Government Policy Caused the 2008 Financial Crisis

A new book by Peter J. Wallison, "Bad History, Worse Policy," reviews the causes of the 2008 financial crisis. We have reviewed the facts of over-regulation and bad economic policy along side our allies at the San Diego Local Order of Bloggers, but this informational and enlightening book brings indisputable facts to fortify our arguments.

We have compiled a key section of Mr. Wallison's discussion into a C-SPAN clip (7m 42s) named "GOVERNMENT POLICY CAUSED THE 2008 FINANCIAL CRISIS."

In the book, I argued that there was never any significant debate about the causes of the 2008 financial crisis.

Although there were two narratives about why it happened, only one of them was accepted and propagated by the media.

In effect the necessary competition and ideas never occurred.

As a result in the policy that was adopted, the Dodd-Frank act, is not soundly based on any political consensus. This will leave the legitimacy of the act in question for the foreseeable future.

The dodd-frank act is based on a narrative developed entirely by the left. It places responsibility for the financial crisis wholly on the private sector and particularly on the large Wall Street commercial and investment banks. To the extent the government had a role in the financial crisis, it was in failing to regulate adequately either those institutions or the mortgage originators who profited by selling mortgages to people who could not afford them.

The book traces the influence of this narrative into the specific revisions of the Dodd-Frank act.

I argue in the book that this narrative is false.

It was bad history and it produced worse policy.

...

Statements made by HUD throughout this period make clear that the agency's intention was to reduce the underwriting standards that were prevailing in the market in order to make mortgage credit available to a larger number of borrowers.

There is no ambiguity about this issue.

When Democrats took control of congress in January 2007, they began implementing policies that made a fragile economy collapse. While Bad History, Worse Policy is not a partisan review of the financial crisis it does explore the fact that government regulatory and housing policy created the housing bubble. When Democrats pursued global warming policy; gasoline, energy, food and other costs across the economy increased. The fragile housing market collapsed as marginal home buyers failed to pay their mortgage.

John Allison of the Cato Institute via C-SPAN Clip "DESTRUCTIVE REGULATION AND THE 2008 FINANCIAL CRISIS" (2m 15s):

We don't have a private monetary system in the United States, a government own monetary system. By definition, they are caused by government policy and the Federal Reserve has been very creative and in this case Allen Greenspan made bad mistakes because he wanted to go out a hero.

We were having a minor economic correction, he created negative economic rates. Then Ben Bernanke created a new yield curve, because we suddenly had a negative spread, which is a whopping reason this has lasted several years.

The context in which the mistakes were made were really Federal Reserve policies and they got deflected primarily in the housing market, specifically Fannie Mae and Freddie - Freddie Mac and Fannie Mae. Over investment in housing is particularly destructive for housing and that is why this was an unusually big bubble.

It was pushed further, but it was also very destructive because housing is consumption. People don't think of housing as consumption, but you consume a house.  So we incentivized  a massive over-consumption, which is analogous in agriculture to "eating our seed corn," which is one reason we have had such a hard time getting the production process going

W.C. Varones comments upon other impacts from the take over of the financial system in a post titled, "Think Cyprus can't happen here? It already did."

What occurred this weekend in Cyprus was a theft from responsible savers to benefit irresponsible banks.  Small depositors get screwed while bank bondholders (largely other banks and large institutions) get made whole.  Which, it turns out, is exactly what has happened in the U.S. the past five years.

*Note

C-Span has an automated transcription feed at the bottom of the video clips, it does not accurately reflect the statements in the video clips due to errors. If this feed was more accurate, search engines would have an easier time finding the information.

California Prop 32: Popular with Voters and Tea Party

An October 19, 2012 Reason Foundation poll reported by Emily Ekins (Reason-Rupe Poll: Public Pension and Government Spending Reforms Are Popular With California Voters) shows support for California's Proposition 32. The Proposition limits automated paycheck deductions for political purposes by employers and unions.

Proposition 32 and Public Sector Worker Reforms

The poll finds 45 percent of likely voters support Proposition 32, while 48 percent oppose it. Prop. 32 would prevent unions and corporations from using automatic paycheck deductions for political purposes.  

While voters may reject telling unions how they can collect or spend their money, they are eager for elected officials to rein in public sector worker costs. In fact, 77 percent say they favor requiring government workers to pay more for their own health care and retirement benefits; 20 percent oppose doing so.

Likewise, 69 percent say future government workers—those who haven’t been promised defined-pensions—should be offered 401(k)-style retirement plans instead of the guaranteed pensions currently provided.

Nearly three quarters, 74 percent, of Californians say taxpayers should get to vote on retirement and benefit increases before they are given to government workers. Just 22 percent say taxpayers should not get to approve public sector benefit increases. The public wants its voice to be heard on the issue because 53 percent feel public sector unions have too much power over elected officials at the negotiating table and 42 percent say government unions hurt the state economy. Seventeen percent say public sector unions help the economy.

