Skip to comments.Conservative Fact Checking: Destroying the myths about job growth
Posted on 02/13/2012 8:48:31 PM PST by ChuckRogers
The negative job growth that began during the last year of Bush's presidency was perfectly normal, and even expected; it was the natural byproduct of the market correction. It was expected to last for about a year -- and, it did. Job creation was expected to return to normal in February of 2009, but as the chart shows, under Obama's dismal leadership, job creation recovered too slowly, taking a year to get to baseline, when it should have taken no more than three months.
(Excerpt) Read more at conservativefactcheck.com ...
That's why I've created conservativefactcheck.com. My goal was to create a site that I could use whenever I got into an argument with a liberal, or if somebody sent me a grossly inaccurate Snopes "debunking."
In addition to the post above about the smoke-and-mirrors job growth, I've also published one today on the role of the CRA in the banking crisis. There's so much misinformation going around, that I hope one easy-to-read article will help people fight the good fight.
Comments are welcome... always looking for ways to improve the service.
Another myth that I get tired of hearing about is that the Bush tax cuts caused the deficit that started the economic downturn - the deficit began in the early 2000’s because of three factors - the end of the Clinton bubble-bust (remember the collapse of the stock market in 2000), 9/11 which crippled the economy, and the need to rebuild our defenses after Clinton weakened them by spending the vaunted “Peace Dividend” on domestic doodads. The deficit grew to about 500 billion in 2003, but then thanks to the increase in government revenues because of the Bush tax cuts, shrank by about 100 billion per year for the next four years, even though the government was fighting two wars and instituted the new Medicare drug program during the period. The deficit would have disappeared completely in 2008, but of course the economy went south by that time because of the Democrat created housing bust - Bush’s tax cuts strengthened our finances, no matter how much the lefties protest to the contrary.....
Your “CRA caused the crisis” argument is indeed a myth.
The Shadow Banking System of investment banks and hedge funds was not covered by the CRA and it lent trillions of dollars during the bubble years.
Conservatives don’t benefit by latching onto politically convenient explanations that ignore some inconvenient facts.
One glaring fact is that the bubble was global. The CRA regulated only one portion of American lending, the part that was made by depository institutions. An explanation that focuses on a uniquely American regulation doesn’t explain a global bubble. It can’t even explain the American experience because a huge amount of the American lending was exempt from the CRA.
The causes of the bubble and its collapse were some financial engineering innovations made in the late 1990s, one prominent one being the widespread acceptance of Li’s Gaussian copula function in the financial community.
” the Democrat created housing bust”
Please. Bubbles collapse because of their inherent instability. No one created the bust, unless you want to finger the culprits who allowed the bubble to grow in the first place. And both parties were filled with cheerleaders for giving everyone a home. Find a copy of Dubya’s 2003 speech to HUD promoting the American Dream Downpayment Initiative.
Of course its fashionable to try to seem evenhanded and blame both rats and Republicans for the mess, but the scheme to buy votes by giving taxpayer-paid freebies to the poor, which is the basis of the collapse, is a uniquely Democrat idea, one of the few new ones theyve had in the last hundred years. Most Republicans would avoid it like the proverbial plague. Yes, yes, weve all heard about Bushs speech on down-payment loans many times Bush wasnt pushing to provide loans to people regardless of whether or not they could pay them back. Nor was he plotting government manipulation of private financial institutions; in fact, one of his proposals was that faith-based and charitable organizations be more involved in helping to provide loans to aid those seeking to buy homes. There is simply no comparison between Bushs advocating and even cheerleading for increased home ownership and the Democrats thuggish imposition of governmental strong-arm tactics to force ownership where it wasnt earned or warranted. Moreover, a number of Republicans, including now candidate Santorum, pushed at various times during Bushs administration for Senate bills to impose greater regulation and oversight on the Fannies, a move which very likely could have short-circuited the stockpiling of bad loans which fueled the eventual meltdown of the financial system. It was Democrats who threatened filibusters of these attempts and killed reform. Except by the most liberal reading of the facts are Democrats anything but totally responsible for the bubble.
A vivid demonstration of ChuckRogers' point that we badly need a conservative advocate fact checker.......
” until they made up about fifty percent of the FF portfolios”
...And if Fannie and Freddie failed to meet these goals? Cuomo held out a stick: possible penalties of $10,000 for each day that the targets remained unmet.
...By 2008, some $1.6 trillion of toxic mortgages, or almost half of those that were written, were purchased or guaranteed by Fannie and Freddie.
Reckle$$ Endangerment - Morgenson and Rosner - pp116-117.......
“through the period when Wall Street was buying them up and bundling them into convoluted financial instruments which were sold for investments around the world.”
A nice story, but not at all accurate.
Wall Street investment banks and hedge funds were bundling and securitizing their own subprime loans, not CRA paper. There wasn’t enough CRA paper to suit them, and more to the point CRA paper was conforming paper and therefore didn’t offer the high yield that IBs and hedge funds wanted for their own uses.
The IBs and hedgies provided warehouse credit lines to an army of independent mortgage brokers, instructing them to write high yield subprime loans. Unlike the conforming CRA paper these loans were OptionARMs, negative amortization, NINJA, No Doc and variations on those themes. This mortgages became the fodder for CDOs, CMOs, and second order derivatives which is why Wall Street wanted the high yield paper in the first place.
