The Economy President Obama Is Leaving Behind Left The Middle Class Behind

I wrote the article below for a local newspaper. It was published a few weeks ago. I thought I would also share it here.

 

This is the picture of the Gross Domestic Product since 2006 (from tradingeconomics.com).

As you can see, it has taken almost eight years to get back to where we were in 2008. The other interesting number is the Workforce Participation Rate. Here is that chart:

The number of people participating in the workforce has dropped steadily since 2009.

We have not recovered from the recession that followed the collapse of the housing bubble. I would like to remind everyone what caused that collapse and who was actually responsible for it.

The root of the collapse of the housing market is the Community Reinvestment Act (CRA) passed by Jimmy Carter in 1977. The idea of the law was to make housing more affordable for low income families and to make sure minorities were not discriminated against. The intentions were good.

In 1995 President Clinton added some new provisions to the Community Reinvestment Act. Part of these revisions allowed CRA loans containing subprime mortgages to be traded with securities. Banks were forced to issue $1 trillion in subprime loans. There were sit-ins at annual meetings of major banks to pressure them to issue loans in risky neighborhoods. Banks were threatened with fines if they denied loans in risky neighborhoods. The normal rules for issuing mortgages were suspended because of government interference and pressure.

In 2000 Fannie Mae announced it would purchase $2 billion of “My Community Mortgage” loans. The idea was to customize affordable products for low and moderate income borrowers. Fannie Mae and Freddie Mac moved into the subprime mortgage market. Fannie Mae is a government-sponsored entity that guarantees mortgages and then sells them to banks and investors. Fannie Maw pursued subprime mortgages to increase their profit–the more mortgages Fannie Mae sells, the more money it makes. House prices began to rise as more loans became available and more people purchased houses.

Mortgage products were created to make home buying something people at all income levels could afford. Interest only loans, adjustable loans, and variable rate loans were created. Qualifications for borrowers were loosened–no income verification, no money down. Banks had to issue subprime mortgages or face penalties.

In 2004, 92% of Fannie Mae subprime loans were variable rate. In 2005, the number was 91%. Fannie Mae told banks that they would guarantee the subprime loans. House prices rose, interest rates rose, variable interest rates increased and payments got bigger. Gas prices went up, so low-income borrowers were squeezed. Some borrowers stopped paying, and bankers stopped lending. The subprime mortgage market collapsed. Foreclosures began, and home prices fell. Banks collapsed due to worthless government sponsored securities.

Before the revisions to the CRA, home prices rose at about the rate of inflation. After the CRA revisions, the rapid rise of home prices created a bubble. When prices rose quickly, speculation also rose. This further fueled the bubble.

In 2003 President Bush proposed an agency inside the Treasury Department to oversee Fannie Mae and Freddie Mac. The Democrats in Congress stopped the proposal. Barney Frank, a Democrat Representative from Massachusetts, said that the problem with Fannie Mae and Freddie Mac was exaggerated.

In 2005, Senator John McCain warned of a mortgage collapse. Senator McCain sponsored “The Housing Enterprise Regulator Act of 2005 (S.190 109th). The Democrats blocked the bill. He tried again in 2207, and the bill was again blocked.

Fannie Mae and Freddie Mac made large campaign donations to members of Congress. They also provided ‘special mortgage rates’ to certain Congressional leaders. Many of the executives at Fannie Mae and Freddie Mac were government officials after the housing crisis–they paid no price for their mismanagement of Fannie Mae and Freddie Mac–instead they profited greatly while the bubble was growing and after the collapse.

I tell this story for one reason. We have heard the media blame greedy bankers on the housing market collapse and the economic chaos that followed. Actually, greedy bankers were not the problem–government regulation and Congressmen who accepted contributions and sweetheart loan deals from mortgage companies were. Why were Fannie Mae and Freddie Mac, government-sponsored agencies, making campaign contributions?

