Saturday, October 04, 2008

Bill Clinton is to Blame for the Credit Crunch

There's an eye-opening ARTICLE in this week's Spectator by Dennis Sewell, who puts much of the blame for the current economic crisis on Bill Clinton and his administration. Here's the key passage...

Let’s wind back to 1993 and Roberta Achtenberg’s arrival on the Washington political scene. Achtenberg had made her name in San Francisco as a civil rights lawyer and activist, campaigning to keep open the city’s gay bathhouses, and (I promise I’m not making this up) pressing for an increase in the number of gay Scoutmasters. Bill Clinton offered her a job in his new administration, and Roberta Achtenberg became the first openly lesbian nominee ever to receive a Senate confirmation. She duly took up her post as Assistant Secretary for Fair Housing and Equal Opportunity at the Department of Housing and Urban Development (HUD).

The main thrust of the Clinton housing strategy was to increase home ownership among the poor, and particularly among blacks and Hispanics. White House aides, in familiar West Wing style, could parrot the many social advantages that would accrue: high levels of home ownership correlated with less violent crime, better school performance, a heightened sense of commun-ity. But standing in the way of the realisation of this dream were the conservative lending policies of the banks, which required such inconvenient and old-fashioned things as cash deposits and regular repayments — things the poor and minorities often could not provide. Clinton told the banks to be more creative.

Meanwhile, Ms Achtenberg, a member of the kickass school of public administration, was busy setting up a network of enforcement offices across the country, manned by attorneys and investigators, and primed to spearhead an assault on the mortgage banks, bringing suits against any suspected of practising unlawful discrimination, whether on the basis of race, gender or disability. Achtenberg believed racism was a big factor in keeping minorities from enjoying the same level of home ownership as whites. She doubted if much could be done to change people’s attitudes on racial matters, but she was confident she, in cahoots with Attorney General Janet Reno, could use the law to change the behaviour of banks.

However, when little or no overt or deliberate racial discrimination was discovered among the mortgage lenders, HUD’s investigators turned to trying to prove ‘disparate treatment’ of minority groups, a notion similar to that of unintentional ‘institutional racism’. If a bank refused loans to proportionally more black applicants than white ones, for instance, the onus would fall on it to prove it had good grounds for doing so or face settlement penalties running into millions of dollars. A series of highly publicised cases were brought on this basis, starting in 1994. Eventually the investigators would turn somewhat desperately to ‘disparate impact’, a form of discrimination so abstract and rarefied as to be imperceptible to its supposed victims, and indeed often only discernible at all through the application of multivariate regression analysis to information stored on regulators’ databases. In fact, by 1995 Achtenberg was actually having to rein in her zealots, issuing a clarification that the use of the phrase ‘master bedroom’ in a property advertisement was, despite its clear patriarchal and slave-owning resonances, not actually an actionable offence under the anti-discrimination laws.

These mortgage banks, which have been responsible for issuing about three quarters of the dodgy subprime loans that are proving troublesome today, quickly took the hint. From the mid-1990s they began to abandon their formerly rigorous lending criteria. Mortgages were offered with only 3 per cent deposit requirements, and eventually with no deposit requirement at all. The mortgage banks fell over one another to provide loans to low-income households and especially to minority customers. In the five years from 1994 to 1999, the number of African-American and Latino homeowners increased by two million.

So, by the end of the 20th century most of the ingredients that would combine to cause today’s subprime crisis were already in place. Nevertheless, the 1990s can seem a long time ago, and to grasp the connection between the situation then and what is happening now, it’s important to realise that only a small proportion of the subprime loans made since George W. Bush became President have gone to new, first-time buyers. A huge number of them have been refinancing loans, replacing mortgages originally taken out perhaps eight, ten or 12 years ago.

Imagine yourself in the place of one of those low-income householders who acquired a property in the late 1990s as a result of the Clinton home-ownership drive. What happened next? Chances are you managed OK for a while, but after a few years found that like most poor Americans, your income wasn’t going up, it was declining. Around 2003, with your credit cards maxed out, you desperately needed to release some equity from your home. Luckily there was equity there to release, so you refinanced for the first time and enjoyed having some real money for a change. A couple of years later a pushy mortgage broker called to suggest you do it all again, squeezing out the last drops of equity and opting for a low-start mortgage. So you did — and that was fine while it lasted, but the interest rate just sky-rocketed. You will never pay off that loan, it is pure poison to you, just like it’s pure poison to the investment bank that ended up with it on its books. You will just walk away. It’s not your fault. It’s not the bank’s fault. And it certainly isn’t George W. Bush’s fault — every attempt he has made to reform the mortgage market has been blocked by Congressional Democrats.

This is possibly the single most enlightening article I have read on the credit crunch. Read the full article HERE.

46 comments:

Anonymous said...

Yes all agreed... but the repackaging of these loans as highly rated assets that could be sold on to other institutional investors occured under Bush's charge. This risky behaviour (though everyone was assured it wasn't) was allowed by the regulators and is actually what is causing the present credit crunch. And lets not mention the ballooning of the US deficit that Bush has led, thanks partly to his adventures in Iraq...

Anonymous said...

I have been blogging away about the CRA for a week or two. V pleased to see it get proper coverage.

What he didn't say was that in many states, mortgage holders can walk away from their house and loan with no comeback. Just posting the house keys back know as 'jingle mail'.

This put boosters under the default rate in the US, and v low interest rates after 9/11 booster the property bubble - who could have forseen those combination of events?

Despite the above comment, we should keep reminding ourselves that this toxic debt is almost all mortgages gone bad.

Anonymous said...

I think Clinton was responsible for removing a 'depression bill' introduced at the time of the depression. This allowed money to move more freely and was considered to be a hinderence in the digital age.Can't remember the name of the bill but it had a foreign name.
Nigel Lawson did something similar.Can't remember the name but I believe it to be something like Margaret Thatcher and the Conservative Party (or something like that).

