It's Official: United States Is In A Recession

[Unspeaked]

LINK (http://biz.yahoo.com/cnnm/081201/120108_recession.html)

It's official: U.S. in a recession since December 2007

Monday December 1, 12:26 pm ET

The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy.

The NBER is a private group of leading economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures.

"The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment," said the group's statement. "This series reached a peak in December 2007 and has declined every month since then."

Employers have trimmed payrolls by 1.2 million jobs in the first 10 months of this year. On Friday, economists are predicting the government will report a loss of another 325,000 jobs for November.

More from Yahoo:

The National Bureau of Economic Research announced that December 2007 marks the end of a 73 month expansion in the U.S. economy and the beginning of a recession.

Assuming the U.S. is still in a recession, the current decline from peak to trough will surpass the recessions of 2001 (8 months) and 1990/1991 (8 months), marking the longest duration since at least 1981/1982 (16 months).

The U.S. has yet to hit the textbook definition of recession -- two consecutive quarters of negative GDP growth -- although it is widely expected that fourth quarter GDP will be negative, as the third quarter was.

[Drumjim85]

thank you bill clinton!

(I'm not calling you bill clinton fyi)

[nanvinnie]

now's the time to buy

[Desertrat]

nanvinnie, it's way too early. Capital assets are still deflating; houses, e.g., are expected to decline another 20% or more.

A question I've been asking: If the consumer price inflation rate is above the growth rate of GDP, doesn't that mean that we're moving more money around but getting less for it? How is that "growth" in GDP meaningful in any positive sense?

Isn't government spending part of GDP? Given the maniacal way we've been printing paper and doing deficit spending, how has GDP growth been indicative of a healthy economy?

'Rat

[leekohler]

Took them long enough to admit it. It's about time.

[IJ Reilly]

Meaning, it's actually unofficial, since this pronouncement was made by a private organization using their own definitions and data.

[Unspeaked]

And the stock market took the news badly:

Monday Meltdown: Recession Report Rips Stocks as Dow Sinks 680 Points

LINK (http://biz.yahoo.com/ap/081201/wall_street.html)

[Prof.]

thank you bill clinton!

(I'm not calling you bill clinton fyi)
Are you saying President Bill Clinton caused this recession 8 years after he was in office?

[mactastic]

Are you saying President Bill Clinton caused this recession 8 years after he was in office?
I wouldn't be surprised. We actually had one guy in here claiming that Clinton deliberately sabotaged the economy sometime between when Gore officially lost the SCOTUS decision and when Dubya took office; and not only did he sabatoge it, but he did it in such an ingenious way that no one was able to spot his handiwork until just now.

[Prof.]

I wouldn't be surprised. We actually had one guy in here claiming that Clinton deliberately sabotaged the economy sometime between when Gore officially lost the SCOTUS decision and when Dubya took office; and not only did he sabatoge it, but he did it in such an ingenious way that no one was able to spot his handiwork until just now.
WOW! I had no clue Bill was a magician!:eek:

[IJ Reilly]

That's cheerful news. The Dow was already down 300+ within minutes of the opening, when all they were reacting to was the initial holiday retail sales reports for last weekend (which were better than expected). We're forever hearing explanations for what the market does after it's done it. Whatever the news was that day, that's always the reason. In reality, nobody really knows why the market does what it does on any given day, and not especially now.

[mactastic]

WOW! I had no clue Bill was a magician!:eek:
Well, to be fair, his most well-known trick it talking meaty-looking women out of their clothes.

[Drumjim85]

Are you saying President Bill Clinton caused this recession 8 years after he was in office?

yes i am... things he passed eventually led to where we are now. recessions / depressions don't just happen from mistakes in a short period of time.

[leekohler]

yes i am... things he passed eventually led to where we are now. recessions / depressions don't just happen from mistakes in a short period of time.

Oh here we go again...nothing is ever Bush's or any other Republican's fault. :rolleyes:

[IJ Reilly]

I can see we're on the fast train to Baloneyville here, but if banking and financial market deregulation is to be blamed, which it certainly should be, then this process really got started in the Reagan administration. Also, it turns out that the Bush administration was advised that the financial markets were in danger of collapse two years ago, but elected to loosen instead of tighten lending rules.

