Who Tanked The Economy?
My friend Bruce Feirstein chronicles the top 100 people, companies, institutions, and vices to blame in Vanity Fair. From September 9, into the Cs, there's Cheney, Clinton, and China. Here's Bill:
25. Bill Clinton.
In a New York Times Magazine cover story by Peter Baker on May 31, 2009, Bill Clinton assessed his role in the financial meltdown. Regarding the Community Reinvestment Act, he dismissed charges that he had forced small banks to write mortgages to risky home buyers, calling this "totally off-the-wall crazy" and pointing out that community banks hadn't had major problems. Regarding the repeal of the Glass-Steagall Act, he accepted some "indirect" responsibility for the aftermath of allowing banks to go into the investment business, but placed most of the blame on George W. Bush and the failure of the S.E.C. to do its job, although he still doesn't think it "had much to do with this meltdown." And as to the charge that he didn't regulate derivatives, Clinton pleaded guilty, blaming himself for listening to Alan Greenspan, and adding that the S.E.C. and the credit-rating agencies were also at fault. But in a larger sense, this is all beside the point. The power of the American presidency lies in its moral authority. And in some ways, it's impossible to separate Clinton's personal ethos from everything that was to follow. From the selling of the Lincoln Bedroom to the blue dress, to "It depends on what your definition of 'is' is," to the unprecedented pardoning of the fugitive Marc Rich, Clinton set the tone for the era of indulgence that followed--and followed through himself with his dubious financial associations. Clinton supporters will argue vociferously that none of this mattered, and that it was possible to separate the man's personal peccadilloes from his performance in office. We're willing to bet that's what the bankers and the subprime lenders thought, too: None of it mattered, so long as you were making money.
VF is posting five a day, but here's the whole list in alphabetical order.
Tramp Stamps????
I may have to check back for he writeup on that one.
sean at September 10, 2009 4:35 AM
Gordon Gekko? He is a character in a movie.
Melody at September 10, 2009 10:40 AM
Bruce is very smart and funny - wrote a bunch of the Bond movies, wrote a great column for the NY Observer, and writes for Vanity Fair these days.
Amy Alkon at September 10, 2009 1:32 PM
We Guarantee It: The Credit Rating Agencies
Along with pressuring banks to make risky and outright bad loans, the government pressured the credit rating agencies to put AAA on that debt. Fannie Mae (and Freddie Mac) thoroughly confused the housing bond market for 20 years. Fannie Mae had the implicit guarantee of the government and many explicit privileges that connected it to the government, unlike any truly private company. The ratings agencies respected that implicit guarantee to put AAA on Fannie Mae debt. Then, they put AAA on all similar debt, because how could they say that the other debt was bad when they were saying that Fannie Mae debt was good? It would have blown the cover off the entire operation.
An "implicit guarantee" is when powerful politicians are pushing a program and clearly are not going to let it default. They will spend any amount of money to avoid bearing personal responsibility for a failure. This is how it has worked out.
Here is a quote at the above link.
( easyopinions.blogspot.com/2008/10/we-guarantee-it.html#bardo )
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Craig Bardo:
The failure of the ratings agencies has had consequences that are out of proportion. It should not be dismissed as a simple regulatory mistake.
I represented bond issuers and designed entire programs based on getting better ratings as well as better tax treatment for non profit issuers. Why did the ratings agencies get the mortgage securities so wrong and not the debt of hospitals, colleges, and universities I represented? Why did purchasers do better buying lower-rated health and university bonds than the higher-rated mortgage bonds?
The answer lies in political pressure. My issuers had very little power over the rating agencies. But, the federal government effectively provided the charter for the ratings agency, and the federal government tacitly backed the bonds being rated.
Even the most seasoned, hardened analyst working for the ratings agency would have a hard time stating that those bonds were not worth the paper used to print the offering document
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A lot of banks lost money because they bought debt that they did not understand. The government lost money through its housing policy implemented through Fannie Mae and Freddie Mac, who bought $1,400 billion ($1,400,000 million) of this subprime debt, and pressured the bond rating agencies to stamp AAA (safe investment) on all of the sub-prime debt. Fannie and Freddie were government programs pretending to be private companies. They had the implicit guarantee of the federal government.
Housing itself was pushed as a government program. Housing is a highly leveraged investment. The homeowner borrowed 80% of the money to buy the home (4:1 leverage). Great when prices are going up, and disastrous in any downturn. The leverage was more like 10:1 for the sub-prime loans. All encouraged by government policy and programs.
We have just emerged from a four year experiment in giant stimulus. The housing bubble WAS a stimulus bubble. The government borrowed through Fannie Mae and Freddie Mac to loan to people to buy houses (construction, consumer goods, appliances) and to re-finance housing to buy everything.
The $2 trillion in sub-prime financing in the last four years delivered dollars to the people who spent it immediately on all types of stuff. That is a $2 trillion stimulus.
We are living now in the "post stimulus" economy produced by that giant stimulus. How do we like it?
That was the result when people promised to pay it back. What will happen now when more money is being handed out, with no hope of repayment? We have only the prospect of higher taxes on productive people, or high inflation, and probably both. Tax the rich, tax the middle class, and tax the poor.
A Tested Stimulus Plan:
We just tried a stimulus through housing policy.
easyopinions.blogspot.com/2009/02/tested-stimulus-plan.html
Andrew_M_Garland at September 10, 2009 2:08 PM
Blaming after parties hits me where it hurts. And here I just thought that was where you could hang wih friends do drugs without getting hassles by security or douchebags. I never knew I was contributing to the economy's downfall. Sorry everyone!
Whatever at September 10, 2009 6:41 PM
George Soros?
Feebie at September 10, 2009 8:48 PM
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