Popular Posts

Thursday, December 30, 2010

Who caused the global fiscal crisis?

I'm still neck deep in dialog with my conservative Republican friend who is continuing to carry the Republican mantra that the global fiscal crisis is solely due to the actions (pressure) from Barney Frank and Chris Dodd.

I have been debating this issue for a couple of days now. As a former politician I fail to see how two pols could have had this kind of power and influence left unchecked by the other side. If Barney Frank pressured the lender to make predatory loans to those who could not afford them, why did the Republicans not expose what was going on?

As I said to my friend, the directive to the bankers to cease red lining and not making loans to low to moderate income areas of the country was good policy. No one directed the bankers to make faulty, and in some cases illegal, loans.

You have any thoughts on who might be responsible?

8 comments:

  1. This comment has been removed by the author.

    ReplyDelete
  2. Hey Bob, Chuck here, however, the way Frank and Dodd were able to use "this kind of power and influence" did not go on without protest....the republicans DID try to regulate the process of this pressure, but the democrats pushed them away and assured Bush that everything was alright....check out this proof:

    http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print

    However, I agree with you that this was certainly not the sole cause for the crisis. I think that a large portion of the blame DOES belong to those on wallstreet. The problem is that the Federal Reserve artifically lowered an interest rate called the Federal Funds rate. This created an artifical housing bubble due do massive malinvestments from the low interest rates. And unfortunatly, all bubbles burst. That is exactly what happened when the housing market collapsed...triggering a domino effect that took out the rest of the economy (stock market, labor market, etc). This actually led to massive inflation, driving prices up that only the rich could afford, creating an additional tax on the middle class...all of this DESTROYED the economy. I salute Senator Sanders, Congressman Ron Paul, and others who took action against the Federal Reserve and their tricky actions. The subrime problem was not the whole crisis, but it was just a portion of the underlying problem.

    More proof of dodd and frank's role in the crisis:

    http://www.traditionalvalues.org/read/3541/economic-meltdown-fueled-by-barney-frankchristopher-dodd/

    ReplyDelete
  3. Hello Haydend - I will not comment on with whom I have had the dialog. That said, there are plenty of websites out there pointing to the role that Frank & Dodd played in the fiscal crisis. However, it's important to remember that these two men are/were policy people; not regulators; not bankers. Prior to their initiatives the banking industry was red-lining certain areas of the country. They were trying to address that situation. It's hard for me to believe that they would encourage predatory lending practices. I don't recall a lot of resisttence. I do recall Paul Krugman yelling that we were heading into a crisis, but not many Republicans. Doesn't mean that the Rs weren't complaining. The bankers didn't mind the pressure as they were making huge profits.

    ReplyDelete
  4. True, but the policy makers were able to implement these regulations with their congressional power. And you are right: there was not a huge amount of republican resistance. That is in part because the party has completely lost its way, which is why I find myself today more as a libertarian then a republican (I'm anti-war and a social moderate). But the profits of the bankers turned into huge losses, such as the failure or lehman brothers and the massive earnings decreases to many other banks. Primarily, this crisis was caused by the Federal Reserve and their artificial bubbles....i am noting back to when congressman paul was saying there was going to be a crisis as far back as the early 2000's.

    ReplyDelete
  5. It's also important to remember that Freddie Mac and Fannie Mae do not loan money. "Fannie Mae, short for Federal National Mortgage Association, was created by Congress in 1938 to re-establish stability in the housing market at the time. It lends money to lending institutions rather than directly to buyers, which frees up more money for the banks.

    It's the bankers who made the bad loans. I don't think that we're ever going to fully and completely understand just exactly what happened but what I do know is that two politicians, I don't care how powerful they are, are solely responsible for what happened. They are easy targets for partisans, but there's more going on here than will ever meet the eye.

    ReplyDelete
  6. I agree, and the reason the bank loans were bad was because the lending interest rate (Federal Funds rate) was artificially lowered by the Federal Reserve, which created malinvestments (or bad loans), destroying the market.
    But I also agree that we will never understand what fully went on. We definitely need more transparency in the system as a whole.

    ReplyDelete
  7. Have you had a chance to read, "Creature from Jekyl Island" by a guy named Griffen, I think?

    If not you should. I've never been a big fan of the F.R.

    ReplyDelete
  8. No, I haven't had a chance to read it, but I have certainly heard of it and it sounds like a great book to me....I hope to get it soon!

    ReplyDelete