Why Republicans Should Reject Jack Lew’s Nomination (and Why We Won’t)
Attorney General Eric Holder, some observers suggest, qualified himself for the nation’s top law enforcement position by ramming through a presidential pardon for fugitive tax cheat Marc Rich in the final hours of the Clinton administration. A lawyer who will take the blame for one of the ugliest acts of political patronage in memory (Rich’s ex-wife spread around a lot of political donations to Democrats) will do just about anything for his client, in this case President Obama. Those kind of principles (“If you don’t like them, I’ve got others,” as Groucho said) have their uses for a certain kind of client.
By the same token, Jack Lew’s senior position at the epicenter of financial meltdown in 2008 — he was chief operating officer of Citigroup Alternative Investments, the bank’s hedge fund vehicle — qualifies him to be Treasury secretary in an administration that uses the federal budget as a political piggy bank. A number of press commentaries have questioned the wisdom of giving the nation’s top financial job to an official associated with the worst acts of incompetence of the financial bubble. The Washington Post reported Jan. 10:
The beginning of 2008 was a brutal time to be working at the bank and certainly at Citigroup’s alternative investments unit, which managed more than $54 billion.
The group was hemorrhaging money just as Lew joined. In the first three months alone, it lost $509 million, according to SEC filings. By contrast, just a year earlier during that quarter, the unit made $222 million.
“He stepped into the hedge-fund buzz saw,” said Mark Williams, a lecturer in finance at Boston University and a former bank examiner for the Federal Reserve. “His timing wasn’t the best.”
Things continued to deteriorate the rest of the year. More than 50,000 employees, or one-seventh of Citigroup’s global workforce, were laid off in November. That year, the stock price dropped about 75 percent. Lew, meanwhile, was paid at least $1.1 million in 2008, according to financial disclosure statements.
By the end of December 2008, Lew had lined up a new job: away from Wall Street and back in Washington as a deputy secretary of state under Secretary Hillary Rodham Clinton.
Meanwhile, Citigroup’s alternative investments unit had become such a stain on the bank’s record that it was relaunched three years ago with a new name. It’s now known as Citi Capital Advisors.
The newspapers don’t know the half of it. I was there, and I know what Jack Lew was up to.
By rights, Jack Lew should be unemployable on the strength of his resume, except for one thing: As J.M. Keynes said, “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him.” If we start assigning blame for the 2008 financial crisis, who knows where it will end? At a post-election soiree sponsored by The New Criterion magazine, Weekly Standard editor Bill Kristol observed that voters were more likely to blame George W. Bush than Barack Obama for the crisis. Given that no “mainstream Republican” institution anticipated the crisis, Kristol added, the voters hardly can be blamed.
A few Republicans, to be sure, were screaming about the impending crisis: I warned about a trillion-dollar asset bubble on the books of the banks on Larry Kudlow’s TV show in July 2007, and repeated that warning in numerous venues, including an appearance just before the Lehman Brothers’ failure on Bloomberg radio in July 2008. The mainstream Republicans didn’t want to hear about it, for three reasons. The first is that the Bush administration had checked all the right boxes on their ideological list (and the Bush tax cuts were good as far as they went), and few Republicans understood anything about finance. The second is that too many Republicans were making too much money from the bubble, notably Newt Gingrich, who earned about $1.6 million from the federal mortgage lender Freddie Mac for deflecting conservative criticism. And the third is that to understand why the bubble emerged, one would have to understand deep structural weaknesses in the world economy that we Republicans, with our booster mentality, don’t like to think about.
I tried to explain the crisis in May 2007, while it was unfolding, in an essay for Asia Times Online:
It is fashionable these days to blame the Americans for borrowing instead of saving. In effect, Americans borrowed a trillion dollars a year against the expectation that the 10% annual rate of increase in home prices would continue, producing a bubble that now has collapsed. It is no different from the real estate bubble that contributed to the Thai baht’s devaluation in 1997, except in size and global impact.
The monster is not the financial system, crooked and stupid as it may have been. The monster is the burgeoning horde of pensioners in Germany and other industrial countries. It is easy to change the financial system. The central banks can assemble on any Tuesday morning and announce tougher lending standards. But it is impossible to fix the financial problems that arise from Europe’s senescence. Thanks to the one-child policy, moreover, China has a relatively young population that is aging faster than any other, and China’s appetite for savings vastly exceeds what its own financial market can offer.
