The facts about who caused the current economic disaster

[Mitch10mm]

And like it or not, Republicans usually respect laws that were passed by their opponents prior. Unlike Obama who made it his first order of business to nullify things Bush had done.

[STBear]

There's a McMansion near us that has been bought and sold at least a dozen times since we bought our place in 2002. We've been trying to figure out why this one place continually gets rolled over.

Maybe it has an Ungawa basement.

[bamboomaster]

If you want to be technical, the FEDERAL RESERVE and its cohorts caused the current economic disaster. This part of the current economic disaster not only includes housing, ZIRP, a few trillion in foregone interest income by the middle class, wage disparity, riots in select inner cities, near-extinction of the middle class, etc.

And Hillary's gonna fix this? I don't think so... (for only black lives matter?). Sometimes I wonder....

http://www.zerohedge.com/print/573486

Sucker Punch On Main Street - Disturbing Facts About The Fed's Phony Housing "Recovery"
By Tyler Durden
Created 09/28/2016 - 14:35

Submitted by WallStreetExaminer's Lee Adler [4], via Contra Corner blog [5]

Whether you think there has been a housing “recovery” or not is a matter of perspective. Sales are indeed up 117% since the 2010 low, but that low was literally the worst level in the history of this data (since 1963) as a percentage of population growth. It was the Great Depression of Housing, the only possible result of the greatest housing bubble since the 1920s, if not in history. While sales have rebounded since that low, the current sales rate has barely recovered to the levels seen at the recession lows of 1991 and 1982. This rebound is little more than a dead cat bounce after 6 years of recovery [6], and now it may be faltering.

Mainstream economists give the Fed credit for stimulating this “recovery.” But, in fact the Fed has created a Catch 22 with no way out. The only thing the Fed has stimulated is house price inflation while destroying interest income on savings for millions of ordinary Americans, especially former middle class retirees. With mortgage rates pushed down to all time lows, house prices have consequently inflated at a rate that offsets the buyer’s savings in the interest component of the mortgage. Meanwhile American savers have lost not only massive purchasing power, but also have been forced to consume principal. The Fed has not stimulated sales but it has succeeded in transferring wealth away from those who can least afford it to those who least deserve it.

Had mortgage rates stopped falling at higher levels, house price inflation would have been stunted. More of a buyer’s mortgage payment would have been apportioned toward the higher interest component of the payment and less toward inflating the purchase price.

But the Fed got the result it intended. It wanted to inflate prices to save the banks from their stupidity and criminality. Decisions were made at the highest levels of the Fed and the Federal Government to not only let the banks off the hook, but to rescue them. The only way to do that was to forego prosecution of massive criminal wrongdoing, and to engineer price inflation, so that the criminal perpetrators of the fraud that drove the Great Bubble would be free to re-offend.

The Fed’s claim of trying to help the typical consumer is hogwash. The benefits of the low interest rate policy have flowed only to the upper income strata. In our monthly updates of our “Thanks Fed For Helping the Average Guy” we see that the chance of the “average guy” to buy a new home remains virtually nil. Not only has there been no recovery in homes priced under $200,000, sales in that price range have essentially disappeared in spite of the world’s major central banks pushing mortgage rates down. Builders no longer have any interest in producing product in that price range because demand has weakened so much at that level. People at the reported median US household income simply can’t afford to buy houses regardless of the fact that they may be borderline qualified.

Prior to the housing crash, most new homes sold were in the under $200,000 price range. Since 2007, mortgage rates have been cut nearly in half. Yet production and sales of homes in the under $200,000 range have continued falling, now down 61% since 2007.

Builders have shifted their efforts to the $200-$400k range, where they still have some margin, and can move enough inventory to earn a profit. The higher the price of the home, the more profitable it is for a builder. Unfortunately, homes priced above $230,000 are beyond the reach of households earning the reported median household income of $56,000, a figure which itself we believe is overstated [7]. Because of central bank driven housing inflation, and suppression of household income growth (also partly attributable to ZIRP) home ownership is increasingly out of reach for an ever growing percentage of US households

If monetary policy were helping the housing market, the rate of homeownership should be at least stable. Instead, as mortgage rates have been consistently suppressed since 2007, homeownership has fallen concurrently.

The problem is that as the Fed and its cohort central banks have been busy pushing down long term interest rates, that has pushed house prices up so fast that there has been no increase in affordability.

During and after the 2007-2010 crash, homeownership fell due to the massive increase in foreclosures. The foreclosure crisis began to recede in 2012. Since then the drop in the homeownership rate has not been because of people losing their homes, it has been because fewer people can afford to purchase, even in spite of the world’s central banks subsidizing buyers with absurdly low interest rates. As we’ve shown, the subsidy is self defeating. It does not benefit buyers.

