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In the decade before the financial crisis, regulatory pressure was used to force banks to issue more subprime mortgages. This article from 2000 warns of the con

In the decade before the financial crisis, regulatory pressure was used to force banks to issue more subprime mortgages. This article from 2000 warns of the consequences: https://www.city-journal.org/html/trillion-dollar-bank-shakedown-bodes-ill-cities-12096.html https://www.city-journal.org/html/trillion-dollar-bank-shake... Government sponsored enteprises, which underwrite 50% of the entire US mortgage market, started massively increasing their subprime loan guarantees at the same time. And then you have Federal Reserve mouthpiece, New York Times columnist Paul Krugman, advocating in this 2002 article that the Federal Reserve create a housing bubble: https://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html https://www.nytimes.com/2002/08/02/opinion/dubya-s-double-di... "To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." This revisionist account of the causes of the financial crisis is just these same powerful forces, who are receiving billions in kickbacks from all of this corruption, pinning the blame for the financial crisis on the mythical deregulation-bogeyman.

FabHK 6y ago
You are propagating the false narrative money manager Barry Ritholz calls “the Big Lie” (which was an apposite name before Trump’s recent antics), namely the idea that it was government regulation (specifically forcing the poor innocent banks to give mortgages to “those people”) that caused the GFC. I’d say that story has been roundly refuted. https://www.washingtonpost.com/business/what-caused-the-financial-crisis-the-big-lie-goes-viral/2011/10/31/gIQAXlSOqM_story.html https://www.washingtonpost.com/business/what-caused-the-fina... And for what it’s worth, that Krugman quote is out of context. Krugman is not calling for a housing bubble there, he is explaining Greenspan’s motivation in keeping rates so low for so long. Frankly, I find that disingenuous misrepresentation telling.
- CryptoPunk 6y ago
  I don't think a group setting out to deceive the public would be: a) planting stories 8 years before the crisis, warning about the far-reaching effects of the Community Reinvestment Act b) recruiting Democrat/Wall-Street/public-sector darling Krugman to plant a story in the NYT 6 years before the crisis, urging the Federal Reserve to "create a housing bubble" via low interest rates (which is exactly what the Fed did) >>And for what it’s worth, that Krugman quote is out of context. It seems pretty clear to me he is strongly endorsing a bubble in that quote, and that's when looked at in context too. Krugman is a major believer in Keynes' demand-side economic theories. Keynes argued that the government planting banknotes in the ground during a recession would be net-positive, because people expending resources to dig them up would create economic activity that would get money circulating: "If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again… the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing." Krugman argued something similar, when arguing that an announcing a non-existent alien attack would be economically beneficial, for the same reasons Keynes gave: https://business.time.com/2011/08/16/paul-krugman-an-alien-invasion-could-fix-the-economy/ https://business.time.com/2011/08/16/paul-krugman-an-alien-i... When looked at in this context, it's obvious why he'd think a bubble during a recession would be a good policy. But now of course the historical revisionism starts, and Krugman's clear endorsement of a bubble is reintepreted as prediction, so that the public-sector/Democrats' chief economic spokesman is not discredited.
  - FabHK 6y ago