There is nothing complicated about finance. It is based on old people lending to young people. Young people invest in homes and businesses; aging people save to acquire assets on which to retire. The new generation supports the old one, and retirement systems simply apportion rights to income between the generations. Never before in human history, though, has a new generation simply failed to appear.
The world kept shipping capital to the United States over the past 10 years, however, because it had nowhere else to go. The financial markets, in turn, found ways to persuade Americans to borrow more and more money. If there weren’t enough young Americans to borrow money on a sound basis, the banks arranged for a smaller number of Americans to borrow more money on an unsound basis. That is why subprime, interest-only, no-money-down and other mortgages waxed great in bank portfolios.
America’s financial market could not produce enough pork chops, so the Europeans bought Spam and scrapple. America’s rating agencies assured them that derivatives created from subprime mortgages, second-lien mortgages and other dubious parts of the pig were the equivalent of pork chops, and foreign investors wolfed them down. Humbug and duplicity as I argued in The devil and Alan Greenspan (Asia Times Online, October 2, 2007), regulators, bankers and investors all looked the other way, and now all point the finger at each other.
The grandfather of supply-side economics, Nobel laureate Robert Mundell, first explained that demographics caused all the great current account imbalances in history, in an 1989 journal article. No-one else seems to have read Mundell’s work, let alone absorbed its implications — surely not the Weekly Standard. We Republicans don’t like to think that a great deal of what we mistook for American economic dynamism since the mid-1990s was in fact a bubble fueled by $6 trillion in foreign capital inflows between 1998 and 2007.
Come on, David. Warning anytime in 2007 was too late. The crisis had already begun and little could be done to stop it. Bear Stearns closed down two subprime hedge funds in July 2007, at which time markets began to freeze. That was the beginning of the crisis, not in retrospect but at the time as industry players were watching it unfold with disbelief. The banks were already loaded with junk by that time and little could be down anymore. The time for warning was 2005.
Turn the question around: If it was indeed obvious in July 2007, why didn’t a single mainstream Republican get in front of the crisis? The issue I am raising here is not whether the crisis might have been avoided (I think it could have been handled much better and mitigated), but how the Republican political class responded to it.
2007 already was late, to be sure, but the response of the Federal Reserve was to open the floodgates and deny that anything was wrong. Stocks actually peaked in October 2007, three months after the handwriting was on the wall. In October 2007 every central bank insisted that the “crisis” was over, and most hedge funds were bargain-hunting on the slopes of the volcano. The FDIC should have put the bigger banks under federal supervision and wound down their derivatives business starting in late 2007, in which case the worst of the panic could have been avoided. And if the Republicans had gone into the 2008 election with a clear program to deal with the crisis, we might well have won. As it was, Bush and McCain both looked like deer in the headlights when the full force of the crisis hit in September 2008. A few people were issuing warnings in 2005 (like Kenneth Rogoff at Harvard) but things looked too good. I published warnings of an eventual credit crisis in 2006, when the price of credit risk fell to an all-time low, but I didn’t know then when the dam would break. By July 2007, it was imminent and anyone who wanted to look at the facts could get access to them.
I predicted that the hyper-stimulus would end in a “train wreck” August, 2003….
But, I’m a nobody.
The real dynamic was fulsomely underway by that time — with no course changes remotely in sight.
What was happening was that Red China was permitted to harvest/ steal/ loot intangible wealth on an epic scale.
This triggered a market scale erosion and consequent profit margin erosion across all internationally traded/ priced sectors of the global economy.
Weirdly, because of Red China’s command economy, this advantage morphed into an almost pure ‘Robber-Barron’ hyper-expansion of manufacturing volume. But, this time, the Capitalists Roaders had to kick back vast flows upwards towards the Crony-Controller Class: the CCP.
So Red China is now a land of Capitalist impulses fulsomely corrupted by Socialist demands.
America has arrived at the same nexus — arriving from the opposite direction.
————
International conflict has morphed into pure financial warfare.
