by Mark Silva
"The free-fall in the economy seems to have stopped,'' Peter Orszag, director of the White House Office of Management and Budget, said today, "and we're, I guess the analogy there are some glimmers of sun shining through the trees, but we're not out of the woods yet. We do have more work ahead.''
With unempoloyment still rising at last count and the federal budget deficit this year rising to $1.84 trillion, there certainly is plenty of work ahead. But the White House, as Orszag said in an appearance on CNN's State of the Union with John King this morning, believes signs of a recovery are emerging.
See Orszag's explanation, courtesy of CNN:
KING: President Obama's push to reform the nation's health care system this year faces some key tests in the Congress the coming weeks. Majority Democrats share the president's urgency but paying the bill is a huge challenge. Even more so now because of new indications the economy isn't rebounding as fast as the administration had hoped.
Joining us to discuss the numbers and the path ahead is the White House budget director Peter Orszag.
Peter, welcome to STATE OF THE UNION.
And if you could join me over here what we lovingly call the magic wall, I want to start over here. Because I want to talk as Americans wake up this Sunday morning with this economic snapshot. You had hoped the economy would start to rebound especially with the stimulus program. The Dow this past week down 306 points, initial jobless claims, 637,000 of them this past week, quite a high number, and consumer spending, the engine of the American economy down 0.4 percent in the latest government data.
Before we get into the numbers crunching on health care, just as Americans look at these numbers I assume the impression we have not hit bottom yet?
ORSZAG: Well, I think what happened is the free-fall in the economy seems to have stopped and we're, I guess the analogy there are some glimmers of sun shining through the trees, but we're not out of the woods yet. We do have more work ahead.
KING: More work ahead. I want to shrink this one and pull it over here for a second. Because of the more work ahead, those numbers are not rebounding as fast as you had hoped just a little bit of time ago. You had hoped in your budget projection, you were here two months ago to discuss the budget. The administration's budget is based on unemployment averaging 8.1 percent this year. In May the rate went up to 8.9 percent. For the year it's averaging 8.3. percent which is above your average and most economists say it's going to go up before it comes down.
If it stays up here, something has to give in your budget, right? Because you're not taking in as much revenue and you're spending more in terms of unemployment benefits and the like?
ORSZAG: We are going to update all of these assumptions in the mid-session review in a few months so we'll have more to say with an updated set of numbers in just a couple months.
KING: Just a couple of months. You say just a couple of months.
I want to again bring in one more number here. This is your deficit. Move this down so people can see this. You had projected a smaller deficit. Your deficit numbers have gone up $89 billion for the current fiscal year just from February. That's just a few months ago, 87 billion. More than 175 billion dollars there just in two months. In two months a higher deficit number. If the deficit is going up at this rate, you say you'll update this in the future but I assume now the big question for the budget director what has to give? Higher deficit or scale back the agenda.
ORSZAG: Well, this is coming from some technical changes. You have to remember the deficit is very sensitive to the state of the economy. As the economy starts to recover the deficit comes down quickly. The economy remains weak we will continue to have these elevated deficits so, again, we're going to have more to say about this in a couple of months.
KING: You say more in a couple of months. I want to remind you something you said here in a couple of months ago. Because I asked you these questions. If the unemployment rate doesn't follow your budget, and it hasn't if the deficit numbers don't follow your budget and they haven't and if the growth rate doesn't follow your budget and so far it hasn't, what will change? Here was your answer two months ago.
(BEGIN VIDEO CLIP)
ORSZAG: We need to give this recovery act some time to work. I don't think we should be chasing our tail constantly revising assumptions. Let's see what happens. Let it work.
(END VIDEO CLIP)
KING: Now you say we have to wait a couple of more months.
ORSZAG: Well, hold on. At that time I also said we would be revising our economic assumptions for the mid session review and so that is exactly what we're still saying. Look. The Recovery Act passed three months ago, $100 billion has been obligated, it always was designed to kind of ramp up and you're going to get more momentum from the Recovery Act over time. That's what should be expected.
KING: Let's sit and continue the conversation. But as we do so, let me ask you this question here. Which is you say the Recovery Act kick in. There are some who thought the Recovery Act would kick in a little sooner in terms of maybe the unemployment number. Maybe people would be just the psychology of it would help with consumer spending. Why not?
ORSZAG: Well, again, it takes time to get money out the door wisely. We are trying to do it quickly and wisely. Our goal is 70 percent of the money out the door before the end of fiscal year 2010. We're on target for that. This is exactly how -- we're on target with our initial projections for the Recovery Act ...
KING: As you know ...
