The Instigator
RoyLatham
Pro (for)
Winning
19 Points
The Contender
afmedia
Con (against)
Losing
0 Points

Bush policies were not the main cause of the financial crisis

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Post Voting Period
The voting period for this debate has ended.
after 3 votes the winner is...
RoyLatham
Voting Style: Open Point System: 7 Point
Started: 8/24/2010 Category: Politics
Updated: 7 years ago Status: Post Voting Period
Viewed: 4,569 times Debate No: 12825
Debate Rounds (3)
Comments (28)
Votes (3)

 

RoyLatham

Pro

President Obama and his fellow Democrats are claiming that the policies of the Bush Administration caused the recent financial crisis. I have yet to hear exactly what policies they claim caused the crisis. This debate may reveal what they claim.

This challenge is intended for experienced debaters.

In this debate Con will identify the Bush policies claimed to have caused the financial meltdown and argue why they were the main cause of the financial meltdown. Con must show that they were Bush policies, not the policies of Clinton, Democrats, or the Federal Reserve and also not the fault of factors beyond the reach of government policy. It is up to the readers of the debate to decide which factors were most important, i.e., the "main cause," and which were of lesser importance. I'm arguing that while some Bush policies may be contributory, the main fault lies elsewhere.

The Wikipedia article on the subprime mortgage crisis has a left-leaning bias, but it nonetheless has useful background information and references. http://en.wikipedia.org... They summarize: "The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005–2006. High default rates on "subprime" and adjustable rate mortgages (ARM), began to increase quickly thereafter. An increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgages in the belief they would be able to quickly refinance at more favorable terms."

Fannie Mae is popular name for the Federal National Mortgage Association, a "government sponsored enterprise." http://en.wikipedia.org... It is sponsored by the government and subject to government regulation, but it has shareholders and mains a quasi-independent status. It is not under the authority of the Executive Branch of the federal government.

I think the primary causes of the recession were:

1. The widespread belief that housing prices could not drop substantially, so that investments in housing were safe. Warren Buffet and Alan Greenspan attribute this to being the most important cause. That was widespread bad judgment, not a government policy.

Warren Buffett: "It was part of a bubble mentality and that bubble mentality got incorporated into models used not just by rating agencies but by others." ... And Buffett admits the agencies failed in their supposed objective wisdom: "They were incapable of thinking at great variance from what everybody else thought." http://www.guardian.co.uk...

Alan Greenspan: "If it weren't the subprime crisis it would have been something else," he said. That is because an era was ending that had seen "disinflationary forces" from developing countries such as China and a "protracted period" in which there was an "underpricing of risk." http://economistsview.typepad.com... (Greenspan does not speak plain English, but he's saying the same thing as Buffet.)

2. Repeal of the Glass Steagall Act http://en.wikipedia.org... that had prevented banks from making risky investments. This was done in 1999 as a policy of the Clinton Administration. Some Republicans supported the repeal, but it was a Clinton policy.

3. The policy of issuing poorly-secured real estate loans underwritten directly or indirectly by Fannie Mae and Freddie Mac. This began with the Clinton Policy embodied in the Community Reinvestment Act changes made in 1995 that required investment in real estate previously thought too risky. The requirement were further stiffened in 1999. An attempt to roll back the the requirements to make risky loans was rejected by the Federal Reserve Board in 2004. http://www.newrules.org...

"In 1999, The New York Times reported that with the corporation's move towards the subprime market "Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s." Alex Berenson of The New York Times reported in 2003 that Fannie Mae's risk is much larger than is commonly held. Nassim Taleb wrote in The Black Swan: "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events 'unlikely'" http://en.wikipedia.org...

4. That Fannie Mae and Freddie Mac remained under the control of Democrats throughout the Bush years. In 2002, Fannie and Freddie began buying up so-called NINJA (no income, no job) mortgage loans at a furious pace. Compensation of Freddie and Fannie executives was based on the size of the mortgage portfolio, not the quality of the loans. This encouraged the entire mortgage industry to make unsound loans on the grounds that (1) the government endorsed the belief that real estate would not drop, no matter what, and (2) risky loans could always be sold to Freddie and Fannie, as they had an insatiable appetite for them.

