RSS Feed MenuCongress is preparing to vote on legislation which will place stricter regulations on the banking industry. My latest column for CNN.com though argues that the reform bill fails to address the larger issues behind the financial meltdown.
Financial reform? Not exactly. The bill before Congress does nothing to address the fundamental background causes of the crash of 2008.
Wall Street may have been the instrument of the crash. But the crash was made elsewhere: in Washington’s failed policies for middle-class families — and in China’s distorted rush for economic growth. …
As you’ve heard, the crash begins with the huge excess load of debt built up in the last two decades by American households. Why did Americans borrow so much? Some like to tell a story of irresponsibility: We borrowed too much because we were self-involved yuppies who just could not deny ourselves the latest flat-screen doodad for our McMansions.
Maybe that describes some people. But many millions of middle-class families plunged into debt for a very practical reason. Their incomes were not keeping pace with the cost of crucial items of the middle-class lifestyle: housing, medical care, college tuition. At the same time as housing, medical care and tuition were jumping in cost, the cost of borrowing was dropping to historic lows.
Click here to read the rest.
ottovbvs // Apr 27, 2010 at 12:36 pm
……as an addendum to my above comment I’d add that while this is a record of economic mismanagement quite equal to that of Coolidge/Hoover……there’s one important difference…..basically the Coolidge/Hoover admins didn’t really understand what they were doing while Bush admin did (not him personally of course unless Cheney drew him a little connect the dots pic ).
msmilack // Apr 27, 2010 at 3:14 pm
David,
The vote in the Senate is for an open debate on the senate floor; the Republicans have a chance to work together to strengthen the bill. Instead, the Republicans have voted to not allow a public debate and Reid is calling their bluff. Why will they only discuss this behind closed doors? What is wrong with them? They are playing this hand even more foolishly than they played their hand for healthcare. To me, it looks like Waterloo Redux in the making.
Fredgei // Apr 27, 2010 at 3:40 pm
It is as true to say that Wall Street (specifically the bond market) didn’t cause the crash, as it is to say that pushers don’t cause deaths from drug overdoses. Like the pushers, the bond market merely supplied the necessary ingredients to cause the crash.
While average household incomes stayed stagnant through the last decade, executive compensation climbed from about 150 times workers income in 2000 to about 275 times workers income in 2007. If stagnant incomes for the average worker are the root cause, then this is one of the areas that need to be addressed. I’d be interested in a conservative, market-oriented solution to the problem of wealth running uphill, because the only ones that come to mind I can only see Bernie Sanders proposing.
ottovbvs // Apr 27, 2010 at 5:24 pm
…..I see the Republicans have blocked a debate on financial reform again……another vote tomorrow afternoon……..all the headlines this morning basically said Republicans block financial reform so I guess they will say the same again tomorrow….one wonders how long this goes on before Reid moves to stage two
balconesfault // Apr 27, 2010 at 5:44 pm
one wonders how long this goes on before Reid moves to stage two
Talk is that stage two might be Reid accepting that Republicans and Ben Nelson just aren’t going to allow this to move forward – so instead allowing changes that make this less a Chris Dodd bill and more a Bernie Sanders bill -which will put the Republicans in the position of continuing to block something that looks more and more populist over time.
Where was this Harry Reid all last year?
ottovbvs // Apr 27, 2010 at 6:08 pm
balconesfault // Apr 27, 2010 at 5:44 pm
“so instead allowing changes that make this less a Chris Dodd bill and more a Bernie Sanders bill”
…..maybe but it doesn’t seem likely to me as there are many democrats who don’t want to go full Bernie(including me)……more likely he holds a series of votes so they keep saying no and then moves to all nighters where he can call snap votes which would mean the Republicans having to have their 40 there at all times while Dems just need a simple majority (which doesn’t have to be over 50 but just a simple majority over Republicans present providing there’s a quorum)…..since the Republicans know he can pull this procedural move you have to wonder why they are delivering these headlines.
ottovbvs // Apr 27, 2010 at 6:14 pm
balconesfault // Apr 27, 2010 at 5:44 pm
“Where was this Harry Reid all last year?”
…….maybe I’m assigning Obama and the Dem leadership more credit than they deserve but I’ve always believed there a strategic intent behind all that……Reid never had an effective majority he could wield against a cloture vote because he couldn’t count on Nelson and co……so they made lemonade out of lemons by allowing it to drag on endlessly and firmly plant in the public mind the notion the Republicans weren’t going to deal or cooperate on anything……apart from the true believers does anyone really now think otherwise
Carney // Apr 27, 2010 at 11:08 pm
balconesfault, the overwhelming emphasis was on Hispanics.
“The Diversity Recession, or, How Affirmative Action Helped Cause the Housing Bubble”
http://tinyurl.com/659wcc
“America’s Minority Mortgage Meltdown: The ‘Diversity Recession’ Smoking Gun?”
http://vdare.com/sailer/081010_meltdown.htm
balconesfault // Apr 28, 2010 at 1:47 am
Carney – sadly, wealth is very disproportionately distributed by race in America. Thus, efforts by the Bush Administration to pump money into the lower end housing market and thus create economic activity (and as those articles noted, to get people to become part of an “ownership society” which Rovian dialectic believed would make them more likely to vote Republican going forward) would on a percentage basis increase lending to Hispanics more than whites.