AP IMPACT: US diluted loan rules before crash

WASHINGTON (AP) — The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

"These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.

The administration's blind eye to the impending crisis is emblematic of its governing philosophy, which trusted market forces and discounted the value of government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s.

...

But there's more... (http://www.google.com/hostednews/ap/article/ALeqM5hTDPY8hFtJLxsv8i1Q7OvoRrlYrQD94PQ0JO0)

[mactastic]

Oh here we go again...nothing is ever Bush's or any other Republican's fault. :rolleyes:
But rest assured that Obama can be blamed for everything starting a few months ago. Hannity and Limbaugh are running around spouting off nonsense that this is the "Obama recession" because the markets tanked once it started to look like Obama *might* become POTUS (who knew the guy was that powerful, eh? ;)); so they'll have no problem saying that the Bush years were Clinton's fault, and anything bad that happens during the Obama years is Obama's fault.

[Prof.]

Oh here we go again...nothing is ever Bush's or any other Republican's fault. :rolleyes:
DUH! Republicans are smart and perfect!:D:rolleyes:

/sarcasm

[mactastic]

I can see we're on the fast train to Baloneyville here, but if banking and financial market deregulation is to be blamed, which it certainly should be, then this process really got started in the Reagan administration. Also, it turns out that the Bush administration was advised that the financial markets were in danger of collapse two years ago, but elected to loosen instead of tighten lending rules.



But there's more... (http://www.google.com/hostednews/ap/article/ALeqM5hTDPY8hFtJLxsv8i1Q7OvoRrlYrQD94PQ0JO0)
And of course, no one could have predicted...
bin Laden determined to strike inside US
Hurricane Katrina
Iraq wouldn't have WMD
deregulation wasn't all it was promised to be
mortgage-backed securities might be worth less than the paper they're printed on

[Drumjim85]

Oh here we go again...nothing is ever Bush's or any other Republican's fault. :rolleyes:

i never said bush wasn't to blame for anything ... but i believe Clinton started this recession.

[Dont Hurt Me]

I wonder why no one is holding this president accountable for any of this?
His economic policy's or lack of has been a bigger disaster then his gungho war on Iraq.

Bush and company have left mess after mess on everything they touched. He needs to be held accountable to his oath of office and to this country which he has left in near economic ruin. Bush and his staff should all be on trial for dereliction of duty and utter incompetence.

[IJ Reilly]

i never said bush wasn't to blame for anything ... but i believe Clinton started this recession.

Okay, I'll bite. How?

[mactastic]

Okay, I'll bite. How?
Bets that any response pulls out the CRA nonsense again? :rolleyes:

[IJ Reilly]

Bets that any response pulls out the CRA nonsense again? :rolleyes:

That would seem to be the current talk radio dogma.

[.Andy]

Okay, I'll bite. How?
Location: Lewisville, TX

[Cleverboy]

I wonder why no one is holding this president accountable for any of this? His economic policy's or lack of has been a bigger disaster then his gungho war on Iraq. The same reason why the mainstream media has been in denial for SO long. Watch this video. I mean, how LAME was this that Peter Schiff was constantly laughed at by others in the press. He called it. Recession in 2007. It was surreal to rewatch this clips and see how out of touch these people truly were.
http://www.youtube.com/watch?v=2I0QN-FYkpw

:eek:

His next prediction? 4 years of "Obama 'big government' hell" followed by kicking the Dems out of power:
http://www.youtube.com/watch?v=sMdF1CiQAkA&feature=related

~ CB

[Dont Hurt Me]

Bush never listened to anyone except his Dick ...draft dodging Cheney and his draft dodging republican yes men.

[KingYaba]

Location: Lewisville, TX

What's that supposed to mean?

[.Andy]

What's that supposed to mean?
Nothing KingYaba :). Just trolling even more poorly than Drumjim85 ;).

[Drumjim85]

Bets that any response pulls out the CRA nonsense again? :rolleyes:

so how is clinton making it easier to get loans, especially for poor inner city people who can't pay them back, not the correct reason?

Location: Lewisville, TX

what does that have to do with anything?

