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Robert J. Samuelson: The recovery: Is this deja vu all over?

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  • Roland Kayser Cottonwood Heights, UT
    Feb. 28, 2014 7:34 a.m.

    Instead of examining financial history and finding that we are doing a little better than expected, some people find it easier just to say "it's all Obama's fault".

  • Tyler D Meridian, ID
    Feb. 28, 2014 8:32 a.m.

    I’d bet a year’s pay we don’t hear one word about this study over at Faux News – I’ll even give odds.

  • SCfan clearfield, UT
    Feb. 28, 2014 8:52 a.m.

    And to think, you guys were all so wrong to blame it on Bush.

  • Tyler D Meridian, ID
    Feb. 28, 2014 9:42 a.m.

    @SCfan – “And to think, you guys were all so wrong to blame it on Bush.”

    Since the article didn't mention causes, let alone blame, your point is irrelevant.

    However, if you’d like to discuss blame, let’s do…

    Let’s start with an ideology that blinds its followers to the need or rationale for any regulations. Or an ideology that believes the free market is 100% self-regulating and prices always reflect real value.

    Then add a heaping dose of politicians who have drunk this kool-aid and govern accordingly – this started in large part with Reagan but there’s plenty of blame to go around (e.g., Clinton signing the repeal of Glass-Steagall).

    As for Bush, he deserves blame in so far as he was the “decider” during the years prior to the meltdown, but Alan Greenspan (Larry Summers, etc.) deserves far more blame than Bush. I doubt Bush was capable of understanding the 2nd rate philosophy (e.g. Ayn Rand) that underwrote much of this ideology, let alone the 1st rate philosophy that critiqued it.

    Morale of the story – blind faith in ideology is bad (and dangerous in the hands of politicians).

  • Roland Kayser Cottonwood Heights, UT
    Feb. 28, 2014 9:49 a.m.

    To SCfan: The banking collapse happened on Bush's watch, so he get's the majority of the blame. Personally I think the collapse was caused by thirty years of banking deregulation, started by Reagan and continued by everyone up through Bush Jr. Bill Clinton also gets a significant part of the blame in my view. It was Clinton that signed the repeal of Glass-Steagall and Clinton who signed the Commodities Futures Modernization Act, both of which allowed Wall St and the finance sector to go on a destructive rampage.

    If I had to pick one single person to blame it would be Allan Greenspan, the chief proponent of the "banks can just regulate themselves" school of thought. As Fed chairman for 18 years he had the power to implement that vision, to catastrophic results.

  • SCfan clearfield, UT
    Feb. 28, 2014 10:52 a.m.

    Tyler D

    You know you can be pretty funny at times. You begin by saying that the article does not blame anyone, so my point is therefore irrelevent. Then only a few words later you begin to blame Bush, and conservative ideology ect. I guess that makes your points irrelevent too.

    Roland Kayser

    Thank you for pointing out that there are many Presidents, and I might add, Congresses that made policy that ultimately led to the 2008 meltdown. So many try to put the whole thing on the doorstep of Bush only.

  • David Centerville, UT
    Feb. 28, 2014 12:42 p.m.

    Clayton Christiansen wrote an article published in the DNews (probably a year ago) that was very interesting. If my memory serves me, he proposed changing regulations & tax code to discourage debt and encourage savings. He extended this to individuals as well as corporations.

    It would be interesting to see, over a long period of time (decades) what such a change would yield in terms of economic stability.

    Currently, our nation is built upon consumption (driven by debt). This ends us hurting many people and businesses when downturns occur. Changing to a nation of balance, savings, and self-sufficiency, in my mind, would create slower growth, but fewer and less painful economic dips.

  • RedShirt USS Enterprise, UT
    Feb. 28, 2014 12:47 p.m.

    To "Roland Kayser" again, if you go into congressional records, you will see that Bush and several Republicans attempted to take actions that could have prevented much of the financial problems. They wanted to reign in Freddie and Fannie, but the Democrats on the banking committe kept insisting that everything was fine, up to a few months before the crisis hit.

    Next, the idea that banks have been deregulated over the past 30 years is a fallacy perpetuated by the ignorant. The fact is that the banking industry has been regulated more than ever. In fact, under Clinton, they were regulated and bullied so much that the Federal Government mandated that the banks engage in more sub prime lending. During the 1950's and 1960's banks were less regulated, and made significantly fewer sub-prime loans.

  • Mainly Me Werribee, 00
    Feb. 28, 2014 1:01 p.m.

    What recovery? I'd hate to see a depression.

  • FT salt lake city, UT
    Feb. 28, 2014 1:39 p.m.

