
The problems appeared insurmountable.
- The entire global banking industry was in danger of collapse
- The housing market tanked, leaving families major assets in limbo, and trapping people into keeping houses they could not afford
- The American auto industry, for decades the best in the whole (though admittedly, though decades were 1940 – 1960) was in collapse
- With unemployment soaring, even people with money weren’t spending, instead waiting for prices to drop further: the classic deflation scenario
And there were still the problems of our two wars overseas, with the US negotiating a difficult exit from Iraq, and attempting to stabilize Afghanistan (still an al’Queda center) without driving the sole nuclear Islamic state of Pakistan into chaos.
Tough job.
The Jonathan Alter book, “The Promise” has a lot of insider details on how Obama and his advisors chose to prioritize their efforts. One flaw of the book is that it’s highly pro-Obama, which is probably also why they got the good interviews (included the President). Still, it’s a fascinating insider read, and not too long (look for it second hand).
Obama decided to put Hillary Clinton in charge of running the world, as Secretary of State. We’ll just say that she’s done a decent job (I’d give her a B, while Powell/Rice get D’s), and leave it at that, since this is an economic essay.
Bush’s Fed Chair, Ben Bernenke, and Secretary of Treasury, Hank Paulson, were both first rate, and were directly tasked by President Bush to work very closely with the President elect. The Bush-Obama economic team decided that the American banking and insurance industries needed to be stabilized. This was a terribly difficult task – no one quite knew how to handle the overleveraged mortgage backed bonds (or “Toxic Assets”). Paulson appeared to change his mind daily on what to do with the TARP funds. Giant banks were tumbling like redwoods in a landslide.
And yet, this was accomplished – the American banking / insurance industries were saved!
Next up was the American auto industry. There were a number of folks (included both conservatives and progressives) who felt that these industries had mismanaged themselves into obsolescence, and giving them taxpayer assistance would be a waste. But the Bush-Obama economics team were of the opinion that autos were the biggest, and perhaps mostly uniquely, American heavy industry. If GM and Chrysler went belly up, their business would likely be absorbed by Asian car markets. A huge amount of knowledge and production ability would be lost forever. During the second world war, it was the existence of the American auto industry that allowed the US to turn into a Mighty Arsenal of Democracy. In a future crisis, the American auto industry could be used to build all sorts of things. Unless that business was gone. Then, we’d be dependent on Red China or Korea.
Today, GM and Chrysler are both making operating profits. GM has trimmed lots of fat (including cutting union bennies and management pork) and is turning out new, energy efficient cars that Consumer Reports says are good quality.
The Jonathan Alter book, “The Promise” has a lot of insider details on how Obama and his advisors chose to prioritize their efforts. One flaw of the book is that it’s highly pro-Obama, which is probably also why they got the good interviews (included the President). Still, it’s a fascinating insider read, and not too long (look for it second hand).
Obama decided to put Hillary Clinton in charge of running the world, as Secretary of State. We’ll just say that she’s done a decent job (I’d give her a B, while Powell/Rice get D’s), and leave it at that, since this is an economic essay.
Bush’s Fed Chair, Ben Bernenke, and Secretary of Treasury, Hank Paulson, were both first rate, and were directly tasked by President Bush to work very closely with the President elect. The Bush-Obama economic team decided that the American banking and insurance industries needed to be stabilized. This was a terribly difficult task – no one quite knew how to handle the overleveraged mortgage backed bonds (or “Toxic Assets”). Paulson appeared to change his mind daily on what to do with the TARP funds. Giant banks were tumbling like redwoods in a landslide.
And yet, this was accomplished – the American banking / insurance industries were saved!
We’ll skip the other stuff and get right down to, IF OBAMA’S SUCH A SUPERSTAR, WHY DO THINGS SUCK NOW?
I think this boils down to three things.
THE STIMULUS
When money dries up, the government becomes the lender of last resort. Both Democratic and Republican Presidents use government spending and tax kickbacks to stimulate consumer economic activity. To be fair, here’s a recent well written essay which makes the case against this type of stimulus:
http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.humanevents.com%2Farticle.php%3Fid%3D38876&h=73f90
There have been formal studies on what sort of government action most stimulates consumer economic activity. The most effective is direct contributions to the needy, such as Unemployment Insurance or Food Stamps or Welfare. This money is spent almost immediately, and largely on local goods (food, rent, clothes, and yes, alcohol and tobacco). One dollar from the government results in about a buck fifty in consumer spending, because of the speed and localness of this transfer. The least effective action is tax breaks, especially for higher incomes. The wealthy tend to be insulated from economic distress, and getting an extra 5% of income doesn’t motivate them to go out and spend.
The OMB (Office of Management and Budget, the Official scorekeeper for Federal economics) estimates that unemployment WITHOUT the stimulus would have been 5 points higher than it is now. Consider that 5% unemployment is considered relatively full employment in the US; the current unemployment rate is 9.5%; and 5 points higher than that, 14.5%.
If the stimulus had been higher, it would have increased job growth. But passing that monster was a major pain, and probably $700 billion was the most Obama could have gotten.
HEALTH CARE REFORM
Looking at the list of crises, why did Obama choose to spend his first year on Health Care Reform? A previous “Fire And Grace” covers Health Care, so we’ll just do the executive summary.
- American Health Care is much more expensive than any other first world western health care system
- Individual coverage is largely out of our hands – we depend on our employers (who can fire us) or pay for insurers (who can drop us). Only Medicare (American Socialized Medicine) is guaranteed, and that not until we’re 65
- Even with its inefficiencies, government spending on health care is increasing
Obama’s economic team was convinced that without passing major Health Care reform, its costs would continue to rise. Such a major reform could only be accomplished in the first year in office, with plenty of political capitol. So it was either pass HCR in 2009, or never.
Obama learned from the Clintons that it would be preferable to let Congress put together the HCR. Most of the year long wrangling came from efforts to actually PAY for HCR, which is admirable. President Bush and the Republican Congress passed the very important Medicare prescription benefits in 2005, but they did NOT pay for this – it directly increases the National Debt each year. The Democratic HCR, ugly as the process was, is paid for (yes, including new taxes and decreasing some Medicare benefits).
Since “F&G” has already discussed HCR at length, I’ll just conclude this point and say that while Obama got HCR passed (and it’s likely to stay), it caused a lot of ill will.
And lying – which is my final point on how Obama blew it.
FEAR, UNCERTAINTY AND DOUBT
During the Bush years, there was lots of name calling and misinformation from the left. Now, the right is doing the same sort of thing.
In uncertain and scary times, fear rides the streets on dark horses of rumors. It is the duty of the Leader to inform the population, insure that they know what story is, and what must be done. For all his accomplishments and articulateness, President Obama could do a lot better here.
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