Nothing KingYaba :). Just trolling even more poorly than Drumjim85 ;).

how am i trolling?, simply stating my opinion in a forum ...

-but i guess this is why i've stayed out of the political forums for so long.

[.Andy]

so how is clinton making it easier to get loans, especially for poor inner city people who can't pay them back, not the correct reason?
And there we have it. Well done Mactastic :).

[Blue Velvet]

so how is clinton making it easier to get loans, especially for poor inner city people who can't pay them back, not the correct reason?

Do you honestly think that the entire collapse of the global financial system is due to poor inner city people? I guess you mean black people...

Almost 85% of high cost loans in 2006 across the fifteen largest cities were handled by institutions not covered by the Community Reinvestment Act. (http://www.traigerlaw.com/publications/addendum_to_traiger_hinckley_llp_cra_foreclosure_study_1-14-08.pdf#page=2)

Your argument fails at the first hurdle. In fact, it's not an argument; it's a talking point picked up Republican shills like Fox and Limbaugh to push the disgusting and completely fallacious idea that the people at the bottom are at fault for all of this, while billions are being shovelled in at the top to keep bankers in their bonuses.

This idea is utterly repellent and a clear example of the bogus and cowardly scapegoating of minorities instead of the right accepting responsibility for their complete failure of stewardship of the economy.


In fact, the federal Community Reinvestment Act -- enacted in 1977 -- applies only to depository institutions, such as banks and savings and loan associations. In testimony before the House Financial Services Committee, Michigan law professor Michael Barr stated that while problems in the subprime lending industry were a driving force behind the housing crisis, he estimated that only 20 percent of subprime mortgages were issued by depository institutions under the CRA. In his testimony, Barr stated:

Despite the fact that CRA appears to have increased bank and thrift lending in low- and moderate-income communities, such institutions are not the only ones operating in these areas. In fact, with new and lower-cost sources of funding available from the secondary market through securitization, and with advances in financial technology, subprime lending exploded in the late 1990s, reaching over $600 billion and 20% of all originations by 2005. More than half of subprime loans were made by independent mortgage companies not subject to comprehensive federal supervision; another 30 percent of such originations were made by affiliates of banks or thrifts, which are not subject to routine examination or supervision, and the remaining 20 percent were made by banks and thrifts.

http://mediamatters.org/items/200809300012

[zioxide]

It's official: grass is green.

[Drumjim85]

Your argument fails at the first hurdle.

i wouldn't call my questioning an argument. but just simply questioning.
So thank you BV for educating me.

its hard to know the full story when you're surrounded by republicans like most texans (not me... .andy.) are.

[Blue Velvet]

i wouldn't call my questioning an argument. but just simply questioning.
So thank you BV for educating me.


I'm sorry if I sounded harsh, but this is one running line of pure BS that I find one of the most truly pernicious about the economic situation.

It's nothing more than propaganda and what is so dangerous about it, is that scapegoating minorities — whether implicitly or explicitly — at a national level in the midst of a financial crisis is exactly what happened in Germany in the 1930s. Might not be the same result, but it's the same tactic.

[TSE]

Instead of pointing fingers at people, lets just fix the situation. :o

[synth3tik]

I really wish they would have come out with this after Wed. Wednesday it the last day for me to sell my stock grants from my former employer before I loose the. There were just starting to make money. Now my grant price is twice the selling price and I will have to abandon them.:mad::mad::mad::mad::mad::mad:

Yeah, that's right I am mad times 6.

[apsterling]

It's official: grass is green.

Can you get me a source for that?
:D

[Blue Velvet]

Instead of pointing fingers at people, lets just fix the situation. :o

It's not people, it's political philosophies which then lead to policy. Those who do not learn from history are doomed to repeat it. ;)

[Rodimus Prime]

And of course, no one could have predicted...
bin Laden determined to strike inside US
Hurricane Katrina
Iraq wouldn't have WMD
deregulation wasn't all it was promised to be
mortgage-backed securities might be worth less than the paper they're printed on
it is sad how everyone remembers Katrina but quickly forgets two other hurrica which did a lot of damage

Rita and Ike.
Ike which did more damage than Katrina.

