Saturday, September 27, 2008

Mankiw: Obama Distorting History

Harvard economist (and Republican) Greg Mankiw is very critical of one of Obama's answers during the debate:
In the debate last night, Barack Obama asked a good question about the present financial crisis but then gave an answer that is, at best, incomplete:
The question, I think, that we have to ask ourselves is, how did we get into this situation in the first place? Two years ago, I warned that, because of the subprime lending mess, because of the lax regulation, that we were potentially going to have a problem and tried to stop some of the abuses in mortgages that were taking place at the time....we're also going to have to look at, how is it that we shredded so many regulations? We did not set up a 21st-century regulatory framework to deal with these problems. And that in part has to do with an economic philosophy that says that regulation is always bad.
The main problem, we are led to believe, was a Republican ideology of unfettered capitalism that led to insufficient government involvement in the financial system.

Senator Obama might want to read this NY Times article from 1999:
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders....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.
I am not suggesting that the entire crisis should be put in the lap of the Clinton team. There is plenty of blame to go around. Indeed, the problem goes back at least as far as the Johnson administration, which helped set up a housing finance system that was always fundamentally flawed.

If Senator Obama really wants to transcend partisan politics, as he would sometimes have us believe, he might want to give a slightly more balanced view of the history of how this all started. He also might want to take note that the Bush administration warned about some of these problems five years ago and had its reform efforts stymied by prominent members of Senator Obama's own party.


  1. There's an interesting article in the Post today on how the feds are helping distressed homeowners:

    "After an initial review of the 60,000 late borrowers in the IndyMac portfolio, the FDIC deemed about 40,000 customers eligible for the loan-modification program. Modification terms include rate reductions, lengthening of payback timetables, rescheduling unpaid principal and interest, rate caps, and other techniques. In some cases, rates are reduced to 3 percent for five years, with increases of 1 percent a year until the note rate reaches a ceiling tied to current 30-year rates."

  2. Putting any blame on the Clinton or other administrations from way back in the last century is just another way of saying that the W Bush administration was asleep at the switch for the last eight years.

    The ENTIRE housing bubble and subsequent crisis happened during the Bush administration, and they didn't wake up until just recently.

  3. Lance, stop grasping at straws. The OFHA put out a notice in August that 90% of the people who got loan modification went into foreclosure within 90 days anyways. Sorry dude, you are stuck working until you are 70.

    Anonymous. You must be a hard core democrat. Only a hard core democrat would take the proof of where the problem started and distort it to blame a republican. The truth is, this has always been about people who should not have got loans getting loans in the first place. The reason why its not getting talked about is because no one wants to be called racist for saying so.

    The truth is, most people should never own a house.


  4. Sorry Bob, but I'm not a partisan of either party, and don't really care for either Obama or McCain.

    If there was a problem, (even if started by a previous administration,) it was the duty of the Bush administration to stop it, and they didn't.
    The bubble bloggers have been talking about the coming train wreck since 2005. It wasn't 'unforseeable.'
    If the Bush administration had acted in 2005 or even in 2006, we wouldn't be in this situation today.
    The housing bubble didn't get to be an obvious problem until around 2004-2005-2006. THAT is when corrective action should have been taken, and the administration that was in office at that time dropped the ball.

  5. James you are so off the wall on this one. Bush used liar loans to finance the illegal oil war in Iraq. If you don't think so I have proof. First Greenspan said to Bush to secure the oil first thing. Then Greenspan said in early 2004 that people should buy houses with adjustable loans. The fed's greedy handprints are all over all that Bush has done wrong, except possibly for 9/11.

    You need to realize James that it was Phil Gramm who securitized mortgages in the first place, and it was the Republican congress that allowed the investment banks to leverage up to 40 to one from the original 12 to 1 allowance.

    The ponzi scheme that allowed fraud and shoddy underwriting was a neocon Republican gamble that we could control the world in a pax americana.

