20 septembre 2008

L’héritage de Bill Clinton Économie Élection 2008 États-Unis Hétu Watch Récession

Obama Clinton Subprime

"Big Government: Barack Obama and Democrats blame the historic financial turmoil on the market. But if it's dysfunctional, Democrats during the Clinton years are a prime reason for it."

Investor's Business Daily
The Real Culprits In This Meltdown

Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the "trickle-down" economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend.

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but "predatory."

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the '90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.

Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.

Raines was accused of overstating earnings and shifting losses so he and other senior executives could earn big bonuses.

In the end, Fannie had to pay a record $400 million civil fine for SEC and other violations, while also agreeing as part of a settlement to make changes in its accounting procedures and ways of managing risk.

But it was too little, too late. Raines had reportedly steered Fannie Mae business to subprime giant Countrywide Financial, which was saved from bankruptcy by Bank of America.

At the same time, the Clinton administration was pushing Fannie and her brother Freddie Mac to buy more mortgages from low-income households.

The Clinton-era corruption, combined with unprecedented catering to affordable-housing lobbyists, resulted in today's nationalization of both Fannie and Freddie, a move that is expected to cost taxpayers tens of billions of dollars.

And the worst is far from over. By the time it is, we'll all be paying for Clinton's social experiment, one that Obama hopes to trump with a whole new round of meddling in the housing and jobs markets. In fact, the social experiment Obama has planned could dwarf both the Great Society and New Deal in size and scope.

There's a political root cause to this mess that we ignore at our peril. If we blame the wrong culprits, we'll learn the wrong lessons. And taxpayers will be on the hook for even larger bailouts down the road.

But the government-can-do-no-wrong crowd just doesn't get it. They won't acknowledge the law of unintended consequences from well-meaning, if misguided, acts.

Obama and Democrats on the Hill think even more regulation and more interference in the market will solve the problem their policies helped cause. For now, unarmed by the historic record, conventional wisdom is buying into their blame-business-first rhetoric and bigger-government solutions.

While government arguably has a role in helping low-income folks buy a home, Clinton went overboard by strong-arming lenders with tougher and tougher regulations, which only led to lenders taking on hundreds of billions in subprime bilge.

Market failure? Hardly. Once again, this crisis has government's fingerprints all over it.

20 septembre 2008

L’État en action Économie États-Unis Récession

"By failing to highlight the role of government in creating the current crisis, they have encouraged citizens to believe that markets have failed."

Organic Market
By Russell Roberts

SubprimeThe collapse of Bear Stearns and Lehman Brothers, and the bailouts of Fannie Mae, Freddie Mac and AIG, have led to an inevitable call for more regulation. Obama promises "real" regulation. McCain will "reform Wall Street."

The consensus is that Something Must Be Done to rein in financial markets. This consensus is part of a general theme among some pundits and economists that it's time to give up the naïve faith that markets can solve every problem. We are told that markets have failed.

Yet much of the current chaos is the result of attempts to steer or control markets rather than let them be. Much of the chaos is the result of political failure.

In the wake of Hurricane Ike, customers wait in line for hours to buy gasoline, the inevitable result of anti-gouging ordinances that discourage retailers from raising prices and letting markets clear.

Ethanol mandates and subsidies try to create less carbon in the atmosphere than the market would create on its own. The result has been a worldwide increase in the price of corn that has hurt poor people around the world. The environmental benefits are negligible.

The turmoil in the housing market and the resulting financial crisis is just the latest example of political failure. Politicians wanted more home ownership than the market produces on its own, especially among low-income families. To encourage this politically popular goal, Fannie Mae and Freddie Mac were allowed to privatize their profits and socialize their losses. At the same time, Housing and Urban Development (HUD) required them to expand their commitment to affordable housing. Freddie and Fannie achieved this goal by buying bundles of subprime mortgages.

Now taxpayers are on the hook for at least $200 billion, and the dominoes are still falling. The real cost of this failure is that the return to housing was artificially inflated, funneling billions of dollars of capital into housing instead of more productive assets.

Politicians and policy makers ignored the essentially organic nature of market forces and assumed that one piece of the market could be altered while everything else remained unchanged. But politicians always think they can design a market from the top down as long as just the right regulations are put in place.

And they will tell us that the right regulations can be put into place to patch things up. Color me skeptical.

Going forward, the first order of business is the same as a doctor's obligation when dealing with the complexity of the human body–to do no harm.

Unfortunately, the most recent actions of policy makers have already done immense harm. By not providing the data or information or decision rules that cause one company to be bailed out and another to go bankrupt, they have weakened the faith of the American people in the fairness of the financial system.

By sparing some reckless investors but not others, they have signaled that risk-taking results in arbitrary rewards and prudence will be punished.

By failing to highlight the role of government in creating the current crisis, they have encouraged citizens to believe that markets have failed.

Both presidential candidates will promise a risk-free world with high returns. But peddling that fantasy is the cause of the current crisis. We treat our children this way–we do our best to insulate them from harm and still allow them to grow. I'd like politicians to treat me as an adult, paying the price for my recklessness and reaping a reward when I am prudent. Returning to that world, the world of markets, is the beginning of a return to stability.

Russ Roberts is a research fellow at the Hoover Institution and a professor of economics at George Mason University. His latest book, a novel on the organic nature of markets, is The Price of Everything: A Parable of Possibility and Prosperity.