Those two decisions caused today's problems or at least very much named as holding smoking guns.

Anonymous said...

There was a devastating letter to this effect in the Torygraph a week or so ago, plus a lot more abt it in the City chatrooms. It just goes to prove the old adage that any truly colossal balls-up will have a politician at the bottom of it, busy shovelling the blame onto someone else.

Anonymous said...

Dr Butler of the Adam Smith Institute made similar comments a few days ago on the ASI's blog pages.

Anonymous said...

Come on Iain, you only find this enlightening because it argues what you want to believe. It's no more or less enlightening than any of the thousands of other articles all of which seek to aportion blame.

Anonymous said...

I have some rules I use to look after my money.

Do not lend more than you can afford to lose. (do not overleverage)And if you lend to somebody that you know is either going to be unable or umwilling to pay back consider it charity not a business deal. (sub prime mortgages)

Do not put all your eggs in one basket. (buy to let mortgages)

Do not buy anything that you do not understand. Even if everybody else is buying. (derivatives)


If somebody wants to sell you something it is because he will make money from it not because you will make money from it. (bad debt rapped up fancy to look nice the modern equivalent of a pig in a poke)

Not only have the bankers been greedy as we would expect from them they have been stupid.

Bob said...

Isnt Thathcer at fault too then?

No one forced them to loan to the impossible to repay folks!

Could not be the right wing yankees fault is it, no it is what occured 14 years ago.


What bs.

Anonymous said...

Melanie has picked up on this, and also implicates The Chosen One.

Anonymous said...

Iain,

How deliciously convenient to be able to blame all our financial troubles on Bill Clinton, the poor, ethnic minorities and political correctness.

Yet not everyone finds this analysis compelling.

Here's what Robert Gordon of The American Prospect has to say:

"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.

"Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending......

"Yellen is hardly alone in concluding that the real problems came from the institutions beyond the reach of CRA. One of the only regulators who long ago saw the current crisis coming was the late Ned Gramlich, a former Fed governor. While Alan Greenspan was cheering the sub-prime boom, Gramlich warned of its risks and unsuccessfully pushed for greater supervision of bank affiliates. But Gramlich praised CRA, saying last year, "banks have made many low- and moderate-income mortgages to fulfill their CRA obligations, they have found default rates pleasantly low, and they generally charge low mortgages rates. Thirty years later, CRA has become very good business.

"It's telling that, amid all the recent recriminations, even lenders have not fingered CRA. That's because CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn't make them lend. The profit motive did."


http://www.prospect.org/cs/articles? article=did_liberals_cause_the_subprime_crisis

It would be interesting to know your thoughts if you do read the article.

Anonymous said...

There has been a number of articles blaming PC Lending as the beginning of the end and as you know I still think it would have been cheaper to buy the high risk borrowers a new trailer each. This would have also provided work for the caravan industry. The American housing market, with one or two exceptional areas, is different to ours. Second hand houses are cheap and there's no shortage of land. At the risk of repeating myself we are having less and less children (apart from Benefit Scroungers) and so we will need fewer houses not more.
Freedom to Prosper

Unknown said...

Who was it who said that the workhouses and debtors prisons of the world are full of those who could not distinguish between capital and income? This is not as easy as it sounds. I have spent the last year disentangling the affairs of a highly intelligent relative who got into this trap. It is certainly unfair to blame relatively poorly educated people from getting caught out in this way.

Anonymous said...

Howard Husock was writing about this in City Journal back in 2000.

http://www.city-journal.org/html/10_1_the_trillion_dollar.html

"Looking into the future gives further cause for concern: "The bulk of these loans," notes a Federal Reserve economist, "have been made during a period in which we have not experienced an economic downturn."

The Neighborhood Assistance Corporation of America's own success stories make you wonder how much CRA-related carnage will result when the economy cools. The group likes to promote, for instance, the story of Renea Swain-Price, grateful for NACA's negotiating on her behalf with Fleet Bank to prevent foreclosure when she fell behind on a $1,400 monthly mortgage payment on her three-family house in Dorchester. Yet NACA had no qualms about arranging the $137,500 mortgage in the first place, notwithstanding the fact that Swain-Price's husband was in prison, that she'd had previous credit problems, and that the monthly mortgage payment constituted more than half her monthly salary. The fact that NACA has arranged an agreement to forestall foreclosure does not inspire confidence that she will have the resources required to maintain her aging frame house: her new monthly payment, in recognition of previously missed payments, is $1,879."

Unknown said...

Tey that City Journal link again - damn blogger link syndrome :

http://tinyurl.com/5wdbpr

Anonymous said...

Can't help feeling that people are picking up on the CRA for political reasons rather than the facts of the matter. It's a factor, but only a small one - Northern Rock wasn't making 125% loans available because of the CRA.

Banks have always made crap loans. They did it in the late 80s too, but that didn't turn into a crisis because they were funding it out of deposits and there was less capital around so the bubble didn't inflate as much. It was a combination of regulations such as Basel II and IFRS that encouraged banks to take stuff off-balance-sheet into SIVs, and laws such as the repeal of Glass-Steagal (also by Clinton, although exemptions had been granted since Bush I, and AIG was creating similar out of London) that enabled the implementation of such vehicles. And low interest rates post-9/11 encouraged banks to "juice" their returns to cover their bloated costs.

So it was a combination of regulatory arbitrage and insufficient regulation of these kinds of derivative products that magnified a normal period of crap lending into a crisis.

Bill Quango MP said...

Its exactly as El Cid said...
{w}El said

Elby the Beserk said...

Well, yes, Iain. However, it is worth pointing out that he has not been in power for 8 years, and Bush and his cronies, as with Brown and his, did nothing at all about the problem.

This is like New Labourites still blaming Thatcher.