Meanwhile, the only US regions that have seen any rebound at all in new home sales have been the West and Southwest. The Northeast and the Midwest remain absolutely dead in the water. In the Northeast, sales are down 60% relative to the 1991 recession low. Let that sink in for a moment–not versus the bubble peak, but since the low of a recession 25 years ago, when the US population was 25% less than today. Sales in the Midwest are down 12.5% since the 1991 low.

Lest you think that the West is going great guns, its sales are only up 8% since 1991. That is in spite of US population growing by 25% in those 25 years. The West has grown even faster– 45% since 1991.

The issue in the West is an ever growing affordability crisis. It too is largely driven by the central bank interest rate subsidy of the past 8 years. It has reignited a massive housing bubble throughout California, the nation’s largest housing market. Tiny 3 bedroom bungalows in the suburbs of San Francisco now go for more than a million dollars. Absurd.

Finally, the South has seen a surge of 35% in new home sales since 1991. But that’s is less than half the population growth of 72%. A long term demographic-geographic shift drives growth in the South. This trend has gone on for decades. Fed policy has nothing to do with it, other than to inflate prices.

Notably, even after recovering from the 2007-09 crash, all regions remain well below the levels of the 2001 recession low.

The argument that the Fed policy of ZIRP and suppression of long term interest rates through QE bond purchases has stimulated housing simply does not hold water. It has stimulated house price inflation, and that price inflation has fully offset the cost-reduction effect of the interest subsidy to home borrowers. At the same time Fed policy has cost millions of savers trillions in interest income that could have boosted not only consumption, but also cash available for down payments on home purchases. The idea that low interest rates stimulate the economy by stimulating housing is The Big Lie.

The Fed has created a situation where the housing industry is so dependent on the massive interest rate subsidy that any uptick in rates is likely to cause a cataclysm. The Fed and its cohorts are responsible for this mess. They have left themselves, and us, with no way out.

[JAKIII]

Yes, it would have gone over so well, to systematically foreclose on the homes of mostly deadbeat blacks and Latinos.

I appreciate the thread and link to the article, which I have no disagreement with. It's regretful the story will not be covered by the media and gain little traction, if any.

I voted for W... twice. Although, as mentioned, the shit did hit the fan on his watch, which is what history will reflect. After all, there are those pesky eight years.

[Yellowfin]

And like it or not, Republicans usually respect laws that were passed by their opponents prior.

A habit which continues to kill off the enthusiasm of their voter base which is us. D party voters generally get what they vote for, we get basically jack squat and "They wanted $200 billion, we said oh no no only $150 billion, because we're conservative!" and "We told them stop! Or we'll say stop again!" and "Damn that liberal media, we just can't do anything about it!" Capitulation and excuses and more status quo.

[john9001]

Barney Frank, "there is nothing wrong with Fanny May". Banks were giving 110% mortgages with no income verification. Buy a house and put money in your pocket at closing. Where I lived houses were going up 15% a year, a house flippers dream.

[RockIsland]

Bush tried, Democrats lied.

Not a huge GWB fan but his administration did see it coming.


Today, the Washington Times incorrectly accused the White House of ignoring warnings of trouble ahead for government-sponsored enterprises (GSEs) and neglecting to "adopt any reform until this summer," when it was too late. "Neither the White House nor Congress heeded the warnings, Fannie and Freddie retained strong bipartisan support during the 1990s and early part of this decade." (Editorial, "Hear, See And Speak No Evil About Fannie And Freddie," The Washington Times, 10/9/08)
Over the past six years, the President and his Administration have not only warned of the systemic consequences of failure to reform GSEs but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties. In fact, it was Congress that flatly rejected President Bush's call more than five years ago to reform the GSEs. Over the years, the President's repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems with the GSEs.
2001

• April: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity." (2002 Budget Analytic Perspectives, pg. 142)

2002

• May: The Office of Management and Budget (OMB) calls for the disclosure and corporate governance principles contained in the President's 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

2003

• February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market.
• September: Then-Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements.
• September: Then-House Financial Services Committee Ranking Member Barney Frank (D-MA) strongly disagrees with the Administration's assessment, saying "these two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis … The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." (Stephen Labaton, "New Agency Proposed To Oversee Freddie Mac And Fannie Mae," The New York Times, 9/11/03)
• October: Senator Thomas Carper (D-DE) refuses to acknowledge any necessity for GSE reforms, saying "if it ain't broke, don't fix it." (Sen. Carper, Hearing of Senate Committee on Banking, Housing, and Urban Affairs, 10/16/03)
• November: Then-Council of the Economic Advisers (CEA) Chairman Greg Mankiwexplains that any "legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk." To reduce the potential for systemic instability, the regulator would have "broad authority to set both risk-based and minimum capital standards" and "receivership powers necessary to wind down the affairs of a troubled GSE." (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)