ORSZAG: And I would note also the sense of free-fall has attenuated. So while we're not out of the woods yet the sense was the case two, three months ago that the economy was in free-fall I think has attenuated a bit.
KING: Let's apply that now, the economic prescription, to where we go especially in the health care debate. Usually (ph) expensive. The president overrode objections of some very serious people on his team who said let's not try to do this in the first year. Too much to do. The president says, no, let's go forward. Now Congress is trying to figure out how to pay for it. Doesn't agree with everything the administration says which is to be expected. The Congress is doing it. But if you face -- if those numbers stay where they are and you face a decision later this year in paying for health care, either higher deficit numbers to pay for it, or wait a while for the economy to come back and help you on that front, what will the decision be?
ORSZAG: Let's be very clear. We've always said health care reform has to be deficit neutral over a five or 10-year window and much better than that over the long term. So we are committed to making sure health care reform is self-financing and also brings down costs over time, both for families and for the federal government. So you are not going to see a deficit increasing health care reform.
KING: You mentioned bring down health care costs over time. The president had a pretty big photo-op at the White House this week and brought in some people who were standing in with him in a Democratic White House, the health care industry, the doctors, the insurance, the providers, the people who raised political opposition to the last Democratic president who tried to sign health care legislation and torpedoed it with a lot of spending. And we have a picture of them up on the wall with them arrayed behind the president.
The president said they had agreed to these huge savings in the system. Within a few days they said, no, we said we would try but we did not agree to that specific number.
ORSZAG: Not quite. And if you look at their letter, they specifically say 1.5 percentage points per year lower growth rate, $2 trillion in savings. The controversy or the thing that came out later in the week is they want a couple of years to ramp up to the 1.5 percentage points reduction in the growth rate. That's understandable. It doesn't change either the political significance of the statement that they made, which is they believe they can get efficiencies out of the health care system or the long-term impact. If we achieve that 1.5 percentage point reduction and that would help sustain lower growth rates in Medicare, eliminate two thirds of the Medicare deficit over the next 75 years. It is a huge thing to do and we should get on doing it.
KING: I want to talk about Medicare in a second but let's talk about paying for health care reform this year. On the table in Congress taxing the health insurance benefits that workers get. I get from my company and many people get from their companies saying if you're at a certain income level we're going to tax those benefits. The administration has said not our idea but you haven't said no way.
ORSZAG: Yes. It was not in the president's campaign plan, it wasn't in our budget. Clearly, some members of Congress who are putting it on the table and we are going to have to let this play out.
KING: Let this play out. But would the president sign a bill that includes a pretty significant tax increase? That would be a tax increase.
ORSZAG: We're not going to be -- I think it's premature to be commenting on individual items. We're looking for a comprehensive plan that brings down costs and expands coverage and there are lots of ideas that are being put on the table and that is exactly how it should be.
KING: What other items? How else could you do it? If the Congress won't accept your plans the tax changes you want and you ...
ORSZAG: By way the way, I don't know if that is the case either. We went through a policy process that come to our proposals. I think you're seeing the Congress go through that same process. Let's see where they wind up.
KING: We also learned this past week in the trustees' report on Medicare and Social Security, this year, this year, as we sit here Medicare will pay out more than it takes in. That also happened last year and Medicare fund will be depleted in 2017. Social Security will pay out more than it takes in in 2016. If this president is reelected that would be in his second term.
There are those who say we understand you want to do climate change, you want to do health care reform and you want to do all of these other things but why not, why not put together a group, Senator Kent Conrad, a man I know you are a fan of, he issued this statement this week. He says he knows you are trying to do health care reform and he knows it will help when it comes to Medicare but he also says a solution to the long-term fiscal imbalance has to involve all aspects including Social Security, Medicare, underlying costs, rising costs of health care and fixing our outdated and inefficient revenue system.
Why not do, what is the harm in doing what Senator Conrad wants? A bipartisan panel to study Medicare and Social Security and then Congress would have to vote up or down. Why not put that together, tell them give us a report one year from today so you can do everything you are trying to do this year and then next year be ready to move immediately on Social Security and the bigger Medicare question. What is the harm?
ORSZAG: Well, I think what we're trying to do is get health care reform done this year because that is, by far, a more important force on our long-term fiscal imbalance than other factors. Social Security matters but if you look at the deficit in Social Security it's a fraction of the deficit in Medicare. We are trying to deal with the big problem first and bring down costs and address the long term imbalance in Medicare and then it will be time then to turn to Social Security. The president has been clear while we want to get health care reform done this year we also do need to address other aspects of our long-term fiscal imbalance.