    @ Red Shirt
    I believe if you go back and research the financial melt down, it was mostly due to banks playing with derivatives and speculation vs Freddy and Fannie loans. They were selling junk, buying junk, trading junk and it finally caught up to them. Whether it was the meltdown or 9-11, they both came on Bush's watch and his administrations incompetence played a role in them. At some point Bush supporters need to stop blaming Clinton for all their failures.

  • Redshirt1701 Deep Space 9, Ut
    Feb. 28, 2014 2:06 p.m.

    To "FT" the banking problems didn't start with Clinton. They began in the late 1960s. Clinton forcing banks to issue sub-prime loans was just one example.

    You should look into the history of the things you blame for the financial melt down. Most were sanctioned or pushed by the government as a way of reducing risk on the banks.

    Did you know that it was the Federal Government that invented the idea of derivatives was created in 1978 under Carter. The Federal Reserve, which started 100 years ago has been ineffective and has added to the regulations that banks have to comply with.

    Basically, what we saw in 2008 was the result of nearly 100 years of government intervention in the banking industry.

  • Tulip West Jordan, UT
    Feb. 28, 2014 2:35 p.m.

    All this talk of blame. Shouldn't our focus be on repairing the damage? There are blueprints of successful economic recoveries in our history. Pick one and implement the policies. It's really not rocket science!

  • FT salt lake city, UT
    Feb. 28, 2014 3:01 p.m.

    @ Redshirt
    Wrong. Banks got greedy, had little regulation and invested in high risk. Both Democratic and Republican parties particapated in the deregulation of the industry. The goverment did not force any bank to buy the junk that mortgage lenders were selling they decided that on their own. Our trouble accerlated when Greenspan and political leaders decided to let captialism run amuck within the banking system and they did not have the assests to cover their own loses. Bottom line is the industry needed more regulation and enforcement once society let them get to big to fail. Bush was the last one holding the bag and had neither the competence or clout to fix it before it went under.

  • UtahBlueDevil Durham, NC
    Feb. 28, 2014 4:02 p.m.

    I do think it is Obamas fault, and those who were brave enough to act decisively in congress.... that the US fared this last GLOBAL recession the best, tied only with Germany. There are far too many pointing out that we had a recession, and too pointing out how our country rebounded better than most from it. It was not a US recession, or just a western recession, but the last recession hit all the economies of the globe. It even dented the hyper growth China and India were experiencing.

    So before we run around blaming Obama, or even Bush..... the what could have been had both these men not reacted would have been far worse. Sure the medicine tasted bad going down.... but we would have been far worse off had we not taken the medicine.

  • Redshirt1701 Deep Space 9, Ut
    Feb. 28, 2014 4:07 p.m.

    To "FT" once again, you are wrong.

    Read the following:

    "Fannie, Freddie asked to relax condo loan rules: report" Reuters

    "How HUD Mortgage Policy Fed The Crisis" Washington Post

    "Meltdown? Let's blame politicians" DN

    "Three Decades of Subsidized Risk" WSJ

    "The True Origins of This Financial Crisis" American Spectator

    "Bill Clinton's drive to increase homeownership went way too far" Bloomberg Business

    There are more articles out there that go into the underlying rasons.

    Again, Bush tried to reign in Freddie and Fannie, but your ilk killed that idea. See "New Agency Proposed to Oversee Freddie Mac and Fannie Mae" NY Times. Bush wanted to reign in Freddie and Fannie in 2003. The meltdown would not have been as bad if they had enacted the new oversight. Also see "President Bush Tried to Rein In Fan and Fred" in the WSJ.

    The meltdown wasn't due to capitalism, but socialism trying to control the banks.

  • Tyler D Meridian, ID
    Feb. 28, 2014 4:52 p.m.

    @RedShirt – “…reign in Freddie and Fannie”

    When it comes to what caused the 2008 meltdown, the government pushing banks to lend (and F&F to underwrite) to the poor/minorities is the mouse in the room next to the Elephant (i.e., the highly leveraged (up to 30–1), fee driven, financial products=things of real value, Wall Street/Finance industry.

    What does F&F have to do with the bank collapse in Iceland, the debt of Greece, or the decline in home values in Norway? And F&F loans only became a problem when banks did not have to keep a portion of their loans and Wall Street bundled them with good loans and got ratings agencies to deem them AAA.

    Yet the solution on the Right is simply to dissolve Fannie & Freddie (the equivalent of calling the mouse exterminator while the Elephant destroys your house).

    And an accurate understanding of history would demonstrate this collapse was similar in many ways to the panics of the 1800’s and early 1900’s – before the evil Fed and regulations you deem causal.