5. That Democrats in Congress blocked attempts to reform Freddie and Fannie. The Bush Administration when to Congress on three separate occasions asking that regulation of Freddie and Fannie be tightened. (Video: )

"Prominent Democrats ran Fannie Mae, the same government-sponsored enterprise (GSE) that donated campaign cash to top Democrats. ... According to an article by Kathleen Day in the Oct. 8, 2003, Washington Post, Frank opposed giving the Bush administration the right to approve or disapprove business activities that "could pose risk to the taxpayers." He told the Post he worried the Treasury Department "would sacrifice activities that are good for consumers in the name of lowering the companies' market risks."
Just a month before, Frank had aggressively thwarted reform efforts by the Bush administration. He told The New York Times on Sept. 11, 2003, Fannie Mae and Freddie Mac's problems were "exaggerated," a gross miscalculation some five years later with costs estimated to be in the hundreds of billions.
"These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis," Frank said to the Times. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." http://www.businessandmedia.org...

Democrats took over Congress in 2006 and not only failed to recognize the economic problems rooted in Fannie and Freddie, they completely blocked Bush Administration efforts to regulate these out-of-control institutions.

6. The Bush Administration might have made a greater issue of fragility of the housing bubble, beyond their attempts to regulate Fannie and Freddie. However, failure to create a great enough ruckus is not an economic policy, it is political failing. Democrats had a greater political failing because they blocked reform. If one deems failure to act to be a "policy" then it was the Democrats policy that prevailed, not Bush's policy.

What caused the recession? A housing bubble fueled by the policies of Democrats and sustained by Democrats who blocked reforms that might have prevented the ultimate collapse.

The resolution is affirmed.
afmedia

Con

As a matter of debate, I am obliged to initially set off with the contention that moreover than specific policies which led to the crisis, the lack of policies should be equally allowed to be presented as a case for the opposition. The initial debate point sets off the supposition that by saying "Bush policies were the cause of the financial crisis" that he enacted specific measures which led to the current issues we face today. More specifically, the argument made from the point is specific to "rules and law" policy, which misinterprets the original claim that Bush's policies (principles) to guide decisions and achieve rational outcomes had been flawed and responsible for the ensuing crisis.

While I reconsider your argument, I realize that you do partially realize that this is a portion of the issue. It would, however, be naive to assume that anyone supposes that neither Clinton, Democrats, the Federal Reserve, or external factors had additional involvement. For the sake of this argument, however, I will attempt to be as congruent to your initial topic as possible and follow the notion that can be debatable - that Bush was at least largely a circumstance that allowed the emergence of the financial crisis.

Secondly, while I loathe not debating you point by point, I have to strike down the presumption that the sub-prime mortgage crisis was the primary factor and point of the financial crisis. The sub-prime crisis in itself was merely a tertiary problem to a much larger financial issue. The core of the issue was not just the evictions, foreclosures, and vacancies - it was the destruction and failure of several, often huge, businesses, trillions of dollars in wealth lost by the entire country, a large slump in economic progression, and a far greater commitment by the government into the world of finance and debt.

Before stating my full position, I would also like to engage you on the few points you made. Initially you make the claim that there was a widespread belief that housing prices could not drop substantially - this is simply an unsupported claim with even less merit to the argument. Financial bubbles, which "pop" with substantial drops to price, were present plenty of times in similar, albeit with less disastrous, situations including the 2000 dot-com bubble, the 1997 Asian Financial Crisis, the 1980 Japanese Asset Price bubble, the 1970 Poseidon bubble, and the Roaring Twenties bubble in the twenties - there are even more examples, dating back to the 1600s, which due to their lack of knowledge, I shall exclude. Any commodity, in situations where there is a higher demand that the availability of a commodity, will begin a 'bubble', where the price is increased beyond the value. In the 1970s when the U.S. ended the gold standard through currency, there began a comparable bubble. This bubble, as virtually all bubbles, ended when the value was decreased (in this situation, as well as the current financial crisis, the value was decreased by the Federal Reserve, who by raising interest rates, removed the ability of overvaluation through a lower level of available funds). These large devaluations do happen, and as a continued act of ignorance, they were ignored by key people in all aspects, including President Bush, who should at least be as smart as his appointments and advisers. As President of the United States, not only was President Bush responsible for appointing regulatory agents that should have safe guarded the nation from such a disaster, it is well informed opinion that the leader of a country is a large and main factor in the direction of his party's legislative agenda and domestic policy.