This First Financial World War will most certainly end with most — if not all — of the big fiat players flat-lined.
For, at the present time, it’s devolved into a printers war.
Red China, Inc. has, effectively, stolen paper wealth — which America is step-wise reducing to counterfeit value.
———
Which brings us back to the original post: Citicorp was counterfeiting credit.
That’s the essence, the consequence of CRA Policy.
The Powers That Be made a swap during the impeachment daze of Clinton: Citicorp would be permitted to entirely reverse the separation of Commercial Banking/ Payments Clearance from Investment Banking/ Market Speculation. In its turn, Citicorp pledged to madly step up its ghetto lending — running it at a loss (for sure) — which would consequently generate middle class metrics among the urban voters/ Black Wards.
If one digs deep into Citicorp’s CRA commitments and pledges — you’ll note that they ramped up — by orders of magnitude — exactly when Clinton was at trial — in the Senate. They followed through in 1999. Look at their records.
What a coincidence!
————
And, as everyone knows: commercial lending creates liquidity — creates MONEY.
It was this surge in real estate lending — anchored around the CRA Policy that massively expanded the money supply. Such monies quickly found their way to Red China as they rippled across the balance sheets of the world.
It’s the reversal of this trend that has the Fed tearing its hair out: wrapping up all of these loans — however done — is massively deflationary.
It’s this loan reduction that is being kicked down the road.
Money-printing/ Debt-issuance by any fiat power functions as a Wealth Tax upon all financial instruments denominated in that fiat currency held by all counter-parties to the issuing power.
For the US Government that means that she can tax the rest of the planet – right along with her own citizens.
Russia and China have figured it all out. They have completely stopped purchasing US Treasury debt – to the extent possible, consistent with their trade policies. What debt they do buy is merely roll-over paper. At every turn, they are trying to swap the debt-paper for real assets – at wholesale. (For now)
Japan and Taiwan have also stopped purchasing US Treasury debt. For them it’s a consequence of their trade flows: collapsing surpluses.
America’s budget debate is really about whether their will be any attempt to save the Dollar – or let Barry absolutely rape it – Mugabe style.
For, in a fiat issuance environment, sovereign spending = taxation.
In mathematics, it’s termed an Identity.
Governments can’t borrow from the future. If they could, Hitlerite Germany would’ve borrowed tanks from 1980 to use in 1944. Instead, they are creatures of the Present. They can order around present resources and enact present laws. The Past is unchangeable. And, in the Future, its sitting government will be calling all the shots. Rome’s dicta didn’t last one second longer than it did.
It’s a gross – and universal – mistake to confer upon sovereign governments the same accounting logic that was constructed in northern Italy for (wholesale and retail) trading merchants.
The use of GAAP accounting terms for National Accounts is folly. Sovereigns are not traders, not miners, not manufacturers, and not a charitable order. Once that reality is accepted, then true insight can be had.
“For, in a fiat issuance environment, sovereign spending = taxation.
In mathematics, it’s termed an Identity.” Ahem, Lindbergh without the airplane aka crazy old Uncle Ron from Texas said the same thing. SPENDING = TAXATION.
“Turn the question around: If it was indeed obvious in July 2007, why didn’t a single mainstream Republican get in front of the crisis? The issue I am raising here is not whether the crisis might have been avoided (I think it could have been handled much better and mitigated), but how the Republican political class responded to it.”
Demographics, as usual. Republicans placed a big bet on Hispanic housing in an attempt to make them feel more wealthy/conservative, so they would assimilate into the mainstream right. The Republicans see collapsing white fertility and have already written off the nation’s founding race as a loss.
Wealth doesn’t make babies, especially dynamic and cyclical entrepreneurial wealth; cities are population sinks. Steady economic stability, even at the lower class level (see welfare queens), creates a safe condition for families. The establishment Republicans just loved the free movements of trade and peoples too much. They turned far too much of the country into a big city.
Note that welfare queens are a very low information people. Perceived stability actually can lead to real stability, as a demographic leap of faith. This bet just didn’t work out for the Republicans, and they have no plausible backup plan. The party is a mess when Ron Paul was the best candidate running.
