Hi all,
Pasted below my name, please find two articles. The first explains how the
depression of 2008 happened and it doesn't plame poor people or government
policy. (though I'd say that one could blame the policy of repealing
Glass-Steagall back in the 1990's).
The second article tries to predict what could happen if Trump becomes
president and tries to implement his policies.
They are both from a news outlet called quartz. I found this on my iPhone's
news function.
Enjoy.
Bob Hachey
http://qz.com/607532/this-is-what-a-donald-trump-presidency-would-actually-l
ook-like/
Immigrants and poor people" were not the cause of the financial crisis
Phil Angelides
&
David Min
February 10, 2016
The trashed economy is not their fault. (Reuters/Robert Galbraith)
"In a few years people are going to be doing what they always do when the
economy tanks. They will be blaming immigrants and poor people." -Mark Baum,
The Big Short
It is fitting that The Big Short is heading into Oscar season on the fifth
anniversary of the release of the Financial Crisis Inquiry Commission (FCIC)
report, which documented how widespread failures in regulation and
recklessness on Wall Street led to the recent financial crisis.
Unfortunately, the movie's success has spurred Wall Street allies to dust
off their revisionist claims that the federal government's affordable
housing and community lending policies caused the crisis.
These assertions have been thoroughly debunked in every serious analysis of
the crisis. Nine of the 10 FCIC members, including five Democrats, three
Republicans, and one independent, explicitly rejected these claims. The same
conclusion has been reached by a broad consensus of non-partisan experts,
including the Government Accountability Office, the Harvard Joint Center for
Housing Studies, the Federal Housing Finance Agency (FHFA), economists at
various Federal Reserve Banks, and virtually all academics who have studied
the mortgage crisis.
There are many reasons why attempts to blame government affordable housing
and community lending policies for the financial crisis have been found
baseless.
First, the vast majority of the subprime mortgages originated from 2002-2007
were made by non-bank lenders and then purchased, transformed into complex
securities, and sold to investors by Wall Street. These loans fell outside
the scope of federal community lending and affordable housing policies,
which apply to Fannie Mae, Freddie Mac, and traditional banks with federally
insured deposits. Additionally, many of the riskiest loans (such as for the
newly built McMansions in Miami featured in The Big Short) were made to
higher-income borrowers or to help people purchase more expensive homes, and
thus would not have met affordable housing requirements.
Second, Wall Street was where the action was during the housing bubble. From
2003 to 2006, Wall Street's share of the total mortgage market soared, from
a market share of roughly 10% in early 2003 to nearly 40% of the market (and
55% of all mortgage-backed securities) by 2005 and 2006.
This surge in the Wall Street's mortgage securitization machine came almost
entirely at the expense of Fannie, Freddie, and the traditional banks-which
saw a corresponding drop in market share over the same period.
Third, the actual data on mortgage delinquencies and mortgage-related losses
clearly tells the story of what drove the financial meltdown. The FCIC
analyzed
the performance of approximately 25 million mortgages outstanding at the end
of each year from 2006 to 2009. It found that delinquency rates for loans
purchased or guaranteed by Fannie and Freddie, which were subject to the
Department of Housing and Urban Development's affordable housing goals, were
substantially
lower than for mortgages securitized by other financial firms not subject to
those goals.
This was the case even for loans to borrowers with similar credit scores. As
an example, the FCIC data for a subset of borrowers with scores below 660
showed that, by the end of 2008, 6.2% of Fannie and Freddie mortgages were
seriously delinquent, compared to 28.3% for mortgages securitized by other
financial
firms.
In addition, numerous studies have shown that the Community Reinvestment Act
(CRA), the federal anti-redlining law, had a negligible effect on mortgage
originations during the crisis. That's because the law applies to
traditional banking institutions and to loans made within the areas they
serve. Indeed,
the FCIC found that mortgages made by CRA-regulated lenders in the
neighborhoods in which they were required to lend were actually half as
likely to default
as mortgages in the same neighborhoods made by non-bank lenders.
Because mortgages originated for Wall Street had such high delinquency
rates, this also meant that Wall Street bore the greatest losses.
As economist Mark Zandi noted in 2013,
Wall Street mortgage-backed securities suffered a realized loss rate of
20.3% from 2006 to 2012, compared to 5.8% for traditional banks and 3.7% for
Fannie/Freddie
mortgage securities. In short, it's hard to argue that affordable housing
and community lending policies led to the financial crisis when the entities
responsible for financing and originating the riskiest loans were not
subject to these policies.
Fourth, pegging government housing policies as the cause of the crisis
ignores what happened in the U.S. commercial real estate market and in
housing markets
in other countries such as Spain, Ireland, and the United Kingdom.
