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Discussion: (23 comments)

  1. MacDaddyWatch

    “If I don’t get it fixed in 3 years, then this is a one-term proposition.”

    The only thing he got right in 4-years.

  2. The author commits a number of logical fallacies in this propaganda piece. The chief among these is to assume that “lowering taxes increases demand and improves supply-side incentives.” This assumption does not hold. Net taxes among the very wealthy – those holding primarily interest-bearing instruments as wealth – are lower than middle class taxes. Combine that with decades of low wage growth relative to productivity, and higher net taxes paid by the middle class compared to the property-owning super-rich, along with huge losses in the chief investment of middle class people- their home; and the result is no increase in demand, and supply-side incentive is to continue to move production to low cost foreign markets, in turn helping to push up those unemployment numbers.
    Secondly, the author separates several Bush policies as if to show no single one caused the financial collapse. But the effects should be taken together.
    Besides, “Bush” v “Obama” is just marketing to voters, doesn’t really explain why the financial collapse happened. It’s propaganda. As the author rightly notes, Clinton was instrumental in repealing Glass-Steagall, but it is pretty far-fetched to say, “few analysts think the end of Glass-Steagall directly contributed to the financial crisis.” In fact, many analysts do. Nevertheless, this and whatever obscure rule that was brought up, are both just straw men, because it is the combined effects of years of multiple deregulations, and lack of regulation of new financial instruments, that in sum are the culprit – none of which are mentioned – including allowance of CDS and CDO, mortgage backed securities whose ratings differ from the ratings of their contents, and loose rules for mortgage lending. These are all ignored, and should be well-known.
    Still, ironically, the author blames the Fed, which is correct, it is part of the problem; but the author seems confused because he says the Fed was too restrictive with money in the crucial period in 2008 – even though the author, a free-market analyst, ought to be blaming the Fed for being so loose with money for years and years leading up to 2008, which led to that big unsustainable housing bubble.
    No, sir, the Fed’s tight policy in 2008 was part of it too. It was decades of loose money, pumping up a bubble, followed by a swift turn and then restrictive money policy. This was a last crucial step in a huge transfer of wealth away from the middle class (in the form of homes and wages) to the wealthy (in the form of stocks and bonds). And the fiscal stimuli – the loose money in that came later after the Fed wasn’t loose enough with money in 2008 – whether it was stimulus or bail-out, much of the money went to the corporations, not workers or consumers. Somehow, lately, Libertarians remain willing to see deep cuts to the government safety net for those people. Might be because they have no money with which to make their case.

    1. Max Planck

      Thank you for that reasoned response, Chris.
      Mr. Pethokoukis likes to cherry pick the data that suits his prejudices, and fiddles to the tune.

      As far as the repeal of the Net Cap rule, there IS some controversy on this, and I will hopefully get a chance to study the opposing view. However, people should note by this time, all of that leverage was being funneled straight into subprime paper- using leverage to buy leverage. It was the key reason behind the Bear and Lehman collapses:

      “We have a good deal of comfort about the capital cushions at these firms at the moment.” — Christopher Cox, chairman of the Securities and Exchange Commission, March 11, 2008.

      1. Still not getting the Bush/Republican angle on all this.
        Perhaps you or another here could flesh out the narrative a bit more. Bush policies as distinct from Clinton, say, or Gore or Kerrey for that matter. What Daschle and later Reid/Pelosi or Obama in the Senate did to stop Bush, etc.

    2. Todd Mason

      The principal cause of the recession was the fallacy, widely held, that housing prices could not fall in national aggregate. That makes it Greenspan’s recession in my book, for his failure put away the punch bowl. I’d also quibble with the notion that the housing bust was a transfer of wealth from the middle class to the wealthy. Home equity flat disappeared, and remains gone for the near future. Demand, and the economy, will suck until home prices recover or savings reach some level of comfort. One hopes the supply-siders will wake up today and wonder if that Keynesian thing might not have value after all. Absent that, one hopes Obama grows a pair and takes his case to the people

      Now the Bush tax cuts, by severely limiting options to deal with Social Security, is in fact the largest upward transfer of wealth in our history, and represents an indelible stain on Bush’s legacy.

      1. Bush cut income taxes. Social Security is financed by the payroll tax. Different animals. And Bush did propose Social Security reform – partial privatization – which was rejected and yet has been adopted in Sweden (of all places.)

        PS: Wealth (goods/services) is created. And it is owned by those whose efforts brought it into being. A basic concept, or human right, unless you support slavery.
        If your tax bill goes down, you are transferring less of your wealth to the government, not the other way around.

  3. tiredfred

    A cou;le of questions for the liberal thinkers out there. Does this election now mean that Mr. Bernanke, Mr. Giethner, and Mr. Obama now own the economy? If not who is to blame for what happens? To me there comes a time when one has to take responsibility for one’s actions.

    1. Max Planck

      I think the use of the term “ownership” is loaded, and conveys someone just grabbing the steering wheel from someone else. It’s not that simple.

      We are engaged in a very long process. Looking back, many decisions that were made created streams of leverage, regulatory errors, and loose money.