I suspect the Republicans thought they could hold off a crash for just another couple years, maybe 30 months if everything worked out, and the blame would shift. Denial would be used to try to delay the inevitable for long enough. Another bad bet.
David,
Sorry to go OT so early in the thread, but I noticed that The Economist still shows Egypt’s economic growth rate at 4%. Surely, cash inflows from the Gulf cannot have entirely compensated for the loss of tourism and other economic activity. Your thoughts are valued on this.
I dont believe the Economist’s number.
Just saw this on Egypyt too. Sorry for continuing OT. Especially such a great column
I don’t tend to believe any of The Economist’s numbers, given their notorious (see the article “World’s Sleaziest Magazine”) wild swings on Russia (seems like there was a brief thaw when Ed Lucas got reassigned, coinciding with the more sunny optimism of the ‘Reset’, but now they’ve found an unbylined youngin’ as rabidly Russophobic as he).
The most recent example of Economist nuttery regarding Russia was arguing that one is better off being born in India in 2013 than Russia, despite the former resembling more sub-Saharan African mortality rates and malnutrition than the latter, and Russia not being burdened with the caste system or a shortage of natural resources. India still has a population that has 20-30% illiteracy rates while Russia’s is about 1%.
At any rate, I agree with the commenter above that Russia and China have gone wise to the USD’s doom and thsi is why we’re seeing an acceleration of the Oceania vs. Eurasia/Eastasia games against both. Syria is merely the outer skirmishing with the fate of the world’s reserve currency and what will replace it (SDRs backed by Arab/Chinese sovereign wealth funds?) as the real grand chess board of Z. Brzezinski fame.
That’s not to say the Russian elites did not make their choice by returning Putin to office for a third term — a lame duck choice I should add even a few folks who were former colleagues of Putin’s who previously supported his turnaround of Russia’s economy did not like. The maneuvering at any rate has already begun for 2018 when Putin will be 72 years old and I suspect despite his outwardly superb health have already developed ‘heart trouble’ (see for example, the prominence of former KGB man Gudkov among the opposition — why are those in the opposition who have KGB ties not mentioned so often? Could it be that the Economist crowd doesn’t want to admit the siloviki hedge their bets just as globalists have their people at the top for both the Democrats and the Republicans?).
Although I don’t ‘do’ Kremlinology my money would be on Sergey Shoigu, who hails from the somewhat popular Emergency Situations Ministry and has been given the unenviable task of cleaning the Augean stables of Russian corruption, the Defense Ministry. Plus it would give Russia’s image a bit of facelift to see a descendant of Ghenghis Khan, a true Eurasian Tuvan, running the Kremlin pointing to Russia’s Eurasian future as the Canada to China’s America.
Thanks, David, neither do I.
Great column! Reminds me how much I miss your “Inner Workings” column. What you are really saying though I learned back in 2008 when Bush, MacCain and O’bozo got up in front of the American people and endorsed TARP, the GREATEST fraud in human history. They all endorsed it and they ALL had NO CLUE what they were doing and the implications. We are approaching Failed State status because we have incompetent leaders coming from an ever increasingly incompetent population! Its democrats and republicans both. One can make arguments as to one being worse than the other. But they are all incompetent. And to the extent that we stick to crazy ideologies we just empower these people.
Their ‘incompetence’ is taking everything you got!
How naive are conservatives, jeez.
Excuse me, but why has nobody (including yourself) called you on this?:
“I was strategist for a credit derivatives hedge fund that did a great deal of business with Citigroup. We created collateralized debt obligations out of credit default swaps written on junk-quality debt, and through the magic of structuring, turned the junk debt into AAA-rated bonds.”
You were foisting these things on the banks and the agencies, but you bear no responsibility for them?
Your moral standing, in general, comes across as a lot pretense when you don’t own up to things like this.
Our fund traded against Citibank with full information available to both sides. The premise of our business strategy was that the Aaa CDO securities were overvalued and everyone in the industry knew what we thought. There is nothing unethical about trading on superior insight where all sides have the same information. And as a matter of public responsibility I went on national television to warn about the consequences. I have nothing to apologize for. The agencies had nothing to with it. We dealt in credit not mortgages.
Right. If Jack is a fool and a crook, and ruining a lot of people besides himself, but I can make money from his foolishness, it’s just fine…. Not in my book. If you take part in a dirty game, you get dirty.