Spot on article though.

Anonymous said...

The Commodity Futures Modernization Act 2000 is what allowed for these new financial instruments that were then sold and re-sold without any due diligence.

If Iain agrees with the argument set forward then he must also place some blame at the feet of Thatcher's right too buy policy.

People failing to pay their mortgages isn't the problem no matter who they are. The value of the entire mortgage market in the US is $7 trillion. The size of the credit default swap market 2007 was $45 trillion. Foreclosures are a drop in the ocean compared to the reckless over-leveraging conducted by the banks. The way the banks have done there business is at fault and the lack of proficient governance.

Clinton certainly is responsible for signing the Gramm-Leach-Bliley Act which overturned the Glass-Steagall Act of 1933. But the bill was written by Republicans and passed by a Republican majority. But IMO rolling back the Glass-Steagall Act was the right thing to do. The failure was ineffective governance not legislation. The Commodity Futures Modernization Act 2000 on the other hand was reckless not least because it was snuck through on a much larger bill and most polticians didn't understand what it was about. They understand the consequences now.

A lot of this about blame shifting. When will the Republicans share any responsibility for the mess they helped create.

Anonymous said...

I'm sorry to see this Iain but this wreaks of the soft bigotry of low expectations. It would not be out of place in the BNP platform to blame ethnic minorities.

Anonymous said...

Come on Iain, you only find this enlightening because it argues what you want to believe. It's no more or less enlightening than any of the thousands of other articles all of which seek to aportion blame.

Alex said...

Iain,

That may be part of the story, but it is only part of it. It explains why banks suchas Washington Mutual folded, but it doesn't explain why Lehman Brothers failed, or why UBS (who don't have any branches in run-down areas) lost $42 billion or why Rabobank have a $93 billion exposure to this stuff.

That is down to the Wall Street practice of packaging dud-loans as ratable securities and playing an elaborate game of pass the parcel. The fault for that lies with the credit/investment committees of Wall Street banks and other wholesale banks and their regulators. A lot of blame should also fall on the rating agencies.

To try to balame an aministation that left office 8 years ago is laughable.

Iain Dale said...

I described the article as enlightening because it was just that. I had never heard the argument before hence I was enlightened. It's not a difficult argument.

As to the accusation of bigotry, it's not only laughable but lazy. The article was not blaming ethnic minorities, it was blaming an administration for encouraging people for entering into debts they could never repay. So let's cut the racism crap, shall we?

Anonymous said...

At the risk of repeating myself we are having less and less children (apart from Benefit Scroungers) and so we will need fewer houses not more.


Err no. We also need to provide housing for all the immigrants.Who greatly outnumber the number of British people escaping

Iain Dale said...

No Ron. We are having fewer and fewer children :)

marksany said...

An alternative view from Detroit, an area hit hard by foreclosures.


http://www.freep.com/apps/pbcs.dll/article?AID=/20081001/BLOG2401/81001015/1214/BLOG24

Anonymous said...

doug (2:12) Yep, CFMA was the main thing I was thinking of when I referred to "insufficient regulation of these kinds of derivative products" but I've been ranting enough about that in real life, so thanks for doing the job for me here. :-)))) I'd agree that there was lots good about repealing G-S, but the legislators didn't think through the consequences of it + CFMA, they were just terrified about losing the game of competitive deregulation with London. A lot of this stuff would have happened without CFMA and GLBA, the only difference would have been that more of it would have happened outside the US, in London in particular. That would lead on to a rant about FSMA and the FSA, but I'd be here til teatime.

Looking back at this, it does raise serious questions about the qualifications of those legislating on such matters. One almost wonders whether this stuff is too complicated to be entrusted to the average backbench MP..... (qv juries for serious fraud trials)

Anonymous said...

Probably explains why UK plc is in the cack then. New Labour were great fans of many of the Clinton regime's ideas and copied them almost word perfect. The dread tax credits being one of them.

strapworld said...

What did Marx say about the end of capitalism?

Wasn't one of the main pillars, Government controlling the banking system? Government deciding on who can have what and when!

Is the USA and the UK heading towards a form of communisim?

Is this what Brown meant, in his press conference, when he referred to a 'New way of governing'?

Will we have a general election?

Anonymous said...

The article makes no mention of Clinton's 1999 repeal of the Glass-Steagler act 1933. That is what caused this problem. You can read all about it on wikipedia.

Anonymous said...

I haven't checked this myself, but I've been passed the following summary of "Christmas tree decorations" added to the Bailout/Rescue/Stability Bill.

