Lance - your myopic blame it on Bush and his cronies rant does no one any good. The blame lies in so many places. And to simplify it because it satisfies some emotive need is just more politics as usual. It just leads to circular discussions. I have lots of bones to pick with the Bush administration - but the overall driver of this crisis has been long in coming.
Look, the cause of this crisis is that for 15-20 years the growth in debt has increased three-fold times that of GDP. How long did you think that was going to last? This of course goes back to Bush 1, both Clinton administrations, and Bush II. It was fueled by the unprecedented growth in the world economy (BRIC countries included)that funneled billions upon billions to the US - not an irrational thing to do given our respect for the rule of law and the relative integrity of our capital markets (something America haters laughably ignore) - but much of that capital was put to use subsidizing and providing cheap credit to many - including undeserving borrowers. Don't look at this politically - look at it economically. Money is a commodity just like anything else. Our private and public policies - both did not serve us well - money was grossly underpriced and at the same time our institutions were careless with it - the lending and underwriting and securitization practices were akin, if you will, to letting wheat rot in the silos. No one wanted to recognize the wheat was starting to smell, so the day of reckoning was delayed and the problems became even worse. (And the list of blame for this is miles long, encompassing both parties and all sorts of people). So now we have to de-leverage, big time. And the scale of de-leveraging is unprecedented, and so frankly is our lack of information. The uncertainty about derivatives, CDO's and swaps is significant - and parties can't price risk given all the uncertainties and complexities and variants in the instruments. The trader in me thinks this information gap can be closed but the lawyer in me recognizes how linked, interconnected, and hopelessly complex the impaired instruments happen to be. This is causing paralysis.
Obama's team has drawn the short straw. But they must own the problem. Obama must listen to his economists and drive the politicians to the margins. And he needs to slow down his agenda until he can first fix this thing. Not an easy thing to do.
I do wonder what some folks think in Washington, however, and worry about their lack of economic acumen. The latest example is the bill the House Democrats just passed on mortgage cramdowns, permitting bankruptcy judges to cram down mortgages. Look, the silly class warfare view of the world is that since banks are against it populist Democrats should be for it. But who is really thinking about what they are doing?
I am for a cram down, by that meaning a one time program to write down the principal amounts for deserving borrowers - with the non-deserving ones going to foreclosure. There are elements of the Obama administration who agree with this - just no one right now has the gumption to absorb the several trillion dollar write-downs. This is as I state above is a needed a one time crisis solution.
But good lord...permitting cram downs forevermore in bankruptcy? Yikes. For all of the screaming about socialism, we have responsible home ownership in this country because of 30 year mortgages. But let's use common sense. It is not five year money, ten year money, but thirty year money! If the courts can cram down these thirty year commitments, mortgage companies will really raise the cost of credit - and I mean really raise it - to the point where even the strongest Community Reinvestment Act around will keep home ownership out of the lower middle class and many minority citizens. This is progress? And before folks argue with me - put yourself at the desk of the guy making that 30 year loan - or the Government official at the FHA that has to pay guarantees against a tight budget in support of those loans. If that loan can be crammed down 30, 40, 50 percent off its principal amount - at any time over a 30 year period, the amount of equity home buyers are going to have to bring is enormous. The days of 5, 10 percent down will be gone. And mortgage companies are not foolish - fees will go up on these loans and on and on....Again, it goes back to how to take proper care of the commodity known as money. Again, think I am wrong? Many European countries don't have 30 year money and they don't permit re-financings - home ownership is proportionally far less. But housing here is integral to our economy. And this kind of legislation is supposed to help us lead the housing market out of a recession? Where will the buyers be that can bring equity in large numbers? Many of them have been wiped out.
I just don't get it...the objective for Democrats - and frankly the reason why people vote for them - is to further the goals of things like affordable home ownership. But under the guise of populist feel good'ism, this just won't work, and it will make home ownership less likely. I actually feel guilty watching it - knowing I used other people's money wisely back in the day when it was made available to me - and that others less fortunate will not now have that opportunity.