    You have the cause & effect relationship here exactly backwards…

  • Nate Pleasant Grove, UT
    Feb. 28, 2014 7:54 p.m.

    @Tyler D

    Your mouse is not separate from your elephant -- they are two views of the same animal. The bad loans resulting from HUD/Fannie/Freddie policy needed go somewhere...so they were packaged into worthless financial instruments and traded off. No one wanted to be the guy who got stuck with them. Participating in the fraud was wrong, but the root cause was what produced the flood of risky loans in the first place -- federal housing policy. When you set aside lending standards for one community, you have to set them aside for everyone.

    This leads back to the original topic: why the slow recovery? One of the reasons is that everyone knows the Obama administration hasn't dealt with root causes. Nothing substantial has changed in federal housing policy.

    Other reasons, we're all familiar with. Obamacare is a nightmare of uncertainty. The law is on-again, off-again, until no one knows what it will require of them. Job creators are standing by, waiting to see what happens.

    Similarly, other job creators have decided to just sit tight until Obama leaves office...the same thing that happened under Roosevelt. This has slowed down the recovery by years.

  • Roland Kayser Cottonwood Heights, UT
    Feb. 28, 2014 8:54 p.m.

    So much revisionist history. Fannie and Freddie were bit players in the whole meltdown, it would have happened even if they didn't exist. No bank was ever forced to make a subprime loan against their will. They were falling all over themselves trying to write them because they were far more profitable than standard loans. There are even examples of banks pushing clients into subprime even though they qualified for a regular mortgage.

    As to Nate's assertion that banks were trying to get rid of the bad loans, why then did they have so many on their books when the crash came? They thought they were cash cows, that's why.

    Anyone interested in a thorough history of the crisis should read "When the Music Stops" by Alan Blinder. Another excellent source is "All the Devils are Here", I'm forgetting the name of the author.

  • The Hammer lehi, utah
    Feb. 28, 2014 9:46 p.m.

    @Roland

    Here is the timeline and why Fannie Freddie were the main cause.
    Sept 7-The Feds take over Fannie Freddie (Remember these guys provided guarantees on over half of our nations mortgages)
    Sept 14-Merrill Lynch is sold to Bank of America (this sparked the liquidity crisis that sent the FDIC straight to the president's desk telling him that without changes to current law over half the banks in the US would fail, this was due to the devaluation of all of the mortgage securities that fannie freddie had that were now rated as junk which sent banks holding these securities ratio's into the abyss)
    Sept 15- Lehman collapses (FDIC wouldn't step in largely because it would have drained the reserves and nobody wanted to buy them out ala Bearstearns)
    Sept 17- AIG (the other insurance company) needs a bale out.
    Sept 19-TARP is unveiled to stop the liquidity crisis.
    Sept 23- The FBI announces fraud going on at Fannie Freddie

    They weren't Bit players. They were largely the cause because they helped start the idea that you can insure investment risk with insurance backed by the very investments they are insuring.

  • Roland Kayser Cottonwood Heights, UT
    March 1, 2014 8:20 a.m.

    @the Hammer: Fannie and Freddie were late to the subprime party. They only got into it because they saw how much money the other banks were making on it. They actually held far fewer bad mortgages than most commercial banks did.

    Merrill-Lynch and Lehman were not banks and were not covered by the FDIC. The FDIC had nothing whatsoever to do with their demise. AIG was actually the biggest problem, which derived from their massive sales of credit default swaps, which are essentially insurance policies on bonds. Unfortunately they were not required to have funds to cover the insurance losses, which is why they needed a the biggest bailout of all..

    Another major issue was the ratings agencies who assigned AAA rating to many bonds that turned out to be junk. Many organizations are only allowed to buy AAA rated securities, pension funds for instance, and the crash would have been much less severe had the ratings agencies not been corrupted by money from the banks they were supposed to be rating.

  • pragmatistferlife salt lake city, utah
    March 1, 2014 8:56 a.m.

    "They were falling all over themselves trying to write them because they were far more profitable than standard loans. "

    Blame aside, this is the ABSOLUTE truth.

    I worked for a major bank at the time (one that was forced into TARP), and worked in a loan area that made prime loans. I personally sat in hours of meetings in major cities as the glory of sub-prime lending was explained in preparation for the consolidation of the prime with the sub prime business. Eventually there was virtually no prime lending.

    The mechanics of sub-prime lending was different depending on the product (houses, cars, credit cards), but the rational was the same. The huge rates charged would not only cover the known losses, but would multiply the profits.

    There was a virtual blindness to the risks. A blindness caused by the shiny penny at the end of the road, and the convoluted models they created to evaluate/hide the risks.