“Of course its fashionable to try to seem evenhanded and blame both rats and Republicans for the mess, but the scheme to buy votes by giving taxpayer-paid freebies to the poor, which is the basis of the collapse, is a uniquely Democrat idea, one of the few new ones theyve had in the last hundred years. “
I could care less about ‘fashionable’. And attempts by the half-educated to spin the subject for political convenience annoy me. I live at the epicenter of the subprime industry. I know people who started with Arnall and who went on to own their own subprime shops. Their funding came from Wall Street and none of their activity was covered by the CRA, or any other regulation for that matter. They were in it because they were making fortunes writing exotic subprime paper. You do a disservice to fellow conservatives by repeating the BS that the subprime lending of the bubble was driven by the CRA.
“Fannie and Freddie were already buying 42 percent of their mortgage loans to benefit low- and moderate-income families, but under Cuomo’s new rules, that requirement would rise to 50 percent.”
You appear to believe that loans to low and moderate income buyers equates to subprime, which is hardly the case. In fact the Fed study reported by Randall Kroszner found that 60% of subprime lending went to middle and higher income neighborhoods. Kroszner was a member of Dubya’s Council of Economic Advisors.
“Our analysis of the loan data found that about 60 percent of higher-priced loan originations went to middle- or higher-income borrowers or neighborhoods. Such borrowers are not the populations targeted by the CRA. In addition, more than 20 percent of the higher-priced loans were extended to lower-income borrowers or borrowers in lower-income areas by independent nonbank institutions—that is, institutions not covered by the CRA.6”
“...By 2008, some $1.6 trillion of toxic mortgages, or almost half of those that were written, were purchased or guaranteed by Fannie and Freddie.”
For decades F&F had a virtual monopoly on the secondary mortgage market. They were created in the first place to provide a secondary mortgage market.
In 2000 the GSEs held 48% of mortgage loans outstanding. But around 2000 F&F ran into serious competition from private securitizers and by 2006 the GSE’s share of outstanding mortgages had fallen to 40%.
This information is included in Lazard Asset Management’s research paper on the rise and fall of the mortgage bubble, which notably failed to identify the GSEs or the CRA as the cause of all the trouble:
Im sticking with what Charles Gasparino, certainly a competent economic analyst, had to say in The Sellout:
HUD secretary Cisneros believed eradicating poverty through home ownership would take big government, working with the banking business and mandating laws to force banks to lend to those most in need and with the least ability to pay. Clinton agreed.
In 1995, Cisneros began his first major effort to influence Fannie and Freddie to dedicate more of their resources to providing mortgages for low-income families. His new measure directed the GSEs to set aside 42 percent of all their mortgage guarantees to serve what the government classified as low- to moderate-income borrowers.
When Andrew Cuomo succeeded Cisneros as HUD secretary in 1997, he increased that number to 50 percent and began to pressure the GSEs to buy up mortgages of people classified as very low income.
If this move was an important step toward the democratization of the housing market, it was also an important step toward the expansion of risk in the financial markets. For the first time it opened the GSEs to the part of the housing market that dealt with so-called sub-prime borrowers.
Sub-prime loans are the riskiest of the risky mortgages. They were initially limited to people with spotty credit ratings maybe a missed credit card payment or two but were actually dependable borrowers when given limited amounts of credit. Later, as the housing market picked up steam, the definition expanded and the pool of subprime borrowers now included people with little or no credit history, some who couldnt document their incomes, many others who didnt even have a job.
Of course, giving low-income families and minorities that had been shut out of the housing market assistance to purchase their own home is a laudable goal, though it totally ignored the fact that the surge in lending to the poor would push housing prices up beyond what average people could afford without government help or gimmicky adjustable-rate mortgages.
Wall Street could not complain about the enormous amount of money it made from the bubble Fannie and Freddie were helping to create.
Get yourself a copy of Gillian Tett’s ‘Fools Gold’.
Tett was a writer for the Financial Times and by pure chance attended a conference on derivatives in the 1990s when virtually no one but quants inside of investment banks knew what they were. Tett began writing about them for her FT readers.
Complex derivatives were being created by quants as an innovative means of making money. By the mid 1990s derivatives were already generating over half of the revenue of investment banks. Derivatives preceded the mortgage bubble, they had a major role in creating that bubble, and the subprime paper written by mortgage brokers for IBs and hedgies was needed as fodder for creating those derivatives.
By the end of the bubble the need for raw material to use in building derivatives was driving the writing of subprime paper, just the opposite of what would be expected. The case of Magnetar Capital as described by Yves Smith being a classic example.
The amount of derivatives issued during the bubble was in the trillions of dollars and this paper ended up all over the globe.
These derivatives weren’t created by banks out of a need to protect themselves from “bad loans they were forced to write”, as Rush would have it. They were invented by quants as a new means for making money. They were invented in London, and the IBs that created them weren’t forced by the government to do anything.
Unfortunately the CEOs of major financial firms didn’t understand the complex math of derivatives anymore than the average man on the street. They ignored warnings from their risk departments because the money generated from derivatives was huge. And none of them anticipated the flaw in the Gaussian copula function they were using to price their derivatives.
It is this world of financial engineering that had the size and the reach to impact the global credit markets, not politicized American housing policy that affected only a portion of the lending by strictly depository institutions. If you added up all of the CRA loans ever made and assumed that every one of them defaulted you couldn’t produce a number big enough damage to shake the world economy. But the derivatives market is that big, and mistakes made in that market contributed far more to the economic crisis than the politically convenient claim that “the Democrats did it”.
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