Tuesday, October 13, 2009

Is Bush to blame for the housing bubble?

I have always been amazed at how people can be blinded by their political affiliation. Far left-wingers often go out of their way to blame Republican politicians for anything they can. Far right-wingers often do the same to Democrats. Often they will have different opinions on similar circumstances based on which party is in power.

An example of this political affiliation blindness is the fact that many people on the far left insist on blaming George W. Bush for the housing bubble, while I'm unaware of any right-wingers willing to blame him. Instead, many conservative Republicans blame it on Clinton.

In this graph, vertical blue bars mark when a Democratic president took office. Vertical red bars mark when a Republican president took office. Pay attention to the red housing graph line. It marks inflation-adjusted housing prices. Looking at the data, I can't see how either president can be wholly responsible for the bubble. In fact, I think blaming politicians at all mostly misses the mark.


So, who do I blame for the housing bubble? Alan Greenspan, who was appointed by both Republican and Democratic presidents. I don't claim that Greenspan necessarily started the bubble, but he certainly failed to do anything to stop it. Also, it was the second major asset bubble to occur during his chairmanship of the Federal Reserve. The first was the late-1990s stock market bubble. Asset bubbles are rare beasts, so having two sequentially under the same Fed chairman is unlikely to be a coincidence.

31 comments:

  1. In early February 2001, President Bush had put a lot of pressure on Alan Greenspan to lower rates. Some say this was due in part because Bush Jr. blamed Greenspan for not lowering rates enough back in the early 1990's which in part led to weak economic conditions that swept Bush Sr. out of the White House. Combine low interest rates with other factors like poor lending practices, and that explains how we got from 2001 to 2006 for housing prices.

    One statistic I'd love to see is what percentage of distressed and foreclosed homes were owned by immigrants. Case in point, how about examining certain areas such as Mannassas Park.

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  2. I blame the typical American idiot over-consumer. Bit off way too much, now choking on it. Unfortunatley, except for the Wall Street pushers, we are all left in the ruins.

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  3. Heh - watch those same party-blind apologists appear out of the woodwork and say something to the effect of:

    "James I agree with you generally, but it really was Bush/Clinton's fault..."

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  4. Yeah I'm sure ol' Dubya sat up late at night pondering the interest rates and monetary policy, only to phone Greenspan the next morning and engage in a intellectual debate about changing it.

    Author, I totally agree: if there was one single person with power, a voice everyone listens to, and the responsibility to see this coming, it was Alan Greenspan. The man is a failure because he could have stopped this mess years before it peaked. The amount of damage our economy has sustained because of him is immeasurable. I'll give Bush a pass on this, if for no other reason than because I've never given him a pass on anything. But this is not his fault.

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  5. nonpartisan: There will ALWAYS be people willing to borrow their way to the poor house. What distinguished credit bubbles is the willingness of other to lend to them. Optimists borrow money, but the REAL optimists lend to them. Jim A.

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  6. I love how the focus is on presidents, when its a republican congress that votes all this stuff through. Keep saying Clinton and Bush until you are blue in the face, they are nothing more than a veto to a republican government.

    Show the graph again but based on republican control of congress.

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  7. Bush is not the sole blame for the housing bubble. There are many factors that attributed to the bubble and burst. In our Housing in Crisis report(http://accuriz.com/RealEstate_Reports.aspx) we indicated factors of overbuilding, increasing Square Footage of homes, lowered interest rates and housing becoming an investment, where people thought they could just flip away. Not the case today.

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  8. I would say somewhere it is his fault, as his administration was not able to control it in initial phase and let it grow. So, full credit for Bush Administration for this housing bubble.

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  9. I blame all the crooks in Washington starting with the ones who put the standards on Freddie/Fannie by telling them what loans they needed to buy. Instead of letting the free market work Congress was determined to let anyone buy a house regardless of their paying ability. Not to mention the help they recieved from unethical mortgage brokers.

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  10. What's the latest on the proposal for a 15k tax credit from US Senator Johnny Isakson?

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  11. Let's not forget good ole Barney Frank and his pal Chris Dodd.

    As to the immigrant foreclosure tsunami - look anywhere. Herdon, Woodbridge, Sterling, Manassas, etc. Virtually all the most decimated areas are dominated by Hispanic borrowers (sold down the road by their Countrymen Agents and Loan Officers) who got hoodwinked by bait and switch financing and all matter of fraud.

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  12. Barnie Frank and the democratic congress is blame, sorry.

    The push to increase loans to minorities, while a noble idea, led to disaster. These people simply did not have the income or financial discipline to pay off a mortgage, and when it was dangled in front of their eyes (thanks to the whole mortgage industry reselling their junk to Fannie - thanks to Congress) they took it. I don't blame them. It was free money backed by taxpayers, thanks to the dems.

    The WSJ for years and years called out for reform in Fannie, and no one listened - McCain (who I don't like) also called for reform but no one listened. What would happend if they did?