Moral preening. One of the least attractive features of contemporary discourse. I don’t think Dana’s book is worth reading.
It’s worth a skim.
projecting much …
“I tried to explain the crisis in May 2007″
2008
People like Peter Schiff and Jim Rogers were calling it an unsustainable bubble even as early as 2003. This was obvious to me at the time as well as I could not for the life of me figure out how housing prices could increase during a recession (the “tech crash recession of ’01-03). Also, the late 90′s was purely a bubble as well, with no real wealth creation. We had a series of unsustainable bubbles beginning in 1996 ending in 2008. There was no real wealth creation during this period.
Much of the rot dates to the FED bailout of the LTCM, which by rights should have been allowed to fail. Also, the FED pushed the Labor department into redefining inflation to include bogus criteria such as hedonic factors during the 90′s. This was criminal as well.
I do not believe any human institution, private or public, should ever be bailed out. Failure is the result of incompetent management or simply bad luck and is a part of the self-regenerative nature (creative destruction) of free market capitalism. Interference with such only creates worse problems down the road.
Yes, but even @MarkAdomanis has to troll Peter Schiff with questions like ‘don’t you regret losing money for your clients?’. My reply to Adomanis: how much money have investors in gold ‘lost’ so far? And especially over a time horizon of the past ten years compared to equities? That’s what I thought.
Boiled down to the essence, it’s “Top down, bottom up, inside out.”
Rubin, Geithner and Lew were the key guys going back years now who pushed Obama into power through the banker insider version of Cloward and Piven.
Of course, Turbo Tax Timmy was far closer to the center of the storm than Mr. Lew. Lew, was I assume hired more for his political connections than for his managerial skills. Tim made the worst single call of 2008 when he decided to pay off AIG’s counterparties at par. Of course, the Vampire Squid was one of them.
I have no doubt but that you are right about the underlying economics. But, at the institutional layer we need to recognize the chronic instability of the housing finance system, particularly the GSEs. 2008 was not their first rodeo. That goes back to the S&L crisis of the 80s.
Yes, and most of what the government has been doing since ’08 is an effort to re-inflate that housing bubble- without patching any holes. Good (?) money after bad. We should have let the GSE’s fold.
You’re spot on! Until there is a complete resurgence of the lost manufacturing in our core economic base they will continue to prop up unsustainable bubble economies. The consumer credit base they created is at disaterous debt levels and nobody addresses that — just keep propping it up also.
So Obama is recruiting another crook. Like attracts like. Besides: would anyone who isn’t at least corrupt as a full portajohn left in the summer sun for three days even want to get within a mile of this administration?
Some prominent members of Obama’s economic didn’t last through the first term, Christina Romer & Larry Summers left in 2010, eventually Austan Goolsbee (2011).
They left because Obama’s “stimulus” and general Keynesian approach were so successful ?
Sure.
Somewhere I read that the cost per job “created” under the 2009 Stimulus is $230,833 and the cost of each “green job” created in the Obama admin. is $5,000,000.
Jack Lew sounds like he’s more finagler than economist, so he’s probably a keeper.
A lot of Obama’s “economic team” did flee in the first term and because their Keynesian nonsense was failing as anyone with sense could have told them it would. The sad thing is that several of them landed teaching jobs in universities where they could poison the minds of students with that same failed thinking.
Tom Clancy > ‘Executive Orders’ > President Jack Ryan takes office
after the previous President, Congress, and the Supreme Court are
all killed by a Kamikaze flying a 747. He finds that after replacing
the entire top level of the Federal government, nothing has changed.
One more cipher with a silly signature will make no difference.
The pilot missed: next time try K Street.
“By rights, Jack Lew should be unemployable on the strength of his resume…”
Compared to the President, he might as well be a global authority on intl. economics. The main qualification is to be an agreeable, sycophantic viper, with no moral center or standards, only hungry for personal gain and prestige and easy to manipulate, in alignment with the agenda of lunacy and destruction. The first thing that government departments often do to someone who is a dynamic, push the envelope type is to show them the door – during an interview if they’re lucky just to get that far.