KING: But you have a first things first answer to that approach and yet the administration is doing so many things this year and has decided we're going to try to do all of these things at once. Is he just opposed to the commission idea, does he want to do it a different way? Is that why you won't do that now and just again say we don't want to hear from you guys again for a year. So don't clutter this year debate but get ready?
ORSZAG: I think we will be able to turn to different processes on Social Security and other aspects of our fiscal imbalance after we get health care reform done but it would be unusual to say to a commission, here, go off and study our long term fiscal imbalance and in the meanwhile we are going to be making these significant changes to health care and Medicare while you're doing your work. I think that is one of the key problems.
KING: The stimulus plan or the recovery act, as you call it, was passed with great urgency at the beginning of the administration. I have traveled to 21 states, I believe, around now since the beginning of the administration, and mayor after mayor have said, I want that money, where is that money? Some of them have started to receive it, or others have at least said you will get this money soon, so they can make the plans and get going.
But I was this week in Selma, Alabama. It's in Dallas County. The unemployment rate there is 18.1 percent. And I saw the mayor, George Evans, and I said to him afterwards as we walked through downtown and all the shops were closed -- it's a depressing place at the moment, even though the citizens are inspiring -- I said, isn't this a perfect test case for stimulus money? He said, yes, and we want the money, but not yet. Listen to the mayor.
(BEGIN VIDEO CLIP)
MAYOR GEORGE EVANS, SELMA, ALABAMA: We have not gotten any yet. We submitted over $40,000 -- $40 million of stimulus projects for our city. You know, street maintenance, curbs, gutters, interpretive (ph) center, our riverfront project, but we have not yet gotten any response on it at this point, so we are still hoping.
(END VIDEO CLIP)
KING: Why is it a place with enormously high unemployment -- I assume that would be the poster city for stimulus money -- why not a dime yet?
ORSZAG: Well, I'll have to look into the specifics there, but again, we've obligated $100 billion. We're running at about $1 billion a day now, so there is a significant impulse coming. At the same time, we want to make sure that the money goes out for real projects that will help boost the economy and not for swimming pools and things that will -- you know, that are not for intended purposes. So quickly and wisely is the balance.
KING: But is the system maybe backwards in that they have to apply for the money and it goes through the bureaucracy, as opposed to somebody in Washington saying, where's the need greatest, let's take it to them?
ORSZAG: Well, there is some of that. So the Army Corps of Engineers, for example, ranks projects and then gets money out the door based on that ranking. So it's a mixture.
KING: I want to ask you, finally, our next guest is the House Republican leader, John Boehner. He, as you know, has been critical of the administration's stimulus plan. All the Republicans in the House voted against the president's budget. All the Republicans in the Senate, for that matter.
There are stress tests of the banking industry have been in the news, and he sort of turned that moment into saying, let's take a stress test of your fiscal policies. Let's listen to Leader Boehner.
(BEGIN VIDEO CLIP)
BOEHNER: What would it look like if we gave the federal government a stress test? Taking into account some of the leading economic indicators, frankly, I think Washington fails and fails miserably.
(END VIDEO CLIP)
KING: Fails and fails miserably?
ORSZAG: No. I mean, again -- look. The key thing is the economy recovers, we have to reduce the growth rate of health care costs. That will dramatically improve our long-term fiscal imbalance. I'm really encouraged, from what I hear, that Republicans will be stepping forward this week with their own health care reform plans. I think that's terrific, and that's the kind of engagement and constructive debate that I think should occur.
KING: And is there any possibility that if the economy does not come back as you think -- I know you have your review coming, I don't want you to go into the numbers -- any possibility that three months from now, if the numbers are as bad as they still are, that you will say time-out on health care, we have to save it until next year when the economy comes back, or will you do it this year, regardless?
ORSZAG: Well, again, health care reform is going to be deficit- neutral, and then actually over the medium and long-term, deficit reducing. So I don't think there is a conflict between concerns about the deficit and getting health care reform. In fact, if anything, the opposite.
KING: I want to close with something from the thesis of a guy named Peter Orszag at Princeton. It was mentioned in a "New Yorker" article this week. And you -- one of your conclusions you wrote, was quote, "It is clear that Congress suffers from a lack of understanding of even the most rudimentary economics." Do you still stand by that? Leader Boehner is right over there.
ORSZAG: I think I was 19 or 20. I think one of my other recommendations was that the Congressional Budget Office could regularly brief members of Congress. So there was obviously a bit of naivete with a Princeton senior. But...
(CROSSTALK)
KING: Peter Orszag, welcome back to the "State of the Union." We'll keep reading that thesis.