Sec. 101. Extension of alternative minimum tax relief for nonrefundable personalcredits.
Sec. 102. Extension of increased alternative minimum tax exemption amount.
Sec. 201. Deduction for State and local sales taxes.
Sec. 202. Deduction of qualified tuition and related expenses.
Sec. 203. Deduction for certain expenses of elementary and secondary school teachers.
Sec. 204. Additional standard deduction for real property taxes for nonitemizers.
Sec. 205. Tax-free distributions from individual retirement plans for charitable purposes.
Sec. 304. Extension of look-thru rule for related controlled foreign corporations.
Sec. 305. Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements; 15-year straight-line cost recovery for certain improvements to retail space.
Sec. 307. Basis adjustment to stock of S corporations making charitable contributions of property.
Sec. 308. Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands.
Sec. 309. Extension of economic development credit for American Samoa.
Sec. 310. Extension of mine rescue team training credit.
Sec. 311. Extension of election to expense advanced mine safety equipment.
Sec. 312. Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
Sec. 314. Indian employment credit.
Sec. 315. Accelerated depreciation for business property on Indian reservations.
Sec. 316. Railroad track maintenance.
Sec. 317. Seven-year cost recovery period for motorsports racing track facility.
Sec. 318. Expensing of environmental remediation costs.
Sec. 319. Extension of work opportunity tax credit for Hurricane Katrina employees.
Sec. 320. Extension of increased rehabilitation credit for structures in the Gulf Opportunity Zone.
Sec. 321. Enhanced deduction for qualified computer contributions.
Sec. 322. Tax incentives for investment in the District of Columbia.
Sec. 323. Enhanced charitable deductions for contributions of food inventory.
Sec. 324. Extension of enhanced charitable deduction for contributions of book inventory.
Sec. 325. Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds.
Sec. 401. Permanent authority for undercover operations. (as related to tax provisions)
Sec. 402. Permanent authority for disclosure of information relating to terrorist activities. (as related to tax provisions)
Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit.
Sec. 502. Provisions related to film and television productions.
Sec. 503. Exemption from excise tax for certain wooden arrows designed for use by children.
Sec. 504. Income averaging for amounts received in connection with the Exxon Valdez litigation.
Sec. 505. Certain farming business machinery and equipment treated as 5-year property.
Sec. 506. Modification of penalty on understatement of taxpayer's liability by tax return preparer.
Subtitle B-Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008
Sec. 601. Secure rural schools and community self-determination program.
Sec. 602. Transfer to abandoned mine reclamation fund.
Sec. 702. Temporary tax relief for areas damaged by 2008 Midwestern severe storms, tornados, and flooding.
Sec. 704. Temporary tax-exempt bond financing and low-income housing tax relief for areas.
Sec. 709. Waiver of certain mortgage revenue bond requirements following federally declared disasters.
Sec. 710. Special depreciation allowance for qualified disaster property.
Sec. 711. Increased expensing for qualified disaster assistance property.

Anonymous said...

There are plenty of culprits for the whole mess. The herd-like folly of the banks and their short-term remuneration practices; deeply flawed financial regulation in both Britain and America; short-sighted politicians and central bankers who kept interest rates too low for too long. Also, the greed of the common man, who wanted (and still wants) to live in a much larger house than he can afford. This is the third Anglo-American banking crisis in the last thirty years, and we will no doubt survive it somehow, but I am afraid the cost will be steep - probably 20% of GDP.

And Gordon Brown, with his habit of delaying political decisions, his burning desire to spend other people's money and his lack of understanding of the City and the aspirations of Middle England, is almost uniquely badly placed to lead us through it.

Lola said...

I agree with pretty well all of the posts, especially Ron Todd at 1.08 (but not gary elsby).

There's two groups of people that can never be trusted - Bankers and Politcians. Whatever way you look at this crisis, it's got the sticky fingers of both sets of them all over it.

The politicians are responsible for stupid regulations like the one described in Iain's post; the mad explosion in the money supply and ludicrous financial regulation that was incompetent in its drafting, dire in its philosophy and desperate in its execution. The unsound money policy is like drugs to a junky as far as banks are concerned.

The banks having been provided with an almost unending supply of their particular narcotic at stupidly low prices then used this to create leverage and double up their returns on bull markets. And to cap it all they let their compliance departments run their businesses, abrogating all the judgement and responsiblity to a load of nerdy box tickers.

The solutions now proposed by the like of Gordon Brown - more regulation and more control, that is a closer relationship between these two untrustworthy twins - will not work. In fact it will make things for the Average Bloke even worse.

On the subject of Gordon Brown, not only did he massively expand the money supply, he also raised a lot of tax from capital. This has two pernicious effects, it destroys the pools of wealth necessary to create real jobs and it further adds to the money supply and at any other time would have driven inflation.

The man is a complete - well, Iain would not allow me to post my short epithet. It ends in -wit.

The evidence of the devasting effect of the actions of the management of the country and the banks can be seen in the share prices of banks and the collapse in the value of Sterling. The much derided 'market' is passing an unequivocal judgement on both their poxy houses.

And just to blow my own trumpet I have been saying that would happen since the day in 1997 when Gordon Brown taxed pensions.

But what now? Well the opposition has to go the attack about all this, now. It has to be explained clearly to The Voter just who exactly are to blame for this disaster. They also have to be readied for twenty years of hard work to re-build the UK's and their personal finances. They will have to accept massive jobs cuts in state employees and a serious reform of the state employees pension schemes.

Or, we accept a continuing decline and an ever increasing erosion of freedom and the expansion of state bureaucracy running a giant rationing system.

Personally if the latter, I'm for the barricades.

Anonymous said...

True, Iain, but old news. Keep up, old boy.

Colin said...

Many people would also blame him for creating the conditions that led to 9/11.

Anonymous said...

>>possibly the single most enlightening article I have read on the credit crunch<<

No it's not.
An enlightening article would have convinced you of something you weren't pre-disposed to believe. This merely confirmed a prejudice.

Anonymous said...

If you want an enlightening article free of party perspective, this one (for example) is a little more interesting:
http://www.marginalrevolution.com/marginalrevolution/2008/10/how-did-the-cre.html

Anonymous said...

great youtube video here that pretty much sums up the article..

have a look here


and here's a related video, showing Republicans in 2004 argueing for a regulator, but the Democrats poo pooing the idea.,..


The Chosen One is up to his corrupt , greedy, arrogant neck in it.

Anonymous said...

Iain, you're sometimes soooo out of touch. :)

Anonymous said...

I saved this anonymous post the other night. Frankly, It scared the heck out of me. When I heard about the woman who shot herself, I remembered one line from the post. "Crime, poverty, and suicide will sky-rocket." The entire post is a good 5 minute read. I think its worth your time. Its nothing like what you've heard elsewhere. Anyway here it is.

Amazing. The first ever global depression will go down in history horribly misunderstood. What a pathetic bunch of ignorant fools we have become. Consumer junkie credit card morons. Perfect little victims. Say that reminds me.