This is one aspect of the swamp Donald Trump was elected to drain. People connected to the mortgage companies or the government walked away from the housing bubble with millions; many average Americans lost their homes and their jobs. It is ironic that President Obama, who should have been able to relate to the Middle Class, decimated the Middle Class during his eight years in office. I am thankful that we have elected someone as President who has business experience and a proven history of economic success.

The Economy President Obama Is Leaving To President Trump

On Wednesday, The New York Post posted an article about the current state of the American economy. The article cites claims by the media that President Obama is handing Donald Trump a ‘booming’ economy. The article then asks the question, “If the economy is so all-fired ducky, how come Americans just tossed out the party that’s claiming credit for it?”

The article explains:

The truth is that the Obama years have been among America’s worst for the economy. His eight years will go down in history as the Great Recession, even though for much, even most, of the span, we weren’t technically in a recession.

It just felt that way. And no wonder. Obama’s is the only modern presidency that failed to show a single year of growth above 3 percent, a point Trump stressed during the campaign (and that was conceded even by the website Politifact).

Plus, the Obama economy failed to prosper even though the Federal Reserve had its pedal to the metal. Its quantitative easing, $2 trillion balance-sheet expansion and zero-interest-rate policy all produced zilch.

Except for pumping up Wall Street and producing what Trump calls a “false economy.” The recent declines in the unemployment rate are due less to the uptick in employed persons than to an increasing number of persons leaving the labor force.

In a “true economy,” what people would boast about would be the number of employed persons rising faster than the size of an expanding workforce. In reality, the job participation rate is the lowest in decades, as millions are too discouraged to seek a job.

And the recent record Dow Jones average? It’s pumped up by the Federal Reserve. It’s nowhere near a record if the Dow is calculated in the most traditional measure of value. The gold value of the Dow peaked way back in 1999.

President Obama took office in the midst of the bursting housing bubble. Just for the record, the bubble was not George W. Bush’s fault. The bubble had its roots in the Community Reinvestment Act (CRA), passed by Congress in 1977. The CRA was revised in 1995 under President Clinton. The new provisions forced banks into making subprime loans to borrowers who might not be able to pay them back. The new provisions also allowed subprime mortgages to be traded with securities. Since many subprime loans were underwritten by Fannie Mae or Freddie Mac, agencies closely related to the government, the government eventually had to bail out the banks who made these loans. As the bubble formed, President Bush, and later Senator John McCain pushed legislation to curb the overenthusiastic housing market. In both cases they were stopped by Democrats who had either taken large campaign donations from Fannie Mae or Freddie Mac or had received ‘sweetheart mortgage deals’ from mortgage companies closely associated with the subprime mortgage market. (How is it that Fannie Mae or Freddie Mac can legally make campaign donations?)

Congress and two Presidents caused the housing crisis. I am sure that President Carter and President Clinton meant well when passing or amending of the CRA. However, the housing bubble is a shining example of what happens when the government attempts to interfere with the free market. How many banks would have avoided the subprime mortgage market and held the housing bubble in check if they had not been forced to issue subprime mortgages? The free market works. Government interference in the free market does not work. Hopefully President Trump will allow the principles of the free market to bring the American economy into a growth cycle. A GDP of less than 3 percent is not acceptable.

Getting It Half Right

The mainstream media never hesitates to rewrite history when it is to their advantage, but every now and again they accidentally begin to report actual facts.

The Nation posted an article yesterday about the role Bill Clinton played in the 2008 mortgage meltdown. This information is readily available information that the mainstream media has so far ignored.

The article reports:

Candidate Clinton is essentially whitewashing the financial catastrophe. She has produced a clumsy rewrite of what caused the 2008 collapse, one that conveniently leaves her husband out of the story. He was the president who legislated the predicate for Wall Street’s meltdown. Hillary Clinton’s redefinition of the reform problem deflects the blame from Wall Street’s most powerful institutions, like JPMorgan Chase and Goldman Sachs, and instead fingers less celebrated players that failed. In roundabout fashion, Hillary Clinton sounds like she is assuring old friends and donors in the financial sector that, if she becomes president, she will not come after them.