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  13. "It was free money backed by taxpayers, thanks to the dems."

    but remember it was a republican majority that had to push it through. When a republican majority congress during the Clinton years passes something, and a republican majority congress during the Bush years keep it going....how can a nut even suggest "dems"

    Once that "magic 60" happens, Dems wont have an excuse. However, we need to let them try to fix this mess that republicans have been running for the last 25 years or so.

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  14. "but remember it was a republican majority that had to push it through. When a republican majority congress during the Clinton years passes something, and a republican majority congress during the Bush years keep it going....how can a nut even suggest "dems""

    Curious how republicans were also responsible for the bubble appearing in the UK, Spain, Iceland, etc. I had no idea the reach of their power...

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  15. Anonymous said "The push to increase loans to minorities, while a noble idea, led to disaster"

    Um, no. That's a completely false talking point which has been debunked many times. Please look at numbers people, not what Neil Cavuto yells at you everyday. Here's the actual data on who (the private sector) was driving the vast run-up in subprime loans.

    via http://www.mcclatchydc.com/251/story/53802.html

    Subprime lending was at its height from 2004 to 2006.

    Federal Reserve Board data show that:

    More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
    Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

    .....
    This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.

    To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.

    But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.

    Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

    During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.

    ....

    Fannie and Freddie, however, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.

    What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.

    These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.

    In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.

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  16. Oh, and regarding the comment "The WSJ for years and years called out for reform in Fannie, and no one listened ", this is yet another data point supporting the WSJ editorial hypothesis:
    When reading WSJ editorials you need to bear two things in mind:

    1. The WSJ editorial page is wrong about everything.
    2. If you think the WSJ editorial page is right about something, see rule #1.

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  17. Of course, Clinton was a pro-corporatist center-right New Democrat. The idea that he was "left" anything is laughable.

    If you ask anyone who has half a brain, and is to the left of Mitch McConnell, they'll tell you the problem was a complete lack of regulation. And that, of course, Clinton was at least as responsible as Bush.

    On the other hand, no true conservative would ever so much as hint that the kind of laissez faire fantasy that brought us to this point has in any way been compromised.

    Sorry, but the idea that "the far left" and "the far right" are similar on this is stupid knee-jerk High Broderism.

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  18. Um, no. That's a completely false talking point which has been debunked many times. Please look at numbers people, not what Neil Cavuto yells at you everyday.

    You sure have lot of patience, especially since anyone who buys that Fannie/Freddie wingnut talking point this late in the game is clearly a brain-damaged rube.

    "Oh! if only McCain had been elected! Holtz-Eakin would know what to do!"

    Ridiculous.

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  19. And James, as the commenter up-thread pointed out: ahead and redraw that graph with little arrows indicating when the GOP / Blue Dog coalition came into power.

    To call Clinton a "leftist" is ridiculous; to argue that progressives have had any ability to shape policy in the last 25 years, even more so.

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  20. well, it wasn't just patience. i keep hearing that same dumb "fannie/freddie cause it all" idiocy in person, but at this point I'd actually forgotten alot of the details, numbers and %'s etc. to debunk it thoroughly. So it was a good refresher for me to look it over again.

    What really blows myu mind is that people actually cite WSJ editorials for any purpose besides comic fiction (or perhaps tragic).

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  21. I am not as eager to give GW a pass on the housing bubble. Not when he stood before congress in the SOTU address outlining his vision of an "ownership society" which was crafted by Karl Rove to increase the Republican base. Not only is it completely indefensible to set policy based on manipulating party demographics, but it has also proved to be misguided even in its unethical aims. The fact that it failed to secure a Republican majority is no comfort since all the party is left with now is the intellectually inferior tea baggers and the radical Christianists. Oh yeah...and a broken world.

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  22. "...Curious how republicans were also responsible for the bubble appearing in the UK, Spain, Iceland, etc. I had no idea the reach of their power..."

    Heh. Good one, Anonymous.

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  23. ibc said...
    "To call Clinton a 'leftist' is ridiculous"

    I don't think I used the term "leftist"? I may have called him left wing, which I consider to be Democrats, Green Party members, and others who are left of center. (Center being the ideological center of the populace, regardless of the distance to one's own personal views.) I am very slightly left wing, voting almost exclusively for Democrats, even though the Dennis Kucinich left annoys me more than Glenn Beck. Although leftist is technically a synonym of left-winger, I usually think of "leftist" as referring to people like Castro and Chavez.

    I don't like to use the word "liberal" to describe Democrats, which leads to my perhaps overuse of the word "left-wing". By original definition, a liberal is a person who believes in liberty, thus the shared Latin root "liber-" which means "free". While Democrats are generally liberal regarding many personal and civil rights, they are generally egalitarian -- not liberal -- on economic issues. Government meddling in people's finances, taking money away from some in order to hand it to others, is not freedom. Erecting trade barriers, as many of the anti-globalist left want to do, is not freedom. As an extreme example, Karl Marx was strongly egalitarian, but few would say he believed in freedom.

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  24. Socialize bank losses, and privatize bank gains by means of bonuses to bank executives. The Wall Street political party. Funny thing is that many folks don't realize that this party has a stronghold over the other 2 parties.