Everyone remembers Katrina because Lousinina is a poor state and New Orlands is a poor city. This compared to Houston which took more damage and still today has Galvaston iland looks like a mess, downtown sky scrapers are still boarded up and so on because Houston and the areas around it have money to rebuild.

The city could afford to rebuild even though it did more damage caused more problems....
Just a rant on crap. Media loves human problems but hates it when a city is just fine after a storm and does not require huge amounts of federal aid to repair. No people blame Bush for Katrina and do not want to blame the state and the city for it failures.

[TSE]

It's not people, it's political philosophies which then lead to policy. Those who do not learn from history are doomed to repeat it. ;)

True, I guess I should clarify it more.

Let's fix the situation first, then point fingers.

Nobody can honestly blame everything on Republicans, nobody can honestly blame everything on Democrats, it was a mixture of the two's choices and chances they took, and some unlucky events that happened that were out of anyone's control.

[Rodimus Prime]

It could be a good thing it they are now officially stating it.

Historicly they hold off a very long time before saying anything because look how the market reacted to old news. Generally when they finally announce it we are either starting to get out of it or near the end of the down turn.
2001 was near the end and I believe the ones before it followed a similar pattern.

[ntrigue]

Are you saying President Bill Clinton caused this recession 8 years after he was in office?

Eight years is pushing the envelope a bit. However, it is understood that economic decisions are felt between 3-5 years after they are signed into law or vetoed for that matter.

[Cleverboy]

True, I guess I should clarify it more.

Let's fix the situation first, then point fingers.

Nobody can honestly blame everything on Republicans, nobody can honestly blame everything on Democrats, it was a mixture of the two's choices and chances they took, and some unlucky events that happened that were out of anyone's control. Here's the rub. Can anyone in this forum point to a reasonable solution? Obama sounds like he's going to attempt to do his tax cut for the middle class, even while he's suspending his immediate hike on those making over $250,000. So, the government ends up deflating like a balloon, waiting precipitously for our loans to be called in. Bush borrowed more money, I'm betting, than any President in American history. Hiking our deficit to over 11 trillion dollars by turning on a series of spigots and leaving the scene. Sure, Obama can try to turn some of the spigots (like Iraq) off, but that doesn't happen overnight, and the lax oversight and planning of our economy has been a profound tragedy that can't be undone with good intentions. Which way is up?

~ CB

[SactoGuy18]

Here's the rub. Can anyone in this forum point to a reasonable solution?

I have one: scrap our completely unwieldy Federal income tax system and start over again with something like a non-deduction low-percentage flat tax or a consumption tax like the FairTax system.

Consider what's totally wrong with our Federal income tax system:

1) We have 35,000 lobbyists in Washington, DC trying to "warp" the Federal tax code to help very narrow constituencies.
2) The result is a Federal tax code around 60,000 pages long :eek: that even the IRS has seriously difficulty understanding.
3) The tax code causes detrimental economic effects, with the sub-prime mortgage fiasco being the latest of them.
4) Americans spend US$265 billion per year to comply with the Federal tax code and make US$300 billion per year in pre-compliance economic decisions, based on the last measurement of tax code compliance costs in 2006. I'm sure it's higher now!
5) Because the Federal tax code taxes saving account interest income, dividend income and capital gains income, Americans have probably the lowest savings rate in the world.
6) Wealthier Americans are legally "offshoring" a huge fraction of their assets in places like the Bahamas, Bermuda, the Cayman Islands, Panama, Singapore, Switzerland, etc. to keep them out of the clutches of the IRS. The amount "offshored": estimates vary, but staggering: US$11 to US$16 TRILLION. :eek:
7) American companies are moving both corporate headquarters and manufacturing operations out of the country just to lower taxes. You know what that means--higher unemployment.

Given all these problems, that's why I'm a big fan of the FairTax system. FairTax works like this in general:

1) All current Federal income taxes are replaced by a single 23 percent national sales tax on new item purchases.
2) To help the poor pay for the tax, each individual in the USA gets a monthly "prebate" payment to cover the cost of the tax up to the Federally-defined poverty level, with the level of payment depending on marriage/registered domestic partner status and number of dependents in family. This will cover the costs of the 23 percent tax on important necessities such as food and clothing.
3) There will be no national sales tax on sale of used items such as used cars and existing family homes.

