Democrats Caused the Credit Crisis, Part Deux

Long, well researched, but fast, fast paced video detailing how Democrat policies lead to the credit crisis. Did you know Obama sued a bank for not issuing enough sub-prime loans? Neither did I.

Of course, the Democrats are trying to spin their way out of this – they’re lying, IOW – and with the paleo-media on their side, most voters won’t probably figure out the truth.


UPDATE: Here’s a second vid by the same producer. Not quite as long, and some of the same info, but a different way of looking at it. I like the music better. LOL!

8 Responses to “Democrats Caused the Credit Crisis, Part Deux”

  1. smrstrauss Says:

    Okay, blame the Democrats and poor people for the crisis. Some people may believe you. Most will not.

    Even if it were true that the Democrats were behind the vast increase in loans to the poor, you would still have to show that it was mainly loans to the poor that caused the crisis. In fact, the Bush administration also increased loans to the poor, and the main cause of the crisis was the Real Estate Bubble (remember the bubble, when thousands of people, mainly middle-class people, were “flipping” houses?).

    The cause of the Real Estate Bubble was NOT sub-prime mortgages. It was low interest rates. Indeed, some investment banks were able to borrow money to make loans at virtually no interest expense to them, by borrowing on the Japanese market in the so-called “carry trade.”

    Banks and credit companies were so eager to invest in sub prime mortgages that I see that the Bank of China, of all banks, had $9 billion worth of sub-prime loans. Surely this was not to aid poor people or aid the USA, it was because that institution, like others, thought it would make relatively higher interest rates with little risk on that investment.

    To be sure, in the recent past, a lot of poor people have defaulted on their mortgages, but they constitute only a small percentage of the defaults (after all, they got fewer loans and smaller loans than the average).

    And, it is to be expected that when the economy turns poor, poor people will default more than richer people. That is so obvious it is a tautology. It is like saying that companies with high debt-equity ratios tend to default more than companies with conservative debt-equity ratios.

    Naturally poor people default when they are losing their jobs. But the defaults on second homes and homes-too-big-for-their-budgets by middle class people are also very high. The second homes, and the too-big homes that cannot be afforded when the interest rates rise, that’s a cause too.

    But even this is not the cause of the crisis. What about the banks and investment banks that took on billions of dollars in mortgage-backed paper? They did NOT do it because they were forced to, or because they are Democrats, or because they love the poor. For example, Switzerland’s UBS lost $30 billion (so far) on sub-prime paper. To some extent, they did this because the rating agencies (such as Moody’s and S&P may have rated that paper higher than they should have) but they did it to make money. There’s nothing wrong with making money, but neither the Democrats nor the US government were involved in these investment decisions.

    Obviously we are talking about something with such massive causes that even if there were good regulation of Fannie Mae and Freddie Mac, the disaster probably would still have occurred. That does not make it right to have voted against legislation that would have tightened up the regulation, but that is hardly the cause of the disaster.

    Regulation is just what it is, not a perfect barrier against frauds and gigantic financial mistakes. For example, the giant bank Washington Mutual went belly up last night. Its shares were worth $2.03 yesterday. They are worth 16 cents now. But WM was under the regulation of the Federal Reserve system, as are all commercial banks. Why didn’t they spot the problem before it occurred? Why didn’t they insist on WM having stronger ratios? No answer so far.

    Along the same lines, what about the regulator of Bear Sterns, Lehman brothers (and for that matter the late unlamented Enron), the SEC. Why didn’t they catch the off-balance sheet items? Why didn’t the rating agencies like Moody’s and S&P catch the enormous debt that these companies had? For that matter, why did Moody’s and S&P rate some of the mortgage backed securities, that are now nearly worthless as AAA, when they were more like DDD?

    We don’t know yet, but obviously there is a lot of blame to go around. And, not in the USA only. Reading up on the crisis last night I read that last year the Bank of China admitted to having bought some $9 billion worth of sub-prime mortgage paper. The Swiss investment bank UBS has already lost some $30 billion – and on and on.

    Where this relates to the debate about Fannie and Freddy and about the Democrats is to remember that NO ONE forced the Bank of China or UBS or Deutsche Bank or Bear Sterns or anyone to buy sub-prime mortgages. They did so out of the normal investment motive: They thought that they could make money on the investment. They were mistaken, much like the folks who in September 1929 (one month before the crash) bought stock. They might be blaming their broker for having advised them to buy, or Moody’s and S&P for having missed something. But ultimately it was their decision. This plus the practice of investment banks of holding their suspect sub-prime investments off the balance sheet plus ENORMOUS leverage (lousy debt-equity ratios), were main causes of the crisis.