Comments
Tell that to the two million people who have lost their jobs since Barry took office....he promised to "save or create three and a half million jobs." As of today, to keep that promise...he now needs to create five and a half million jobs!!! Way to go Barry....you're doing a heck of a job!! Hey Barry!...could you at least put a muzzle on your V.P. and tell him to stop disclosing the location of hidden bunkers??? This ship is sinking fast!!!
Posted by: Joe | May 17, 2009 11:34 AM
Over 3 million people have lost their jobs since Obama took office...and 600,000 more a month continue to be laid off. And the White House says the economic free-fall is over? What do they believe constitutes a free-fall,
a million a month? Two million a month? Tell those people in the unemployment lines that the free-fall is over.
Posted by: Derrick | May 17, 2009 11:37 AM
If Barry said that the free fall is over, then it must be true.
Hey Barry, KEEP THE "CHANGE"!
Posted by: BDD | May 17, 2009 11:54 AM
It took the republicans from between 2000 to 2005 to allow the banks to suck 3 trillion in the values of our homes. Now they demand Obama fix it in 3 months. Take a hike.
Posted by: bill r. | May 17, 2009 12:28 PM
Orszag says the health care reform plan will be deficit neutral or reducing? How? The fed govt needs to figure out how to guarantee the long term solvency of existing medicare obligations before expanding it. The only way to do that is cutting benefits, raise eligibility age/standards, raise taxes, or the most reckless of all, more deficit spending. I wish the Obama Administration would level with the American people on what this will cost us. Instead, Obama sounds like a used car salesman; talking about the positives of his plan, none of the negatives, and telling us we have to act right now.
Posted by: Herbie H. | May 17, 2009 12:47 PM
It seems that the USA is now the opium addicts that China was 150 years ago. As EconoChristian.com shows, the US' trade deficit with China is large, and Americans are consuming more cheap junk just like the Chinese were 150 years ago from the british east india company. It's the US' turn to be addicted to cheap junk.
Posted by: Jason | May 17, 2009 1:00 PM
That is called the Bush hangover !! All of those jobs were lost before President Obama became President !! Though, you want to blame President Obama, because it will take the heat off, of the "Republican " agenda. The agenda that Bush-Cheney so expertly implemented !! !! Also, the one that Limpbag and Rave are mouthing !! Come on, you ranting " Republicans ", get off your knees and quit praying for President Obama's failing. We need everyone aboard, on deck, to right our ship of state. For you " Republicans ", it is only the right thing to do, since it was your stewardship that created the mess, in which, America now finds itself !!
SUPPORT OUR TROOPS, BRING THEM HOME, ALIVE AND WHOLE. NOW.
Posted by: Don Fitzgerald, America | May 17, 2009 1:19 PM
It's done, why? Because Obama and his minsions say so?
I think we have WAY worse more to come, particularly with this administration's appalling deficit spending.
Posted by: Beth | May 17, 2009 2:06 PM
Nice try Don Fitz....using your same logic....then Bill Clinton was responsible for 9/11. Sorry Donnie boy....you can stick up for this guy for only so long before the world realizes he is a phony...he's just reading what the teleprompter tells him to read!! However, he does it with style...and that's enough for the pathetic liberals to goose step right behind him!!!
Posted by: Joe | May 17, 2009 2:14 PM
Let the banks fail! Stop stealing from the citizens and giving to Wall Street! Abolish the Federal Reserve! Shrink the government! Government intervention and Fed are the cause of all of today's problems in America!
Posted by: Freedom and Liberty | May 17, 2009 2:49 PM
Don Fitzgerald@1:19PM:
Your missing something important. People look forward. Businesses look forward.
As soon as it became clear that Obama would win, the stoick market really tanked and businesses have been shedding jobs as Obama's War on Prosperity kicks in.
Obama is raising taxes, spending huge sums that we don't have, and increasing regulations. Does anyone really think that businesses will substantialling start hiring anytime soon????
As for supporting the troops, that means completing the missions. How does bringing the troops home help anyone?
When the problems get worse after we leave, the rest of the world will really hate us for quiting.
Posted by: Alz | May 17, 2009 3:07 PM
BillyR,
Not sure about your house, but from 2000 - 05, my hosue appreciated quite well.
The gov't ponzi schemes of SocSec and Medicare will collapse unless taxes are increased or benefits cut. Taxes get rasied, economy will not grow - so much for Orszag growing his way out of his deficits.
Now the loons want to take care of everyone's helathcare - why screw the 85% to to take of the 15%?
