Contrary to Republican Reports No Flying Pigs Have Been Observed

Astute denial

Interesting story, but to appreciate the content and its implications it is necssary to read the entire article. Tax Break May Have Helped Cause Housing Bubble

By itself, the change in the tax law did not cause the housing bubble, economists say. Several other factors — a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall — probably played larger roles.

But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls.

This tax break was proposed by President Clinton as something of a counter proposal to Bob Dole’s push for huge tax cuts including drastically lowering capital gains. Nothing especially new, the Republican blog The Astute Blogger reads this article and takes the opportunity to scream some well worn and discredited right-wing talking points, in all caps, PIGS FLY: NYTIMES BLAMES CLINTON POLICY FOR MUCH OF THE REAL ESTATE BUBBLE


and further he concludes, again all caps,


Did he not read the caveat “by itself” and the neatly typed words that followed. For one thing, many Republicans at the time were enthusiastic, because if nothing else the then current deductions and profits made on home sales and home improvements was so complex that Clinton’s proposal would simplify record keeping for homeowners and make the tax code a little simpler, “Republicans ended up voting for the bill by even wider margins than Democrats.” Then lets remember that Bill Clinton has been out of office for eight years and Republicans controlled Congress for six of the years Bush has been in office. if this tax break was so horrible why didn’t they repeal the tax break,

Despite the criticism, there has been little political support for trimming the tax breaks for housing. In 2005, a bipartisan panel of tax experts, which was appointed by President Bush and included Mr. Rossotti, concluded, “The tax preferences that favor housing exceed what is necessary to encourage homeownership.” Among other things, it recommended increasing to three years the amount of time people had to stay in homes to claim the tax break on a sale. But Mr. Bush and other policy makers largely ignored the panel’s report.

Partisans on all sides have been known to hedge some tryths, but the level of denial and blame shifting from the Right makes one wonder if they have done any reading at all before capping themselves into yet another embarassing lie. The CRA had nothing to do with the housing bubble meltdown, Did Liberals Cause the Sub-Prime Crisis?

The evidence strongly suggests the latter. First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation’s Ellen Seidman (and by Harvard’s Joint Center), that activity “largely came to an end by 2001.” In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law’s toughest standards. Yet sub-prime lending continued, and even intensified — at the very time when activity under CRA had slowed and the law had weakened.

Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn’t even apply to most of the loans that are behind it. As the University of Michigan’s Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

A couple of Conservative business sites tried to make the case that simply because CRA existed it lead to banks making stupid decisions. In other words CRA loans were like dope and it made bankers lose control. A form of denial one would expect from a 5 year old. A report(pdf) issued just this past Deecember 3rd by Bush’s own Federal Reserve stated,

Two key points emerge from all of our analysis of the available data. First, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA- related loans appear to perform comparably to other types of subprime loans. Taken together, as I stated earlier, we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.

Astute also blames Alan Greenspan. A Conservative appointed by Reagan, then reappointed by following presidents until he retired in 2006. Deregulation wasn’t partly to blame? Greenspan a life long advocate of deregulation as the answer to market problems admitted that maybe he and thus by definition, his Conservative rogues gallery of supporters were wrong,

Stiglitz also faulted the Federal Reserve and its former chairman Alan Greenspan for failing “both as a regulator and in the conduct of monetary policy.” Indeed, in testimony before Congress on October 22, Greenspan admitted to a “flaw” in his ideology of self-regulating markets, saying, “I made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such as that they were capable of protecting their own shareholders.” Greenspan also testified that he didn’t recognize the existence of the housing bubble, with home prices inflated beyond their true market value, until early 2006, saying, “I did not forecast a significant decline because we had never had a significant decline in prices.”

Testifying before the Senate Banking Committee in October, former Securities and Exchange Commission chairman Arthur Levitt faulted the SEC for failing to enforce financial regulations and failing to adequately “rein in dangerously risky behavior.”

Speaking of the SEC, Cox “Worked to Dismantle The SEC,” Says Commission Vet

In recent years, particularly under Cox, a former California GOP congressman, the SEC has pursued a policy of de-emphasizing enforcement, part of the broader anti-regulatory philosophy of the Bush years — helping to make Madoff, and perhaps others like him, possible.

“[Cox] in many ways worked to dismantle the SEC,” Ed Nordlinger, a former longtime enforcement director in the commission’s New York office, told TPMmuckraker. “He slowed everything down. I don’t think he believed in heavy regulation.”

Yep, deregulation played absolutely no role in the current recession and fat pigs fly faster. Just one last bit on Barney Frank. Maybe its because he was one of the first to start pointing out the dangers of predatory lending, the Right drags him in as often as possible,  CURBS ON ABUSIVE SUBPRIME LOANS ( his caps not mine)

No Accomplishments on Curbing Abusive Subprime Loans During Republican Control of House and Financial Services Committee (1995 – 2006)

Democrats Gain Majority After 2006 Elections and Congressman Barney Frank Becomes Financial Services Committee Chairman in January 2007

Prompted by Committee Action and House Passage of Subprime Reform Bill, Federal Reserve Issues New Subprime Regulations

109th Congress, 2005 – 2006 (Republican Majority)
H.R. 1182, Prohibit Predatory Lending Act Introduced on March 9, 2005 by Reps. Brad Miller (D-NC), Mel Watt (D-NC) and Frank

The bill would amend the Truth in Lending Act to impose restrictions on high-cost mortgages, limit permissible fees and charges on those loans, prohibit unfair or deceptive lending practices, and provide for borrower education and counseling about predatory lending practices.

No action taken on bill by Financial Services Committee or House of Representatives

Preemption of State Anti-Predatory Loan Laws
Not only did the Republican Congress fail to push for the regulations needed to protect consumers and the housing finance system, they actively supported the elimination of existing laws and regulations. They supported efforts by the federal banking agencies to preempt the application of state anti-predatory lending laws to national banks, federal thrifts and their operating subsidiaries. Essentially, they permitted bank regulators to “carve out” big players from state consumer protection laws and they refused to put any new standard in their place.

In both the 108th and 109th Congresses, Reps. Frank, Luis Gutierrez (D-IL) and others introduced legislation to clarify the applicability of state laws and enforcement to national banks and federal thrifts and their subsidiaries (H.R. 5251 in the 108th Congress and H.R. 3425 in the 109th).

There was no action on these bills in either the 108th or 109th Congress.

As economist Alfred Stiglitz has pointed out there is some blame to be placed on both parties. Strict rules of golf and all, when you add up the facts Republicans clearly get the lion’s share of that blame. Where some Democrats went wrong was joining in with the deregulation slash and burn economic policies of Conservatives.