In the discussion thread: Did Republicans deliberately crash the US economy? [View all]
Response to AnotherMcIntosh (Reply #29)
Mon Jun 11, 2012, 08:06 PM
Bill USA (2,267 posts)
89. specifically: Concentration of wealth and deregulation - a prescription for disaster
Last edited Mon Jun 11, 2012, 08:35 PM USA/ET - Edit history (6)
Inflated the housing bubble three ways:
1. Propping up a sick economy with easy money. Easy money policy at FED kept interest rates low. This was needed to prop up an economy that would have gone into recession without it. Tax cuts weighted mostly for the highest income tax brackets meant that the tax burden was being shifted to middle income people. They were finding themselves without as much money (median incomes were going down in the Bush years - for the first time in 50 years) and the only way they could keep them 'buggers' buying to support the economy was with easy credit and cheap money. So personal debt kept increasing as people tried to maintain lifestyles they were used to with declining incomes. Meanwhile GDP was growing at it's slowest rate 70 years( see: "The Aughts: the Lost Decade for Economy, Workers").
2. Not only ignored but fought efforts to rein in Predatory Lenders by 50 states attorneys General (see: Predatory Lenders Partner in Crime)
3. Deregulation. Phil Gramm, deregulator extraordinaire, slipped the Commodities Futures Modernization act 2000 in as a rider to the Omnibus Funding bill in the last few days of the Clinton administration (and just before the Congressional Christmas recess). The Omnibus Funding bill (an 11,000 page document) was a MUST PASS (ie. veto proof) bill before the legislature could leave as it was necessary to keep the Government operating. When Gramm slipped in the CFMA in as a rider - nobody in Congress even knew it was in there.
The CFMA had been held up in committee for about a year or more basically because Democrats were very suspicious of it. Gramm knew to get it passed he had to perform some pretty clever slight of hand legislative trickery. The CFMA made trading in Credit Default Swaps Legal and UNREGULATED. Credit Default Swaps were sold to investors in higher rate (i.e. riskier) Collaterized Debt Obligations (bundled mortgages). The banks explained to the investors (e.g. pension funds, sovereign wealth funds) that if the CDO tranche they invested in went into default the CDS would pay off so the investor would not lose any of his money. this was like Christmas in July...the investor got higher returns with NO RISK OF LOSS... or so it was sold.
Selling the CDSs which were sold as risk eliminators made high yield CDOs very much in demand by investors and their Wall Street Banksters. The banksters told mortgage originators they could buy all the high yield (sub-prime) mortgages lenders could supply. NOTE regular prime rate mortgages were NOT what the Wall Street Banksters wanted. They wanted high yield mortgages. Thus predatory lenders could 'flip' all the sub-prime mortgages they could write. So Predatory lenders were lassoing suckers and writing liar loans and all the alt-A (negative amortization loans - i.e. interest only payment loans, and baloon payment loans) they could get away with (cf. Predatory Lenders Partner in Crime - above).
The CFMA also included the notorious ENRON loophole allowing UNREGULATED trading of energy futures over electronic media. This of course lead to the ripping off of California residence to the tune of Billions of dollars the eventual collapse of ENRON. Thousands out of jobs and without any pensions!
The loose money policies were necessary to prop up an economy which was dieing slowly. It was flagging because tax cuts went mostly to the highest income people thus increasing the tax burden on middle income people who were slowly buying less. so easy money/credit was necessary to enable the people to keep buying - to hold off the recession. Because there was not really enought demand to keep businesses making money and growing, those who did have money were finding it hard to find good investment opportunities (the stock market at this time was not all that great except for home builders). So they were casting about for ways to make money on their investments. The only sector that looked good was housing (as long as the cheap money and loose credit continued).
Eventually the shit hit the fan when the housing bubble could not continue. Banks were holding massive amounts of bad debts (worthless mortgages) that alas, the credit Default swaps could not cover as AIG was going bankrupt trying to pay-off all the Wall Street Banksters CDSs! Hank Paulson went to Bush and Congress and said a bailout was necessary to preclude a collapse of the entire banking sector. Trillions of dollars in bad loans were held by banks which wanted the Taxpayer buy for ridiculous prices. TARP didn't allow for all THAT much of a bailout so trillions of dollars in bad loans still remained on banks books slowing the recovery which was to follow (albeit fought by GOP every inch of the way).
It was a spectacular disaster - a Trickle Down - Deregulation Disaster. Which dragged us into this REPUBLICAN DYSTOPIA.
for more details see: How did this Happen
BUT I DO NOT THINK THEIR INTENT WAS TO CRASH THE ECONOMY - I DON'T THINK THEY KNEW ANY BETTER.
They don't think far enough to see that concentration of wealth eventually leads to a slow growth economy with poor job creation because there isn't enough demand for the products businesses want to sell. They are paid to push deregulation and I think they really don't "get it" that regulation if necessary not only to protect us from greedy people who manage businesses (businessmen are, after all, just people. they are not perfect. They can be just as selfish and short sighted as anyone). A proportion of people (some of them managing businesses) are willing to cheat to make more money. Without regulations disaster is inevitable. But Republicans are paid to fight regulation and some of them may actually believe the deregulatory nonsense they are paid to repeat.
... but they have been fighting every effort of the Dems to rebuild the economy since then.
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