Posts filed under “Bailout Nation”
Paul Krugman has a fascinating OpEd today, essentially tracing the current economic crisis all the way back to Ronald Reagan.
In Bailout Nation, I place a small measure of blame on Reagan for a) appointing Greenspan; and 2) being the intellectual father of the radical deregulation movement.
Krugman goes much further than I. Beyond the financial deregulation issue, he mentions something I was unaware of: Eliminating the down payment requirements of home buying:
“But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down.
These restrictions were put in place in the 1930s by political leaders who had just experienced a terrible financial crisis, and were trying to prevent another. But by 1980 the memory of the Depression had faded. Government, declared Reagan, is the problem, not the solution; the magic of the marketplace must be set free. And so the precautionary rules were scrapped.
Together with looser lending standards for other kinds of consumer credit, this led to a radical change in American behavior.”
Allow me to put Professor Krugman’s criticism into a little context, via Chapter 3 of Bailout Nation:
“The market for financing homes was quite different in the 1920s and 1930s than it is today. There were no such things as 30-year, fixed-rate mortgages. Instead, the typical mortgage was an interest-only loan for a period ranging from three to five years. These non-amortizing mortgages called for a balloon payment upon maturity. Most were renewed without much fuss—assuming the borrowers had maintained their jobs and payment histories.
As the 1930s economy went from bad to worse, this cozy home financing arrangement ran into trouble. Home prices entered into a steep decline. A cash-strapped populace, suffering from massive job losses, was frequently unable to meet its mortgage payments.
In History and Policies of the Home Owner’s Loan Corporation, C. L. Harriss writes, “What had generally been regarded as a reasonably sound arrangement by all parties concerned proved to be very weak when a set of interrelated forces combined to bring on a severe depression after 1929 and to disrupt seriously the structure of home-ownership finance.”
I am curious about one thing: Does anyone know specifically what legislation Krugman was referencing that eliminated the down payment requirement ?
Reagan Did It
NYT, May 31, 2009
Front page of the NY Times goes over the shameful behavior of banks — one of the primary causes of the entire crisis — using bailout money to pay lobbyists to maintain the regulatory status quo. Its yet another reason for why they should have been put into bankruptcy once they became insolvent. So far,…Read More
The first mainstream review on Bailout Nation is out, and its from Bloomberg (Europe). I am not disappointed: “Ritholtz waltzes the reader though the decisions and missteps that landed us in this morass, including the Federal Reserve’s power grab over the years, notably during the leadership vacuum of 2007 and 2008, when markets melted like…Read More
(For those of you sick of hearing about the book, register, then “deselect” bailout nation as a category — you will never see another post on the subject again!) ~~~ At long last, the date is finally here: The book officially publishes today, May 26, 2009. Some pretty encouraging news so far on sales. As…Read More
Tomorrow is the official publication date of Bailout Nation. This is the back story to how and why the book came to be. > Long story short: After Bill Fleckenstein’s GREENSPAN’S BUBBLES was published, McGraw Hill asked him to do a follow up to that book. He wisely said no. However, Bill suggested they contact…Read More
For those of you who are getting sick of hearing about the book, rejoice: The new site is launching tonight. All of the book related stuff will eventually find its way there. (Some will end up here in Books). This is just the home page — it should populate over the next few days ….Read More
Felix Salmon asks an oddly interesting question: “As befits a book from such an assiduous source-citer as Ritholtz, Bailout Nation comes with 17 pages of endnotes, most of them with URLs. But here’s the funny thing: the number of blogs cited is tiny. Paging through the notes, I see Barry citing himself a couple of…Read More
I was pleasantly surprised this morning when I woke up to find the first review of Bailout Nation was written, by Eddy Elfenbein of Crossing Wall Street. It is very long and thoughtful and I am thrilled with it. Excerpt: In Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World…Read More