The case for repealing dodd-frank

[GURPS]

THE CASE FOR REPEALING DODD-FRANK

It is not at all clear that what happened in 2008 was the result of insufficient regulation or an economic system that is inherently unstable. On the contrary, there is compelling evidence that the financial crisis was the result of the government’s own housing policies. These in turn, as we will see, were based on an idea—still popular on the political left—that underwriting standards in housing finance are discriminatory and unnecessary. In today’s vernacular, it’s called “opening the credit box.” These policies, as I will describe them, were what caused the insolvency of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, and ultimately the financial crisis. They are driven ideologically by the left, but the political muscle in Washington is supplied by what we should call the Government Mortgage Complex—the realtors, the homebuilders, and the banks—for whom freely available government-backed mortgage money is a source of great profit.

The Federal Housing Administration, or FHA, established in 1934, was authorized to insure mortgages up to 100 percent, but it required a 20 percent down payment and operated with very few delinquencies for 25 years. However, in the serious recession of 1957, Congress loosened these standards to stimulate the growth of housing, moving down payments to three percent between 1957 and 1961. Predictably, this resulted in a boom in FHA insured mortgages and a bust in the late ’60s. The pattern keeps recurring, and no one seems to remember the earlier mistakes. We loosen mortgage standards, there’s a bubble, and then there’s a crash. Other than the taxpayers, who have to cover the government’s losses, most of the people who are hurt are those who bought in the bubble years, and found—when the bubble deflated—that they couldn’t afford their homes.

Exactly this happened in the period leading up to the 2008 financial crisis, again as a result of the government’s housing policies. Only this time, as I’ll describe, the government’s policies were so pervasive and were pursued with such vigor by two administrations that they caused a financial crisis as well as the usual cyclical housing market collapse.

 

[tommyjo]

THE CASE FOR REPEALING DODD-FRANK

It is not at all clear that what happened in 2008 was the result of insufficient regulation or an economic system that is inherently unstable. On the contrary, there is compelling evidence that the financial crisis was the result of the government’s own housing policies. These in turn, as we will see, were based on an idea—still popular on the political left—that underwriting standards in housing finance are discriminatory and unnecessary. In today’s vernacular, it’s called “opening the credit box.” These policies, as I will describe them, were what caused the insolvency of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, and ultimately the financial crisis. They are driven ideologically by the left, but the political muscle in Washington is supplied by what we should call the Government Mortgage Complex—the realtors, the homebuilders, and the banks—for whom freely available government-backed mortgage money is a source of great profit.

The Federal Housing Administration, or FHA, established in 1934, was authorized to insure mortgages up to 100 percent, but it required a 20 percent down payment and operated with very few delinquencies for 25 years. However, in the serious recession of 1957, Congress loosened these standards to stimulate the growth of housing, moving down payments to three percent between 1957 and 1961. Predictably, this resulted in a boom in FHA insured mortgages and a bust in the late ’60s. The pattern keeps recurring, and no one seems to remember the earlier mistakes. We loosen mortgage standards, there’s a bubble, and then there’s a crash. Other than the taxpayers, who have to cover the government’s losses, most of the people who are hurt are those who bought in the bubble years, and found—when the bubble deflated—that they couldn’t afford their homes.

Exactly this happened in the period leading up to the 2008 financial crisis, again as a result of the government’s housing policies. Only this time, as I’ll describe, the government’s policies were so pervasive and were pursued with such vigor by two administrations that they caused a financial crisis as well as the usual cyclical housing market collapse.

Absolutely false or absolutely true...give that your article takes stands on both sides of the argument the author tries and fails to make.

Your author at first says lack of regulation had nothing to do with the crisis, then says the lack of regulation regarding down payments caused the crisis. So which is it? Did lack of regulation cause or not cause the crisis?

It is also interesting to note (and here is another condemnation of your sources GRUPS) that the author is a lawyer, not an economist; and that he worked under Reagan to develop polices that led to increased financial deregulation. So his article isn't about diagnosing the cause of the crisis as it is an attempt to shift blame away from policies he helped craft.

As for the claim in the first sentence, that lack of regulation was not a determining factor in the credit crisis, that is absolutely false; patently false; proven beyond reasonable doubt to be false.

There was an entire sector of the banking industry that was unregulated, the so-called shadow banking industry, making bad mortgages. The derivatives market was poorly regulated (MBS, CDO, CDS). Banks, both commercial and investment, could "shop regulators" to find the most lenient or lax oversight.

 

[Larry Gude]

Fact; the housing crisis was the result of poor regulation from DC. We can argue all day long over who is the dog and who is the tail, Wall Street and DC but, that becomes a question of political will, not process. One can choose to be bought off or not.

In any event, all of this goes back to repeal of Glass/Steagal in 2000. Clinton's parting gift. That's when the stops came off. Bush 43 even warned of the coming disaster in April of '01. And threw gas on the fire.

Further back was the '93 tax changes that made every executive in America throw out the profit and loss mindset and focus solely on balance sheet to serve stock price, to serve their personal interests.

Twin storms.

So, like all these issues, there is the seed but, then there is very much the allowing it to grow that follows.

Dodd/Frank was bad law and is bad law. Unless you are a fan of Too Big To Fail.

In which case you are a commie pinko.