Because of this very dramatic simplification, FairTax offers these advantages:

1) Americans save themselves at least US$565 billion per year, since there are no more compliance costs and pre-compliance economic decision costs.
2) Income earners get themselves a paycheck that is 21 to 24 percent higher, thanks to no more Federal income tax withholding and FICA withholding.
3) Because of no more taxes on savings accounts and investments, Americans will actually start to save without worries. That could mean a far better chance to save up to buy a big-ticket item like a home or automobile either in a single cash payment or with a much smaller loan (since we can now afford far larger down payments). This right there would tremendously help our housing and automobile industries.
4) By ending income taxes, the financial incentive to "offshore" your assets to reduce taxes disappears. Wealthier Americans can bring back a huge fraction of that US$11 to US$16 trillion "offshored" in confidence, which means a massive injection of liquidity into our financial system. That injection would stop the stock market slide in very short order, to say the least.
5) Because we no longer have taxes on earning money, this will entice foreigners to invest in our financial markets in a BIG way. We could see several TRILLION dollars flow in from foreigners to take advantage of no taxes on investments.
6) American companies will bring back a huge fraction of their operations back to the USA, thanks to no more taxes on earning money. This could single-handedly save cities like Detroit, Cleveland, and other distressed cities in the "Rust Belt" as heavy industry returns to the USA under better tax circumstances. And it also means more employment for Americans, too.
7) Because we generate revenue not just from 158 million income earners but all 300+ million people living in the country and 50 million visitors per year, it also means a more stable base to generate revenue.
8) Because earning money is no longer taxed, that will over time dramatically increase tax revenue to the Federal government from higher economic activity. That means we can finally put Social Security and Medicare on solid financial ground and even seriously consider beginning to pay off that national debt. :)

If you want to read up on how FairTax works, go to www.fairtax.org.

[Unspeaked]

You can say what you want about Clinton, sub prime mortgages, taxes, this and that, but I feel the real root of all this was exactly what Peter Schiff was driving at in the clips references earlier: Americans as a whole stopped saving, thought they were rich because of paper profits and relied heavily on credit.

Easy credit is what's doomed the US more than anything else.

It's unfathomable to me when I read and hear about the amount of credit cards the average American has and the amount of debt they carry across them. How does this happen??

I live in a relatively expensive part of the country and even I can think of a modest lifestyle I could adjust to that would allow me to live within my means if I were forced into a minimum wage job.

I can see some situations where it's understandable that a family has run into trouble - after catastrophic medical bills, for example - but on the whole, I'm amazes that so many Americans have gone so long with putting away so little and spending so much.

[SactoGuy18]

You can say what you want about Clinton, sub prime mortgages, taxes, this and that, but I feel the real root of all this was exactly what Peter Schiff was driving at in the clips references earlier: Americans as a whole stopped saving, thought they were rich because of paper profits and relied heavily on credit.


See what I said about one positive benefit of FairTax:

3) Because of no more taxes on savings accounts and investments, Americans will actually start to save without worries. That could mean a far better chance to save up to buy a big-ticket item like a home or automobile either in a single cash payment or with a much smaller loan (since we can now afford far larger down payments).

Just this change would actually lower the demand for a true credit card because Americans--now with the incentive to actually save and invest the money from income sources--will actually save up enough money to buy a big-ticket item in cash or with a much smaller, more manageable loan because they could put down a much bigger down payment.

[Desertrat]

Blue Velvet, a few posts back you asked, "Do you honestly think that the entire collapse of the global financial system is due to poor inner city people?" and the answer in many ways is "No."

However, the expansion of the CRA during Clinton's tenure, thanks to Barney Frank's efforts, meant that Fannie Mae could buy more of this paper than before. Other bank loans--to which you referred--could also be bought, so more bad loans were made and the junk paper sold.

(I've seen reports that allege that 80% of all US mortgages are now held by Fannie & Freddie. Now that they've been nationalized, lots of folks are living in "government housing". :D)

The next thing to factor in is leverage. 20 and 30 to 1, even 40 to 1 for some of the giant financials. The Derivatives game.