Posted by: Terry | May 17, 2009 4:19 PM
If the economic "freefall" is over, as Orszag claims, the recovery had nothing to do with anything Obama did.
Even the pro-Obama New York Times notes that the much ballyhooed emergency "stimulus" program “has paid out less than 6 percent of the money, largely in the form of social service payments to states.” In other words, the trillion dollar "stimulus" hasn't even started, so if there IS a recovery, it's not due to the "stimulus."
Posted by: Bruce | May 17, 2009 4:54 PM
Terry...Sure it did. Based on the false assumption of banks and that nifty 98% loan to value money out there. That 5 years led to the bubble bursting in 2005. My guess? Your home is now at least 30% less in value as then. Those five years gave us 2006 to present.....a loss of trillions in value. You talk of government mismanagement lossing money, how about the 3 or more trillion loss in home values that was brought by the banks?
Posted by: bill r. | May 17, 2009 5:08 PM
Here's a good place to start.
http://clerk.house.gov/evs/1993/roll406.xml
or
http://www.google.com/search?client=safari&rls=en&q=Clinton+tax+hike&ie=UTF-8&oe=UTF-8
Posted by: PG | May 17, 2009 6:05 PM
BillR,
You right, my home has declined in value of the past couple of years. You say the banks brought us this decline in value. You should also say that the banks gave us the appreciation in the first place.
What gave us the run-up in prices? Higher demand for housing.
What caused the higher demand for housing? Cheaper money.
What caused the cheaper money? The fed for one. The other contributing factor was that banks were "encouraged" to give out loans to those that previously did not qualify. That led to the use of more risky loans suchas ARMs and megative amortization mortgages. Once these reset ot the economy starts to to slide - or worse yet, both. The demand for housing will be less than supply and prices will decrease.
With you think of banks being "encouraged" to loan to those that previously didn't qualify, think of the word encouraged like it was recently used with the Chrysler bondholders.
That encouragement as you correctly noted started the higher risk loans in 2000 and came about from a 1999 piece of legislation.
Here's the roll call vote
http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=106&session=1&vote=00354
http://clerk.house.gov/evs/1999/roll570.xml
Posted by: Terry | May 17, 2009 7:52 PM
No, Alz, when Replicans on Wall St. saw Obama was likely winner, their "Starve the Beast" program kicked into overdrive.
Paulson and friends at Goldman Sachs decided to burst the CDS bubble, which they knew would be easy.
Create the panic with the Congress, get TARP enacted, then "change strategy" and funnel money to their pals, mostly directly to Goldman Sachs and indirectly through AIG, its counterparty.
Check how Paulson's and Greenspan's portfolios are doing now and you'll find they are sitting pretty.
Posted by: ornery | May 18, 2009 1:25 AM
2+2=7 is no more correct than the statements of the WHBD, Peter O. Simple math-highest debt as a % of GNP in US history+a 36 year credit account deficit+the inability to sell more than we buy= economic collapse about 3.5 times worse than the 1930's. Do not allow the symptoms to be your focus. The forementioned are the only 3 problems and they must be quantifiably defined before a solution can evolve-protect the intellectual property of the next US sellable resource at all costs.
Posted by: marq | May 18, 2009 2:34 AM
"It took the republicans from between 2000 to 2005 to allow the banks to suck 3 trillion in the values of our homes. Now they demand Obama fix it in 3 months. Take a hike."
Actually, I don't think anyone is demanding anything of the sort. But I think it is equally important to be intellectually honest enough to admit that Obama's policies have had little or nothing to do with any change. There simply hasn't been enough time for his so-called "stimulus" to do anything, particularly since most of the public works projects will have delayed implementation. Probably the main effect of his fiscal policy will be rampant inflation in late 2010 or early 2011.
Posted by: The guy who hides behind false names (so sayeth Don) | May 18, 2009 8:57 AM
Terry....I believe you to be wrong on several counts (surprised?).
1) False appreciation by the industry did not do us any good. It gave a false sense that the economy was doing well. An economy based on a false assumption gives us a false economy.
2) The housing market did not cause gas prices to increase. Speculators who found the housing market fizzle, found that the next market to make money was the oil market.
3) Your assumption that banks were "made" to give out loans to unqualified borrowers is totally absurd. I assume you are talking about CRA which in the bill itself states banks are not to abandon current, sound, and safe practices.
Posted by: bill r. | May 18, 2009 10:06 AM
The guy who hides behind false names (so sayeth Don).....Well it seems we can't have it both ways....It seems that there are some demanding it already be accomplished....you can read them here on this thread. Then you have some saying the stock market is Obamas fault. Which is it? Is it his fault...is it nothing to do with him? Shotgun criticism does little to improve discourse.
