September 07, 2012
Did Clinton Blow the Housing Bubble?

This is fascinating stuff, if true. It has always seemed to me that the disappearance of well-paid blue-collar jobs in America can be traced to Clinton’s embrace of NAFTA. But can we also blame the housing bubble and consequent Great Depression II on him? I put the question out there for those with more knowledge of economics to answer.

From Business Insider, via the invaluable Naked Capitalism.

Basically, it was under Clinton that Fannie and Freddie really began blowing the housing bubble, issuing epic amounts of mortgage-backed debt.

The story that Gasparino tells is basically: Liberal Bill Clinton thought he could use government to make everyone a homeowner and so naturally this ended in disaster.

Gasparino specifically cites the controversial Community Reinvestment Act, a popular conservative bogeyman:

How did they do this? Through rigorous enforcement of housing mandates such as the Community Reinvestment Act, and by prodding mortgage giants Fannie Mae and Freddie Mac to make loans to people with lower credit scores (and to buy loans that had been made by banks and, later, “innovators” like Countrywide).

The Housing Department was Fannie and Freddie’s top regulator — and under Cuomo the mortgage giants were forced to start ramping up programs to issue more subprime loans to the riskiest of borrowers.


Posted by Jerome Doolittle at September 07, 2012 10:47 AM
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Spain has a home ownership rate of 78% as compared to 67% in the US. Still, the biggest housing bubble blew in Spain, not in the US or Germany (home ownership 42%).

Clinton's fault? Banksters' spin.

Posted by: Peter on September 7, 2012 11:31 AM

Well, you did read the whole of Joe Weisenthal's piece, didn't you? The author is quoting Gasparino there, and the very next line after the block quote is:

That's interesting. But the truth is far more complicated. And more interesting.

He goes on to explain that Gasparino misses the main point (after all, it is the NY Post) and that the real problem that drove the housing bubble was the lack of other government debt. He quotes Stephanie Kelton of the University of Missouri at Kansas City in explaining this. Kelton, along with several colleagues at UMKC, is a leading proponent of what has been dubbed Modern Monetary Theory. If you're not familiar with MMT or the UMKC folks (another is William K. Black), it would be worth a look at: . You also might find Rodger Malcolm Mitchell interesting -- he calls his website, and his version of MMT, Monetary Sovereignty ( )

The basic idea behind MMT is not only are deficits not bad; they are actually necessary to the functioning of our economy, especially when we have a negative balance of trade, which we do pretty much permanently anymore. The MMT ideas are counterintuitive to most of us, given what we've had pounded into our head for the last 30 years, but give them a chance. Mitchell also sounds kind of crazy until you start to think about what he says.

So basically, the BI piece is not blaming the Community Reinvestment Act, etc. and the other usual GOP bogeymen.

Clinton did a bunch of other stuff we could get into, but not really the topic of this post and I've gone on long enough.

Posted by: Tim on September 7, 2012 6:46 PM

Don't forget that it was Clinton who presided over removal of the floor that we'd had under wages for a while by ending welfare entitlements. The viciously titled Personal Responsibility and Work Opportunity Reconciliation Act of 1996.

The statutory minimum wage is never the real minimum wage. The real minimum wage is the point at which employment becomes a better deal than public benefits.

The converse is the Less Eligibility Principle, a mainstay of the Victorian/Dickensian Britain that provided a major model for U.S. assumptions about control of the poor: .

Good explanation and illustration of same at .

Posted by: Martha Bridegam on September 7, 2012 7:48 PM

To clarify muddled reference and over-simple idea --

Bill and Hillary Clinton, by ending welfare entitlements, dropped the floor that had supported wages for men of most European ancestries since the mid-Roosevelt years, and that had begun also to support the other adult population per the civil rights and welfare rights movements.

The 1994 mid-term elections notwithstanding, we can't blame this one on the Congressional Republicans. Bill and Hillary consciously, advisedly, sold low-wage workers down the river by selling out welfare rights.

Posted by: Martha Bridegam on September 7, 2012 8:43 PM

I was somewhere between glad and overjoyed to see Clinton go, but this charge is false.

The idea that the housing crisis was caused by Democrats forcing Fannie and Freddie to give easy mortgage credit to irresponsible (read "black") Americans was pushed hard by the GOP in 2009-2010 as they squirmed to find a way to deflect the fact that they had caused the Lesser Depression.

In fact, per Krugman and others who wrote extensively about this concept when it was being pressed by Limbaugh/Ryan/Tea Party, the facts show that the private companies like Countrywide rushed in early and big into the stupid mortgage sector; Fannie and Freddie came quite late to the party and did not in fact contribute all that much volume to the mortgage balloon.

So, this is just a veiled attempt to blame the Lesser Depression on blacks, Meskins, etc., instead of on rich whites.

For the facts and numbers, see:

Posted by: on September 8, 2012 2:50 AM

Yes, the version that blames Fannie, Freddie and the Community Reinvestment Act for the subprime crisis is wrong.

But what's unfortunately true is that the Bush Administration's HUD, making either cynical or naive use of civil rights rhetoric, actively encouraged members of U.S. minority groups to rush into "homeownership," i.e. mortgage debt. Which might have been OK if they had offered corresponding protections against deceptive and discriminatory lending practices, but they didn't, and such practices were rampant. They helped persuade a lot of marginally middle-class people, people who lacked financial cushions against loss, to throw their savings into racist bad deals in the name of empowerment and uplift.

Posted by: Martha Bridegam on September 8, 2012 1:36 PM
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