2004

• February: The President's FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital and calls for creation of a new, world-class regulator: "The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore … should be replaced with a new strengthened regulator." (2005 Budget Analytic Perspectives, pg. 83)
• February: Then-CEA Chairman Mankiw cautions Congress to "not take [the financial market's] strength for granted." Again, the call from the Administration was to reduce this risk by "ensuring that the housing GSEs are overseen by an effective regulator." (N. Gregory Mankiw, Op-Ed, "Keeping Fannie And Freddie's House In Order," Financial Times, 2/24/04)
• April: Rep. Frank ignores the warnings, accusing the Administration of creating an "artificial issue." At a speech to the Mortgage Bankers Association conference, Rep. Frank said "people tend to pay their mortgages. I don't think we are in any remote danger here. This focus on receivership, I think, is intended to create fears that aren't there." ("Frank: GSE Failure A Phony Issue," American Banker, 4/21/04)
• June: Then-Treasury Deputy Secretary Samuel Bodman spotlights the risk posed by the GSEs and calls for reform, saying "We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System." (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)

2005

• April: Then-Secretary Snow repeats his call for GSE reform, saying "Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America … Half-measures will only exacerbate the risks to our financial system." (Secretary John W. Snow, "Testimony Before The U.S. House Financial Services Committee," 4/13/05)
• July: Then-Minority Leader Harry Reid rejects legislation reforming GSEs, "while I favor improving oversight by our federal housing regulators to ensure safety and soundness, we cannot pass legislation that could limit Americans from owning homes and potentially harm our economy in the process." ("Dems Rip New Fannie Mae Regulatory Measure," United Press International, 7/28/05)

2007

• August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying "first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options." (President George W. Bush, Press Conference, the White House, 8/9/07)
• August: Senate Committee on Banking, Housing and Urban Affairs Chairman Christopher Dodd ignores the President's warnings and calls on him to "immediately reconsider his ill-advised" position. (Eric Dash, "Fannie Mae's Offer To Help Ease Credit Squeeze Is Rejected, As Critics Complain Of Opportunism," The New York Times, 8/11/07)
• December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying "These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I've called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon." (President George W. Bush, Discusses Housing, the White House, 12/6/07)

2008

• February: Assistant Treasury Secretary David Nason reiterates the urgency of reforms, saying "A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully." (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08)
• March: President Bush calls on Congress to take action and "move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages." (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08)
• April: President Bush urges Congress to pass the much needed legislation and "modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes." (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08)
• May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.
  
  • "Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow state housing agencies to issue tax-free bonds to refinance sub-prime loans." (President George W. Bush, Radio Address, 5/3/08)
  • "[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator." (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08)
  • "Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans." (President George W. Bush, Radio Address, 5/31/08)
  
  
• June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying "we need to pass legislation to reform Fannie Mae and Freddie Mac." (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08)
• July: Congress heeds the President's call for action and passes reform legislation for Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing.
• September: Democrats in Congress forget their previous objections to GSE reforms, as Senator Dodd questions "why weren't we doing more, why did we wait almost a year before there were any significant steps taken to try to deal with this problem? … I have a lot of questions about where was the administration over the last eight years." (Dawn Kopecki, "Fannie Mae, Freddie 'House Of Cards' Prompts Takeover," Bloomberg, 9/9/08)

https://georgewbush-whitehouse.archi...081009-10.html

[rwilson452]

WAy back when they first announced the new policy of giving home loans to anyone that was a warm body. I said to myself, "This will not end well."

[ungawa]

Regardless if it was actually his fault, he and his administration had EIGHT YEARS to recognize the shit-storm that was coming... and do something to avert it.

It didn't take him eight years. It took him a few months.

He gave a speech to Congress saying Fannie and Freddie were over leveraged and this was a sign that a dangerous bubble was building in the market. Dem congress (including the gay guy in charge of that committee or whatever) scoffed repeatedly over the course of years and did not allow him to get anything done. I'm sure they said Bush just wanted to be mean to the poor or something.

9/11 came and some attention was diverted, and Dems weren't going to let the FSA go without home ownership.

Now they are doing the same crap. And it WILL happen again. Whether or not derivatives will magnify the damage again I do not know.

EDIT: OK, I see all that has already been covered

[Bang]

Seems to me an ACORN operative of Obama's caliber would have extraordinary depth of comprehension of the overview sufficient to avoid a 20 trillion debt pinnacle during his eight years. In fact, reduction would be rightfully expected.

Government interference with banks was occurring in the 1960s. Areas occupied by the deadbeats were "redlined" by banks...a term meaning no mortgages for these losing propositions. That translated to racial discrimination, and off we went.