Originally Posted by fiddlin'man
...Thanks to the economic downturn, the budgets of state and local governments particularly in California are not it great shape, as you know.
And you can blame that on the misguided economic policies of the Bush administration. Not the ACLU.
I agreed with you until that last line. It's political charged and wrong when faced with the economic facts. The problem has stretched back many years before as I will show you.
First off: The Fed lowering the prime rate for so long. Our economy has been headed in disinflation for many years before Bush senior even. Check the charts yourself. The inflation rate dipped below 1% twice and then the Fed took action to prevent deflation. It was by this action that created a speculative real estate bubble, and that's fine. We have had many of them, California, New York, Hawaii and other places all have had speculative real estate bubbles. Speculating in real estate is not a problem, it's game of the wealthy of musical chairs and the last one owning property loses. However it's not for the middle class or the poor. It does stimulate the economy with a lot of jobs and does create inflation, which it did which is easier to control that deflation, especially run-away deflation which the Fed feared would occur with all the cheap goods flooding in from China. (It was China's oil demand before the Olympics that drove up gas to over $4 a gallon, not speculators alone)
What made this real estate bubble especially bad is that liberal companies and banks in California (the now bankrupt one and begging for 7 billion) started to dapple in sub-prime, with the loans being sold to investors. That arrangement was started back in Clinton days with his revisions to the Community Reinvestment Act (originally designed to prevent redlining) to force banks to give out loans they didn't want to. To get rid of these loans, Bear Sterns created the first mortgage backed security, and investors could gamble owning these risky BBB rated loans.
When the Congress switched Democratic, in 2005 saw the two government sponsored organizations (GSE's) Freddie and Fannie mandated to increase their sub-prime exposure when they wasn't exposed before. To dump these toxic loans because there wasn't enough investors willing to take them, a new device called a CDO was created, mixing AAA and BBB rated securities and then it was rated AAA. So the worlds investors, even entire countries, were bilked. That's why the mess has spread worldwide basically. (People at Moodys need to be tarred and feathered)
It was a crooked capitalist response to crooked socialist government action. You can't just give houses and loans to people that are not able to pay in a socialist manner and expect them to pay in a capitalist manner if they are not making enough to do so.
The three rules of lending: Credit, Collateral and Character
, went out the window by government action via the CRA. People could snitch off banks who didn't give them a loan it was that bad. Banks were given credits if they played along, and as long as the government or investors were willing to take the toxic loans off their hands, they played.
You see what Clinton did was separate the bond that occurs between a lender and the borrower. Before him, there was no such thing as a mortgage backed security. The new Congress in 2005 sure made the problem worse by getting Freddie and Fannie involved in sub-prime to the point that both were over leveraged something like 70x!
Greenspan, McCain and Bush all tried to stop Congress. Greenspan told Congress "your privatizing the profits and socializing the risks". Bush and McCain tried to pass bills that failed, they were viewed as being "racist" by Congress because the majority of sub-prime was assumed to be minorities. (actually there are more poor whites than minorities). Eventually the Treasury took over the two highly over-leveraged companies and that's when the real estate bubble collapsed, because the government wasn't backing any more loans and the party was over. Naturally the Democrats lynched Bush, blamed him for everything and spoiling their fun.
What people sometimes to fail to realize is our government is three parts, the House, the Senate and the White House, three seats of power. When the Congress (House and Senate) went Democratic under Bush, he basically became a lame duck president. Nearly powerless and unable to do much of anything with the Congress ignoring him on political basis. So with that, how can the Dems blame Bush, when it was them in power and caused things to get out of hand?
Now after every real estate bubble there is a post real estate bubble recession, it occurs because of the (mainly) construction workers get laid off, due to the end of speculation and "flipping" of improved properties. Eventually as the population grows, new housing is needed and the workers are rehired.
However, because of the involvement of sub-prime by liberal banks, mortgage companies and the two GSE's, there is a overabundance of underwater mortgages and even the middle class and some wealthy default. The fallout effects business and communities, factories and a general depression state which we are experiencing now. People are spending all their money on their underwater mortgages, with little other disposable income to buy other things. This would have not occurred if the three rules: Credit, Collateral and Character
were not ignored in the favor of giving housing as a right mandated by government action.
I do believe some regulations, like GlassSteagall Act, should be re-enacted. Because banks are banks and investing companies are gambling. The two shouldn't be mixed. But that's not the cause of the problem, rather it doesn't help.http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act
What I find especially troubling, is that despite the Democrats crying over deregulation, they go ahead and ignore common sense and get the government involved in sub-prime with our tax dollars. They certainly didn't do anything about their liberal banks and mortgage companies, mostly based in California, who initiated the problem in sub-prime lending. The first bank that failed was Indy Bank in California and it has the most failures.
Perhaps with deregulation, the banks knew how to behave responsibly so they needed more freedom to create new structures, less chains and more options to solve problems. But what was really needed was regulations for the government and their meddling mandates, especially those in Congress from behaving like kids with moms credit card on a Friday night.
Bush did want to help those who couldn't get a mortgage, just like Clinton wanted too, but somewhere along the line, I blame the Congress, they went crazy and overboard to the extreme. I believe it was done as political sabotage because the Republican Congress and Admin were doing such a great job and the economy was flourishing, the Dems couldn't have that. It could be the Congress just were irresponsible and ignorant, not being naturally conservative like Republicans are.
So we tried it the liberal socialist California way and it got us here, now we are trying it Chicago's way and that's no solution.
Texas has a vibrant economy, good employment and virtually no real estate bubble mess.
We need to go back to doing it Texas way.