At a post-election soiree sponsored by The New Criterion magazine, Weekly Standard editor Bill Kristol observed that voters were more likely to blame George W. Bush than Barack Obama for the crisis. Given that no “mainstream Republican” institution anticipated the crisis, Kristol added, the voters hardly can be blamed.
These republican Congressmen anticipated the crisis in 2004 Fannie/Freddie hearings
We are dealing with an official Dirigiste mindset that believes in collaboration between the public and private sectors as a matter of policy. I’ve gone to breakfasts where the Brookings Institution employed speaker announces the need to “Collaborate to Compete” in the new export-oriented Low Carbon economy. Governments, Big Business, Academia, and foundations all dealing among themselves with taxpayers picking up the bill.
The really sad part is the recognition that there’s no growth or prosperity in such an economy and an insistence that the funding taxpayers need to learn to live with less. Prosperity being easily exchanged for power by those with access to political power.
What cannot continue won’t but it may take a while. And in the mean time we have all the education credentialling creating expectations for a middle class future. Without the knowledge or marketable skills to merit that compensation.
Hard to imagine with Lew’s Citicorp experience the moral hazards with TBTF will not simply worsen.
Obama wanted John Corzine but he was unavailable.
As treasury secretary Lew will continue to funnel the bakeesh to the TBTF banks at least until he cannot or the US dollar becomes Zimbucks.
But hey, it’s change…
There was an article published in the National Post, January 8, 2013. It was titled: “Rotten at the top: A Greek journalist explains how his country’s corrupt elite insulate themselves from justice and scrutiny” by Kostas Vaxevanis. I wonder if America, after another couple years of Obama, will face similar difficulties? It seems to be headed that way (ie, out of control corruption, and where truth tellers are arrested).
The fact that commercial banks can create money in a fractional banking system means that they are vulnerable to bank runs. That means national moneys are at the mercy of commercial banks. To mitigate the potential for runs governments insure deposits in the system. Insurance creates perverse incentives for the bankers to gamble with other people’s money. That is why governments TRY to regulate banks but banks come up with clever ways (products) to get around the regulations. Credit swaps, derivatives etc. are clever ways by the commercial banks to undertake RISK much above their capital (their own money).
There is now way around this unless you give up modern banking. The appropriate socially desirable response is to keep the system, but hold bankers feet to fire. CEOs should do jail time if they cheat. Regulator banker relation should be much more antagonistic than what currently is.
Decentralize banking and establish six totally independent regional investment banks and one international commerce investment bank. There is no good purpose for large national banks except to monoplolize and corrupt!
David — you don’t really explain why Lew should not be Sec. Treas. Being COO is not the same as being CEO or Chief Investment Officer. On top of that he wasn’t there long enough to do the kind of damage with which you are trying to tag him. That he pocketed a million bucks, considering the rarified compensation that Wall Street was (and is) paying is no big deal. My understanding his strengths lie in the nitty-gritty of budgets, and governmental operations. He may lack Geithner’s Wall Street credential; but if the president appoints a strong undersecretary with strong ties to the financial community, it will work out OK at least in the short run. Also with a fight over Hagel, I suspect there is no stomach for a bruising fight over a second nominee.
I agree with you about the politics, and personally I would prefer that we Republicans concentrate our energy on Hagel. Regarding Lew’s qualifications: He was the implementation guy for an operation that was not a Ponzi scheme in the legal sense, but had many of the characteristics of a Ponzi scheme, and brought down the bank. He wasn’t even the capital allocator, just the operations guy. As I said, a bonus of a million identified him as a low-level player. I paid a lot of research analysts a lot more than that. So why is this guy qualified to be Treasury Secretary? He doesn’t have the stature to guide important decisions of the sort one expects from a Treasury Secretary: he’s an operator who makes sure that the deck chairs on the Titanic are inventoried, repaired, and painted. That’s why he’s the perfect guy for Obama, who sees the Federal budget as a giant political patronage fund. Lew will ignore the bigger problems and smooth the way for Obama’s political goals.
Great..
Another crook who WASTED and LOST a zillion times more taxpayers money than he ever earned in his entire lifetime, getting a bigger handful of power and influence over even MORE taxpayers money.
What could possibly go wrong?
