Wednesday, December 31, 2008

Ownership Society+Unregulated Markets=Crash+Burn

Guest Post by Ted Leibowitz

As mentioned at State of the Day a couple of times back in September, the conservative "ownership society" slogan and blind push has greatly contributed to the economic meltdown currently sucking poor and middle class Americans out their homes and into homeless shelters or the street.

The New York Times ran an in-depth piece on the subject last week.

From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

For the Bushists, it's another "we couldn't have known" moment like the flying of planes into skyscrapers and the devastation wrought on New Orleans by Hurricane Katrina:

“There is no question we did not recognize the severity of the problems,” said Al Hubbard, Mr. Bush’s former chief economics adviser, who left the White House in December 2007. “Had we, we would have attacked them.”

The fact is they should have seen it coming, there were warnings, but as was typical for the Bush Administration, ideology trumped reality:

Lawrence B. Lindsey, Mr. Bush’s first chief economics adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.

“No one wanted to stop that bubble,” Mr. Lindsey said. “It would have conflicted with the president’s own policies.”

Today, millions of Americans are facing foreclosure, homeownership rates are virtually no higher than when Mr. Bush took office, Fannie and Freddie are in a government conservatorship, and the bailout cost to taxpayers could run in the trillions.

Bushco tried to fire the head of the goverment office that oversees Fannie and Freddie, Armando Falcon, Jr., on the day he was to give a speech outlining how the two companies could default on debt and how that could lead to a financial meltown. The report also called attention to Fanny and Freddie's expanding use of derivatives. Does this remind anyone of the 4-star General Eric Shinseki, who the Bush Administration fired because he said it would take hundreds of thousands of troops to pacify post-war Iraq? Shineski's take on things seems to be far closer to the mark than the "intelligence" the Bushists like to blame for the mess they created, so it is good to see that President-Elect Obama has picked the smart guy to be his Secretary of Veteran's Affairs.

Also of note in the article is how the warnings of an economic advisor, Jason Thomas, were completely ignored:

Typically, as home prices increase, rental costs rise proportionally. But Mr. Thomas sent charts to top White House and Treasury officials showing that the monthly cost of owning far outpaced the cost to rent. To Mr. Thomas, it was a sign that housing prices were wildly inflated and bound to plunge, a condition that could set off a foreclosure crisis as conventional and subprime borrowers with little equity found they owed more than their houses were worth.

Read more here. (Believe it or not, there is more! Tons more! Including other Heckuva Job Brownie-like nepotistic political appointments!)

(Cross-posted at State of the Day.)

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