Commercial real estate in the U.S. and some foreign housing markets
experienced a bubble
at least as big as that of the U.S. housing market. If government housing
policies caused the U.S. housing bubble, what explains the bubble in
commercial
real estate and other housing markets?
Fifth, the most problematic loans that were originated during the subprime
mortgage boom were those that combined a number of troublesome features.
These
features included "rock bottom" credit scores, no income verification, and
adjustable interest rates that reset after a couple of years.
These loans were almost entirely attributable to Wall Street. For example,
Wall Street financed about ten times as much in mortgages with low down
payments
and low credit scores as did Fannie and Freddie. In addition,
according to FHFA,
only 11.7% of the loans securitized by Fannie Mae and Freddie Mac from 2001
to 2008 were adjustable-rate mortgages, compared to 70.1% of the mortgages
securitized by Wall Street. These adjustable-rate loans had a much higher
default rate than more stable fixed rate mortgages.
Finally, there is this simple fact: While Fannie Mae and Freddie Mac
required a bailout due to a nationwide drop in home prices of more than 30%
and their
severe undercapitalization, Fannie Mae and Freddie Mac mortgage securities
did not cause the losses that rippled through the financial system in 2007
and
2008 and brought down firms such as Bears Stearns, Merrill Lynch, AIG, and
Lehman Brothers. Fannie and Freddie mortgage securities essentially
maintained
their value throughout the crisis because of the implicit government
backstop they enjoy, while the mortgage securities created on Wall Street
crashed
and caused significant losses at major financial institutions.
Ever since the release of the FCIC's report in 2011, there has been a
furious effort on the part of Wall Street and its allies to rewrite the
history of
the financial crisis. But after five years of assaults, the accuracy of the
FCIC's report remains unblemished. It's long past time to put their zombie
lies to rest and get on with the business of ensuring that the recklessness
on Wall Street so vividly portrayed in The Big Short never again puts our
nation's
economy and American families at risk.
We welcome your comments at
ideas@xxxxxx.
Share on twitter
Share on facebook
Share on linkedin
Share on email
article end
article
This is what a Donald Trump presidency would actually look like
Gwynn Guilford
3 hours ago
He's got big plans.(Reuters/Jim Bourg)
This post has been corrected.
If it wasn't clear before, it is now: Donald J. Trump doesn't just have
fans, he has voters-and there are a lot of them. In the wake of his
commanding
victory in the New Hampshire primary, it's time to take Trump a little more
seriously than when he was just the antihero of a reality TV show (the GOP
presidential race, that is, not "The Apprentice").
So now a new question: What would it really look like with Trump at
America's helm?
In a word, chaos. In two, expensive chaos. That probably won't surprise many
Trump-haters out there. But here's the surprise: While most of his proposals
are sheer lunacy, some of his economic proposals are grounded in a
surprisingly well-developed worldview-one that could arguably help American
workers,
though not without enormous disruption.
Deporting 11 million people isn't easy
Maximum chaos first, though, which brings us to the Trump immigration plan.
His most ambitious headline policy-deporting 11 million undocumented US
residents
within two years
-faces some big practical, political, fiscal, and moral hurdles. It would be
wildly expensive, for one.
"There's no conceivable way in which it's possible to immediately deport 11
million people," said Edward Alden, a senior fellow at the Council on
Foreign
Relations who has previously advised Trump's rival, Jeb Bush. "About the
maximum you could deport is 400,000 a year. So you're talking about a
massive
increase in budget and manpower to do this over some fairly quick period of
time, like three years."
Trump says he will triple the number of immigration and customs enforcement
(ICE) employees by
eliminating a tax credit
that helps temporary resident families-most of which are poor and
Latino-financially support their children. Republican lawmakers have failed
time and
again to turn that proposal into law.
main region
Fewer setbacks, more successes
Take the direct path from goals to results
main region end
Advertisement
Even finding those 11 million people is trickier than it might sound-at
least if Trump wants to keep constitutional democracy intact, says Muzaffar
Chishti,
director of the Migration Policy Institute (MPI) at New York University.
People who are deported are generally caught in one of two ways: immediately
after
crossing the border or after came into contact with local law enforcement.
But how would Trump find the rest?
"Even if you decide to send troops to neighborhoods, you'd never know where
the undocumented are living. You would have to go to every single house and
workplace and ask everyone for documentation," says Chishti. "If you ask
people [whether they're undocumented] only based on perception, it's a
direct
constitutional violation because you're doing it on the basis of race."
Plus, each person still have the right to be heard in a US immigration
court-and
the current case backlog is already four to five years. (Trump dismisses
this concern because
they're here illegally.)