Don’t believe one optimistic word from any public figure about the economy or humanity in general. They are all part of the problem. Its like a game of Monopoly. In America, the richest 1% now hold ALMOST 1/2 OF ALL UNITED STATES WEALTH. Unlike ‘lesser’ estimates, this includes all stocks, bonds, cash, offshore accounts, and material assets held by America’s richest 1%. Even that filthy pig Oprah acknowledged that it was at about 50% in 2006. Naturally, she put her own ‘humanitarian’ spin on it. Calling attention to her own ‘good will’. WHAT A DISGUSTING HYPOCRITE SLOB. THE RICHEST ONE PERCENT HAVE LITERALLY MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. Don’t fall for any of their ‘humanitarian’ CRAP. ITS A SHAM. THESE PEOPLE ARE CAUSING THE SAME PROBLEMS THEY PRETEND TO CARE ABOUT. Ask any professor of economics. Money does not grow on trees. The government can’t just print up more on a whim. At any given time, there is a relative limit to the wealth within ANY economy of ANY size. So when too much wealth accumulates at the top, the middle class slip further into debt and the lower class further into poverty. A similar rule applies worldwide. The world’s richest 1% now own over 40% of ALL WORLD WEALTH. This is EVEN AFTER you account for all of this ‘good will’ ‘humanitarian’ BS from celebrities and executives. ITS A SHAM. As they get richer and richer, less wealth is left circulating beneath them. This is the single greatest underlying cause for the current US recession. The middle class can no longer afford to sustain their share of the economy. Their wealth has been gradually transfered to the richest 1%. One way or another, we suffer because of their incredible greed. We are talking about TRILLIONS of dollars which have been transfered FROM US TO THEM. All over a period of about 27 years. Thats Reaganomics for you. The wealth does not ‘trickle down’ as we were told it would. It just accumulates at the top. Shrinking the middle class and expanding the lower class. Causing a domino effect of socio-economic problems. But the rich will never stop. They just keep getting richer. Leaving even less of the pie for the other 99% of us to share. At the same time, they throw back a few tax deductible crumbs and call themselves ‘humanitarians’. Cashing in on the PR and getting even richer the following year. IT CAN’T WORK THIS WAY. Their bogus efforts to make the world a better place can not possibly succeed. Any ‘humanitarian’ progress made in one area will be lost in another. EVERY SINGLE TIME. IT ABSOLUTELY CAN NOT WORK THIS WAY. This is going to end just like a game of Monopoly. The current US recession will drag on for years and lead into the worst US depression of all time. The richest 1% will live like royalty while the rest of us fight over jobs, food, and gasoline. So don’t fall for any of this PR CRAP from Hollywood, Pro Sports, and Wall Street PIGS. ITS A SHAM. Remember: They are filthy rich EVEN AFTER their tax deductible contributions. Greedy pigs. Now, we are headed for the worst economic and cultural crisis of all time. Crime, poverty, and suicide will skyrocket. SEND A “THANK YOU” NOTE TO YOUR FAVORITE MILLIONAIRE. ITS THEIR FAULT. I’m not discounting other factors like China, sub-prime, or gas prices. But all of those factors combined still pale in comparison to that HUGE transfer of wealth to the rich. Anyway, those other factors are all related and further aggrivated because of GREED. If it weren’t for the OBSCENE distribution of wealth within our country, there never would have been such a market for sub-prime to begin with. IF IT WEREN’T FOR THE OBSCENE, UNREASONABLE, AND UNJUST DISTRIBUTION OF UNITED STATES WEALTH, THERE NEVER WOULD HAVE BEEN SUCH A MARKET FOR SUB-PRIME AND THERE NEVER WOULD HAVE BEEN A COLLAPSE IN THE HOUSING MARKET. Sub-prime did not cause the problem. It only accelerated the outcome. Which by the way, was another trick whipped up by greedy bankers and executives. IT MAKES THEM RICHER. The credit industry has been ENDORSED by people like Oprah Winfrey, Ellen DeGeneres, Dr Phil, and many other celebrities. IT MAKES THEM RICHER. In fact, they specifically endorsed Countrywide by name. The same Countrywide widely responsible for predatory adjustable rate sub-prime lending and the accelerated collapse of the housing market. ENDORSED BY OPRAH WINFREY, ELLEN DEGENERES, AND DR PHIL. Now, there are commercial ties between nearly every industry and every public figure. IT MAKES THEM RICHER. It also drives up the cost for nearly every product and service on the market. So don’t fall for their ‘good will’ BS. ITS A LIE. If you fall for it, then you’re a fool. If you see any real difference between the moral character of a celebrity, politician, attorney, or executive, then you’re a fool. No offense fellow citizens. But we have been mislead by nearly every public figure. We still are. Even now, they claim to be ‘hurting’ right along with the rest of us. As if gas prices actually effect the lifestyle of a millionaire. ITS A LIE. IN 2007, THE RICHEST 1% INCREASED THEIR AVERAGE BOTTOM LINE WEALTH AGAIN. On average, they are now worth over $4,000,000 each. Thats an all time high. As a group, they are now worth well over $17,000,000,000,000. THATS WELL OVER SEVENTEEN TRILLION DOLLARS. Another all time high. Which by the way, is much more than the entire middle and lower classes combined. Also more than enough to pay off our national debt, fund the Iraq war for a decade, repair our infrastructure, and bail out the US housing market. Still think that our biggest problem is China? Think again. Its the 1% club. That means every big name celebrity, athlete, executive, entrepreneur, developer, banker, and lottery winner. Along with many attorneys, doctors, and politicians. If they are rich, then they are part of the problem. Their incredible wealth was not ‘created’, ‘generated’, grown in their back yard, or printed up on their command. It was transfered FROM US TO THEM. Directly and indirectly. Its become near impossible to spend a dollar without making some greedy pig even richer. Don’t be fooled by the occasional loss of a millionaire’s fortune. Overall, they just keep getting richer. They absolutely will not stop. Still, they have the nerve to pretend as if they care about ordinary people. ITS A LIE. NOTHING BUT CALCULATED PR CRAP. WAKE UP PEOPLE. THEIR GOAL IS TO WIN THE GAME. The 1% club will always say or do whatever it takes to get as rich as possible. Without the slightest regard for anything or anyone but themselves. Reaganomics. Their idea. Loans from China. Their idea. NAFTA. Their idea. Outsourcing. Their idea. Sub-prime. Their idea. High energy prices. Their idea. Oil ‘futures’. Their idea. Obscene health care charges. Their idea. The commercial lobbyist. Their idea. The multi-million dollar lawsuit. Their idea. The multi-million dollar endorsement deal. Their idea. $200 cell phone bills. Their idea. $200 basketball shoes. Their idea. $30 late fees. Their idea. $30 NSF fees. Their idea. $20 DVDs. Their idea. Subliminal advertising. Their idea. Brainwash plots on TV. Their idea. Vioxx, and Celebrex. Their idea. Excessive medical testing. Their idea. The MASSIVE campaign to turn every American into a brainwashed, credit card, pharmaceutical, medical testing, love-sick, celebrity junkie. Their idea. All of the above drive up the cost of living, shrink the middle class, concentrate the world’s wealth and resources, create a dominoe effect of socio-economic problems, and wreak havok on society. All of which have been CREATED AND ENDORSED by celebrities, athletes, executives, entrepreneurs, attorneys, and politicians. IT MAKES THEM RICHER. So don’t fall for any of their ‘good will’ ‘humanitarian’ BS. ITS A SHAM. NOTHING BUT TAX DEDUCTIBLE PR CRAP. In many cases, the ‘charitable’ contribution is almost entirely offset. Not to mention the opportunity to plug their name, image, product, and ‘good will’ all at once. Which is usually done just before or after the release of their latest commercial project. IT MAKES THEM RICHER. These filthy pigs even have the nerve to throw a fit and spin up a misleading defense with regard to ‘federal tax revenue’. ITS A SHAM. THEY SCREWED UP THE EQUATION TO BEGIN WITH. If the middle and lower classes had a greater share of the pie, they could easily cover a greater share of the federal tax revenue. They are held down in many ways because of greed. Wages remain stagnant for millions because the executives, celebrities, athletes, attorneys, and entrepreneurs, are paid millions. They over-sell, over-charge, under-pay, outsource, cut jobs, and benefits to increase their bottom line. As their profits rise, so do the stock values. Which are owned primarily by the richest 5%. As more United States wealth rises to the top, the middle and lower classes inevitably suffer. This reduces the potential tax reveue drawn from those brackets. At the same time, it wreaks havok on middle and lower class communities and increases the need for financial aid. Not to mention the spike in crime because of it. There is a dominoe effect to consider. IT CAN’T WORK THIS WAY. But our leaders refuse to acknowledge this. Instead they come up with one trick after another to milk the system and screw the majority. These decisions are heavily influensed by the 1% club. Every year, billions of federal tax dollars are diverted behind the scenes back to the rich and their respective industries. Loans from China have been necessary to compensate in part, for the red ink and multi-trillion dollar transfer of wealth to the rich. At the same time, the feds have been pushing more financial burden onto the states who push them lower onto the cities. Again, the hardship is felt more by the majority and less by the 1% club. The rich prefer to live in exclusive areas or upper class communities. They get the best of everything. Reliable city services, new schools, freshly paved roads, upscale parks, ect. The middle and lower class communities get little or nothing without a local tax increase. Which, they usually can’t afford. So the red ink flows followed by service cuts and lay-offs. All because of the OBSCENE distribution of bottom line wealth in this country. Anyway, when you account for all federal, state, and local taxes, the middle class actually pay about the same rate as the rich. The devil is in the details. So when people forgive the rich for their incredible greed and then praise them for paying a greater share of the FEDERAL income taxes, its like nails on a chalk board. I can not accept any theory that our economy would suffer in any way with a more reasonable distribution of wealth. Afterall, it was more reasonable 30 years ago. Before Reaganomics came along. Before GREED became such an epidemic. Before we had an army of over-paid executives, bankers, celebrities, athletes, attorneys, doctors, investors, entrepreneurs, developers, and sold-out politicians to kiss their asses. As a nation, we were in much better shape. Strong middle class, free and clear assets, lower crime rate, more widespread prosperity, stable job market, lower deficit, ect. Our economy as a whole was much more stable and prosperous for the majority. WITHOUT LOANS FROM CHINA. Now, we have a more obscene distribution of bottom line wealth than ever before. We have a sold-out government, crumbling infrastructure, energy crisis, home forclosure epidemic, credit crunch, weak US dollar, 13 figure national deficit, and 12 figure annual shortfall. The cost of living is higher than ever before. Most people can’t even afford basic health care. ALL BECAUSE OF GREED. I really don’t blame the 2nd -5th percentiles in general. No economy could ever function without some reasonable scale of personal wealth and income. But it can’t be allowed to run wild like a mad dog. ALBERT EINSTEIN TRIED TO MAKE PEOPLE UNDERSTAND. UNBRIDLED CAPITALISM ABSOLUTELY CAN NOT WORK. TOP HEAVY ECONOMIES ALWAYS COLLAPSE. Bottom line: The richest 1% will soon tank the largest economy in the world. It will be like nothing we’ve ever seen before. The American dream will be shattered. and thats just the beginning. Greed will eventually tank every major economy in the world. Causing millions to suffer and die. Oprah, Angelina, Brad, Bono, and Bill are not part of the solution. They are part of the problem. THERE IS NO SUCH THING AS A MULTI-MILLIONAIRE HUMANITARIAN. EXTREME WEALTH MAKES WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. WITHOUT WORLD PROSPERITY, THERE WILL NEVER BE WORLD PEACE OR ANYTHING EVEN CLOSE. GREED KILLS. IT WILL BE OUR DOWNFALL. Of course, the rich will throw a fit and call me a madman. Of course, they will jump to small minded conclusions about ‘jealousy’, ‘envy’, or ’socialism’. Of course, their ignorant fans will do the same. You have to expect that. But I speak the truth. If you don’t believe me, then copy this entry and run it by any professor of economics or socio-economics. Then tell a friend. Call the local radio station. Re-post this entry or put it in your own words. Be one of the first to predict the worst economic and cultural crisis of all time and explain its cause. WE ARE IN BIG TROUBLE.

