Pinpointing the Causes of the Financial Meltdown
Just as everyone is trying to digest the SOTU and the sideshows that were the Republican responses, the Financial Crisis Inquiry Commission is releasing its findings and they find that this meltdown was completely avoidable. Causes cited look won’t contain many surprises to folks not in denial about the clear policy choices that were contributing factors:
- Alan Greenspan was negligent
- Ben Bernanke couldn’t keep up
- The Clinton-signed Glass-Steagal handed over the keys to the candy shop
- And the Clinton financial team sheltering of derivatives from regulation made the excesses easy to hide
- Credit-rating agencies failed to do their job
- Excessive leverage at the biggest banks
- Paulson was wrong about containing subprime crisis
- Geither never clamped down on Citigroup
- The SEC and the Office of the Comptroller of the Treasury failed in their functions
There’s more at the NYT link and there ought to be a lively debate about this in the days ahead — if we were having a smart debate we’d be wondering if the Dodd-Frank regs go far enough to try to head off another meltdown in the future (I think NO).
Last bit:
The report does knock down — at least partly — several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.
So let’s keep rolling our eyes at the claim that somehow poor people caused the meltdown. And if you hear this from someone who claims to be a financial expert — run fast in the other direction or be prepaid to lose your shirt.
what about professor Piven? Glenn Beck told me that she caused the whole thing!
Best simple explanation of meltdown: http://www.nytimes.com/interactive/2008/09/28/business/20080928-SEC-multimedia/index.html#
I read the NYT’s article late last night. Indeed, there is not one or two things that led to this. The overriding or underlying reason was pure GREED.
Both Clinton and Bush tried to make homeownership for poor people more readily available through the Community Reinvestment Act, among other things. Pols pushed hard for lenders, especially the government-tied Fannie-Mae and Freddie-Mac to lend to those from impoverished areas.
From there the house of cards started to collapse. Ironically, even in a time of crisis, our elected and appointed officials cannot agree along bipartisan lines. Two of the four Republicans on the committee blamed the aforementioned ‘having-a-home-is-a-right-even-though-one-is-poor-and-cannot-afford-the-mortgage’ line of reasoning.
There is no one reason why this happened. Although many will attempt to tell the narrative along partisan lines. Heck, even the Commission itself was wrought with staffing problems and some key resignations during the inquiry.
If you are still pushing the CRA bullshit then you haven’t read that article. And nor do you understand how the CRA works. Hint — you don’t get subprime loans via that program.
Casandra, just because the conclusions made from the FCIC findings doesn’t point to the CRA AND similar programs (did you not read my post?) does not mean that our politicians, in the name of garnering future votes, did not in some way contribute to the overall crisis. Of course it’s not the cause, but it’s interesting to note how Clinton and the Dems looked good pushing this plan to their respective constituencies; and likewise, Bush and the Republicans love homeownership because it may ultimately result in a future Republican vote.
I read at least three books on the crisis, read nearly every day, articles by the NYT’s Gretchen Morgenstern as well as reading numerous WSJ articles the last 2.5 years. And of course, like you, I lived through it.
The bottom line is, this was not a partisan crisis. Every greedy person involved and along the shadow banking food chain helped precipitate this mess.
The bottom line is that there is a report as a result of a lengthy investigation into the causes of the meltdown. This investigation does not find that the CRA was at fault (again, if you had a single clue, you wouldn’t embarass yourself over this), however this was the *first* thing you reached for. This report provides a fair bit of data (as have many other people over the past two years) and the wingnut meme that poor people are to blame for this has no basis in fact. Every Fed President has said so — even Greenspan has said so. For you to continue with this bullshit largely points to the fact that you aren’t prepared to even understand what happened except in political terms. Which means you’ll never know how this happened.
No, the first thing I ‘reached’ for was written in ALL CAPS – GREED. Again, attack the argument, not the person.
“For you to continue with this bullshit largely points to the fact that you aren’t prepared to even understand what happened except in political terms.”
Making one point in which you obviously disagree with does not make me not ‘understand’ the obvious interconnectedness of this sometimes-complicated and sometimes-in-your-face debacle.
Apparently this is who had the GREED:
Both Clinton and Bush tried to make homeownership for poor people more readily available through the Community Reinvestment Act, among other things. Pols pushed hard for lenders, especially the government-tied Fannie-Mae and Freddie-Mac to lend to those from impoverished areas
Poor people who weren’t getting subprime loans from the CRA (and in this crisis, Fannie and Freddie acted like the big banks — buying up the subprime loans and securities from the Countrywides). This is definitely complex and if this is part of your calculation, you’ve no idea how complex it is. Because the CRA and poor people aren’t part of it.
The BS about the CRA is a cornerstone of the wingnut dance away from their own responsibleness for this disaster. And a dance away from the condemning the behavior of the rich people who saw a scheme and worked it. Because, of course, anything rich people want to do to make money is AOK with wingnuts.
You’re still dead wrong here. And no one of any credibility will begin to verify your bullshit about the CRA.
I must go now. It’s time for me to watch Rachel Maddow go native on Michele Bachmann and ignore the bigger stories of today.
I was surprised the NY Times included this misnomer.
“Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s term, is called “a key turning point in the march toward the financial crisis.”
They are correct it is the key turning point. This bill created the Enron loophole, and Phil Gramm is the sole person responsible for sneaking it through Congress.
Which is why historians may conclude there is enough guilt to spread around, but… the onus of the 2008 collapse, primarily flowed from the antics of Phil Gramm. Incidentally, his wife who worked for Enron,… benefited greatly from this piece of legislation.