Tearing apart families
Trump's plan would also fray the social fabric of communities everywhere.
Many of these 11 million are already married to legal residents; under US
law,
their status makes them ineligible for a spousal green card (this is one
reason why the "path to citizenship" that's so hotly debated among
Republican
candidates is so important).
Under current law, those deported can't return for 10 years. This means
deporting America's undocumented population would therefore irrevocably
break up
families. Worse, some 5.1 million children live in households in which at
least one parent is undocumented-and 4 million of those children are
US-born,
says Chishti. "So the decision these families would have to make is whether
the children would live here without their parents," he says. For his part,
Trump says he wants to keep families together, "
but they have to go
." He also plans to eliminate birthright citizenship. However, that wouldn't
change the existing legal status of those 4 million children. And while he
plans to
expedite the process
of allowing deportees to return, he doesn't say how.
A blow to the US economy
Then there's the economic impact of mass deportations.
"Of the 11 million, we know for sure that between 7 million and 7.5 million
are working. These are people working on various sides of our economy-from
construction, to hospitality to elder care to childcare to restaurants-you
name it. It's across all of our occupations, especially in the low-wage
sector,"
says Chishti, adding that Trump must have many thousands working in his own
hotels. "We don't have a ready supply of US workers to take those jobs. So
you would have a huge dent in the labor market."
Trump says that the "
really good and outstanding" workers
can come back in through legal channels. But again, unless he changes the
law, they'll first have to wait 10 years before they can apply to legally
reenter
the US.
That will also hit US consumption. After all, America wouldn't merely be
shedding 3.5% of its consumers; millions of other families who remain will
lose
their breadwinners. Seventy percent of the US GDP comes from consumer
spending.
A new chapter in religious discrimination
Another of Trump's policies, the "total and complete shutdown of Muslims
entering the US," as
his press release puts it,
is similarly thorny. It's unclear how the government would determine an
applicant's religion. "To the best of my knowledge, almost no passport says
you're
Muslim," says MPI's Chishti. "So how would you do it? Are you going to ask
people? Are you then going to make decisions based on self-definition or
your
definition?"
However Trump plans to achieve this, it would be unprecedented, says CFR's
Alden. Though the US has barred immigration on the basis of national
origin-e.g.
the Chinese Exclusion Act-it has never done so based strictly on religious
grounds.
"That would be an outrageous violation of American history, tradition, and
principles," Alden says.
The great wall from China
Then we have Trump's plan to build a wall that extends the 2,000 or so miles
(3,220 kilometers) of border that the US shares with Mexico. Logistical and
ecological problems abound. Perhaps the biggest challenge, though, is the
cost of building it, which would range from $15 billion to $25 billion,
according to MPI estimates,
plus the cost of maintenance and patrols.
Trump says that Mexico will pay for the wall through a combination of
customs duties, impounded remittances of illegal worker wages and higher
fees on
visas for Mexican CEOs, diplomats, NAFTA workers. Even assuming the legality
of those measures, however, it's not clear that those measures will cover
the expense.
This plan isn't sitting too well with Mexican leaders. "We are not going to
pay any single cent for such a stupid wall!"
said former Mexican president Felipe Calderon
earlier this week. "And it's going to be completely useless."
Ironically, this plan could benefit one of Trump's other big bugbears,
China-that's where most of steel that makes up the existing US-Mexico border
fence
is produced, according to Alden. Though Trump would likely argue that the
wall should be made with US steel, that would probably be tough to do;
American
steel manufacturers have long since shifted to high-end steel products.
However, if the US buys Chinese steel, that could widen the US's already
gaping
trade deficit with China.
The US's trade balance with China keep widening
1990
1995
2000
2005
2010
2015
0
100
200
300
400
$500 billion
Imports of Chinese goods
Exports of US goods to China
charts/NyGnNB45g
Data:
US Census Bureau
Share
"Winning" against Beijing
This brings us to perhaps the biggest pillar of Trump's vision: taking jobs
back from the People's Republic. Many of his supporters, analysts say, are
drawn from the white, middle-class Americans who have lost their low-skilled
factory employment as those jobs have rapidly moved to low-cost labor
markets
like China's over the last few decades.
Though his rhetoric might sound like a China-bashing ploy to rile up his
base, Trump's onto something. China's currency manipulation and state
subsidies
have helped make its exports cheaper than its competitors, driving American
manufacturers out of business or forcing them offshore. Steel, as it
happens,
is a good example of a sector that's benefited from state largesse, allowing
Chinese steelmakers to widen their share of the global market.