That bad paper in many instances was sold with buy-back guarantees. When loans started going bad and the foreclosures began, many of the firms did not have the cash on hand to cover the obligations.

Ergo, meltdown. Sure, oversimplified, but the bad loans to the poor started the deal, much like tipping over only that first domino.

It's worth looking up "quant", the quantitative analysis computer types who created the software for the financial firms.

Since so much of the money driving our consumer economy came from refis and flips of houses, that meltdown's ripple effect started impacting the economy during mid-2007. And, as Soros predicted in late 2006 or early 2007, we got into a recessionary condition late in 2007.

It's a fair generality that the loose money policy of the 1920s was replicated from the mid-1980s onward. Since the short-but-severe recession of 1981/1982 was so distasteful, Fed policy was to have soft landings instead. That finally quit working, and the bursting of the dot-com and now the housing bubbles has given us this present hard landing.

So far, the Fed/Congress/Administration are repeating the fiscal behavior of Hoover/FDR. It remains to be seen if Obama will indeed continue these policies. If so, we could well be into a repeat of the 1930s.

Note that the credit card companies are in trouble for slow- and non-pay, and the commercial real estate market is in the beginnings of collapse.

Just to add some gloom and doom, we're still nowhere near coping with energy and infrastructure problems...

'Rat

[jplan2008]

Blue Velvet, a few posts back you asked, "Do you honestly think that the entire collapse of the global financial system is due to poor inner city people?" and the answer in many ways is "No."

However, the expansion of the CRA during Clinton's tenure, thanks to Barney Frank's efforts, meant that Fannie Mae could buy more of this paper than before. Other bank loans--to which you referred--could also be bought, so more bad loans were made and the junk paper sold.

(I've seen reports that allege that 80% of all US mortgages are now held by Fannie & Freddie. Now that they've been nationalized, lots of folks are living in "government housing". :D)

The next thing to factor in is leverage. 20 and 30 to 1, even 40 to 1 for some of the giant financials. The Derivatives game.

That bad paper in many instances was sold with buy-back guarantees. When loans started going bad and the foreclosures began, many of the firms did not have the cash on hand to cover the obligations.

Ergo, meltdown. Sure, oversimplified, but the bad loans to the poor started the deal, much like tipping over only that first domino.



The "bad loans to the poor" were mostly not backed by Fannie/Freddie. And they did not cause this crisis. It was bad loans in general, not just to poor people, and as you said, the derivatives. The actual bad loans are a drop in the bucket of the scope of the crisis. And Fannie/Freddie had a very small percentage of the subprime market during the big bubble, and a small percentage of those were bad subprime loans.

http://www.mcclatchydc.com/251/story/53802.html

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.

Federal Reserve Board data show that:

More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday.

Conservative critics claim that the Clinton administration pushed Fannie Mae and Freddie Mac to make home ownership more available to riskier borrowers with little concern for their ability to pay the mortgages.

"I don't remember a clarion call that said Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster," said Neil Cavuto of Fox News.

Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.

It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more.

This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.

To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.

But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.

Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.

In 1999, the year many critics charge that the Clinton administration pressured Fannie and Freddie, the private sector sold into the secondary market just 18 percent of all mortgages.

Fueled by low interest rates and cheap credit, home prices between 2001 and 2007 galloped beyond anything ever seen, and that fueled demand for mortgage-backed securities, the technical term for mortgages that are sold to a company, usually an investment bank, which then pools and sells them into the secondary mortgage market.

About 70 percent of all U.S. mortgages are in this secondary mortgage market, according to the Federal Reserve.

Conservative critics also blame the subprime lending mess on the Community Reinvestment Act, a 31-year-old law aimed at freeing credit for underserved neighborhoods.

Congress created the CRA in 1977 to reverse years of redlining and other restrictive banking practices that locked the poor, and especially minorities, out of homeownership and the tax breaks and wealth creation it affords. The CRA requires federally regulated and insured financial institutions to show that they're lending and investing in their communities.

Conservative columnist Charles Krauthammer wrote recently that while the goal of the CRA was admirable, "it led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity."

Fannie and Freddie, however, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.

What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.

These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.

In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.

"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households."