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  26. "Curious how republicans were also responsible for the bubble appearing in the UK, Spain, Iceland, etc. I had no idea the reach of their power..."

    curious how you have to fight strawmen to have any argument at all.

    FACTS TO REMEMBER:
    1) presidents are just a veto
    2) congress passes law
    3) The congress has been repbulican majority for over 25 years now.


    Say what you want about Clinton or Bush, they are just talking heads. They are no responsible for a damn thing. Good or bad.

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  27. I don't think I used the term "leftist"? I may have called him left wing, which I consider to be Democrats, Green Party members, and others who are left of center

    Right, but Clinton was neither left-wing nor liberal. He was a left-leaning moderate on social issues, and a right-leaning moderate on everything else. He was one of the founding DLC members.

    He was no more a "left-wing/liberal" than Olympia Snowe is a "right-winge/conservative". The point is that if Olympia Snowe (or Arlen Spector) were to win the Presidency as a Republican, and you were to address the far-right by saying, "Your right-wing candidate was in office, and was just as bad!!" they would hoot in derision. And rightly so.

    How is this sort of exquisite Broderism not every bit as silly as the idiots who think that everyone registered to a different political party are Nazi child-molesters?

    You might just as well say to the libertarians, "Hey, you had your guy in office from 2000-2008! No complaining..."

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  28. Anon 8:06,

    You didn't address the point you were responding to. Your response is a red herring. Republican control of Congress is irrelevant to the housing bubbles in the UK, Spain, Iceland, etc.

    Let me point out that in addition to having a veto, presidents also have the bully pulpit. Furthermore, your claim that Congress has been Republican for 25+ years is false. They came into power in 1994 and lost power in 2006. That's 12 years, not 25. Democrats controlled Congress during the preceding 12 years (1982-1994). Also, Democrats narrowly controlled the Senate during 2001 and 2002.

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  29. ibc,

    I guess it depends on how you divide the electorate, e.g. halves, thirds, standard deviations from the mean, etc. If you divide the electorate in halves, then Clinton's Democratic Party membership clearly makes him left wing. If you define a centrist as within one standard deviation from the mean (a dubious definition, but one that makes sense to extremists), then he is clearly a centrist.

    However, by party membership the electorate is roughly divided into thirds, with Democrats constituting the left third, independents constituting the middle third, and Republicans constituting the right third. I think the bulk of independents would say that Clinton is to the left of them politically and the bulk of Democrats would say Clinton is to the right of them politically.

    The idea that Clinton is a "right-leaning moderate on everything else" is laughable.

    Your use of the word "Broderism", which I had never heard before, reveals your own far left wing leanings. A Google search of the term turned up lots of left-wing blogs and web sites, but no right-wing ones and few moderate ones. It appears to be a word invented by left wing bloggers to express their contempt for bipartisanship and centrism. Basically, if someone uses the term "Broderism", you can expect that they hate Joe Lieberman.

    Lastly, Bush is about as libertarian as Nancy Pelosi is conservative. Bush was a big government guy to the core.

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  30. A Google search of the term turned up lots of left-wing blogs and web sites, but no right-wing ones and few moderate ones. It appears to be a word invented by left wing bloggers to express their contempt for bipartisanship and centrism.

    Actually, it's a tongue-in-cheek neologism, and refers to the fetishization of bipartisanship at all costs, coupled with an above-the-fray attitude of "a pox on both their houses." It describes a position usually staked out by folks who are incredibly politically naive, but who like to feel sophisticated. It's not inherently tainted by association with the left or the right. You might just as well argue that the concept of "awesome" is refuted by the word's origins among the surfing subculture.

    Anyway, I'll let you in on a secret: there is no "center." After all, what's the "centrist" position on marijuana legalization, given that arguments for reform and greater criminalization are found on both the "right-wing" and "left-wing"?

    Where's the center on immigration? Somewhere between the positions held by the "most conservative" and "most liberal" member of Congress?

    If a person thinks that the answer to every question is exactly at the center of some sort of chimerical two-dimensional axis of "political beliefs", then that person is an idiot.

    So yes, the knee-jerk tendency to ask "What would Olympia Snowe do?" in every situation *is* idiotic. After all, last year, when conservatives in Congress were dead-set against any stimulus, and liberals where in favor of a large stimulus, the centrists did what they often do, which is to righteously come out in favor of splitting the difference: an expensive pseudo-stimulus that any pro-stimulus economist judged too small to be effective.

    Now maybe the tax-cut gang were correct, or maybe the Keynesians were right, but the proponents of those positions were a Hell of a lot more intellectually honest than self-proclaimed centrists staking out a position for which there was literally *no* respectable economic support, arguing that we cut the baby in half. *That* is Broderism.

    Lastly, Bush is about as libertarian as Nancy Pelosi is conservative. Bush was a big government guy to the core.

    Hey, look who's discovered at least one more axis to the "political spectrum"! Welcome to the party!

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  31. ibc,

    So you're bashing surfers now, huh? That's bogus!

    ;-)

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