Difference between revisions of "Myths/Bill Clinton helped cause the 2008 mortgage crisis"

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(comments from JERS email, plus some research)
 
(dramatically simplified; carved out most of the duplicated material except for succinct summaries; updated links)
 
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==Woozle comments==
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==Myth==
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As of 2008-10-02, this article has been widely circulated as proof that [[Bill Clinton]] caused the [[2008 financial meltdown|current meltdown]]:
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Bill Clinton has frequently been accused of being complicit in the 2008 mortgage crisis – a major contributing factor to the 2008 financial meltdown – and that therefore Clinton (and Democratic economic policy) bears responsibility for both the mortgage crisis and subsequent [[Myths/Bill Clinton helped cause the 2008 financial meltdown|financial meltdown]].
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* [http://mjperry.blogspot.com/2008/09/flashback-to-1999-origins-of-credit.html Flashback to 1999: Origins of the Credit Crisis]: this article is credited by some of the others
 
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* [http://www.mrswing.com/articles/Sergeant_Pepper_and_Housing.html]
 
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* [http://www.synthstuff.com/mt/archives/individual/2008/09/a_bit_on_fannie_may_from_the_new_york_times.html]
 
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* [http://blog.jim.com/economics/wall-street-journal-explains-the-bailout-crisis.html], referring to [http://online.wsj.com/article/SB122212948811465427.html?mod=djemEditorialPage this] in the now-suspect [[Wall Street Journal|WSJ]] (an article which also defends deregulation and claims that it is not responsible for the problem... just ignore those trillion$ of derivatives investments...)
 
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* [http://www.tuccille.com/blog/2008/09/yes-politicians-really-did-create.html Yes, politicians really did create the mortgage meltdown]
 
  
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However...
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The basic argument seems to be that Clinton put pressure on Fannie Mae and Freddie Mac (FM/FM) to expand mortgage loans among low and moderate income people under the {{l/ip|Community Reinvestment Act}} (CRA), which led to an increased number of risky loans, thus increasing the number of eventual foreclosures – a problem which was at the heart of the 2008 mortgage crisis.  
  
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# What's not clear is why anyone thinks that this would cause a crisis 8 years later, rather than sooner. Also, why such a huge crisis, and so suddenly?
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This claim was especially popular during the closing weeks of the {{l/ip|2008 US presidential race}}, where criticism of Clinton (and his administration) was being used as criticism of [[Democratic Party]] policies and, by implication, of {{l/ip|Barack Obama}}.
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#* Has anyone done a survey of recent mortgage defaults to see if any significant percentage of them seem to be a result of the action described?
 
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#* For that matter, has any kind of survey *at all* been done of those defaults, rather than blaming first and aiming later?
 
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# How much of a role has the [[subprime mortgage crisis]] played in the current situation? My understanding is that the dollar volume involved in the derivatives market is somewhat as Lake Superior to a farm pond.
 
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#* What about the debt incurred by the largely unnecessary expenditures in [[US-Iraq War|Iraq]]? Just a quick Google comes up with slightly over half a trillion dollars ($559 billion) spent there -- about 70% of the proposed bailout. (This figure would probably not be diminished much by subtracting out the amount Bush claimed it was going to cost, which I suppose one might argue we had all agreed was a worthwhile expenditure and therefore shouldn't be counted, so go ahead and subtract it out if you can find it.)
 
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#* Just looking at the subprime mortgage question: it is possible that this was a bad call by Clinton. However:
 
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#*# Clinton was trying to do a good thing, and as I understand it the indications at the time (aside from what the AEI said) were that it would not be harmful -- unlike many things done by Bush, where everyone (except his circle of misadvisors) was telling him to stop. If Clinton made a mistake on this one, it seems to me he can easily be forgiven because it was a reasonable mistake to make and he got so many other things right. (Like, say, Osama bin Laden being a threat.)
 
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#*# For every default on a loan to a "minority or low income consumer", how many have remained current? (Presumably 9 years isn't enough to expect that very many would be paid off... but perhaps there is a sample of 5- and 10-year loans among those made at the time, where we could actually answer the question of net loss/profit on that group of loans. Is anyone looking into this?)
 
  
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I'd really like to see some discussion of these questions before the neocons go happily shouting everywhere that Clinton is to blame for the meltdown... but I doubt that will happen, because the only truth they're interested in is whatever they can convince the overwhelmingly misinformed public to believe.
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Numerous examples of this claim are [[issuepedia:2008 mortgage crisis/Clinton/accusations|on Issuepedia]].
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==Reality==
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--[[User:Woozle|Woozle]] 23:18, 2 October 2008 (UTC)
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* '''First''': Congress passed the CRA in '''1977'''; Bush started weakening enforcement in '''2004'''. Which act do you think was more likely to have been the cause of a crisis in '''2008'''?
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* '''Second''': Republicans were aware of the developing housing bubble, and yet blocked any action to help reduce the effects of the crisis that would inevitably result when the bubble popped, including:
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** efforts to curb predatory lending
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** efforts to improve investigation of fraud in the banking industry
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* '''Third''': Most of the housing loans that failed were ''not'' CRA loans, and CRA lenders engaged in less dangerous lending overall.
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==Related==
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* Issuepedia: {{l/ip|2008 mortgage crisis/Clinton}}: more details and notes
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* [[Myths/Bill Clinton helped cause the 2008 financial meltdown]]

Latest revision as of 20:09, 11 January 2015

Myth

Bill Clinton has frequently been accused of being complicit in the 2008 mortgage crisis – a major contributing factor to the 2008 financial meltdown – and that therefore Clinton (and Democratic economic policy) bears responsibility for both the mortgage crisis and subsequent financial meltdown.

The basic argument seems to be that Clinton put pressure on Fannie Mae and Freddie Mac (FM/FM) to expand mortgage loans among low and moderate income people under the Community Reinvestment Act (CRA), which led to an increased number of risky loans, thus increasing the number of eventual foreclosures – a problem which was at the heart of the 2008 mortgage crisis.

This claim was especially popular during the closing weeks of the 2008 US presidential race, where criticism of Clinton (and his administration) was being used as criticism of Democratic Party policies and, by implication, of Barack Obama.

Numerous examples of this claim are on Issuepedia.

Reality

  • First: Congress passed the CRA in 1977; Bush started weakening enforcement in 2004. Which act do you think was more likely to have been the cause of a crisis in 2008?
  • Second: Republicans were aware of the developing housing bubble, and yet blocked any action to help reduce the effects of the crisis that would inevitably result when the bubble popped, including:
    • efforts to curb predatory lending
    • efforts to improve investigation of fraud in the banking industry
  • Third: Most of the housing loans that failed were not CRA loans, and CRA lenders engaged in less dangerous lending overall.

Related

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