In a book on the sub-prime lending collapse published in June 2007, the late Federal Reserve Governor Ed Gramlich wrote that only one-third of all CRA loans had interest rates high enough to be considered sub-prime and that to the pleasant surprise of commercial banks there were low default rates. Banks that participated in CRA lending had found, he wrote, "that this new lending is good business."

[IJ Reilly]

You can say what you want about Clinton, sub prime mortgages, taxes, this and that, but I feel the real root of all this was exactly what Peter Schiff was driving at in the clips references earlier: Americans as a whole stopped saving, thought they were rich because of paper profits and relied heavily on credit.

Easy credit is what's doomed the US more than anything else.

It's unfathomable to me when I read and hear about the amount of credit cards the average American has and the amount of debt they carry across them. How does this happen??

I live in a relatively expensive part of the country and even I can think of a modest lifestyle I could adjust to that would allow me to live within my means if I were forced into a minimum wage job.

I can see some situations where it's understandable that a family has run into trouble - after catastrophic medical bills, for example - but on the whole, I'm amazes that so many Americans have gone so long with putting away so little and spending so much.

Can you handle some major irony today?

I'm the atypical American. I have always lived within my means, even when they were very modest. I am 100% debt free. I've never had a car loan. I've been saving between 10-20% of my net income every year for nearly 30 years. So I should be well off now, right? The fact is, I now have less savings than I did ten years ago. Everything I have dutifully set aside for the last decade is gone, and then some.

So who's better off now, the responsible debt-free saver, or the profligate debt-ridden spender? I used to know the answer, but now I'm not so sure. The spender got the toys they wanted, when they wanted them. For my troubles, I have had my retirement date adjusted to infinity.

What are the lessons to be learned here?

[mactastic]

so how is clinton making it easier to get loans, especially for poor inner city people who can't pay them back, not the correct reason?
I tried to warn you...

And there we have it. Well done Mactastic :).
Pshaw... it's like shooting fish in a barrel.

it is sad how everyone remembers Katrina but quickly forgets two other hurrica which did a lot of damage

Rita and Ike.
Ike which did more damage than Katrina.

Everyone remembers Katrina because Lousinina is a poor state and New Orlands is a poor city. This compared to Houston which took more damage and still today has Galvaston iland looks like a mess, downtown sky scrapers are still boarded up and so on because Houston and the areas around it have money to rebuild.

The city could afford to rebuild even though it did more damage caused more problems....
Just a rant on crap. Media loves human problems but hates it when a city is just fine after a storm and does not require huge amounts of federal aid to repair. No people blame Bush for Katrina and do not want to blame the state and the city for it failures.
Not to get too far sidetracked, but what happened in NoLa was orders of magnitude beyond Ike or Rita. It's a lot easier to rebuild when not as much stuff is knocked down.

And I'm also not saying that there is no blame to be shared by the state or local governments. All I'm saying is that in any list of Bush's "nobody could have anticipated it" moments, Katrina has it's place on that list.

That bad paper in many instances was sold with buy-back guarantees. When loans started going bad and the foreclosures began, many of the firms did not have the cash on hand to cover the obligations.
Thanks to the efforts of Phil Graham.

[skunk]

Meaning, it's actually unofficial, since this pronouncement was made by a private organization using their own definitions and data.Not really:The nonpartisan National Bureau of Economic Research, charged with officially dating recessions, has declared that the economy had been languishing in one since December 2007.http://www.nytimes.com/2008/12/02/business/02markets.html?em

I have to admit that I'm only a furriner, and not entirely au fait with US newspeak, but I'd call that fairly official, wouldn't you?

[Rodimus Prime]

Not to get too far sidetracked, but what happened in NoLa was orders of magnitude beyond Ike or Rita. It's a lot easier to rebuild when not as much stuff is knocked down.

And I'm also not saying that there is no blame to be shared by the state or local governments. All I'm saying is that in any list of Bush's "nobody could have anticipated it" moments, Katrina has it's place on that list.



Ika caused more damage money wise then Katrina did a lot more damage money wise.

Katrina had a long list of problems like the City and the state failed to maintain the system that was in place to protect the city from the storms.

