Lois & Clark Forums Forums General Discussion Off Topic Possible reason for Wall Street crisis

I can sum it up in another word: power. Democrats have realized for years that buying votes is the only way they have of obtaining power since their economic theories are so toxic to the economy. The attempts to eliminate redlining was solely intended to buy votes, to get as many people as possible to buy homes they couldn't afford and to use the force of government to force institutions to loan money to people who couldn't pay it back. Organizations like ACORN, the organization that employed Barack Obama, was famous for putting pressure on banks to loan to minorities. To avoid the power of government or to avoid the negative publicity that organizations like ACORN could generate, banks rolled over and gave out these bad loans, with a guarantee that Fannie Mae would buy them. Fannie Mae, in turn, would buy these mortgages, create mortgage-backed securities and label them as AAA grade, and then would sell them to unsuspecting investment banks, who didn't do enough to verify the risks on the loans.

Even you've admitted this isn't true in the past. You recognized that the dot com bubble burst under Clinton's watch in early 2000 which was promptly sending the economy into the tank. Yet you try to claim Bush was handed an extremely strong economy. The economy had begun to slide long before Bush won the 2000 elections, tax revenues had already begun to decline, and growth had already disappeared. Bush economic policies had not even taken effect yet as of October 1, 2001 (beginning of the fiscal year) and the economy was already in recession. Many were talking recession long before January 20, 2001 when Bush took the oath of office. Yet you're trying to paint a completely different picture where Bush screwed things up with a marvelous economy, one that you've admitted yourself was on the decline after the dot com bubble burst. So which is it? Was Bush handed a growing, strong economy on the rise, or a declining economy on the brink of recession? Did 9/11 have any impact on the economy as well after the transportation industry went into decline?

You're also blaming Ronald Reagan, whose presidency ended in January of 1989, yet absolving Bill Clinton, who btw lowered capital gains taxes in 1997 from 28% to 20%, which resulted in huge new flows of revenue to the Treasury? You seem to forget entirely that Reagan really WAS handed the worst economy in 50 years from the inept Jimmy Carter, who gave him 21% inflation, over 10% unemployment, turtleneck sweaters that we had to wear because we couldn't turn our thermostats above 68F, malaise, and the misery index. It was Bill Clinton who was handed a growing 4.7% economy on a silver platter despite his demagoguery about the "worst economy of the last 50 years." Nothing of any significance happened on his watch, so he was able to coast for eight years as he didn't have a 9/11 or a bubble burst on him, let alone two that hit President Bush, both of which formed during the Clinton years. Clinton even had the benefit of the "peace dividend" where he sliced a hundred billion from the defense budget, something which we didn't have the luxury of doing after 9/11. It was supply-side economics that had to save the economy from the disasters of Carterism and the dot com bubble, which I'll repeat again I do not blame Bill Clinton for. I don't see you knocking Bill Clinton for either bubble forming on his watch, though, yet you hit Bush for a bubble that began to form before he entered office.

I remember back in 1998, right after I left San Diego, I had just sold my house there to move to the northwest. I had sold my house for about $210,000 for a 1600 sq. ft. attached home. Two years later, my friend who had bought the house, had resold it for about double the price he had paid for it. The bubble was real and it had already begun to form during the Clinton Administration. I know that because I was kicking myself for not being able to hold onto the house for even one more year to reap the gains I would have gotten. Unfortunately I didn't have the money to keep it while getting a home in Oregon at the same time. While I don't blame Clinton for the dot com bubble, I do blame him strongly for the real estate bubble as his Justice Department threatened companies who didn't give out bad loans. So again, how is Bush to blame?

I still haven't seen a shred of evidence from the other side how President Bush could be in the least responsible for the real estate bubble and the current financial disaster while I've provided ample links and evidence showing how the president had recognized a problem and was stymied every way possible by people like Barney Frank, Christopher Dodd, and other Democrats. We even have an article from the New York Times from September 11, 2003 that showed when Treasury Secretary John Snow and President Bush pushed for a radical overhaul of the oversight over Fannie Mae and Freddie Mac. We also have John McCain's floor speech from 2005 warning about the danger Fannie Mae and Freddie Mac presented to the economy if something isn't done to reform them. The same cast of characters, at the threat of a filibuster, stopped all action in the Senate where it had passed out of committee on a party-line vote. The bill had already passed the House.

The same bill was presented in 2006 after Democrats took control of both houses. It never even got a committee vote. Where's your outrage at Democrats, first for lining their own pockets at the expense of taxpayers while committing fraud at Fannie Mae, then for stopping any and all attempts to rein in these out-of-control GSE's? instead we get another broadside at supply-side economics, which has only succeeded in saving the economy twice, first in 1982, then again in 2002.

We know FHMA/FHMC (Fannie Mae/Freddie Mac) were the root cause behind the economic disaster. Those were run by Democrats where Democrats raked in millions through fraud and deceit. Did you know Barney Frank's significant other, Herb Moses, was a top executive of Fannie Mae at the same time he was chairman of the Banking Committee overseeing them? Can we say conflict of interest?