One specific example: 53 percent of Californians say the average state prison guard, who costs taxpayers over $100,000 a year in salary, overtime and benefits, is overpaid. Thirty-eight percent say guards are paid about the right amount and 6 percent say they are underpaid. 

This poll coincides with broad sentiments responsible for the tea party movement and a growing belief that public employee unions are hurting the common welfare. On September 10, 2012, Polling Shows Most Americans Think Teachers Unions Have Hurt Public Education Quality reported the following:

Since 1976, Gallup has surveyed Americans’ perception of teachers unions' efficacy. In April 1976, 38 percent of Americans believed that teachers unions hurt the quality of public education in the United States. By 2011, nearly half of Americans think teacher unionization has hurt the quality of public education in the United States.

Emily Emkins spoke on October 16th as part of a Cato Institute panel: Libertarian Roots of the Tea Party broadcast on C-SPAN. Her discussion included research that tea party and most non tea party Americans believe that retirement planning should be the responsibility of individuals and not government. This sentiment impacts the same voter motivations relied upon by unions to push for power.

A common left-wing retort to tea party sentiments has portrayed selfishness and hypocrisy within the movement on the issues of Medicare and Social Security. Emkins debunked these accusations with research on tea party sentiments on each issue. Most tea party supporters are also supportive of entitlement reforms including social security reforms.

The most famous accusation made against tea party supporters is the "keep your government hands off my Medicare" attack. Many tea party supporters have counter-attacked that the entire narrative was fabricated using union plants and Photoshop. Regardless, data shows that it is wishful thinking and marketing on the part of the left.

The polling shows 74% of tea party supporters and 49% of non tea party Americans are in favor of Medicare reform. When paid-in benefits are guaranteed, Medicare reform support strengthens with 65% of non tea party Americans willing to sacrifice personal benefits for the good of the country.

Sacrifice for the good of the country is not a virtue assigned to the targets of Proposition 32. Union bosses wield political influence on the backs of workers through required automatic paycheck withdrawals. Crony capitalist corporations also politically tilt the law in their favor.

Money is spent on political contributions and lavish lobbyist jobs to further the advantageous status quo or create an unfair competitive environment. Public employee unions use the "cycle of tax payer money" to boost their political power and increase their tax payer funded benefits. Benefits that are currently out of reach for the individual tax payer who is footing the bill.

Corporations use their political influence to gain opportunities that are excluded to the tax payers at large. Privileged access to foreclosed homes is one example. The California tax payer is currently hindered from buying low priced homes while interest rates are low due to excessive bank regulations and the Fanny/Freddie secondary market. A market that only funds loans for the most typical home in the most typical neighborhood. These typical homes are scarce in California. When found, the typical home buyers are outbid by multiple investment corporations with cash offers and face restrictive loan regulations. Regulations which will be lifted the moment that corporate investors decide to sell the properties at a massive profit.

Traditionally, America's real estate market provides opportunities to frugal families and individual investors. The free real estate market has created millionaires in every previous economic recovery. This time around,  investment corporations will be the big winners due to the new loan market created by regulations, Fanny Mae and Freddie Mac.

Beset on all sides by the inequities of regulations and the tyranny of union bosses, California tax payers are deciding to take a stand with Proposition 32.

Timothy Geithner Says Obama Reforms Unstoppable

Speaking at the Harvard University Shorenstein (Joan) Center on the Press, Politics, and Public Policy, Timothy Geithner revealed his arrogance with a parade of unreported comments. Although the mainstream media will not report the meaning of his words, C-SPAN does have the comments available in video and transcript form.

Important Geithner take-aways are:

• He misunderstands or is intentionally mischaracterizing the debt ceiling as if it were debt default (31:30)
• His has disdain for impudent debt ceiling discussions, "You've got to be kidding." (48:56)
• Corporate Tax Reform is possible, but No Flat Tax. (49:09)
• People just "don't understand" that we know better. Just forget about the fact that Democrat big government programs created the problem. The slow recovery is a "Tragic consequence of what caused this basic problem." (56:06)
• "We don't have the option" of a faster recovery. (59:32)
• Those Tea Partiers can't stop us now. "I don't think that they can touch the basic architecture of the reforms." (1:00:00) He believes that Americans will choose security and safety over capitalism and freedom.

Obama's Secretary of the Treasury is just another political hack. The most ridiculous parts of his presentations are when he tries to stay away from political questions. Pretending to be non-partisan while pursuing the Fundamental Transformation of America.

As a side note: What was up with C-Span today? The website thinks that both yesterday and today are May 17th. Talk about a filing error!  (Finally they fixed it!)