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Discussion: (9 comments)

  1. The original NY Times article on the Net Cap rule is here:

    I’m not sure if this paper’s figures can be taken in isolation. There’s so much propaganda around. However: one may wish to check the sharp rise in real estate prices following almost immediately after repeal.

    It could be that although leverage limits were almost or equally high for some B/D’s before the crisis, let us consider that the leverage MAY NOT HAVE DEPLOYED OR FOCUSED ON REAL ESTATE OR DERIVATIVES at that time.

    1. Michael P. Stein

      I guess I get to disagree with everyone today. :)

      My recollection is that residential real estate prices started their bubbling towards the end of the Clinton era, and this chart appears to bear me out:

      The commercial price chart you point to is not useful in support of the point you wish to make because it only starts in 2001. There’s already a climbing line in the first part of the year; the fall from October 2001 through April 2002 is almost certainly attributable to 9/11, especially its effects in New York City. (Anecdotally, my sister bought an upper east side Manhattan one-bedroom co-op for $200K during that period.)

      1. Max Planck

        see above for reply….

  2. JPs twitter question for lib economists is a good one: What, exactly, were the Bush policies that caused the “Great Recession?”

    The President is fond of saying things like “Romney’s policies are the same ones that caused us to go into the ditch (paraphrase)” but he, and no one else to my knowledge, makes a specific list. Moreover, “trickle down” and other labels used by Leftist pundits don’t represent any economic theory held by any economist outside of a mental institution, as Thomas Sowell has said.

    1. Michael P. Stein

      @LibertyPhysics – Sowell’s statement is a strawman. We do not hold elections for economists; we hold them for politicians who make claims that economists never would. It’s the politicians who assert that money given to the rich through tax cuts will without question put Americans to work. While Congress does sometimes resemble an insane asylum, its inmates don’t seem to be receiving any treatment for their crazy talk.

      If you cut my taxes, I am free to do with the money as I wish (as I should be). That may indeed be to build a new factory in the US. However, it may just as easily be to build a factory in China, which has a cheaper labor rate and may be more profitable even with a US tax rate of zero. This would be great for reducing the Chinese unemployment rate, but is not going to have nearly as much effect on the US job picture.

      I might decide to buy shares of the US company Amalgamated Widget. But unless the shares I buy come from the company (which may happen either in an IPO/new share issue or if the company had previously repurchased shares), the money isn’t going to AW to expand its operations. It’s merely bidding up the price of existing shares, based on my expectation that AW’s profits are going to increase. But as noted above, that may happen because AW decides to cut costs by moving its manufacturing operations to China, laying off hundreds of US workers.

      The determining factor in whether someone makes an investment is the expected net return, not the tax rate alone. Which investment would you make – one that you expect to earn 8% taxed at a supposedly job-killing 75% rate, or one you expect to earn a tax-free 1%?

      Cutting the tax rate to zero will not entice any additional investment in hiring and expansion if an investor is not confident that there will be an increase in gross profits better than what could be earned by investing in T-bills. An intelligent and honest economist knows this, and will not offer a guarantee of results. Politicians, alas, are not so honest.

  3. I don’t understand how tax cuts, allowing us to keep your own money, is bad for the economy.

    1. “Taxes are the price we pay for a civilized society”

      Oliver Wendell Holmes, Jr.

      “When you foist two unfunded wars, you have to pay for them, and we do that with taxes”

      Max Planck, Jr. :)

  4. Spending and regulations grew under Bush. Seems to me that Obama has mostly embraced Bush’s policies and tax cuts, and run with them, taking us all for a very unhappy ride.

  5. Max Planck

    Two points:

    1) Don’t ignore interest rate policy, specifically after 9/11.

    Scroll down on this site for a highly useful mortgage rate history:

    2) If government policy inputs were to blame for the housing bubble, why does commmercial real estate pricing correlate so well to residential without any policy inputs?

    You had a massive credit bubble in the 00’s- personal, corporate, by the banking and broker/dealer communities, etc., and we are still working that off. Fortunately for the private sector, they’re doing a faster job of it.

    Nobody from the government put a gun to Harry Macklowe’s head and told him to buy the GM building at 99% LTV. If you saw GE Capital’s book of commercial mortgage undewriting, they make New Century look like a local credit union for nurses.

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