So we have lots of evidence that Democrats are solely responsible for the financial disaster, so I don't buy it when you're trying to blame President Bush and his policies, which tried to stop it. Nobody here or in the mainstream press has been able to point the blame at President Bush or any of his policies outside of a generic wave at the term, "deregulation," without ever saying how deregulation could have caused this problem. I can name names and say what they did. Can you do the same?

Even in tonight's debate, Obama, who fiddled while Fannie Mae burned while pocketing more money from Fannie Mae than anyone except Chris Dodd despite his short tenure in the Senate, tried to again blame Republican deregulation without any support whatsoever. Finally McCain started to name names, though it was so early in the debate that I doubt anyone would remember it. What needs to happen now is to tell the truth over and over until the press is forced to face it and forced to report on it. Time will tell if there's enough time to save us from the disaster Obama will be if he wins. Like the Smoot-Hawley Act, an act of protectionism that turned a recession into the Great Depression, Obama will try to raise taxes, which could plunge the globe into another depression.

My jaw dropped at this one. I think you'll find hatred of Reaganomics, not an embrace, if you talk to any Democrat. I think you'll find that most Democrats will experience the same jaw drop at this statement.

As for Fukuyama, he has some interesting things to say. But he is wrong in two parts. No where in supply-side economics does it say you spend until the cows come home. Conservative economics, not supply-side (which does not address government spending at all) requires spending to be cut and not the phony cuts Washington uses with its current services baseline budgeting which takes 8% increases and somehow defines it as a cut. The Republicans in control of Congress from 2003-2007 (they only controlled the whole thing for four years as the Dems held the Senate in 2001-2003) angered their own constituents by acting like Democrats in spending. That's why so many conservatives were so angry in 2006. Turnout was heavy even among Republicans, who came out in 2006 to fire the GOP for breaking their word.

Fukuyama was also wrong that Clinton's tax increases balanced the budget. He was handed a growing 4.7% economy. Right after his retroactive tax increase, growth basically stopped. In the quarter afterwards, growth was registered at 0.7%. The economy stagnated until roughly late 2004, early 2005 when the dot com bubble began to form in earnest, and also coinciding with the rise of the GOP Congress, which held down spending. They were actually conservative back then. The budget did not balance until 1999, several years down the road after the economy had fought off the negative effects of his tax increases and not until after Clinton signed a very large capital gains tax cut passed by the GOP Congress in 1997 at the urging of Robert Rubin. The tax cut produced enormous revenues, helping to balance the budget. Since you are someone who doesn't believe in supply-side tax cuts, how can a huge capital gains tax cut result in a balancing of the budget? If you were correct, that tax cut would have blown a hole in the budget.

I give Bill Clinton a lot of credit for being pragmatic. He has never been dogmatically liberal, so he was able to be convinced to sign that tax cut. Where's Fukuyama's analysis of that tax cut?

As for tax cuts being self-financing, they have shown that to be the case. Revenues poured into the Treasury between 1982 and 1989, doubling from $500 billion to over $1 trillion. In 2004, the economy grew an astounding 6.4%, due to Reagan's economic policies, helping Reagan win 49 states in his re-election bid (He only lost Minnesota and I guess the other seven states that Obama says we have but hasn't visited yet). I've already shown that a large capital gains tax cut in 1997 preceded the balancing of the budget in 1999. Revenues also increased between 2002-2006 as the deficit that resulted from the dot com bubble and 9/11 was cut in half, yet no taxes were raised. The capital gains tax rate was cut even further from 20% to 10% or 15%. So how did Bush cut the budget deficit in half without raising taxes and without cutting spending and by cutting capital gains taxes, I ask? In fact, that was the height of spending on Iraq. By your criticisms of supply-side, that should not be possible. You can say that the economy was doing well and you would be correct and would therefore be validating supply-side economics, which grows the economy. Supply-side tax cuts do not create more tax revenue in a vaccuum. They expand the economy so that additional tax revenues are generated because of it. You have the cause right, but the effect wrong. The direct effect of tax cuts is not more revenue. That is a side-effect of the growing economy.

Don't believe me on the effect of capital gains tax cuts? See here . Reducing the capital gains rate from 20% to 15% somehow resulted in a doubling of revenue to $110 billion. Note the part about the rich paying a higher share than ever. Every time we have a supply-side tax cut, the share of taxes paid by the rich goes up, which I'd think liberals would support.

In 2006, things began to go south as Clinton's real estate bubble began to burst. With Democrats in control of Congress, though, the only thing that got passed was a demand-side tax cut that I predicted would do nothing for the economy. And I was absolutely right. I'm sure you remember I predicted that. With Democrats continuing to hold Congress into 2009, the odds of a supply-side tax cut are near zero. If Obama gets in office, we'll see how his tax increases strangle the economy.

So, history does match theory. When taxes are cut, revenues rise because of a growing economy. The budget doesn't always balance, but much of that has to do with spending.