It is described more in depth, ….. here. followed by dissenting comments and rebuttals.
It is difficult to call it a misnomer when even Mr. Bill himself claims this to be an action he shouldn’t have approved.
Yeah, Cassandra m, I hate when politicians attempt to rewrite history to minimize their culpability in FAILED policy decisions.
Just like all the economic advisers once in Clinton’s employ that Obama resurrected to fix the financial crisis they largely had a part in.
Makes me SICK.
Wow. Cassandra launching personal attacks against someone who doesn’t lick the soles of her ever-so-well-informed shoes. Some things never change. You really should get a new shtick.
Part of the CRA includes offering low-interest mortgages with more flexible underwriting (allowing for lower credit scores, higher debt and fewer assets) to people who live beneath the state’s median income. That’s not to say that poor people were the root cause of the issue, but to pretend that their getting in over their heads with mortgages they knew they couldn’t possibly afford didn’t play a role would be ridiculous. That’s not limited to poor people, btw. It also applies to middle-class people who absolutely HAD to have their McMansion now, now, NOW DADDY, fill it with Ethan Allen furniture, buy their new Hummer at 0% financing and fly to the islands to take a break from all the stress.
At the end of the day, who really cares who caused it? They won’t have to pay for it. In fact, most of them have probably been promoted. The government’s focus should be on figuring out why none of the hundreds of existing regulations designed to prevent the meltdown were never put into action. Instead, they pile on a few more. Oy. I will never understand the logic of those of you who think government is the answer to just about anything. Our country succeeds in spite of its government.
Oh, hey – instead of debating the issue like adults, please feel free to hurl some nastiness about how I don’t understand anything or I’m stupid or I’m a moron or I’m embarrassing myself because I’m nowhere near as smart as you high-minded, educated people.
It seems to me a mistake to think there was one “Financial Crisis” for which one can find a definitive list of causes. Rather, I think there was a series of different finanicial crises (plural) that all came home to roost in generally the same time period and fed upon each other.
For example, the housing bubble was a crisis caused by many things, including Fannie Mae and Mac, subprime loans, a belief that housing prices could only go up, and, ultimately, an exhaustion of demand, even as supply kept increasing (more than anything else, I think the housing bubble can be explained by falling demand and increasing supply, something which no one seems to mention, perhaps because it is so obvious; by 2007, just about everyone who could afford a house had bought one (and/or refinanced), but new housing kept coming on line, in part because the lag time for bringing new projects to market is so long; it will take years for the current supply to dwindle down to a more reasonable level). I think we still would have had a housing bubble regardless of the repeal of Glass-Steagal or the sheltering of derivatives.
So, I’m not sure why everyone seems to think there is one “crisis,” rather than a series of crises that all fed on each other. There may be different solutions to address different crises, but one global solution strikes me as the quest for a unified theory in physics. You can spend years looking for it, but you’ll never find it.
Cannot disagree in principle with the cause of the meltdown, but one important and often overlooked fact is the consumer credit binge caused by wages not keeping up with inflation for over three decades, to maintain their middle class life styles when running out of cash they began using their home equity lines as personal ATM,s and burning up the credit cards that where arriving every day in the mail, I remember getting at least 4 offers for credit cards at low rates in the mail in the early part of the last decade. In reality this recession should have started 10 years ago, but the american consumer made up for reduced disposable income by using and abusing credit lines and their home equity and where encouraged to do so by Greenspan,s low interest rates.
Wow. Dominique launching off her vast stores of resentments in lieu of real data. And you wonder why people think you are embarrassing yourself.
This:
Part of the CRA includes offering low-interest mortgages with more flexible underwriting (allowing for lower credit scores, higher debt and fewer assets) to people who live beneath the state’s median income.
Is not correct. The CRA is largely about making sure that banks serve low and moderate income communities in the same way they serve other communities. People in low to moderate income communities may have steady employment, downpayments and good credit — but they live at addresses that bankers did not want to add to their portfolios. And the CRA doesn’t just cover mortgages. It covers a number of banking services that were disappearing from cities. Interestingly, the CRA does NOT require banks to take more risks than they usually would for their loans or other services. The entire purpose of the act was to stop some of the discriminatory practices of bankers towards people who happen to live in places they didn’t like.
When we did this before, I linked to multiple sources of real DATA that showed that CRA loans were not performing worse that subprime ones were. (And CRA credit was not limited to residential morgages, either.) Not that you spent any time with that data, of course. Nurturing your resentments is far too important, I imagine. Sheila Bair has been really clear in a number of formats that the CRA was not a problem in the meltdown, Greenspan, Bernanke, all of the Fed Presidents — the list goes on and on.
But here’s what’s fun about this CRA claim — CRA compliance is reviewed pretty routinely by the financial institution’s primary regulators. Meaning that they have plenty of incentive to comply with the spirit of the program, else they get more regulatory scrutiny. The Wachovia CRA assessment shows the scope of the effort. And if you are really looking at this, you can tell that the number of loans made to poor people aren’t a threat to this institution.
If those that insist that CRA activities were somehow a source of the meltdown forget that ground zero of the housing meltdown was in middle class and upper middle class neighborhoods and developments in Nevada, Southern CA, AZ and Florida. If this was caused by poor people, then you’d see a greater impact in places like Harlem or Compton or the midwestern and western rural areas that the CRA is meant to make sure get served.
But then again, if you had a real argument you would have gone over to the St. Louis Fed and downloaded their origination data, gotten your spreadsheets on and actually proven your point. But here we are, where we started Dom, with you having more resentments than data.