Harmor wrote:
eleven bravo wrote:
Ill bet a dollar harmor doesnt come back to this thread
I'm still here. Just nothing worthy to reply to that all.
No? Ok. You ever heard of the Savings & Loan Crisis? I'm sure you have, it's part of pop culture. Well, pop history anyway.
It starts in the 1970s when stagflation hit thrifts (banks which deal almost solely with home loans and are government sponsored and backed). Paul Volcker came in under Reagan and immediately jacked the interest rate up to about 17% in order to curb the inflation rate which dominated the 1970s. Well, by jacking up the interest rate, he also jacked up the interest rate these thrifts had to pay out on deposits. These thrifts, which were locked into non-variable rate long term mortgages, were hemorrhaging money due to taking in 5% in interest on previous loans, and paying out 17% in interest on deposits. Now, with the advent of mortgage brokers, commercial banks stepping into the fray, and mortgage backed securities, thrifts were obsolete. Instead of killing the thrift industry altogether like he should've done, the Reagan administration prolonged, and increased the governments exposure to the mortgage industry. First he deregulated the thrifts, which by itself is fine, but not when coupled with what happened next... Then Fannie Mae and Freddie Mac were created to backstop the thrifts and give them a seller for the mortgages they originated. So, faced with either growing or dying, and encouraged by the Reagan administration to grow as quickly as possible 'for the good of the nation', the banks started originating loans faster than they ever had in the past. They created bubbles in booming states like Arizona, Florida, Nevada, California and Texas (sound familiar?).
Now, all well and good, the banks were making money, right? They're offering high interest rates, people are getting their dream homes, and everyone is profiting handsomely through the roaring 80s. One problem though. Fannie Mae and Freddie Mac, which had been created to backstop the thrifts, and which were buying up these loans as quickly as possible, was taking all the risk. The US Government: i.e. the US taxpayer, was taking all the risk. Well, when these bubbles collapsed, so did the thrifts. 747 of them to be precise. Who picked up the tab? The US taxpayer via the FDIC and Fannie/Freddie.
What's the point? Reagan gets a nice rap for overseeing the roaring 80s, and it's mostly the tax rate being lowered that is seen as the cause for the boom. Hardly so. Reagan was a market interventionist, the same as the Democrats are. He was no fiscal conservative. A fiscal conservative would attempt to remove as much governmental interference in the market as possible, he instead added more. The actions that his administration took in the 1980s were repeated by Clinton and Bush leading up to the crash in 2007. This time we simply crashed harder and with bigger banks involved.