Posted by: bill r. | May 18, 2009 10:12 AM
* * * * *
Posted by: Herbie H. | May 17, 2009 12:47 PM
.
Herbie,
.
You are too polite. Orzsag, if you recall, belongs to the same group of people that have given us the double-talk about “reducing THE deficit,” and which expected us to be enthralled by the fact that Obama is trimming $ 17 billion (and some change) from the Democrats’ bank-busting budget. Against this backdrop, and in light of Obama’s $650 billion set aside (out of the proposed $1 trillion) to fund the health care system, Orzsag would have to resort to voodoo accounting and gamesmanship to make the claim that claim. The government can’t spend that amount of money over 10 or even 20 years and call it deficit neutral or reducing. In other words, he’s either lying or the manner in which his words would be truthful doesn’t mean anything.
Posted by: John W. | May 18, 2009 11:07 AM
Bill,
I don't think there's any realistic argument that can be made to blame Obama for anything that happened with the stock market during the first quarter of 2009. However, I also think the evidence is clear that there are two primary sources of our current woes: government manipulation of the housing market via the Community Reinvestment Act, and excessive speculation on Wall Street in mortgage-backed securities and credit default swaps.
Where Obama becomes accountable is his subsequent handling of a situation for which he roundly criticized the Bush administration and promised to fix. He cricitizes Bush's deficit spending, yet gives us far more of the same at levels that even the CBO says is "unsustainable" (which is a pretty staggering indictment coming from the CBO). Rather than bolster the private sector, Obama seems to be doing all in his power to tear it down and nationalize it. His policies are having two key effects: they are eroding confidence at all levels of the economy, and they are undermining our main economic drivers. To the extent these policies and effects are reflected in the condition of the stock market, I suppose at some point he has to take ownership of it.
Blaming Bush may work during the campaign, but now it's time to lead. Frankly, what I've seen to date is far from confidence-inspiring. The kind of big goverment solutions that Obama has espoused so far only promise a repeat of the Carter years -- if we're lucky. I hope I'm wrong on my predictions, but it doesn't take an economic rocket scientist to foresee the inevitable results of these policies.
Posted by: The guy who hides behind false names (so sayeth Don) | May 18, 2009 11:38 AM
Posted by: The guy who hides behind false names (so sayeth Don)
I have to say that I totally disagree with your assesment of the CRA. Reading the bill, you can plainly see that it states that banks are not to abandon customary sound, and safe lending practices. To me, this theory smells of "blaming minorities". When in fact, blacks in America make up 12% of the population, it took much more than this to bring down the housing market. The CRA was created to stop the practice of "red lining". Yes...there were many mortgage brokers who prayed on minorities with their lending practices, but the problem was false value in homes and the banks abandoning "safe" lending practices. No Doc loans were available to many, many who should not have qualified for such.
As far as the economy, I believe comparing the Bush years, which showed a false economy doing well with the current economy which is the result of that false economy is like comparing apples to oranges. I find it hard to compare Bushs' deficit spending during a "seemingly" good economy to the disaster we face now.
Posted by: bill r. | May 18, 2009 12:15 PM
This isn't about race, nor is it about blaming Bush. It's basic economics. The intent behind the CRA when enacted may have been as pure as the wind-driven snow, but its implementation during the Clinton years was anything but.
Both the DOJ (Janet Reno) and HUD (Andrew Cuomo) under Clinton, for political reasons, began to strongarm mortgage lenders to make CRA loans with increasing disregard for "safe" lending practices, and directed Fannie and Freddie to buy up these high risk loans from the originators. There were several predictable results -- indeed they WERE predicted in a 1999 New York Times article (I can provide the link if you want to read it), long before the housing bubble formed and then later burst during the Bush years.
First, by extending loans to unqualified or underqualified buyers, this policy began to create artificial demand that began to drive up housing prices.
Second, when prices began to rise at an accelerated rate, this attracted the attention of real estate investors, who pumped even more money into the housing market and drove prices up even farther.
Third, lenders were in what they believed was an all-return/no-risk situation because they could immediately resell these loans, and they trusted in the availability of credit default insurance, so they were happy to make the loans and generate the origination fees.
Fourth, investors began to find mortgage-backed securities very attractive because of the perceived rise in collateral values. As we now know, these values were artificially inflated, sometimes deliberately so.
Fifth, when the first defaults began to happen (a situation aggravated by out-of-control energy prices), lenders found themselves undercapitalized with their cash flows starting to dry up when mortgage payments didn't come in as scheduled. They were forced to rely on credit default insurance from other similarly cash-strapped institutions. The result was the credit freeze, which was at the heart of the stock market meltdown and current economic malaise.