The seminal event that sowed financial disaster was the repeal of the New Deal’s Glass-Steagall Act of 1933, which had separated banking into different realms: investment banks, which organize capital investors for risk-taking ventures; and deposit-holding banks, which serve people as borrowers and lenders. That law’s repeal, a great victory for Wall Street, was delivered by Bill Clinton in 1999, assisted by the Federal Reserve and the financial sector’s armies of lobbyists. The “universal banking model” was saluted as a modernizing reform that liberated traditional banks to participate directly and indirectly in long-prohibited and vastly more profitable risk-taking.

While that is true, you need to take a step back and look at what actually made that change necessary. Due to some changes in federal regulations and pressure by groups like ACORN, banks were forced to issue loans to people who could not pay them back. This sub-prime loans were doomed to fail, and banks needed to find a way to cut their loses. The issuing of the sub-prime mortgages goes back to a law passed during the Carter administration that was put on steroids during the Clinton administration. When the Bush administration called for curbs on Freddie Mac and Fannie Mae, they were rebuffed by Chris Dodd and Barney Frank in Congress. It was later revealed that Chris Dodd had a ‘friends and family’ mortgage from one of the major players in the sub-prime mortgage market.

For the entire story, please watch the video below. I have posted it before; it is not new. I am embedding it because I am afraid that it will disappear from YouTube.

 

This is the real story of what happened in the economic meltdown.

Improving Your Image On A False Premise

On Friday, Investors.com posted an article about Elizabeth Warren‘s objections to the budget bill because of bank risk.

The article reports:

Warren last week took to her socialist soapbox to try to torpedo the “cromnibus” spending bill. She warned legislators they would be blamed for another financial crisis if they dared to vote for any appropriations legislation that includes anti-Dodd-Frank provisions.

Pontificating from the Senate floor Thursday, Warren railed against Republicans and fellow Democrats alike for adding a provision to the bill to restore to banks the right to use derivatives to hedge risks for customers.

She claimed repeal of the regulation “would let derivatives traders on Wall Street gamble with taxpayer money and get bailed out by the government when their risky bets threaten to blow up our financial system.”

Added Warren: “These are the same banks that nearly broke the economy in 2008 and destroyed millions of jobs. The same banks that got bailed out by taxpayers and are now raking in record profits.

“A vote for this bill is a vote for taxpayer bailouts of Wall Street,” she continued.

But where was she three days earlier, when Fannie and Freddie unveiled new low-income mortgages with just 3% down payments? The move encourages the kind of risky lending that actually caused the crisis, yet she didn’t say a peep.

The taxpayer bailouts of Wall Street go back to the Community Reinvestment Act, passed by Jimmy Carter and revised in 1994 to repeal some restrictions on interstate banking.

The article explains what actually happened:

The “main culprit” in the housing crisis was Fannie and Freddie and their mission regulator, HUD, which was cheered on by affordable-housing zealots in the House like Warren’s pal Barney Frank.

HUD pressured Fannie and Freddie to make high-risk loans to “underserved” borrowers, and to do that they had to lower their underwriting standards to the point where they were buying as many subprime loans as prime. While HUD was enforcing its affordable-housing quotas, down payments plunged along with credit scores.

When the housing price bubble burst, those loans were the first to default. When the music stopped, a whopping 77% of all the bad loans ended up on the books of Fannie and Freddie and other federal agencies — not Wall Street banks.

The evidence of government guilt in the crisis is overwhelming. Yet Warren keeps up the false narrative.

Unfortunately, that false narrative has been used for so long that uninformed voters believe it. Part of what is needed to change the politics of Washington is an educated voter. Until voters learn to look past what the mainstream media is telling them, the government will continue to make reckless decisions that result in taxpayer money being used to correct government mistakes.

Informed Voters Already Knew This, But Here It Is Again

This article appeared in the Examiner in December of 2012, but because of the way the media has reported the events involved, it might be news to some people. Just as an aside, here is the YouTube video that explains this beautifully. I have embedded this because I am concerned that it may disappear:

Back to the Examiner. The headline of the Examiner article is, “New study confirms that economy was destroyed by Democrat politicians.” A bit provocative, but actually very accurate.

