A community of 30,000 US Transcriptionist serving Medical Transcription Industry
I've lurked for awhile and read so much erroneous thinking about economics, economic policies, etc. that it's clear that some education is in order. I'll start with the nonsense about Bush and the crash of 2008.
Like the crash of 1929, the crash of 2008 was brewing for years before it occurred - in fact, back to the Clinton era when people like Barney Frank and Charles Schumer set out to make mortgages available to people who couldn't afford them. These people used their political muscle to pressure Fannie Mae and Freddie Mac (the biggest players in mortgage lending) to virtually disable the normal income and credit safeguards that were previously associated with granting someone a mortgage.
Now, to understand 2008, you must understand that mortgages are bought and sold in a secondary market made up of banks and other large financial institutions, and this market has always relied on the QUALITY of these mortgages that is built into them AT THE POINT OF ORIGIN. In the secondary market, these mortgages are bundled up by the thousands and chopped up into derivative instruments, so it's virtually impossible for a market participant to go back and check the credit worthiness of each and every mortgagee. They MUST depend - and previously COULD depend - on the idea that no one was giving mortgages to deadbeats. Of course, thanks to Franks et al, this was no longer the case.
But are Frank & Company entirely to blame? No, because mortgage lenders were only too eager to participate in this fraud. Remember the secondary market? By means of this market, the original lender gets to off-load his mortgages - especially the bad ones - and doesn't have to suffer the repercussions. It's just like a bookie "laying off" his risky bets.
While property values were soaring, everything was beautiful. In fact, who cared what the mortgagee did anyway? Even if he defaulted his property was probably worth way more now than he paid for it just last year.
When property values began to totter and interest rates on adjustable mortgages, which most crappy mortgages were, started rising (at about the same time), the rot in the underlying mortgages was suddenly exposed. Defaults soared as people with no integrity walked away from their obligations, the properties were greatly devalued, and large institutions that had enormous investments in mortgage-backed derivatives suddenly saw them devalued as well - to nearly nothing because those instruments were no longer trustworthy. That's the definition of bankruptcy.
And this was also the case in the crash of 1929 - a collusion between the political and business worlds. In the political realm, regulators were pressured to lower the margin requirement for stock purchases to nearly nothing (everyone should be able to buy stocks!), so the elevator boy or the cabbie could buy $1000 worth of stock for a few bucks. The rest was borrowed - on paper - from the brokerage house). And the brokerage firms, like the mortgage companies above, were only too happy to go along, because if they sold $1000 worth of stock they got the commission for the full purchase, not just the margin.
Like 2008 and property values, this worked beautifully while stocks were rising, as they had been - meteorically. Came the moment when stocks started to totter. Margin calls (demands for them to increase their initial investment) went out to people who couldn't meet them and had to sell, which led to lower prices, which led to more margin calls...and so it went.
Now, what about Bush and 2008? After all, he was President for 7 years before this happened. Well, first it's ridiculous to suggest that Bush or any other President can do anything about the ebb and flow of the real estate market or real estate prices. But second, you should know that VERY EARLY IN HIS PRESIDENCY, he and some other Republicans DID attempt to tighten up the mortgage situation, including the credit requirements for mortgages - but were thwarted by...well, you can probably guess who...with the accusation that "Republicans just want to deny 'working people' their own homes".
Read this:
"The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
''There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,'' Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan."
That's from September 10, 2003, the NY Times. Not 2008, or 2007, or 2006. If regulations had been tightened, who knows if the crash would have occurred or not? Maybe so, because there were already a lot of those crappy mortgage instruments in circulation.
Both this and other attempts to get a handle on the mortgage industry by the Bush administration were thwarted by the same gang. So, if you want a scapegoat for the crash of 2008, his name isn't Bush. It's Frank, more than any other single individual, and the liberals more so than the conservatives. Sorry, but that's just how it is.
Before we make simplistic cause-and-effect assertions (X was President when Y, therefore), let's get our facts straight, and let's start by understanding that much of what is happening in the world around us, especially in the world of economics, has usually taken years and involved MANY factors and MANY players, often from the world of business, not politics, to get to what we see today. American presidents are too frequently blamed (or credited) with things or events over which they really had little or no influence.
It's a logical error called "reductio ad absurdum" when we reduce complex processes to simple terms.
;