So what can we do about it? Well, not much. Unfortunately, we are stuck on a runaway train. The problem has gone unchecked for too many years. The US/global depression is comming thanks to the 1% club. It would take a massive effort by the vast majority to prevent it. Along with a voluntary sacrifice by the rich. THATS NOT GOING TO HAPPEN. But if you believe in miracles, then spend your money as wisely as possible. Especially in middle and lower class communities. Check the Fortune 500 list and limit your support of high profit/low labor industries (Hollywood, pro sports, energy, credit, pharmaceutical, cable, satelite, internet advertising, cell phone, high fashion, jewelry, ect.). Cancel all but one credit card for emergencies only. If you need a cell phone, then do your homework and find the best deal on a local pre-pay. If you want home internet access, then use the least expensive provider, and share accounts whenever possible. If you need to search, then use the less popular search engines. They usually produce the same results anyway. Don’t click on any internet ad. If you need the product or service, then look up the phone number or address and contact that business directly. Don’t pay to see any blockbuster movie. Instead, wait a few months and rent the DVD from a local store or buy it USED. If you want to see a big name game or event, then watch it in a local bar, club, or at home on network TV. Don’t buy any high end official merchendise and don’t support the high end sponsors. If its endorsed by a big name celebrity, then don’t buy it. If you can afford a new car, then make an exception for GM, Ford, and Dodge. If they don’t increase their market share soon, then a lot more people are going to get screwed out of their pensions and/or benefits. Of course, you must know by now to avoid those big trucks and SUVs unless you truly need one for its intended purpose. Don’t be ashamed to buy a foreign car if you prefer it. Afterall, those with the most fuel efficient vehicles consume a lot less foreign oil. Which accounts for a pretty big chunk of our trade deficit. Anyway, the global economy is worth supporting to some extent. Its the obscene profit margins, trade deficits, and BS from OPEC that get us into trouble. Otherwise, the global economy would be a good thing for everyone. Just keep in mind that the big 3 are struggling and they do produce a few smaller reliable cars. Don’t frequent any high end department store or any business in a newly developed upper class community. By doing so, you make developers richer and draw support away from industrial areas and away from the middle class communities. Instead, support the local retailer and the less popular shopping centers. Especially in lower or middle class communities. If you can afford to buy a home, then do so. But go smaller and less expensive. Don’t get yourself in too deep and don’t buy into the newly developed condos or gated communities. Instead, find a modest home in a building or neighborhood at least 20 years old. If you live in one of the poorer states, then try to support its economy first and foremost. Be on the lookout for commercial brainwash plots on TV. They are written into nearly every scene of nearly every show. Most cater to network sponsors and parent companies. Especially commercial health care. Big business is fine on occasion depending on the profit margins and profit sharing. Do your homework. If you want to support any legitimate charity, then do so directly. Never support any celebrity foundation. They spend most of their funding on PR campaigns, travel, and high end accomodations for themselves. Instead, go to Charitywatch.org and look up a top rated charity to support your favorite cause. In general, support the little guy as much as possible and the big guy as little as possible. Do your part to reverse the transfer of wealth away from the rich and back to the middle and lower classes. Unfortunately, there is no perfect answer. Jobs will be lost either way. Innocent children will starve and die either way. But we need to support the largest group of workers with the most reasonable profit margins. We also need to support LEGITIMATE charities (Check that list at Charitywatch.org). This is our only chance to limit the severity and/or duration of the comming US/global depression. In the meantime, don’t listen to Bernanke, Paulson, Bartiromo, Orman, Dobbs, Kramer, OReiley, or any other public figure with regard to the economy. They are all plenty smart but I swear to you that they will lie right through their rotten teeth. IT MAKES THEM RICHER. These people work for big business. The ‘experts’ they cite also work for big business. They are all motivated by their desire to accumulate more wealth. THEY WILL LIE RIGHT THROUGH THEIR ROTTEN TEETH. So don’t fall for their tricks. Instead, look at the big picture. The economic problems we face have been mounting for well over 20 years. All of them caused or aggrivated by a constant transfer of wealth from poorer to richer. Soon, it will cause the first ever GLOBAL DEPRESION. Its not brain surgery. Its simple math. Like I said, you are welcome to run this by any professor of economics or socio-economics. If thats not good enough, then look up what Einstein had to say about greed, extreme wealth, and its horrible concequences. I speak the truth. GREED KILLS. IT WILL BE OUR DOWNFALL.