It's easy to blame Bush because the crash happened during his term, but that type of superficial analysis does nothing to solve the problem. In fact, Obama and the new Congress keep proposing further government interventions in the mortgage market that are essentially more of the same of what got us into this mess in the first place. If the feds keep interfering with the market's ability to correct itself, even if that is a painful process, all we'll get is another "false economy doing well" that you believe existed under Bush, and the final crash will be much worse.
If you believe my analysis is faulty, please provide specifics.
Posted by: The guy who hides behind false names (so sayeth Don) | May 18, 2009 1:22 PM
I have to say that I totally disagree with your assesment of the CRA. Reading the bill, you can plainly see that it states that banks are not to abandon customary sound, and safe lending practices. To me, this theory smells of "blaming minorities". When in fact, blacks in America make up 12% of the population, it took much more than this to bring down the housing market. The CRA was created to stop the practice of "red lining". Yes...there were many mortgage brokers who prayed on minorities with their lending practices, but the problem was false value in homes and the banks abandoning "safe" lending practices. No Doc loans were available to many, many who should not have qualified for such.
As far as the economy, I believe comparing the Bush years, which showed a false economy doing well with the current economy which is the result of that false economy is like comparing apples to oranges. I find it hard to compare Bushs' deficit spending during a "seemingly" good economy to the disaster we face now.
Posted by: bill r. | May 18, 2009 12:15 PM
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Bill-
You have relied on the same circular argument before- ( the law said they shouldn't do this- therefore they didn't)
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the fact that the letter of the CRA said that , your words " ...banks are not to abandon customary sound, and safe lending practices." Means little when the reality is that banks were pressured by banking regulators to increase loans to markets that were "underserved" - threats included not being allowed to expand branches- other activist groups like ACORN- also applied pressure and intimidation to banks ( in some cases, picketing bank officials private homes)..
Because the language in the regulation said they shouldn't do this means nothing- when the reality is that in the quest for the holy grail of increased home ownership - in place regulations were [obviously] often ignored.
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You can't possibly believe that banks followed the tenet of “...banks are not to abandon customary sound, and safe lending practices." when this housing mess was almost entirely created with the packaging of SUB PRIME loans ?
Posted by: heartburn | May 18, 2009 1:28 PM
heartburn is right. we need to let banks redline.We need to make questioning banks or protesting their practices illegal. This whole mess was caused by those uppity minorities demanding equality.If we just make it clear that banks should discriminate against minority neighborhoods everything will be just ducky.
Repeal the CRA immediately. Outlaw community activism. Round up every ACORN member for indefinite detention. Redline. Discriminate. That is the Republican economic recovery plan.
Most importantly remember : Every thing is the fault of Clinton, Carter and Obama. Reagan, Bush and Bush are faultless.
Posted by: Rushpublican | May 18, 2009 3:50 PM
Posted by: Rushpublican | May 18, 2009 3:50 PM
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Take a breath- you’re hyperventilating this makes you sound like a lunatic..
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Your response is the typical liberal response... when you have no substance to actually argue with, you fall back on the robotic you are a hater or racist if you challenge our "for the good of mankind" laws and regulations. You’re smarter, more progressive, and kinder than everyone aren't you?
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What is missing in your life that you need clearly bad legislation like CRA to somehow prove to the rest of the world that you are not a racist? Does it make you feel more open minded to support laws like this that require nothing of you other than words? Meanwhile, you have no problem ignoring the effects that ADVERSLY impact minority groups more than others?
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CRA was a well intended - but horribly implemented and enforced act. Government intervention in the market, using the CRA, was a large contributor and cause of the explosion in sub prime lending.
Posted by: heartburn | May 18, 2009 5:42 PM
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Posted by: The guy who hides behind false names (so sayeth Don) | May 18, 2009 1:22 PM
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I am compelled to agree with you. However, I believe you have underemphasized one of the causes for the current trouble we face, although I believe you have mentioned it before: The Federal Reserve Bank. There exists good reason to doubt that much of the trouble we now face would have occurred were it not for the FRB’s “liberal” policy toward making money available to banks at very cheap prices. Were it not for the availability of this cheap money, banks would not have had the occasion to make all these bad loans, even if they had the inclination to do so. The addition of this “moral hazard” was more than a material cause of the economic troubles.