    So, you're bringing up many points; I'd prefer if we could stick to a few, but I'll briefly address them. A) I claimed that a major factor in the 2007/08 GFC was deregulation. You countered that it was too much regulation, specifically mandatory lending to disadvantaged communities. That theory, floated by a few AEI (American Enterprise Institute) people, has been called "The Big Lie" by Ritholz, and largely rejected, I think. [1] B) > a group setting out to deceive the public I don't know what group or conspiracy you are referring to. C) I'll address your contention that Krugman called for a housing bubble in 2002. I think that is wrong, when you look at his writing in context. Krugman's argument was as follows: a) Under normal circumstances, when the economy heats up too much (inflation), the Fed raises rates and cuts off the excesses. b) This causes a typical post-war slump. c) That slump can be fixed by the Fed by lowering rates, creating a snap-back of consumer and business spending. d) HOWEVER, the slump in 2001 was not a typical post-war slump: Lowering rates did not bring back business spending. e) Therefore, if the Fed wanted to fight the slump with monetary means, it "needed" to engineer a housing bubble (and basically replace the .com stock bubble with said housing bubble). Krugman didn't endorse the bubble. Here's Krugman in 2003 decrying the housing bubble, and also noting that the "banana-republic policies now being followed in Washington won't just drive up interest rates; they'll probably generate a full-blown fiscal crisis one of these years.": https://www.nytimes.com/2003/06/20/opinion/still-blowing-bubbles.html https://www.nytimes.com/2003/06/20/opinion/still-blowing-bub... Here's Krugman in 2005 decrying the housing bubble and "signs that America's housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble": https://www.nytimes.com/2005/05/27/opinion/running-out-of-bubbles.html https://www.nytimes.com/2005/05/27/opinion/running-out-of-bu... Here's Krugman in 2006 decrying the housing bubble, predicting its end, and saying that "If anyone is to blame for the current situation, it’s Mr. Greenspan, who pooh-poohed warnings about an emerging bubble and did nothing to crack down on irresponsible lending." https://www.nytimes.com/2006/10/30/opinion/30krugman.html https://www.nytimes.com/2006/10/30/opinion/30krugman.html D) > Krugman is a major believer in Keynes' demand-side economic theories. Yes, Krugman is Keynesian, of course, and argues for stimulus via fiscal policy (taxes and spending) and monetary policy (rates and money supply), when and as appropriate. And yes, if the economy is stalled because of lack of demand, and monetary policy is ineffective because the zero lower bound, then fiscal policy (spending) would be effective (thanks to the multiplier), even if the money is pumped into fairly inefficient ventures, as long as the money goes to people that spend it (rather than saving it). (So, tax cuts for the rich are not good.) That is not to say that a Keynesian would advocate a less efficient over a more efficient stimulus; rather, Krugman was making the point that any stimulus (to people with high propensity to consume) is better than none. [1] for example, https://www.washingtonpost.com/news/wonk/wp/2013/02/13/no-marco-rubio-government-did-not-cause-the-housing-crisis/ https://www.washingtonpost.com/news/wonk/wp/2013/02/13/no-ma... or see https://en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble https://en.wikipedia.org/wiki/Causes_of_the_United_States_ho... for an overview of the debate.
- alentist 6y ago
  You are propagating a false narrative yourself. This narrative has itself been roundly refuted, which you decided to omit. See [0][1]. [0] https://cafehayek.com/2013/09/ritholtz-and-the-big-lie.html https://cafehayek.com/2013/09/ritholtz-and-the-big-lie.html [1] https://mercatus.org/sites/default/files/publication/RUSS-final.pdf https://mercatus.org/sites/default/files/publication/RUSS-fi...