Another of your points are equally as biased as the points you argue against. In your second point you claim that "some republicans supported the repeal, but it was a Clinton policy", and yet you go on in point five to claim that "democrats blocked attempts to reform Freddie and Fannie". Certainly not all democrats blocked it, and certainly not all republicans were for it. A majority or minority viewpoint on an issue does not imply it's responsibility for the decision, and in fact, having a system of checks and balances ensures that decisions often are not made on wholly Democrat vs. Republican arguments, but rather dissenting and agreeing positions.

The fact of the matter is that as leader of the nation, Bush was a major player responsible for the collapse simply through his negligence to protect the nation against it, which is his duty. The argument could, and probably will and should, be made that this same negligence is on the shoulders of every president since the creation of the Federal Reserve and the creation of a system which inherently creates a system of bubbles which grow, burst and reemerge as markets evolve, because this is the case. The argument that Bush was responsible, much as you claim, is simply overstated, as you understand it: the argument, truly, is not that Bush was the sole cause, but much rather, through complacency and neglect of duty, allowed a crisis that was not only inevitable, but clearly happening even without the gift of foresight.

Sources:
Economic Bubbles
http://en.wikipedia.org...
When Bubbles Burst (PDF), World Economic Outlook, International Monetary Fund, April 2003 - http://www.imf.org...

Presidential Responsibility
The Constitution
Declining Home Prices - http://www2.standardandpoors.com...
Debate Round No. 1
RoyLatham

Pro

The point of this debate is to identify Bush policies, if there were any, that caused the financial crisis. Con did not claim a single Bush policy that led to the financial crisis. He thereby effectively concedes the debate.

What Con claims is that even though there were no Bush policies that led to the financial crisis, that Bush should have anticipated the crisis and accomplished policy changes to prevent it. In other words, Bush should have been all-knowing, all-powerful, and beneficent. While being god-like is certainly desirable, downright wonderful, in fact, it is not a matter of policy. A policy is a specific set of proposed actions

I gave substantial evidence that the Bush Administration perceived the severe problems with Fannie Mae and Freddy Mac, and pursed a policy of trying to correct those errors. Democrats blocked the Bush efforts. That one policy would have very substantially lessened the crisis, and might well have prevented it completely by quenching the overheated real estate market. That was the Bush policy, and Bushed pressed it repeatedly. Con must explain how Bush could have accomplished his policy over Congressional opposition. Con seems to be demanding that Bush be faulted for not having dictatorial powers. Bush did not have such powers and, of course, should not have had them.

Con claims, "The sub-prime crisis in itself was merely a tertiary problem to a much larger financial issue. ... it was the destruction and failure of several, often huge, businesses, trillions of dollars in wealth lost ..." Con is confusing the effect of the crisis with the cause. The cause was the subprime mortgage meltdown, the effect was as he describes. The reason that that financial institutions failed is that the loans they had made failed, and they didn't have the reserves necessary to cover them. If a mortgages require a 20% down payment, then about 20% of the loans can fail before the mortgage holders fail. That's leverage of 4 to 1. Fannie and Freddie were leveraged 140 to 1, so it took very little to bring them down. Other lenders were very highly leveraged as well, in part following the government's example that such high leverage was safe. The problem was made worse by credit default swaps, which were insurance policies against failure of the financial institutions. Those policies were highly leveraged, so the insurers could not pay and failed as well.

Con did not offer an alternative explanation of the cause of the financial crisis. He offered no evidence that anything else caused the financial crisis.

Con protests, "you make the claim that there was a widespread belief that housing prices could not drop substantially - this is simply an unsupported claim." The first evidence I presented was the Wikipedia article summary, saying ""The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005–2006. ..." Additional evidence I presented was in (1), where I quoted Warren Buffet and Alan Greenspan. Buffett is renowned for his investment wisdom, backed up by his success. Greenspan was the Federal Reserve chair. These are certainly authorities. Both attributed the financial crisis to a "bubble mentality" in which the risks of real estate dropping was all but ignored. Con continued with descriptions of other economic bubbles, in which risks were largely ignored in the belief that prices could not drop. Those examples all support my point, that crisis was caused by the bursting of the housing bubble.