China's steel export surplus keeps growing
2005
2010
2015
-40
0
40
80
120 million tons
Net steel exports
Steel exports
charts/EJhdfB4cl
Data:
General Administration of Customs, China
Share
Of course, many other countries embrace similar trade policies. But thanks
to its size, China hurts American workers the most. Between 2001 and 2013,
the
US's goods trade deficit with
China displaced some 3.2 million jobs,
three quarters of which were in manufacturing-according to recent research
by the left-leaning Economic Policy Institute (EPI).
(Screenshot of DonaldJTrump.com)
It's notable that instead of simply titling his position something general,
like "fair trade,"
he has labeled it
"Reforming the US-China trade relationship to make America great again."
But what would "winning" against China actually mean?
Trump laid out his boldest proposal-a 45% tariff on Chinese imports-in an
interview with the New York Times that he
later tried to deny.
Trump's Chinese import tariff probably isn't legal under the World Trade
Organization. However, he could still impose it for a while, says CFR's
Alden.
"There are ways under trade rules where [a president] can declare an
emergency of one sort or another. without the approval of Congress," he
says. "It
would certainly be challenged in the WTO, but the WTO process is pretty
slow."
Aside from his tariff idea, Trump also wants to renegotiate the North
American Free Trade Agreement and other trade pacts that disadvantage US
workers,
as well as penalize countries that deliberately weaken their own currencies.
Another Great Depression in the making?
Trump's tariff might stop China from winning-but in the short term, it would
throw the global economy and financial markets into a tailspin, says Robert
Scott, economist at EPI.
For one thing, it could cause a big contraction in the US economy. The US no
longer makes most of the stuff it buys from China, and Apple's Steve Jobs
famously concluded that
those jobs are never coming back
-not just because of cost, but because China now has the world's
most sophisticated manufacturing infrastructure.
Even assuming Trump finds some way to change that dynamic, it would take a
long time to build those US factories and retrain workers. In the meantime,
consumers would have to swallow much higher costs on the goods they buy from
China, leaving them with less money to spend on everything else.
"For instance, we don't make iPhones in the US," says Scott. "The price of
iPhones will increase from $600 to maybe $900 in a way that might suck more
money out of the economy as it reduces spending power."
It's not just the US that would suffer. Because Americans buy goods from all
over, the US is the main engine of global growth. A sudden spate of US
penny-pinching
could plunge the world economy into a downturn, or worse. And of course, the
sudden shrinking of American demand would hurt China's economy too,
prompting
mass layoffs as foreign companies pulled out and domestic firms shuttered
factories-likely forcing that "hard landing" that its leaders have been so
keen
to avoid.
The end result could include a stock market crash as investors bail on
Apple, Walmart, and other companies that sell China-made goods in the US.
Stock
prices of companies that depend on Chinese consumption would nosedive too.
China could retaliate with its own tariffs on US goods. However, if it did
so, it would merely be shooting itself in the foot, says Scott. Most of what
China imports from the US goes into making goods that it then ships back to
America-things like scrap paper and steel, basic chemicals, raw plastic, and
microchips. That means tariffs on US imports would up increasing the costs
paid by its own manufacturers.
What Trump gets (sort of) right
This all sounds pretty chaotic. However, after the tumult subsided, Trump's
Chinese import tariff would benefit the US economy, says EPI's Scott,
emphasizing
that he's not endorsing Trump, just giving a dispassionate economic analysis
of his policies.
"In the long run, if we could substantially reduce the trade deficit with
China we would create millions of jobs in the US, and that would be very
good
for our economy," he says. "It would reduce the federal budget deficit and
stimulate the economy at no cost to the federal government other than the
minor
cost of sending lawyers to the WTO."
Many economists and lawmakers blanch at this pro-tariff approach, labeling
it either protectionism or dangerous geopolitical brinkmanship. But this
free
market consensus among the US political establishment is precisely what
Trump and his
Democratic counterpart Bernie Sanders
have had so much success in opposing. Their worry is that pro-free trade
policies championed by every president since Ronald Reagan have opened up
American
markets without extracting equal concessions from trade partners. That lets
other countries subsidize their own exports, putting Americans out of jobs.
Though Trump's philosophy usually sounds wantonly pro-America, it's hard to
argue with the fact that a more balanced US economy would help force other
countries to boost their own consumption too. Over time, that would lessen
the now rampant risk of world-rattling banking crises and sovereign debt
defaults.
This would also shift wealth to middle-class consumers everywhere, creating
new locomotives of global growth.
The problem with Trump's vision is, it's not clear when the benefits would
smooth out the chaos caused. "As Keynes said, 'In the long run, we are all
dead,'"
says Scott. "So we have to hope that we would still be around to enjoy the
benefits of what Trump is proposing to do."
