This is exactly right.
The financial crisis was caused by the collapse of the subprime mortgage market: they were the underlying securities that caused the large banks to be insolvent. Subprime mortgages were those mortgages given to people at levels beyond their ability to pay. Interestingly enough, it applied to the poor and upper middle class alike. That is why there are so many of these “McMansions”.
The reason for the subprime mortgages was that banks were forced to provide these loans by the Community Reinvestment Act, which was initially passed under Carter and expanded under Clinton. The problem was amplified by Fannie and Freddie, who purchased these loans. The banks did not want to make them, because they correctly realized that they represented a risk. So, Fannie and Freddie bought them up, repackaged them, and sold them to the investment banks. The problem was further amplified by the Fed, which provided the liquidity to fund these mortgage loans directly, particularly with very low interest rates. Indeed, all of the QE3 monetary expansion is through the purchase of mortgage securities. These programs made the subprime mortgate market HUGE.
The problem was further amplified by the use of derivatives by the large banks, which used the mortgages as the underlying security. The derivative market is measured in the 100s of TRILLIONS, largely by having multiple dependencies on the same underlying (mortgate) securities. The crisis was amplified further by the repeal of Glass-Steagle (sp?), which allowed the merger of the commercial banks with the investment banks, creating the “too big to fail” banks. Glass-Steagle was repealed under Clinton too.
The ineluctable conclusion is that the financial collapse, which then lead to the recession, had nothing to do with tax policy, of Bush or anyone else. It had nothing to do with fiscal policy, of Bush or anyone else. It had nothing to do with GENERAL regulation policy (except Glass-Steagle), of Bush or anyone else. Indeed, Bush made attempts to get Congress to regulate Fannie and Freddie for precisely this reason; they saw the problem coming simply because of the sheer magnitude of the problem. However, they were opposed by the democrats who wanted the continued financing of home ownership for poor people. It was also the democrates that repealed Glass-Steagle and also passed the Community Reinvestment Act.
I am truly frustrated that this meme that the recession was caused by Bush is continually pushed AND IS NOT COUNTERED BY THE ROMNEY CAMPAIGN. (I am no fan of Bush, but it is still nonsense).
Agree, but Goldberg is saying that Bush helped expand subprimes.
He doesn't blame Bush for tax policy, but he seems to lump him in with the Dems on the sub-prime fiasco.
Bookmark.
Excellent synopsis on the sub-prime fiasco.