And like I said the state and city there were and still are broke. The people living there for the most part are very very poor and did not have the money nor the education to be able to rebuild and get back up easily. Compare that to Houston which is a much wealther city, the people there are much more educated and make a lot more money. So not as many were left with nothing and did not have the tools to rebuild. It the fact that the human story was lacking.

[IJ Reilly]

Not really:http://www.nytimes.com/2008/12/02/business/02markets.html?em

I have to admit that I'm only a furriner, and not entirely au fait with US newspeak, but I'd call that fairly official, wouldn't you?

I keep hearing this word "official" used in connection with this report, but in the footnotes is often the caveat that recession is a word with multiple definitions, none of them "official" in the normal sense of the word.

[CalBoy]

but I'd call that fairly official, wouldn't you?

The "official" definition of a recession is two consecutive quarters of negative growth.

Technically we've only had one quarter so far (although the quarter preceding it came very close, and it's more than likely that some inflation was at work to keep the numbers up), so we still have to hold our tongues for at least another few weeks.

However, I think it's fairly safe to say that we are in a recession (whether official or not) given that we have increasing unemployment, reduced retail sales, and drastically reduced sales of non-retail durable goods.

[Desertrat]

Yeah, two consecutive quarters of decline.

My problem is the inclusion of government spending. Deficits, IMO, don't contribute to a positive gain, given that they are additions to the debt load.

If you adjust for inflation, the GDP has been in decline for a helluva lot more than any two quarters. That's even more the case if you use the CPI methodology from before it was changed in the 1990s to halve the number.

"It doesn't matter who votes; what matters is who counts the votes."

'Rat

[IJ Reilly]

The "official" definition of a recession is two consecutive quarters of negative growth.

This is really only the most commonly cited definition. As nearly as I can tell, none of them are "official" in the sense that they take precedence over the others. As George Bernard Shaw said, "If all the economists in the world were laid end to end, they would still not reach a conclusion."

[mactastic]

Ika caused more damage money wise then Katrina did a lot more damage money wise.
Link please. Also, perhaps you could write this sentence so that it makes sense?

[CalBoy]

This is really only the most commonly cited definition. As nearly as I can tell, none of them are "official" in the sense that they take precedence over the others. As George Bernard Shaw said, "If all the economists in the world were laid end to end, they would still not reach a conclusion."

I just remember learning that 2 quarters of negative growth defined a recession in the classic sense from Econ 1.

Mind you I'm not economist though. :p

Nonetheless, given that we have plenty of other data, I think it's been clear for at least a few months that we are in a phase of contraction.

[IJ Reilly]

I just remember learning that 2 quarters of negative growth defined a recession in the classic sense from Econ 1.

Mind you I'm not economist though. :p

Me either. The only thing I'm trying to say here is that there's really no "official" definition, this is just the most commonly-used definition. By that definition, we won't have the data to say yes or no until early next year -- not that anyone seriously expects GDP growth in this quarter.

[CalBoy]

Me either. The only thing I'm trying to say here is that there's really no "official" definition, this is just the most commonly-used definition. By that definition, we won't have the data to say yes or no until early next year -- not that anyone seriously expects GDP growth in this quarter.

Although I'm still a bit hesitant to accept the 2nd Quarter results as they were reported (since they were reported in nominal terms, not PPP or real). Growth was very minimal, and at that time gas and food prices were on the rise. Did that quarter have real growth, or was it growth due to inflation? If it was only inflationary, we might have declared this to be a recession several weeks ago.

[Desertrat]

Does it really matter about "official"? We know that some 1.2 million jobs went away this year. Asset prices are deflating like crazy while consumer prices are rising. 2.7 million homes are reported to be in foreclosure. The present price of oil means cessation or reduction of exploratory efforts and of production from oil shale and tar sands--which means an increase in crude prices within a year or less as oil field continue their decline in output.

And while the amount of negative impact varies, it's a worldwide problem and so far it looks like it's gonna be "worster and longer" than at the end of Carter/beginning of Reagan...

'Rat

[IJ Reilly]

Does it really matter about "official"?

Not really, no. We're in a recession, and it's going to be a stinker. That's most of what we really need to know. What's a bit annoying is the number of media outlets that touted these findings as "official," as if the USDA had stamped Grade A Recession on the economy. Before that it wasn't, but now it is.