Its already underway. A massive campaign to divert our attention. Trump, Buffet, OReiley, Dobbs, Pickens, Norris, and several other well known filthy rich public figures have been running their mouths about the economy. Finally admitting a hint of severity after almost 2 years of denial. They even have the nerve to acknowledge the possibility of a US/global depression. Still, they refuse to acknowledge the single greatest underlying cause. Remember: Our national debt was way up BEFORE sub-prime. Consumer debt was way up BEFORE sub-prime. The cost of living was up BEFORE sub-prime. Wall Street profits were obscene BEFORE sub-prime. The middle class were loosing free and clear assets BEFORE sub-prime. Our infrastructure was in bad shape BEFORE sub-prime. Loans from China were taken out BEFORE sub-prime. The dollar was loosing value BEFORE sub-prime. So don’t let these cowardly filthy rich public figures divert your attention or limit your range of thought. THE CURRENT ECONOMIC CRISIS WAS NOT CAUSED BY A SINGLE POLICY OR PROCEDURE. IT WAS CAUSED PRIMARILY BY A MASSIVE TRANSFER OF WEALTH FROM POOR TO RICH. THIS ALSO REPRESENTS A MASSIVE CONCENTRATION OF CAPITAL WORLDWIDE. OTHERWISE, THERE WOULD NOT HAVE BEEN SUCH A MARKET FOR SUB-PRIME AND THERE WOULD NOT HAVE BEEN A GLOBAL CREDIT CRUNCH. MONEY DOES NOT GROW ON TREES AND IT DOES NOT JUST FLOAT AWAY. IT ONLY TRANSFERS FROM ONE PARTY TO ANOTHER. ALBERT EINSTEIN TRIED TO MAKE PEOPLE UNDERSTAND. GREED KILLS. IT WILL BE OUR DOWNFALL.

