700 billion dollar bailout
Posted by Mike Sylvester - 9/29/08 @ 7:32 am - Filed Under 2008 National Elections, National Politics
I have had three readers contact me and ask me to explain why I feel both Republicans and Democrats are at fault in this crisis.
As I wrote in a previous post I believe that the Republicans and Democrats share the blame for this mess. I still think reasonable people can argue about what exact percentage of the blame goes to each Party; however, the truth of the matter is both Parties contributed significantly to the problem.
Pretty much every economist agrees that the current financial crisis can be summarized as follows (They may not agree with my commentary in italics):
- Congress passed laws that made it easier for lower income Americans to purchase homes that they could not afford in an effort to ensure that each year a higher percentage of Americans owned homes. In my opinion most of the blame for this can be laid on Democrats. Gadfly did a good job of linking to several sources that explain how the Democrats: Expanded Fannie Mae and Freddie Mac, how the Democrats forced Fannie Mae and Freddie Mac to make loans to lower income Americans, how the Democrats threatened private banks and forced them to loan money to lower income Americans, and how the Democrats have resisted all efforts to reform Fannie Mae and Freddie Mac even though the GSE’s have been rife with accounting fraud and corruption. That being said the Republicans could have changed these laws when we had a Republican President and Republican Congress. The Republicans failed to make these changes.
- The part of this mess that seems to be less understood are the items the Republicans did that led to this crisis. The first item the Republicans did that led to this crisis was to repeal of the Glass - Steagull Act. By repealing this Act the Republicans allowed banks and insurance companies to purchase risky mortgage backed securities. This bill was supported by Republicans in Congress and signed by President Clinton. A majority of Democrats in Congress opposed this.
- The SEC is the Securities and Exchange Commission. Over the last few years the SEC has relaxed many of its oversight rules and some of these changes directly led to the current financial crisis. In 2004 the SEC was led by a Republican appointee, there was a Republican Congress, and a Republican President. In 2004 the SEC changed the rules to increase leverage for banks with at least 5 billion in capital. Basically this change allowed banks and investment banks to effectively double their leverage rates. Leverage for a bank in its simplest terms is the amount of equity a bank must have on hand in relation to their assets. The lower this number the safer the bank. Depository banks historically have has a leverage ratio of about 10:1. Consider the following: In 2003 the leverage ratios of the five major investment banks were: Goldman Sachs 18:1, Lehman Brothers 24:1, Merrill Lynch 15:1, Morgan Stanley 23:1 and Bear Stearns 27:1. Before the 2004 SEC rule change the five major investment banks already had significantly higher leverage ratios that depository banks have ever been allowed to have. This means they were carrying more risk in order to gain higher profits. After the 2004 SEC rules change the leverage ratios at the end of 2007 were: Goldman Sachs 26:1, Lehman Brothers 30:1, Merrill Lynch 28:1, Morgan Stanley 33:1 and Bear Stearns 33:1. The downturn in the real estate market has destroyed three of the five investment banks because they were using too much leverage. This has to be blamed on the Republicans; however, the Democrats sat by and said nothing…
The above explanation is the short version of why I feel both Parties are at fault. I think the Democrats are at fault for:
- Forcing institutions to make loans to Americans who could not afford them; statistically these were often minorities.
- Protecting Fannie and Freddie from effective regulation.
I think the Republicans are at fault for:
- Allowing additional institutions to carry risky mortgage loans.
- Allowing investment banks to double their leverage; meaning that in this downturn they were more likely to fail because the carried more risk.
Both major parties are at fault for this.
Mike Sylvester
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7 Responses to “700 billion dollar bailout”
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Some more so than others:
watch the video from the 2004 hearings:
http://hotair.com/archives/2008/09/29/video-democrats-insist-nothing-wrong-at-fannie-mae-freddie-mac-in-2004/
Mike,
My first reaction to your comment that the Republicans were at fault because they did not fix the oversight problem when they had a substantial majority in both the House and Senate was a negative one. With a super-majority required in the Senate to pass anything, I reasoned, very little passes there, especially since many Senate Republicans are RINOs.
So I Googled to find out how many pieces of legislation was voted on that had to do with FRE and FNM. My search found none, I did find citations where the Bush Administration had asked for action on the GSEs 17 times and there was the recounting of the infamous Committee hearings of 2004 where we found that cooking the books was OK with Dems …but no up or down votes.
I apologize for thinking badly of you, sir.
Shorter version of your post: “I BLAME POOR BLACKS!”
Yes, I stole that remark, but the one who wrote it won’t tell you to your damn face.
Damian, If you feel you MUST put labels on it, it’s more appropriate to place a lot of the blame on one RICH black guy, namely Franklin Raines.
Damian,
You comment is way off base.
I in no way blame “poor blacks” and no reasonable person reading my post could come to that conclusion.
I do blame Congress for forcing banks to lower their lending requirements.
This allowed many Americans to purchase homes who should never have been allowed to purchase the home that they purchased. Many of these Americans were poor or middle classed Americans; statistically speaking many were minorities.
That is not racist, it is a fact.
Mike Sylvester
Truth hurts, doesn’t it, boys?
Damian,
I have no clue where you came up with your comment. It is so far off base that it is sickening.
Having followed the posts and comments of the many who have waded in on this subject they are people who post/comment a great deal on other subjects as well. I have never seen one of them ever make a racist comment here.
I will argue and fight with some of the people who post/comment on here but I do not consider one of them a “racist” or of making “racist statements!”
So I reject your comment and future comments from you will be given zero value.
If you want to do yourself a service go to the San Fran and LA newspapers and search out stories on the issue of how, who, and methods used that took advantage of the minorities.