The article reports:

A new study from the widely respected National Bureau of Economic Research released this week has confirmed beyond question that the left’s race-baiting attacks on the housing market (the Community Reinvestment Act–enacted under Carter, made shockingly more aggressive under Clinton) is directly responsible for imploding the housing market and destroying the economy.

The study painstakingly sorted through failed home loans that caused the housing market collapse and identified an overwhelming connection between them and CRA mortgages.

The article concludes:

-Even The New York Times admitted that there is “little evidence” of any connection between the “Republican” deregulation measures Obama blames, like the Gramm-Bleach-Liley Act (signed into law by a Democrat), and the collapse of the housing market.

But non-Fox media have spent years deliberately and relentlessly inoculating people against the facts, training them to mindlessly blame Bush for being in charge when Democrat policies destroyed the economy. So here we sit, to this day, still watching Obama excuse and shrug off endless economic failures, illegal government takeovers and utter national bankruptcy with zero accountability.

It is important that voters understand what happened here. When you continue to lend money to people who can’t afford to pay it back, you eventually run into problems getting the money back. The Democrats phony charges of racism hurt black and white people and rich and poor people. Their policies were bad for everyone. Unfortunately, Democrats are again putting pressure on banks to relax their lending standards–running the risk of repeating the whole process. It wasn’t the big banks that caused the problem–it was the government and organizations like ACORN putting pressure on banks to make bad loans. Many of the major players in this scandal made millions and moved on to jobs in the Obama Administration.

News Stories That Only Report Half Of The Truth

Yesterday the BBC posted a story about the role of Russia and China in the financial collapse in the United States in 2008. The article notes that the Russians and the Chinese considered creating a financial crisis in the United States, but did not act on the idea.

The article reports:

Now this is where we enter the territory of a geopolitical thriller. Mr Paulson:

“Here I’m not going to name the senior person, but I was meeting with someone… This person told me that the Chinese had received a message from the Russians which was, ‘Hey let’s join together and sell Fannie and Freddie securities on the market.’ The Chinese weren’t going to do that but again, it just, it just drove home to me how vulnerable I felt until we had put Fannie and Freddie into conservatorship [the rescue plan for them, that was eventually put in place].”

For me this is pretty jaw-dropping stuff – the Chinese told Hank Paulson that the Russians were suggesting a joint pact with China to drive down the price of the debt of Fannie and Freddie, and maximize the turmoil on Wall Street – presumably with a view to maximizing the cost of the rescue for Washington and further damaging its financial health.

Paulson says this guerrilla skirmish in markets by the Russians and Chinese didn’t happen.

Now wait a minute. Even if the Russians and Chinese decided to manipulate American markets, the housing bubble was a result of the policies of the American Congress–no one else is to blame.

I have posted the YouTube video “Burning Down the House” before, but in case you missed it, here it is again. This video explains the cause of the 2008 financial meltdown. The information included in the video is a matter of public record, but has not been widely reported.

Please watch the video and draw your own conclusions.

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Deja Vu All Over Again

Yesterday’s Washington Post posted an article stating that the Obama Administration is working toward making home loans available to people with weak credit in order to boost the economy. Wow. Just as the housing market is recovering from the sub-prime mortgages of the 1990’s, we are going to add a bunch of risky mortgages to the mix.

The article reports:

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

Part of the problem here is the government’s intervention into the housing market. Banks should be left alone to make their own decisions on issuing loans.

The article further reports:

Deciding which borrowers get loans might seem like something that should be left up to the private market. But since the financial crisis in 2008, the government has shaped most of the housing market, insuring between 80 percent and 90 percent of all new loans, according to the industry publication Inside Mortgage Finance. It has done so primarily through the Federal Housing Administration, which is part of the executive branch, and taxpayer-backed mortgage giants Fannie Mae and Freddie Mac, run by an independent regulator.

It really is time to let the private sector be the private sector and shrink to government to a reasonable size.

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