    There are those that think that the crisis was mainly caused by Democrats pushing banks to make loans in minority areas. It is true that Democrats did this, but the motive behind it was shared by the Bush Administration, and indeed, Bush helped expand home ownership among minority groups. Here he is when signing the “American Dream Downpayment Act of 2003.” (Begin quotes)

    President Bush Signs American Dream Downpayment Act of 2003

    I am here today because we are taking action to bring many thousands of Americans closer to owning a home. Our government is supporting homeownership because it is
    good for America, it is good for our families, it is good for our economy.

    One of the biggest hurdles to homeownership is getting money for a down payment. This administration has recognized that, and so today I’m honored to be here to sign a law that will help many low-income buyers to overcome that hurdle, and to achieve an important part of the American Dream.

    This administration will constantly strive to promote an ownership society in America. We want more people owning their own home. It is in our national interest
    that more people own their own home. After all, if you own your own home, you have a vital stake in the future of our country. And this is a good time for the American
    homeowner. Today we received a report that showed that new home construction last month reached its highest level in nearly 20 years.

    The reason that is so is because there is renewed confidence in our economy. Low interest rates help. They have made owning a home more affordable, for those who
    refinance and for those who buy a home for the first time. Rising home values have added more than $2.5 trillion to the assets of the American family since the start of 2001.

    The rate of homeownership in America now stands a record high of 68.4 percent. Yet there is room for improvement. The rate of homeownership amongst minorities is below
    50 percent. And that’s not right, and this country needs to do something about it.

    We need to — (applause.) We need to close the minority homeownership gap in America so more citizens have the satisfaction and mobility that comes from owning your own
    home, from owning a piece of the future of America.

    Last year I set a goal to add 5.5 million new minority homeowners in America by the end of the decade. That is an attainable goal; that is an essential goal. And we’re
    making progress toward that goal. In the past 18 months, more than 1 million minority families have become homeowners. (Applause.) And there’s more that we can
    do to achieve the goal. The law I sign today will help us build on this progress in a very practical way.

    Many people are able to afford a monthly mortgage payment, but are unable to make the down payment. So this legislation will authorize $200 million per year in down
    payment assistance to at least 40,000 low-income families. These funds will help American families achieve their goals, and at the same time, strengthen our communities.

    End quotes.

    In my view this is all to Bush’s credit. He is not a racist, and he wanted to expand ownership in minority areas, just like Democrats.

    MORE IMPORTANT, though there is a law that requires banks to at least consider making loans in minority areas (the anti-“redlining”, “Community Reinvestment Act”), it does NOT require that banks make loans in any particular case. There is nothing in any law that says to a bank: “You must make a loan to this guy even though he does not have a job and puts nothing down.” If banks made more loans to the poor than might have been prudent, it was not the law that required them to do so.

    Why then did they do so? Not because of a desire to be good to the poor, or to fight racism. IT WAS TO MAKE MONEY.

    In retrospect, it seems absurd that increasing lending in poor areas might be considered a good risk-reward investment. But, you have to remember that the banks involved thought that they could get rid of the risk through the practice of “securitizing” the loans (dividing them up, bundling them with hundreds of other loans, getting them rated by Moody’s or S&P, and selling them off to some other jerks, like maybe the Bank of China, or maybe Washington Mutual and Citibank.)

    Certainly it was this idea that a securitized package of loans was a highly secure investment that lead to the gigantic investments in sub-prime loans, NOT a desire to help the poor or to expand lending in redlined areas.

  2. bingbing Says:

    Gee, and you sound like the average Joe. Don’t s’pose there’s any chance you knew this was coming and had a response prepared in advance…

  3. Angus Dei Says:

    Hi straus. Thanks for dropping by. You obviously didn’t WATCH the video, which explains the housing bubble tie-in, so I need not respond further.

    BTW: How many blogs did you cut-and-paste this comment to today? I only ask because the vid seems to have gone viral, and the DUmmies and KOSsacks are seething.

    Ta-ta! Toodle-oo!

  4. Al MacLeod Says:

    Ok Humor time is back..This world demands it!!

    Ok let’s cut to the chase (I didn’t mean chase manhattan for those of you who are now drinking manhattans 🙂 ).

    I have the solution to this financial crisis! It hit me in a millisecond when I was looking at the ceiling pondering my ride on the Japanese space elevator (and worrying about crashing into Timothy Leary riding like a madman on the back of that comet).

    The solution has always been here and right in front of our noses-It’s Ross Perot and his charts! That’s it..that’ll do it!! Either the captive Democrats and flaky Republicans-and there a few-reach a compromise or All will soon be escorted to the loony bin by the time Ross get’s through talking and showing his dazzling economic charts!!

  5. Al MacLeod Says:

    …well, it was a thought anway 🙂

  6. Ash Says:

    Strauss, perhaps you should look at this.

    I admit, the link has some bias to it, but it’s quite fair in how it’s calling this issue though.

  7. Edwin Says:

    Thank you very much for your post. Absolutely excellent information and very useful for me. Great done and keep posted. Looking forward to reading more from you.

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