A word for those who respond with the usual ‘I know more than you. Look how smart, knowledgable, and articulate I am’ crap. Let me say this in advance. I don’t claim to be an expert in this field. But I did go on record with these predictions long before any public figure uttered the word ‘recession’. If you search long enough, you will find my early postings from ‘05′ and ‘06′. Including the first draft of this rant. Since then, I’ve gone on record against people like Greenspan, Bernanke, and Paulson. So far, my predictions have been accurate. Like I said. This is not brain surgery. For the mostpart, its simple math. When you concentrate the world’s wealth, you also concentrate its capital and shrink the middle class along with the potential market for every major industry. Homes go unsold. Bills go unpaid. Banks fail. More products go unsold. Jobs are lost. More banks fail. and so on. and so on. It happened 80 years ago. It will happen again. This time on a global scale. Throughout the cycle, the rich will tighten their grip. Concentrating the world’s wealth and resources even further and ensuring the collapse of every major economy worldwide. Think it can’t happen? Think again. GREED KILLS. IT WILL BE OUR DOWNFALL.

Another thing. I don’t want credit for any of this. Otherwise, I would have given my full name a long time ago. As far as I’m concerned, you can put this rant in your own words and take credit for all of it. I don’t care. Just spread the word. Otherwise, the greatest injustice of all time will go down in history unchecked.

By the way. The bailout won’t work. IT WON’T WORK. The plan fails to address the fundamental problem. The middle class don’t need more credit. They need a reasonable share of the economic pie. They also need a lower cost of living and a chance to catch their breath. They need a break from all of the psychological marketing tricks and mass market BS. Most of all, they need to wake up and see the truth. GREED KILLS. IT WILL BE OUR DOWNFALL.

To my surprise, two public figures have found the courage to acknowledge this problem to some degree. On 11.07.07 former presidential candidate Ron Paul mentioned the massive transfer of wealth from poor to rich. He also hinted at the possibility of economic collapse. He did so on 'Face the Nation'. He was blacklisted almost immediately for doing so. On 9.28.08 former secretary of labor Robert Reich refered to the obscene levels of income inequality as part of a "recipe for disaster". He mentioned the richest one percent in particular. He did so on 'Late Night With Conan OBrien'. As far as I know, Albert Einstein was the first to explain the link between extreme wealth and economic instability. He did so in 1949. He explained how the first Great Depression was actually caused by a massive transfer of wealth from poor to rich. He predicted that it would happen again. We are about to witness the first ever GLOBAL DEPRESSION. Amazing. The prosperity of an entire world is about to be compromised. Almost entirely because of greed. IT WILL BE OUR DOWNFALL.

CityUnslicker said...

The CRA is a total red herring Iain. It is not the cause of the credit crunch; it has a small contributory role to play in the wider story.

The man to blame of the credit crunch, if there is one, is Alan Greenspan.

Anonymous said...

Moving swiftly on....

Going back to the topic at hand, Iain you might want to note that as of 2006, depository institutions subject to the CRA had 19% of their loan book in sub-prime, whereas independent mortgage companies not subject to the CRA had over 40% sub-prime. Yep, maybe the depository institutions would have only had say 15% sub-prime without CRA, but the evidence suggests that far from forcing banks to take on risks they otherwise wouldn't, the CRA has done its job of extending credit to people that are good risks that wouldn't otherwise get mortgages. Sub-prime was much more of a failure of the free-market that gave us the originate-to-distribute model, where incentives became divorced from the risks involved.

On the subject of Glass-Steagall, you may find this link from Paul Mason enlightening, it's a history of how G-S came to be repealed. MBS's couldn't have happened in the US without G-S being dismantled, the changes started in 1987 although it was the regulatory changes in the early Noughties that led to their explosion in popularity and hence the state we're in.

Anonymous said...

Iain

I think you will find this more enlightening:

http://bigpicture.typepad.com/comments/2008/10/misunderstandin.html#more

Dennis writes beautifully but this is just a small part of the story that fits in rather too well with certain agendas.

The more I read the more I think the role of sub-prime and property is overplayed in this crisis. It is far more too do with Investment banks getting too clever by half and ratings agencies not doing their job because they didn't understand (or for the more cynically minded chose not to understand).

Lola said...

Rating agencies? Hah! We gave up on them years ago. Pay to play and all that. Not independent at all. As every investor knows Do Your Own Research and if you don't understand it or cannot find out what you want to know don't buy it.

Anonymous said...

"I described the article as enlightening because it was just that. I had never heard the argument before hence I was enlightened."
Iain,
Did you not write about this in your blog on 15th March 2008: 'How political correctness caused the credit crunch.'?!
http://iaindale.blogspot.com/2008/03/how-political-correctness-caused-credit.html

Anonymous said...

Newsweek offer a rebuttal to the general claims in the spectator article.

Anonymous said...

Even more revealing:

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=all