That said – lending to whites increased by 486 billion between 1999 and 2006 – while lending to hispanics increased by 143 billion. We don’t have the data from what you linked to which would allow us to evaluate whether lending to Hispanics with, say, <60K in annual income increased more or less than lending to whites with <60K in annual income. Without this comparison, the claim of a Hispanic Bubble is purely speculation.
The author also presents: "About half of all mortgages for blacks and Hispanics are subprime, versus roughly one-sixth for whites. "
Again – this means nothing without breaking out the statistics by income grouping. We all know that blacks and Hispanics are less wealthy on average than whites … and that less wealthy people are more likely to (in my opinion, be talked into) an adjustable rate mortgage than those of us with better finances.
The author also makes the claim: "Not surprisingly, the biggest home price collapses have occurred in heavily Hispanic cities such as Las Vegas, Miami, Phoenix, and Los Angeles."
Hmmm … what else is similar about those cities (along with San Diego)? Oh yeah – sunbelt cities that went through huge booms in the early 2000s. In fact, an ironic little twist here – in all of those cases, you had traditionally Hispanic neighborhoods becoming gentrified. Which, of course, meant that a Hispanic family living in a home they'd bought for $120K back in 1999 suddenly had some yuppie couple dropping by and offering them $300K by 2006 (which probably led them to go out and buy some new property with the money, originating a new higher value mortgage).
Meanwhile, some families had been there since 1980. And some mortgage broker came by telling them that their house (which was largely paid off) was now worth $300K … and that it would be worth $450K in a couple years … so if they just took out a balloon mortgage at a super-low initial rate with no closing fees they could suddenly have a couple hundred thousand for improvements or a new car or whatever.
And a LOT of people – white, black, Hispanic – who never moved from the house they'd been in were taking out those new high dollar mortgages with the guarantee from the smart men who were writing the loans out to them with the guarantee that they could refinance in a couple years and lock in a low rate thanks to the increased valuation of their home.
If you want to lay blame for the bubble based on adjusted rate mortgages – go find the predatory lenders who were the early 2000's equivalent of snake oil salesmen, and the financial institutions who created the incentive for these snake oil salesmen by buying up all the loans they could get so they could leverage the paper many times over for new monopoly money for their derivatives casino they were all using to try to become overnight billionaires.
ottovbvs // Apr 28, 2010 at 10:05 am
balconesfault // Apr 28, 2010 at 1:47 am
…..both carney’s sources are as reliable as Heritage…….this whole thesis that sub prime lending was a) the major, or a major, cause of the financial crisis and b)not principally the responsibility of sub prime lender’s reckless loan practices has been so totally discredited you have to wonder why these guys keep re-hashing it…….sub prime was always a small part of total borrowing that was encouraged by both parties…….sub prime lenders had business models loaded with incentives to encourage their salespeople and agents to make iffy loans and it didn’t bother them because they weren’t going to continue holding the paper……..they just packaged it up and sold it on to the secondary market from where it went into the third, fourth, fifth, six markets and so on into infinity…..even then it didn’t save them because it’s no accident that all the sub prime lenders are the one’s who have gone out of business! ……I don’t particularly struggle with the notion that most sub prime borrowers were black or hispanic Americans since they are a disproportionate share of the bottom 30% percentile of income earners but their race is irrelevant……they were just easy marks as were a lot of white Americans……in fact a white middle class couple of my wife’s acquaintance who probably had a family income of around 100k lost their home because they got suckered into a refinancing by a now defunct lender that they blew on German autos and home improvements just as you describe.
balconesfault // Apr 28, 2010 at 11:11 am
you have to wonder why these guys keep re-hashing it
Because it facilitates them blaming it on minorities.
It worked so well for them through the 80’s … why not bring it back?
balconesfault // Apr 28, 2010 at 11:17 am
both carney’s sources are as reliable as Heritage
Actually – Heritage isn’t largely staffed by eugenicists.
The author of both articles is the founder of the Human Biodiversity Institute, which promotes the study of biological differences among humans and their impact on society. Major areas of interest include race, sex, and sexual orientation. He’s also published a book … AMERICA’S HALF-BLOOD PRINCE: BARACK OBAMA’S “STORY OF RACE AND INHERITANCE”.
Is it surprising that he finds a link between the economic collapse and minorities? Perhaps the biggest surprise is that someone would actually link to him.
you have to wonder why these guys keep re-hashing it
Because it facilitates them blaming everything on minorities.
It worked so well for them through the 80’s … why not bring it back?
ottovbvs // Apr 28, 2010 at 1:23 pm
balconesfault // Apr 28, 2010 at 11:17 am
“Actually – Heritage isn’t largely staffed by eugenicists.”
…….Eugenicists are Carney’s go to guys on financial issues…..that would explain why he’s so knowledgeable on the subject…….he also got a lot of his advice on healthcare reform from Joe the Plumber I seem to remember