      That process continues today, in many different ways: the deleveraging of personal households; the massive refinancing of corporate debt at give-away yields (E*Trade is pricing a new deal at around 4.5% and the balance sheet is blood red- just unreal), the fortification of bank balance sheets, digesting new regulations, and the changing nature of the kind of jobs that will be available to Americans.

      For all this time, AEI “fellows” have characterized the economy as a diorama where they can move pieces around to their liking to show a desired result. It’s much deeper than that: we are heading into a total remaking of the American economic landscape, there is no relying on the gauzy, nostalgic reminiscences of past recoveries, and again, this is a complex conversation that the American voter does not have the attention span, or intelligence, to digest.

      Ownership implies responsibilty. Who, ultimately, is responsible for history?

      1. tiredfred

        That is my point responsibility.. Are we not responsible for the decisions that we make. If we cannot take that responsilbility then we should not be in the position to make them. NOt everyone or every business is given the option to abdicate this and not go broke.. And I also have far greater faith in the American voter to be able to understand what is happening.

        1. Max Planck

          Of course Obama is responsible for his own policy, as far as getting us out of this rut. But again, this is a long term proposition, and people just don’t want to acknowledge it. Quite frankly, I will count the nation as lucky if we get job growth over 200k per month for a good stretch of time, and I am aware we need more than that.

          1. The Depression was a ‘long term’ proposition as well.
            Just a coincidence, then, that we are pursuing the same toxic policy mix today: greatly increased government – spending, taxing, regulation. And 0% interest rates. A permanently larger government yields a permanently smaller economy – this is the new normal. Low to no growth, flat to falling incomes, high unemployment – we have become Europe.

          2. Max Planck

            I would commend to you that after Lehman blew up, Europe was doing a lot better than us in unemployment and their economies. Like us, their excesses are coming home to roost, but those excesses have nothing to do with what you think is “Socialist.”

        2. We are no longer the same country. No ‘one’ is responsible. Collective responsibility has replaced individual. We really do all belong to the goverment now.

          Exhibit A is California. An eighth the population but a third the nation’s welfare reipients. Double digit unemployment (2nd highest in country) for years. Among the highest in taxation. Two out of three elective offices held by Dems including no statewide office by Reps. Accountability? Tuesday saw yet another blue sweep. What is the hope?

      2. In other words, ‘tiredfred’, it’s still Bush’s fault. The weakest recovery in history, $1T+ deficits as far as the eye can see, the largest tax increase in history looming, etc – all his fault. Because if O/the Dems haven’t ‘fixed’ the economy, it can’t be. Less government – wishful thinking. The highest taxes on capital in the developed world – irrelevant. Greece beckons. Or California. Take your pick. Heck, I had about as much to do with the Great Depression as Hoover and the libs managed to dine out on that one for 60+ years.

    2. Todd Mason

      When the credit markets get burned as badly as they did in 2008 (see reply in post above), the question is how long will it take to outlive the problem rather than how to fix it. That should happen in O’s second term regardless of what Washington does or doesn’t do. One change would help immediately: allowing underwater homeowners to refinance at lower rates. Conservatives have poor opinions of the unwashed masses, I know, but consider the nation’s worst housing market. On average, a Las Vegas home is worth about 60 percent of the mortgage financing it. Yet the great majority of homeowners continue to mail in their checks every month. Ayn Rand would give them a dope slap and tell them to mail in the keys, eh?

      1. Max Planck

        The accelerated HAMP and HARP programs allow underwater homeowners to refinance to today’s lower rates regardless of LTV. Many advocate principle reduction, but Fannie and Freddie have resisted, among others.

        1. Todd Mason
          1. Max Planck

            The article is dated in June. It has been modified since with much better results, and the program has taken off.

            This article deals with Bank of America, but other lenders have had similar results. Wells Fargo has modded close to a million loans by itself:


  4. As I recall, housing prices just started falling under their own weight. It’s as if personal debt to income reached a limit and the housing market suddenly turned south. And yes, oil prices took off like a rocket. At the time I figured oil prices alone were enough to trigger recession.

    1. Todd Mason

      Wow, your rememberer needs work. Throughout the housing boom, investors bought trillions in mortgage backed bonds ($6 trillion in 2006 alone IIRC although much of it was refinancing that paid off trillions in existing bonds.) These were not subprime borrowers but your neighbors and mine tapping their home equity for the umpteenth time. Following the failure of the mortgage packagers in chief, Fannie and Freddie, bond buyers went on strike, unsurprisingly. The housing market limped into 2009, such as it was, only because the govt bailed out Fannie and Freddie and the Fed bought the agencies’ bonds: $1.25 trillion initially IIRC. The mortgage securitization market is still weak, and Realtors will tell you that, while you don’t have to be Harold Simmons to get a home loan, it doesn’t hurt.

  5. Keynesian economics is a big fat zero for merit. always will be. Why you ask?The tenants are not supported by the immutable laws that orchestrate human cognition and consequent choices and behavior.

  6. And I am 100% correct.

  7. Jeremy johnson

    It does not matter what the facts say we obama supporters aint gonna hear it.

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