Blame It All on Reagan and Reaganomics

by jhwygirl

Oh, how I love stuff like this.

Those K-boys are pretty fearless.

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  1. Bob Oaks

    Not at all a conventional thinker, Mr. Krugman strays into a bit of current conventional wisdom when he says: “But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down.”

    A lot of folks these days say there is a need for first time buyers to have a good bit of “skin in the game,” presumably so there is more incentive not to just walk away if the mortgage turns upside down. An alternative perspective, though, would consider the ascendance of the American middle class after WWII that was stimulated by the GI Bill. Not only did millions of returning GI’s get free college educations, but also some 5 million were able to buy homes with low-interest, no-money-down mortgages.

    That homeowner benefit of the GI Bill brought another 1.5 million veterans to the market after the Korean War and, since its initiation, some 16 million homeowners have been created by it. I haven’t read anything, anywhere, about the moral hazards tied to the no down payment mortgages for veterans. The original GI Bill has been faulted by some for creating the pattern of suburban development that became rampant after – although some of those suburbs of the fifties are now annexed parts of cities and thought of as just other parts of town.

    A more insidious side bar to the early veterans’ program was the socially endemic racial discrimination of the time that kept minorities out of the new suburbs (and many of the colleges) at the same time that many banks were redlining minority neighborhoods as not being mortgage worthy. William Proxmire introduced the Community Reinvestment Act (CRA) in 1977 to “encourage financial institutions to help meet the credit needs of their communities, including low- and moderate-income neighborhoods consistent with safe and sound lending practices.” Many on the Right will now tell you that the CRA, along with ACORN’s promotion of it, is the source of all our problems.

    More to Krugman’s point, Reagan’s administration began the disinvestment in federal housing subsidies that carried on through the Bush-Clinton-Bush years. The ongoing ethos of privatization and free market chauvinism attempted replacement of a large component of federal housing aid with deregulated financial and lending practices (the base of Bush’s “ownership society”). Resulting from that a lot of private mortgage companies got rich selling subprime and other exploding mortgages and a lot of investment banks and hedge funds got rich (for a while) bundling the bad paper and selling it on down the line – hardly in keeping with “sound lending practices.” Sadly it’s also true, as Krugman points out, a lot of homeowners experiencing stagnant wages began to see artificially inflated home prices as real wealth, easily traded on.

    I’ve heard it said that the largest down payment assistance program in the nation is “The Parental Down Payment Assistance Program.” That was a service I know I turned to when I bought my first home. The only problem with that particular program is that it is available only to households properly class-connected. Folks with parents not able to chip in can find it pretty hard to save up big down payments with inadequate pay depleted by high rents. Government help with down payment assistance and guaranteed low-interest 30-year mortgages helped create the much touted American middle class. That kind of investment paid off before and it could do so again.

    • Thank for that great comment.

      That is what makes the bailout of these banks and financial institutions all the more offensive. The Right points to these low-to-no money down loans as the problem while ignoring all the other discretions like derivatives and subprime mortgages as a way to put someone into a home they knew damned well they couldn’t afford. Some markets were using two loans to put people into homes, for crying out loud!

      They’re the professionals, after all, no? In the business of assessing risk and acting accordingly? They knew all along that the taxpayers were going to come by and bail them out, and they acted accordingly. And now they get offended that (some) people are calling on (more) regulatory oversight? Give me a break!

      I love the point you make about Veteran loans. No one wants to take back the boom it’s created its inception, that’s for sure.

      As for the “Parental Down Payment Assistance Program”, I can not agree more..and have discussed this point frequently amongst friends and family. I am working towards purchasing my first home. I have had realtors and brokers say so matter-of-factually “Well, just go to your parents? Your grandparents? A relative?” for an amount which is now double-digits down for condos (due to the credit crunch).

      Now – you don’t know how old I am, but I certainly am not about to ask my parents for $10 or $15,000 to help make my downpayment. And even if it were many years ago and I was in my 20’s, I was never a person to “ask my parents” for something like that. I’ve paid for my own education (via student loans – and I’ll actually probably be paying for a long time), and I’ve never taken a dime since I left my parents home. Ain’t about to now, either.

      Not only is the idea that getting money from the parents is a way to function in the real estate market ludicrous, the fact that these people say this stuff with a straight face is downright offensive. For me, at least. (You should see the “huh?” look I give ’em when they’ve said that, along with the long pregnant pause that accompanies it…)

      I’m mad that the market has been artificially inflated (in part) by this kind of mentality/method of operation (I’ll refrain from words like “collusion” and RICO act)….but on that end, the public has fed into it, for decades, running off to the nearest relative for $, so there’s blame to spread on that one.

      At least the government ends up getting something back with tax credits or downpayment assistance – stable markets which have the ability to grow, tax revenue – all of which is painfully clear as the economy continues, now, to stagnate due to the basement dwelling of the housing market for the last year.

    • Lizard

      great comments mr. oaks, j-girl, thank you.

      on a somewhat related note, i ran across an interesting take on the GM bankruptcy by greg palast, called Grand Theft Auto

      if palast’s analysis is accurate, then the predatory nature of our out-of-control financial sector has to be addressed on a system-wide level. there IS a breaking point, and we are getting dangerously close.

      so if EFCA fails, and health care reform fails to provide a viable public option for EVERYONE, and no one is held accountable for torture, and on and on, then what other conclusion can we draw?

      • What the “free-market” criers don’t get is that it isn’t a free market when the government will jump in and bail you out. At that point right there, the free market died. And that didn’t start last November, either.

        So Wall Street can take all the risk, reap the benefits of their greed, lose it all and yet still ask the government for a bailout check? Because no matter how large that check gets, it’s still less costly than worldwide economic collapse?

        From where I’m sitting, socialism is fine for the guys on wall street, but they want it with no strings attached. And they want to whine about it when the backers (the taxpayers) want their cut.

        Greedy, arrogant and amoral, to the end.

  2. Mayhem

    According to a few articles I have read a majority of the banks we bailed out were not U.S. based banks. Mr. Oaks does that sound right to you.

  3. Bob Oaks

    Mr. M.,

    I know the bad paper was peddled world-wide but in terms of bail outs, what you mention would be news to me. One list I’ve seen is at Pro Publica:

    http://bailout.propublica.org/main/list/index#When:17:04:00Z




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