Con states, "As President of the United States, not only was President Bush responsible for appointing regulatory agents that should have safe guarded the nation from such a disaster, it is well informed opinion that the leader of a country is a large and main factor in the direction of his party's legislative agenda and domestic policy." Was it irresponsible or negligent for Bush to not know the housing bubble would burst? Bush certainly know more that the Democrats. Bush tried to reign in Fannie and Freddie because of fear of their collapse, but Democrats successfully opposed regulation. No Democrat warned of a housing bubble about to burst. Buffet and Greenspan clearly did not know that the bubble was going to burst. So, while Bush did not avert the crisis he tried to reform Freddie and Fannie, for good reasons that completely escaped Democrats. It is the nature of economic bubbles that even the best financial minds, like Buffett and Greenspan, do not see them coming.

I pointed out that Democrats blocked reform of Freddie and Fannie, and I provided the video Frank, the responsible committee chair, denouncing the Republican attempt at reform. Con says that "Certainly not all democrats blocked it, and certainly not all republicans were for it." The resolution is about whether "Bush policies" were responsible for the financial crisis. The Bush policy was to regulate Fannie and Freddie to stop them from buying up bad loans. It is irrelevant how many Republicans supported Bush policy and how many Democrats opposed. The point is that Bush policy was correct and that Democrats blocked it. If the Bush policy were wrong and it were blocked, it would have remained wrong. It was correct.

Con's account was created on the same day he accepted this challenge. So I ask Con: are you a ddo member who created a second account solely to take this challenge? Just asking.

Con pointed to no policy of the Bush Administration that caused the financial. Con's argument that Bush should have stopped the crisis somehow is irrelevant, but nonetheless false. Bush had better insight than the Democrats who blocked reform of Freddie and Fannie, an even the best economic thinkers, ike Buffett and Greenspan, did not foesee the crisis. The resolution is affirmed.
afmedia

Con

afmedia forfeited this round.
Debate Round No. 2
RoyLatham

Pro

I am shocked, I tell you shocked, that my opponent has forfeited. He created the account right before posting his first round argument, and has not been on the site since. It is embarrassing to those of a certain political persuasion to have a strong case hanging around as an unaccepted challenge, and one way to get rid of it is to create an account, accept the challenge, post either no response or a lame response, and then forfeit. I cannot be certain that's what happened, but it fits the pattern.

My opponent really did not debate the resolution and effectively conceded. I refuted each of his points, to which he had no response.

If anyone would like to do a serious debate on this topic, let me know and I'll post the challenge to them.
afmedia

Con

afmedia forfeited this round.
Debate Round No. 3
28 comments have been posted on this debate. Showing 1 through 10 records.
Posted by RoyLatham 7 years ago
RoyLatham
"After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. The final bill resolving the differences was passed in the Senate 90–8 (one not voting) and in the House: 362–57 (15 not voting). The legislation was signed into law by President Bill Clinton on November 12, 1999." http://en.wikipedia.org...

See what wonderful things happen when the two parties work together.
Posted by TheAtheistAllegiance 7 years ago
TheAtheistAllegiance
Actually, I believe only 7 Democrats voted against the measure... I am not sure, though. If you have a link showing otherwise, I'd like to read it.
Posted by rengstrom6147 7 years ago
rengstrom6147
Thats ridiculous to put the blame of for the repeal of the Glass Steagall Act on Clilnton. True, Clinton did sign it into law, but the Democrats in Congress voted almost entirely against its repeal whereas Congressional Republicans voted entirely for it.
Posted by RoyLatham 7 years ago
RoyLatham
afmedia is probably a ghost account. It was created the day the challenge was accepted. I wouldn't be terribly surprised if remaining rounds were forfeited, but we'll see.

