Apparently it is time for a brief history refresher. No problem – happy to provide; my apologies in advance for the detail that may seem a bit lengthy, but these issues took years to form. They will take years to repair. The following represents both sides of the aisle, or at least that is the intent. Also – if you’d like more detail, I’ve tried to shave this to salient points (read: this is about 10% of the info – I am more than happy to fill in more if you would like).
First theme to keep in mind: Time bombs are great tools, when they don’t detonate until you are near the end of your term. Plenty of anecdotes over the decades there; for now, just keep that in mind.
Let’s start with the foundations of the financial crisis. Several factors played into this, but the catalyst that economists all seem to agree on was the reformation of the Community ReInvestment Act, signed by Bill Clinton in 1995. The Act was actually from the 70s. But the regs associated with it were basically re-written and fully replaced by Bill C and Congress in 1995. Originally it was designed to increase affordable housing. This “modernized” form started to put enormous pressure on banks (mortgage lenders) to provide loans to all communities, and specifically lower income groups. This led to really, really creative lending (2-1 buy down loans, etc.), so banks could meet regulatory “quotas” of lending. It also DOUBLED sub-prime, high-risk lending from 10% of portfolios to over 20% of mortgage portfolios. Fannie and Freddie were instructed to increase loan scoring, and a bunch of other things, to make this a reality. This wouldn’t blow up in a mountain of foreclosures until after 2000, by most predictions. Guess when it did? Right on schedule. Domino is now in place.
Next foundation: Gramm-Leach-Bliley (“GLB”) Act. Signed by Bill Clinton along about the same time, and actually was part of the horse-trading with Mr. Schumer helping in the negotiations between the White House and Senate. The gist of the matter: The Glass-Steagall Act (1932, and then again in 1933, post the market crash) said “banks, securities firms, and insurance cannot play together and consolidate; they must stay in their own sandboxes” … GLB (named after 3 Republicans that wrote it) replaced this, and now ALLOWED those mergers to be legal. It is still in play today, actually, and is working. BUT – in the 90’s, it opened the door for the housing crash. Here’s why: When merged, securities firms went a bit crazy and really, really grew their holdings portfolios based on high-performing, sub-prime mortgages. Along the way a few other contributing pieces of legislation further catalyzed things, but not as much as these two Acts (once one was able to really leverage the other).
Interestingly, during this time (the 90s), a Democrat argued against GLB, saying these financial institutions would be “too big to fail”, while John McCain said “these sub-prime lending practices will crash the housing market”. But, Chuck Schumer helped negotiate with Bill Clinton, and the 3 Republican senators, to get BOTH deals done. Net net: It blew up on George W’s watch, almost exactly as predicted. He began TARP to save the banks. Obama campaigned against TARP. Then in office discovered it was working to stabilize the financial markets, and kept it in place. No – he didn’t cause the recovery. He nursed along what was already put into place years earlier. But, at the same time, W didn’t stop the subprime lending as fast as he could have, even though he called it out as a high risk right after being elected.
Healthcare: I won’t take as long on this one, but have even MORE detail that the last topic, if you are interested… The Affordable Care Act, for anyone who actually READ it before signing it, was never going to work. By that, I mean, be sustainable. And the Dems knew it. The Republicans pointed it out over and over. The premise was simple: Start taxation within the first year to build a war chest of cash. Then start providing parts of the benefits incrementally starting in year 3 and onward (read: as the 2nd term elections would be upon them). The problem was this: The benefits caused the cashflow from the war chest to go negative on the state exchanges on DAY 1. So once the war chest was expended, three things would happen: (1) State exchanges would go bankrupt (which almost all have now – I personally knew the former CFO of one of them), (2) deductibles would skyrocket, and (3) the private carriers that underwrote the state exchanges would exit to avoid getting creamed on losses. Yup – all that happened. State exchanges would send in reimburse claims to the Feds for $10M in a month, and get $1M back. Deductibles are now well over $12,000. My family plan doesn’t cost that now. How fast does a business shut down in that climate?
So, no. Obama didn’t do a great job in either of those areas. He was dealt a mess, I totally agree. And he kept TARP in place, he kept (and increased) the troop surges he said were bad (and they worked), he kept Gitmo that he promised to close within 6 months, and at the end of his term he ended up having to start filling a vacuum in Iraq and Syria he created by pulling out too much too soon.
And crumbs (phrase from Pelosi): If you make $26K a year, and get a $1K bump, is that a crumb? If your wages go up 20% beyond that, is that considered crumbs? Even better yet, would motivation have been there for ANY of this, without the tax reform bill? Would the hundreds of billions in reinvestment and repatriation already announced have happened without it? And by the way – I assume you didn’t know that 1.6% of all personal income tax revenue comes from those making under $30K per year. IN FACT, 2/3 of the 66M returns received last year by those lower income brackets paid NO TAX at all. Boiling it down: Lower income folks paid 4.9% effective tax rates. The “Rich” (over $2M in income) paid almost 29%. When is “Fair share” fair enough?????
Do I mind the rich getting breaks, based on the facts? No – especially if they re-invest and build more businesses, jobs, and overall GDP. They don’t stuff the money in a mattress, and it would be naïve to think they do. That money drives loans, businesses, etc. The rest of us live check to check.
Want more facts? Just let me know.
