A Serious Look at George Bush’s Involvement in Our Fiscal Crisis

Posted on October 20th, 2016 in Politics by Robert Miller
President Bush Announcing His New Plan for Making Houses Affordable

President Bush Announcing His New Plan for Making Houses Affordable

I am re-issuing this missive, because in last night’s debate between Hilary Clinton and Donald Trump, Trump seemed to imply that George Bush himself had no role in our fiscal crisis of 2008: it was all blamed on Obama. But an article published previously in the New York Times, makes it abundantly clear the George Bush himself had played a singularly significant role in generating our fiscal crisis of 2008. The article quoted in the New York times begins with a quote from George Bush,

We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.” — President Bush, Oct. 15, 2002

The story that appeared in the NYTimes was the first story that properly pinned the tail on the donkey, after years of giving Bush a free pass for his involvement and the incompetent manner in which he managed his (our) fiscal housekeeping. This article was published 

After years of giving Bush a free pass for almost every one of his actions, and within a few weeks of Bush’s last day in office, the New York Times has given front page news coverage to a story detailing his involvement and role in our spreading fiscal crisis and mounting recession. Both the Times and the Washington Post have rarely questioned Bush’s actions during the long agonizing reign of his eight year presidency. Instead of criticizing or questioning Bush’s policies, these papers generally tried to support his decisions or deflect the blame; about all they did was to regularly log Bush’s failing popularity through national polls, offered as the self-explanatory critique of a presidency in decline. But, while the polling data was published, it was rarely accompanied with serious dialog. Perhaps it was his imminent departure that encouraged the Sunday Times article, which seemed to be suddenly desperate to set the record straight on Bush’s involvement in our fiscal meltdown and how his homeownership push backfired into the subprime financial collapse we are facing today. Bush was not a sidelines observer on the subprime mortgage fiasco–he created it!

As if to push through a last attempt at journalistic redemption for the Times, yesterday’s article by Joe Becker, Sheryl Gay Stolberg and Stephen Labation, appeared on the front page, with a picture of Bush standing behind a sign highlighting his famous home ownership plan that he unveiled in 2002. The article puts to rest any ideas that one might have,  that our fiscal crisis happened somehow outside of Bush’s watch, or that his impact was one of neutrality because of his preoccupation with the war and the privatization of social security. Quite the contrary. The article makes it very clear that Bush played a major role in creating the fiscal environment we are in today, through his relaxation of regulatory control over Federal agencies, his ideological inflexibility and the cronyism state he assembled where those he hires, tell him what he wants to hear, rather than revealing some of the more the ugly facts lying on the ground.  And then, once the growing threat of foreclosures became increasingly apparent, Bush refused to negotiate with members of his own party to put in the regulatory controls that might have stabilized the situation through improved regulations of Fannie Mae and Freddie Mac. In so doing, he angered members of his own party because of his refusal to compromise on a bill that his White House staff thought was a good bill. But Bush wanted more concessions from congress, so the legislation was dropped and the lack of new regulatory controls allowed the problem to get agonizingly worse. Bush’s stubbornness related to his insistence on ‘free market conditions,’ whatever than means. As the housing problem gained momentum in 2006 and 2007 there were many warnings within the Bush administration about the impending crisis, but these were ignored or treated lightly, primarily because of the Bush  brand of arrogance that is still in force today. Bush still believes that he knows best and he was continuously aided in this delusion by Karl Rove. Everyone else was simply wrong.

Early in his presidency, Bush promoted a dramatic increase in homeownership, especially to minorities coupled to a relaxation of regulatory controls, providing his free market conditions in what would became more of a brawl than a policy. He made a celebrated announcement in Atlanta in June 2002, where he unveiled a plan to increase the number of minority homeowners by 5.5 million. For Bush, this plan fit into his ownership society–a society which owned and controlled their own lives with respect to homes, health care and social security, which he wanted to privatize. Those new homeowners, so he thought, would contribute to the everlasting Republican majority. To meet his housing goals, Bush proposed tough new incentives for loaning agencies and borrowing and insisted that Fannie Mae and Freddie Mac get more proactive in their lending practices towards minorities. Bush pushed through legislation to spend $200 million each year to help first time buyers borrow their down payments, so that houses could be purchased without a down payment. According to the times, Bush’s policies led to a “free market barroom brawl instead of a prize fight.” And, to make the oversight problem go away, Bush populated oversight groups with cronies who served his demand of a “hands off regulatory free fall.” At one time, many of the states tried to block the easy credit lending pushed by the Federal government by promoting consumer protection laws. But Bush argued that the states had no right to run fiscal policies through that gateway and won on that issue through a decision by the Supreme Court. Home mortgage bankers poured $ millions into Bush’s 2004 reelection campaign.
Home ownership did increase under Bush and initially it kept the economy humming along, as people borrowed against the increased value of their home to pay for college and contribute to the consumer base of our domestic economy. The securitization of risky mortgages bundled into securities of unknown composition, combined with massive use of credit default swaps set the stage for an impending disaster. But as soon as the housing values began to collapse and foreclosures began to mount, Bush suddenly did an abrupt turnabout. He gave his Treasury Secretary Paulson a free hand in dealing with the crisis and eventually that got us where we are today. The free market economy turned into vapor ware. Last week Faux News asked Bush if history would consider him to be the Herbert Hoover of the 21st century. Bush replied “no, I will be known as somebody who saw a problem and put the chips on the table to prevent the economy from collapsing.” Bush clearly sees himself as a hero of the crisis, not as one of its leading causes. Early on Bush did foresee problems with excessive lending by Fannie Mae and Freddie Mac, but he hired one of his cronies to implement regulatory reform and his new hiree told him that everything was going smoothly with the companies, just as they were going into receivership.
There were many other examples of Bush leadership failures and negative intrusions from his standard policy of cronyism.  As one of the Republican Party’s top ten donors in 2004, Roland Arnall had founded Ameriquest, then the nation’s leading lender of subprime mortgages. But in July of 2005 Ameriquest had agreed to set aside $325 million to settle allegations in 30 states that it has preyed on borrowers with hidden fees and ballooning payments. This was one of the early signals that deceptive lending practices would contribute to the impending foreclosure meltdown. What was the White House reaction to this Republican buddy’s problems? They were concerned about what Ameriquest’s soiled reputation might have on Bush’s nomination of Roland Arnall to be the ambassador to the Netherlands. All efforts to bring the reality of the impending foreclosure disaster to the White House were greeted with skeptics like Karl Rove, who looked at the program as an excellent financial instrument that was getting more people into home ownership. Thus, for a long period of this crisis, the White House looked at the problem through its ideological, rose colored glasses coupled to a tin ear. Today, it is fair to say that Bush’s ownership push of 2002 backfired and created the home mortgage crisis we have today. Without it we wouldn’t be in the mess we find ourselves in, though undoubtedly there would be other problems. But many of the other problems that have been identified as contributing mechanisms to the current fiscal meltdown, can be found in Bush’s zeal for home ownership, an insistence on deregulatory control and how he prays at the alter of free market conditions–until there’s the slightest hint of a rainstorm, then he has no trouble racing into the Federal Keynesian Barn. It’s as if Bush went through a conversion that he doesn’t want to admit or think about.

Lastly and unfortunately very fittingly, Bush’s centerpiece effort in raising homeownership rates in the country sank until homeownership rates today are about where they were when Bush took office, with the expectation that they will fall further in the next few years. And look folks, we got a failing economy as a bonus.

RFM

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