@atheist, Bush would be more responsible if he had not tried repeatedly to reform Freddie and Fanny, but his efforts were blocked. That was the biggest culprit of the many factors. I think Bush does bear responsibility for not trying harder, early on, to undo all the bad policies carried over from the Clinton era. Republicans never had the 60 vote Senate necessary, so they would not have succeeded. This debate is just about the main responsibility.
Posted by FormAndTheFormless 7 years ago
FormAndTheFormless
Too bad a reputable Democrat didn't take this debate; it's probably not going to turn out to be very interesting unless afmedia is a ghost account.
Posted by Sieben 7 years ago
Sieben
Figureheads don't decide anything.
Posted by TheAtheistAllegiance 7 years ago
TheAtheistAllegiance
For example, if Bush had started Afghanistan in 2007, and Obama continued and expanded that war, I would mostly blame Obama. Bush did start it, but Obama not only ignored the warnings and risks for continuing the war, but also expanded the war, which ultimately caused a huge financial deficit, loss of life, and strained international, diplomatic relations.

Now, I don't necessarily place most of the blame on Bush for the financial crisis, but I'm just making a point that he can't be brushed aside. If Clinton had ran things up until 2004-2006, he would certainly bear most the blame. However, Clinton's most destructive deregulatory policies were signed off in 1999 and 2000. Bush had 6-7 years to reverse this, but instead, he continued it.

**I ran out of character space in my previous comment.
Posted by TheAtheistAllegiance 7 years ago
TheAtheistAllegiance
The Democrats did push for universal home ownership, but this wasn't fundamental in the housing crisis. Fannie and Freddie may have been highly leveraged, but this leverage was extended upon conforming mortgages; they weren't very risky. In fact, GSE's retained around 56% market share, yet only made up 20% of outstanding delinquencies. Private, non-regulated banks retained approximately 15% market share, yet accounted for over 50% of outstanding delinquencies.

The fact is, the excessive liquidity pouring from financial markets into multi-purpose investment banks initiated a lending frenzy. This liquidity originated with the wide-spread use of Credit Default Swaps since 1997, which enabled financial firms to hedge risk exposure. This was fundamental in why banks packaged sub-prime mortgages without verifiable income or employment.

Because this liquidity (credit) trickled down to consumers, the demand for homes rose substantially, driving housing prices up. Banks packaged these loans and sold them all over the global markets because they were incredibly profitable. However, the bubble eventually burst, and all hell broke loose.

Fannie and Freddie were survivable, especially during the 2003 debate that you brought up. The implosion of the US economy caused a huge credit crunch, among a stock market crash, which eventually led to unemployment and a GDP contraction. This caused mortgages owned by F&F to go underwater and default as well. However, this was largely an after-effect of an undeniable cause - deregulation. Clinton was the last of Democratic leadership in 2000, and from then on, Republicans ran the show until 2007. Bush and Republicans expanded deregulatory policies, along with ignoring fraud, parallel banking, a speculative bubble, and a systemically risk-ridden banking/financial system.

I'm a Democrat, and unlike others whom you've talked to, I hope that I've sufficiently explained why Bush is indeed very responsible for the financial crisis.
Posted by RoyLatham 7 years ago
RoyLatham
The reason for the policy of no-income no-job loans was that Democrats thought that this would provide home ownership to to poor people who could not otherwise afford to own homes. Bush trid repeatedly to get the policy change, but Democrats blocked the attempts. Listen to House Finance Committee Chair Barney Frank explain how it was ridiculous to suppose that Fannie and Freddie had a risk of collapse. The Administration Republicans who went to the committee demanding reform were denounced as incompetent and tossed out. Fannie and Freddie were leveraged 140:1, guaranteeing that even a small drop in home values would collapse the system.

There was fraud in the mortgage industry in terms of applications not being checked by the loan agents, but that had little to with the collapse. It was government policy to buy up economically unsound loans, and Fannie ad Freddie did so at an amazing rate. In all the writing of economists on the reasons for the meltdown, I've never heard anyone seriously propose that fraud was at the heart of it.

Listen to the Democrats claiming Bush was at fault, then try to find an explanation of *why* Bush was at fault. They never say.
Posted by TheAtheistAllegiance 7 years ago
TheAtheistAllegiance
Brian_eggleston is right. Even the FBI published a report in 2004 outlining the massive fraud going on in the booming mortgage industry. But similar to other warnings originated from the SEC, and many other agencies that saw what was happening, Bush ignored the FBI's outcries.
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