'How did we get here?'

"The Reckoning: White House Philosophy Stocked Mortgage Bonfire," posted Saturday on the New York Times website, is an exhaustive report that attempts to answer President Bush's own question, wondered aloud Sept. 18 when the credit markets froze up, "How did we get here?"

A big part of the answer, according to the article, is housing.

There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk....

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

He pushed hard to expand homeownership, especially among minorities.... But his housing policies and hands-off approach to regulation encouraged lax lending standards....

And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away....

There's much, much more to the article, but among the warning signs along the way:

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

It was not the Bush team’s first warning. The previous year, Mr. [Lawrence B.] Lindsay, the former chief economics adviser, returned to the White House to tell his old colleagues that housing prices were headed for a crash. But housing values are hard to evaluate, and Mr. Lindsay had a reputation as a market pessimist, said Mr. Hubbard [Al Hubbard, Bush’s former chief economics adviser], adding, “I thought, ‘He’s always a bear.’ ”

In retrospect, Mr. Hubbard said, Mr. Lindsay was “absolutely right,” and Mr. Thomas’s charts “should have been a signal.”

Instead, the prevailing view at the White House was that the problems in the housing market were limited to subprime borrowers unable to make their payments as their adjustable mortgages reset to higher rates.

They weren't the only ones who thought the subprime problem would be contained to a small segment of the market -- I recall talking to several housing experts who assured me the same thing -- and that expanding homeownership was a fine goal. If you can put party politics aside, I think there's a lot to be gleaned here on how we got to this point.

--Lauren Beale

Thoughts? Comments?   

Comments

[Kathy]

I have a friend, a vice president at a bank in Los Angeles, who, when I mentioned the old "3 times your annual income" rule of thumb for purchasing a home, claimed he'd never heard of it. He and his partner had just purchased a home for 5 times their combined annual incomes (this was in 2006) with an interest only loan. These two have owned personal and rental properties in the L.A. area for almost 20 years. He is not what I would call "stupid", nor greedy. He really believes real estate is a fundamentally strong, long term investment.

[MyLessThanPrimeBeef]

Lalandjunkie, I think the hardest thing for a human, especially a male member to say is, "I don't know. I don't have a solution."

That would contradict his very nature, for he is homo sapiens sapiens.

So, he goes about trying all sorts of schemes, inflicting ever more carnage, all the time ignoring the command, 'Thou shall do no harm' when proposing a cure.

[el pez]

I read this article yesterday and laughed. Blatant political hit piece and blatant revisionism. Yes, of course- it's Bush's fault! Like everything else bad in the NY Times' view of the world. Nothing to do with the Community Reinvestment Act (1977), ACORN and similar groups' bullying of banks (ever since- ironically how I was able to purchase my first place...), nothing to do with Fannie May and Freddie Mac (somehow Republicans are now responsible for those institutions? Is this an alternate universe I just stepped into? Does that explain why Democrats have been so eager to not have any oversight of those institutions (including our new Prez)?). Pulleez...

As some commenters are pointing out blame lies all over the place. Cheap money, hysteria, more hysteria... Yes bankers were greedy, yes Dems and Repubs looked the other way, yes everyone thinks home ownership is groovy, yes changing capital gains laws in 97 changed things a bit... so many culprits, but let's have a long look in the mirror at ourselves and stop looking for fall guys.

I expect more from the NY Times and I expect more from this blog than to fall for what was obviously convenient scapegoating.

If anyone is interested- here is Bush's response to the hit piece:

http://corner.nationalreview.com/post/?q=ZjQwNzExNWRhMjU4NTA3MTdhNzg1YWMwNWEwNzQ0Y2U=

[MyLessThanPrimeBeef]

SRLA, I agree with you about the lopsided wealth distribution.

It's not the only, and certainly not the primary, reason, but nevertheless, we should look at Lotto where nothing productive is made except creating a few jobs for the guys running it but wealth is taken from many people and transfered to a handful by luck. For me, that doesn't do much for wealth distribution.

By the way, I forgot to add earlier (in response to the question, 'how do we get out of this?') about the 'I know everything. I have a solution' male humans that it's time we have a female president and if not, at least a female vice-president.

[Sigmond]

here's what the NYT wrote in 2003:

From the NYTimes, 9/11/03:

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios. . .

[mucker]

Kee Kee.

The unions actually bent over backward offering concessions for the Auto industry bailout. I personally don't believe the number of $3000.00 per car to pay for a pension. Accounts as we found out in Enron are just as willing to lie as CEO's. You know in the eighties we had the Savings and Loan scandal. The papers are always running articles on ponzi's and fraud by those running companies. I'm not denying union embezzling and misdeeds but c'mon this bashing in a country where wages are stagnant and declining while CEO's and owners get richer every day. Once again I must point out - their wealth has doubled in less than two decades. Workers wealth has gone down. I've lived through all the years since WWII and I know damn well it takes more to keep up for working people now than at any time in my life. Most families can't get by without Mom working.

This corporate spin on unions is heartbreaking. Final example. Within the past two years the LA Times wrote an article on a guy buying up and running hospitals. He cuts the staff, the wages, the services and raises the prices - and we all know that medical costs more than ever before. Do not blame working people when greedy people like he and Sam Zell take at least 20 to 1 over the workers.

I say Bah Humbug to that.