Blind Faith In Unregulated Markets Stoked Economic Crisis

Discussion in 'Economy' started by Red Dawn, Dec 21, 2008.

  1. Red Dawn
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    Red Dawn Senior Member

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    Blind Faith In Unregulated Markets Stoked Economic Crisis

    the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials. From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.


    WASHINGTON — The global financial system was teetering on the edge of collapse when President Bush and his economics team huddled in the Roosevelt Room of the White House for a briefing that, in the words of one participant, “scared the hell out of everybody.”

    It was Sept. 18. Lehman Brothers had just gone belly-up, overwhelmed by toxic mortgages. Bank of America had swallowed Merrill Lynch in a hastily arranged sale. Two days earlier, Mr. Bush had agreed to pump $85 billion into the failing insurance giant American International Group.

    The president listened as Ben S. Bernanke, chairman of the Federal Reserve, laid out the latest terrifying news: The credit markets, gripped by panic, had frozen overnight, and banks were refusing to lend money.

    Then his Treasury secretary, Henry M. Paulson Jr., told him that to stave off disaster, he would have to sign off on the biggest government bailout in history.

    Mr. Bush, according to several people in the room, paused for a single, stunned moment to take it all in.

    “How,” he wondered aloud, “did we get here?”

    Eight years after arriving in Washington vowing to spread the dream of homeownership, Mr. Bush is leaving office, as he himself said recently, “faced with the prospect of a global meltdown” with roots in the housing sector he so ardently championed.

    There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.

    But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

    From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

    He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

    Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Mr. Bush chose to oversee them — an old prep school buddy — pronounced the companies sound even as they headed toward insolvency.

    As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”

    The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.

    “There is no question we did not recognize the severity of the problems,” said Al Hubbard, Mr. Bush’s former chief economics adviser, who left the White House in December 2007. “Had we, we would have attacked them.”

    Looking back, Keith B. Hennessey, Mr. Bush’s current chief economics adviser, says he and his colleagues did the best they could “with the information we had at the time.” But Mr. Hennessey did say he regretted that the administration did not pay more heed to the dangers of easy lending practices. And both Mr. Paulson and his predecessor, John W. Snow, say the housing push went too far.

    “The Bush administration took a lot of pride that homeownership had reached historic highs,” Mr. Snow said in an interview. “But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”

    continued

    http://www.nytimes.com/2008/12/21/business/21admin.html?_r=1&hp
     
  2. garyd
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    garyd Senior Member

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    Actually know what stoked the crisis was the regulations which after 1994 guaranteed that every real estate company in the US was going to have mortgage notes that it knew damn well were going to go belly up sooner rather than later and especially so if the speculative real estate boom ever ceased as such booms eventually do. Since 1994 it has been a matter of when not if these regualtions were going to bring the housing market and with it the financial markets crashing down.
     
  3. Old Rocks
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    Old Rocks Diamond Member

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    No, that was not the primary factor. A factor it was, but the combination of deregulation on banks, and mortgage companies led to very poor lending practices. The use of derivitives that would previously been dissallowed, caped the debacle. Add to that, a government that was spending as fast as it could borrow, in order to facilitate the movement of wealth from the middle class to the already very wealthy, and you have the makings of the disaster we are presently experiancing.

    Had Bush and company been less the ideologues, they might have seen this coming and ameliorated it by earlier action. That is their legacy, preferring to believe "how things ought to be" rather than reality.
     
  4. Mad Scientist
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    Mad Scientist Deplorable Gold Supporting Member Supporting Member

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    And now blind faith in government to fix everything is gonna' create another crisis:

    Loss of Freedom.
     
  5. Kevin_Kennedy
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    Kevin_Kennedy Defend Liberty

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    Interesting... Considering we didn't have "unregulated markets."
     
  6. garyd
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    garyd Senior Member

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    no sir rocks in the head it was the regulations themselves that induced if not actually produced the risky loans. This goes back a lot further than GW Bush or even Bill Clinton.

    Do your home work and don't truncate history.
     
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  7. mash107
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    mash107 Active Member

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    How on earth can we call this mess of a interventionist economic system, a laissez-faire free market?

    You can't blame the ills of government on that of the laissez-faire market... that's why we're in this mess, because people like Bush believe that! We haven't had a free market capitalistic system since 1913 when the Federal Reserve was created, and given power to inflate bubbles. One might go even as far back as 1890 when the Sherman Anti-trust Act was passed at the behest of Big Railroad to crush competition. But I digress; all the ills we're facing today was created by the government. The solution is, opposite to what Bush and his Keynesianist allies preach, is not more government, but less.
     
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  8. Kevin_Kennedy
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    Kevin_Kennedy Defend Liberty

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    Wow, two great posts in a row! Looks like we got some more "free marketeers" on the board.
     
  9. DiveCon
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    DiveCon gone

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    if the government hadnt been messing with it in the first place, none of this crap would have happened
     
  10. Epsilon Delta
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    Epsilon Delta Jedi Master

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    The answer is clear: Abolish the government.

    Then everybody's happy, right? = )
     

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