FabHK 6y ago

You are propagating the false narrative money manager Barry Ritholz calls “the Big Lie” (which was an apposite name before Trump’s recent antics), namely the idea that it was government regulation (specifically forcing the poor innocent banks to give mortgages to “those people”) that caused the GFC. I’d say that story has been roundly refuted. https://www.washingtonpost.com/business/what-caused-the-financial-crisis-the-big-lie-goes-viral/2011/10/31/gIQAXlSOqM_story.html https://www.washingtonpost.com/business/what-caused-the-fina... And for what it’s worth, that Krugman quote is out of context. Krugman is not calling for a housing bubble there, he is explaining Greenspan’s motivation in keeping rates so low for so long. Frankly, I find that disingenuous misrepresentation telling.

CryptoPunk 6y ago
I don't think a group setting out to deceive the public would be: a) planting stories 8 years before the crisis, warning about the far-reaching effects of the Community Reinvestment Act b) recruiting Democrat/Wall-Street/public-sector darling Krugman to plant a story in the NYT 6 years before the crisis, urging the Federal Reserve to "create a housing bubble" via low interest rates (which is exactly what the Fed did) >>And for what it’s worth, that Krugman quote is out of context. It seems pretty clear to me he is strongly endorsing a bubble in that quote, and that's when looked at in context too. Krugman is a major believer in Keynes' demand-side economic theories. Keynes argued that the government planting banknotes in the ground during a recession would be net-positive, because people expending resources to dig them up would create economic activity that would get money circulating: "If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again… the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing." Krugman argued something similar, when arguing that an announcing a non-existent alien attack would be economically beneficial, for the same reasons Keynes gave: https://business.time.com/2011/08/16/paul-krugman-an-alien-invasion-could-fix-the-economy/ https://business.time.com/2011/08/16/paul-krugman-an-alien-i... When looked at in this context, it's obvious why he'd think a bubble during a recession would be a good policy. But now of course the historical revisionism starts, and Krugman's clear endorsement of a bubble is reintepreted as prediction, so that the public-sector/Democrats' chief economic spokesman is not discredited.
- FabHK 6y ago
  So, you're bringing up many points; I'd prefer if we could stick to a few, but I'll briefly address them. A) I claimed that a major factor in the 2007/08 GFC was deregulation. You countered that it was too much regulation, specifically mandatory lending to disadvantaged communities. That theory, floated by a few AEI (American Enterprise Institute) people, has been called "The Big Lie" by Ritholz, and largely rejected, I think. [1] B) > a group setting out to deceive the public I don't know what group or conspiracy you are referring to. C) I'll address your contention that Krugman called for a housing bubble in 2002. I think that is wrong, when you look at his writing in context. Krugman's argument was as follows: a) Under normal circumstances, when the economy heats up too much (inflation), the Fed raises rates and cuts off the excesses. b) This causes a typical post-war slump. c) That slump can be fixed by the Fed by lowering rates, creating a snap-back of consumer and business spending. d) HOWEVER, the slump in 2001 was not a typical post-war slump: Lowering rates did not bring back business spending. e) Therefore, if the Fed wanted to fight the slump with monetary means, it "needed" to engineer a housing bubble (and basically replace the .com stock bubble with said housing bubble). Krugman didn't endorse the bubble. Here's Krugman in 2003 decrying the housing bubble, and also noting that the "banana-republic policies now being followed in Washington won't just drive up interest rates; they'll probably generate a full-blown fiscal crisis one of these years.": https://www.nytimes.com/2003/06/20/opinion/still-blowing-bubbles.html https://www.nytimes.com/2003/06/20/opinion/still-blowing-bub... Here's Krugman in 2005 decrying the housing bubble and "signs that America's housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble": https://www.nytimes.com/2005/05/27/opinion/running-out-of-bubbles.html https://www.nytimes.com/2005/05/27/opinion/running-out-of-bu... Here's Krugman in 2006 decrying the housing bubble, predicting its end, and saying that "If anyone is to blame for the current situation, it’s Mr. Greenspan, who pooh-poohed warnings about an emerging bubble and did nothing to crack down on irresponsible lending." https://www.nytimes.com/2006/10/30/opinion/30krugman.html https://www.nytimes.com/2006/10/30/opinion/30krugman.html D) > Krugman is a major believer in Keynes' demand-side economic theories. Yes, Krugman is Keynesian, of course, and argues for stimulus via fiscal policy (taxes and spending) and monetary policy (rates and money supply), when and as appropriate. And yes, if the economy is stalled because of lack of demand, and monetary policy is ineffective because the zero lower bound, then fiscal policy (spending) would be effective (thanks to the multiplier), even if the money is pumped into fairly inefficient ventures, as long as the money goes to people that spend it (rather than saving it). (So, tax cuts for the rich are not good.) That is not to say that a Keynesian would advocate a less efficient over a more efficient stimulus; rather, Krugman was making the point that any stimulus (to people with high propensity to consume) is better than none. [1] for example, https://www.washingtonpost.com/news/wonk/wp/2013/02/13/no-marco-rubio-government-did-not-cause-the-housing-crisis/ https://www.washingtonpost.com/news/wonk/wp/2013/02/13/no-ma... or see https://en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble https://en.wikipedia.org/wiki/Causes_of_the_United_States_ho... for an overview of the debate.
alentist 6y ago
You are propagating a false narrative yourself. This narrative has itself been roundly refuted, which you decided to omit. See [0][1]. [0] https://cafehayek.com/2013/09/ritholtz-and-the-big-lie.html https://cafehayek.com/2013/09/ritholtz-and-the-big-lie.html [1] https://mercatus.org/sites/default/files/publication/RUSS-final.pdf https://mercatus.org/sites/default/files/publication/RUSS-fi...