    Even today that same neocon stupidity is making an effort to surround Russia with NATO, a realy stupid move that could set off World War 3. I believe all neocons should be arrested and imprisoned for all the evil they have done.

    If you want to study more about the roots of the neocons and what they have done, go to Wikipedia and insert PNAC and Leo Strauss into the search and study both of those carefully.

  6. Gary,

    How am I off the wall? It's not even my argument.

    I am just presenting the argument of a highly-respected Harvard economics professor. I have been regularly presenting the arguments of Paul Krugman, an anti-Bush Democrat, and Greg Mankiw, a pro-Bush Republican. Both are well-respected economists.

    If you want to see who's off the wall, look in the mirror. The post is about the housing bubble–induced financial crisis, and yet your comment is a rant about Iraq, Russia, NATO, World War 3, and neocons. What does that have to do with the decline of the housing bubble? NOTHING!

    In closing, let me point out that despite your claim, you did not prove that the war in Iraq is illegal. It may be a failure, but Congress (including Democrats) approved it.

  7. Fair enough James, as you are presenting varied viewpoints. But while the Dems did fail to reform fannie and freddie, they were quite careful in lending compared to the investment banks.

    But I stand by my point that the liar loan is connected to the Iraq War. That is fact, and Greenspan's statements prove it. The petrodollar was considered almighty, and America invaded Iraq out of weakness. Economic weakness.

    Truth is, if you study those sources, PNAC and Leo Strauss, you will know that the Iraq War had nothing watsoever to do with 9/11, and people wondered why we could ignore Bin Laden and blame Saddam.

    Well, turns out, Leo Strauss, who taught Paul Wolfowitz at the University of Chicago, taught that you keep the shell of democracy but that the elite can lie to the masses. Nowhere is that more evident than in Wolfowitz's WMD and Saddam/Al Qaida connection. These were outright lies and were in keeping with what Wolfowitz learned at the University of Chicago.

    If you, James, cannot see the connection between liar loans and the funding of the Bush admin then you will never figure out the puzzle. But Americans have an uneasy feeling about the voiding of the oil contracts in Iraq. If the US was sincere about just ridding Iraq of an evil leader, then why did Bush void the original oil contracts? Truth is Wolfowitz said that Iraq was swimming on a sea of oil. That makes the war illegal, no matter who approved it, because it is a war crime to steal the resources of another country according to international law.

    They have since allowed other nations to restore some contracts and the oil companies rejected the neocon desire to own the land invaded outright. It is, I suppose you could say, a sneaky imperialism, but America has always been careful about their imperialism so as not to be accused of being a country that desires naked aggression.

    This is the bottom line, liar loans met lying Bush. Both were never so commonplace in any other presidency, ever.

  8. And to add one point, the generals in Kenndy's time wanted the United States to bomb American cities. This has been declassified. The purpose of these bombings would have been to blame the bombings on Cuba. That would have been what is called a false flag operation to sway public policy. It is evil and despicable but governments do it.

    That brings us to 9/11. Willie Brown, a significant politician in California, and a friend of Condi Rice is on record as saying that he was told not to fly commercially the day before 9/11, by an anonymous caller. Google it.

    PNAC wanted an event to propel us into the middle east and control of oil. They wrote about it and it is a matter of public record. They published the article in 2000, one year prior to 9/11.

    John Ashcroft, and this is a matter of public record, was told in July prior to 9/11 to stop flying commercially.

    No building in the history of mankind has ever collapsed due to fire, yet we are told by the NIST that WTC7, the building not hit by any plane, was brought down by fire alone. If you believe it James, I have a bridge in Florida that I want to sell you.

    Even Pat Buuchanan, a true conservative, has called the neocons the "war party". He is very concerned that they are trying to surround Russia, something that even the most macho presidents did not do.

    Dwight Eisenhower warned us about the excesses of the military industrial complex. Let me tell you James, it appears that debt and war are all we have to export these days, and these times are very dangerous.