    On the ground it was pure greed, and fairly evident where it would end.

  • The Hammer lehi, utah
    March 1, 2014 11:08 a.m.

    @Roland

    If Fannie and Freddie were not part and parcel to the system where banks knew they could pawn off bad mortgages on them we would have survived the crash. Yes there was corruption up and down the line. But Fannie and Freddie were part of it and a large part because they helped start the idea that if you sell subprime and it starts to tie up your balance sheet you can sell it to Fannie and Freddie and take it off your books. Fannie and Freddie allowed the subprime lending to go on longer and get worse because Democrats and some Republicans (ie Barney Frank etc) largely blocked audits and investigations into these pracitices in 2005-6 when the problem started surfacing.

    These institutions created a problem that the FDIC was unprepared for because it created a liquidity crisis in banks that were normally well capitalized. Lehman, Merrill Lynch and AIG and WAMU were very much affected by this.

  • george of the jungle goshen, UT
    March 1, 2014 2:18 p.m.

    I think it starter about the same time that Jolly Roger went to Yale.

  • Tyler D Meridian, ID
    March 1, 2014 3:35 p.m.

    @Nate – “Your mouse is not separate from your elephant -- they are two views of the same animal.”

    Your point simply don’t explain the magnitude of the downturn, the fact that it was global, and the fact that all home prices plummeted, not just the low end stuff backed by Fannie & Freddie.

    There are a number of books out chronicling what happened and why, and I have yet to read any account that blames, at most, perhaps 30% of the meltdown on federal housing policy… and most not even that much.

    It played a part but was small next to the profit driven (earning fees no matter they sold) machinations of the Finance industry. Others (Roland, Pragmatist, etc.) have explained it better than I can, but for me the interesting question is why the Right focuses exclusively on one small part of the problem?

    To your point about the recovery, the article clearly states that the two countries who have weathered the storm better than any other have been Germany and us. This seems to bely your talking points about Obama.

  • Badgerbadger Murray, UT
    March 2, 2014 8:54 a.m.

    For as long as so many people blame the wrong source for the recession, there is no chance we can prevent our repeating it. Heck we can't even recover from it.

    Government intervention in the market, by guaranteeing loans that were high risk, to gain votes, was the cause.

    Democrats have to deny the truth or they would get no votes at all. But as long as they keep promising people stuff they can't afford, the gullible will continue to believe them and deny the truth to get that stuff.

    We would all be better off if government would pave the way for people to earn what they need, instead of pretending they can just take from some to give to others with no ill consequences to the country.

  • pragmatistferlife salt lake city, utah
    March 2, 2014 1:14 p.m.

    "For as long as so many people blame the wrong source for the recession, there is no chance we can prevent our repeating it. Heck we can't even recover from it.'

    As long as Republicans can't see unregulated capitalism and specifically an unregulated financial industry was the cause we will never return to a value producing economy and recover fully from their debacle.

  • Badgerbadger Murray, UT
    March 2, 2014 11:13 p.m.

    Prag -

    Seriously? It wasn't unregulation, but rather wrong regulation that caused the meltdown.

    If lenders knew the only way they got repaid was from the person they lent to, they would not have made foolish loans. These guys aren't stupid. They aren't going to loan on high risk, unless someone else is going to take the fall when the default comes.

    The government (regulation) offered to be the fall guy, so they could write the risky loans, make their bucks on the loan origination fees, and then the government would take all of the loans that failed, saving them from any loss.

    It wasn't lack of government that caused the defaults. It was stupid government, and even more scary, power hungry government.

    Without government backing, the bad loans would not have been made. People of lower income would be in smaller houses, but ones they could actually afford. I think that's a good thing.

    If I had bought the biggest home I qualified for, I would have lost it in the recession of 2002. Because I bought smaller, I weathered both recessions fairly well, and now own my home outright, and I'm no rich man!

  • JoeCapitalist2 Orem, UT
    March 3, 2014 8:45 a.m.

    The main problem that is leading to the downfall of our economic system is the same for both government and the private sector.

    The problem is that "those who cause the problems do not have to pay the consequences of bad decisions". Too many people have a Bernie Madoff mentality - get mine and let someone else worry about picking up the pieces.

    Politicians spend us into oblivion, knowing they are set for life with comfortable pensions. Corporate executives run a company into ruin and jump out of the plane with their golden parachute before it crashes. Bankers play with risky bets, get their huge bonuses, and bail before the whole house of cards comes crashing down. Many voters will go for almost anything that benefits them personally, without regard to who else is left with the bill.

    Until the pain of bad decisions is tied personally to those who make them, we will get more of the same.