Sterling, Spengler, sterling. The bloody red meat.
So this is what nationalization looks like.
Public utility my *ss.
It’s crony socialism’s war without bullets.
Unfortunately, bullets might come later. In the past they always did.
Yes, there was an asset bubble forming in 2003 and when it burst in late 2008 home foreclosures and upside down mortgages rippled across the country. But it was magnified further in states like California where affordable housing policies — low or no interest loans, low or no down payments, and deductible mortgage interest — combined with growth controls (slow growth plans) into a double bubble. California had a bubble in easy mortgage money and a double bubble in urban fringe communities where new homebuyers were pushed out from central cities. The foreclosure rate in Texas was 1 in 1,000 homes; in California 1 in 173 homes.
In 2004 I wrote my local newspaper warning that Federal and LOCAL affordable housing policies were overheating the real estate market especially in the urban fringe.
San Francisco has not experienced any downturn in real estate values since 2008 because it had no land on which to build and had pushed first time homebuyers to the Central Valley (Fresno, Stockton, Sacramento). Santa Barbara with heavy growth controls experienced a mild and short lived dip in real estate prices and has rebounded. San Bernardino, Riverside, and Ventura were disproportionately hit with foreclosures, upside down mortgages, and short sales.
In other words, the political Blue coastal areas were more resilient and the Red inland areas of California experienced the brunt of the Bank Panic and Mortgage Meltdown of 2008. This ended up busting state, local and school district budgets that were all predicated on inflated funding from the Bubble.
Then the Occupy Movement and Democrats scapegoated Proposition 13 and alleged mortgage fraud as the culprit. But California’s Proposition 13 has a circuit breaker in it that kept property taxes from a free fall. Sure, Proposition 13 kept property taxes from rising fast during the Bubble — thus denying governments of their share of inflated Bubble money — but it also saved government entities from the worst. Nonetheless, when Obama came into power he sent Stimulus funds to cities and school districts to buffer their losses. But their losses were Bubble money that they never should have relied on anyway. When people like me wrote in my local newspaper telling the local school district to not rely on any taxes beyond 2003 levels they thought I was crazy.
The story of how California growth controls exacerbated the Bank Panic and Mortgage Meltdown of 2008 has mostly not been told.
Thomas Sowell talks a lot about that in his book The Housing Boom and Bust. He kinda starts the story in California, in fact.
Mr. Goldman — Putting Mr. Lew and your resume aside, exactly what do you perceive the job and authorities of Treasury Secretary should be? The reason I ask, is that it seems in fairly recent times, the job of treasury secretary has become a futile catch-22 job.
The congress enacts laws, many reckless and high risk with only a limit(ed) revenue source. Most financial enactments are reckless and risky with tremendous consequences when they go south. Most subsidy and entitlement enactments are non sustainable, much less any tangible financial ROI. Most enactments facillitate arbitrary inflation in consumer and financial markets. I think you get the point so I needn’t go on.
My point is that with all all these variables the USD is devalued, debt, real and unfunded rises uncontrollably and revenues streams hold or decrease. Folks can debate the political fiscal and economic philosophies but in reality, these variables and consequernces are what they are. The secretary of treasury no matter what their party afilliation may be, has a job for which only a ‘magic wand’ could provide what is expected of him and his department.
His job depends largely on a robust private sector economy to feed the revenue streams into the government. When congress is reckless, the people suffer and the treasury department is put into that catch-22 thing.
Should we not be looking and pointing to congress to fix the fiscal messes it creates inside the government and in the private sectors –or– does the secretary of treasury have the independent authorities to fix and or correct the messes? No matter how fast the printing presses run, our debt climbs and the USD continues to devalue and be unstable.
Ever notice that his signature seems to spell ‘loon’?
I hope and pray that you are correct about people waking up to the fact the it is a mentally ill abusive drug user in the oval office. He is in my humble opinion “the Anti-Christ.”
Point on! If one knows something is corrupted and chooses to play with it nonetheless, he gets dirty hands! They lock up little people for conspiracy to defraud. When most of the players admit to knowing the instruments they were bundling and selling was pure junk and yet colluded together to sell them anyway, that should have been a free ticket to prison for a very long time for all of them.