Posted by: John W. | May 18, 2009 6:11 PM
I'm with you heartburn, Attempting to stop banks from discriminating against mionorities is bad. I agree with you on that. Let them discriminate. Repeal the CRA. If minority communities can't get loans too bad. It's not like they are real Americans like you and I.They need to suffer so that the banks can prosper. I agree with you that ACORN, and other community activist groups actually hurt minorities by pretending what happens to minorities matter, or that discrimination against them is bad. You've already conclusively proven that redlining is a great positive for our nation which should be revived as soon as possible. We must let banks discriminate, we are united in that thought. The CRA must go as a result. I'm glad we have you to point out how all our banking problems relate to the fact that a 30 year old laew prevents banks from discriminating based on race or ethnicity, and on the evil activists who actually fight to keep banks from helping the world by discriminating against minorities. Discrimination is truly the answer to our economic recovery, Thank you for having the guts to make that clear.
Posted by: Rushpublican | May 18, 2009 6:21 PM
BillyR,
Never did say the appreciation did anyone any good, unless they sold in 2005.
Did I say that hosuing prices caused oil prices to rise?
As far as the banks being encourage to lend to those who didn't qualify for loans, its called the law of unintended consequences.
Sayeth Don said it best.
Rushpublican - do you know what the definition of a racist is? It's a conservative that just beat a liberal in an debate.
Posted by: Terry | May 18, 2009 7:57 PM
That's right Terry. Minorities are never discriminated against in the US. There is no racism against minorities. They just make all that stuff up. It's us white guys that are the real victims of discrimination and racism. The minorities have it so good. Don't you wish you were a minoity rather than one of us oppressed, powerless white guys Terry. We need to rise up against our oppressors. That's part of why we need to get rid of all those silly civil rights laws like the CRA.
Posted by: Rushpublican | May 18, 2009 11:06 PM
Terry wrote: "As far as the banks being encourage to lend to those who didn't qualify for loans, its called the law of unintended consequences."
Well said, Terry. The market will ALWAYS seek its own best interest, which means that any government interference, no matter how noble the motivation, will ALWAYS produce unintended consequences. The housing bubble is just the biggest and most recent example, but we're getting ready to experience more and bigger of the same as the effects of Obama's fiscal policies begin to manifest themselves. And if cap and trade is enacted, hang on to your hats -- although I strongly question whether those consequences will be "unintended."
Posted by: The guy who hides behind false names (so sayeth Don) | May 19, 2009 9:30 AM
Posted by: Rushpublican | May 18, 2009 6:21 PM
Just a quick logic check-and to help you through your cartoon-like characterization of the issue...
Should banks be forced by the government to make bad loans or not?
Or
Are banks obligated to subsidize -lose money- on mortgages for the sake of promoting the ideology that everyone is ENTITLED to home ownership?
Liberal, or progressive ideology depends on pointing fingers and asking others to lose money so you can feel good about eliminating ( fill in the blank) social "evil"... your arguments lack substance and are based on nothing more than this ideology.
Posted by: heartburn | May 19, 2009 11:51 AM
heartburn.,
Banks should be allowed to make all the bad loans they want to white folks.We know that serving minority communities means giving bad loans bty definition. All those minorities are dead beats, as you have correctly assumed heartburn.. If banks want to ignore better qualified minorities to take care of less qualified white people, they should be allowed to, just like before the evil CRA came around like you have so ably pointed out. We must allow banks to make race the determining factor in loan approval, not the ability to pay, like it was before the CRA. We agree totally on this point. Get rid of the CRA, and the good ol' days of redlining will be back again. Won't that be wonderful? I'm glad we can agree that it's only 'ideology" to be against racial discrimination, and that any logical person understands that it is perfectly acceptable for banks, and anyone else for that matter to discriminate based on race. I eill work with you as hard as I can Heartburn, to ensure that every evil piece of civil rights legislation like the CRA wiped from the books, so mthat discrimination can again have it's place in our economy where it belongs.
Posted by: Rushpublican | May 19, 2009 1:17 PM
Posted by: Rushpublican | May 19, 2009 1:17 PM
Sorry- I am not able to decipher your rant--- did you answer yes or no?
Posted by: heartburn | May 19, 2009 2:18 PM
heartburn, you've made one of the all-time classic blunders. The first is, "Never get involved in a land war in Asia", but only slightly less well known is, "Never try to engage in a rational debate with a liberal." Ah well, live and learn.
Posted by: The guy who hides behind false names (so sayeth Don) | May 19, 2009 4:42 PM
Rushpub,
Where did I mention race in any of my statements?
Like I said before - definition of a racist is a conservative that just won a debate against a liberal. Guess what Rushpub - you just got you butt kicked.
Posted by: Terry | May 19, 2009 8:27 PM