Irresponsible government policies caused the past three market bubbles . The very same governments whose idiotic meddling in our free markets caused either the “bubble” or the collapse, love to blame it on the lack of regulation or on greed- don’t you just love it when politicians deride greed- or just to be safe, on the entire capitalist system.
Greenspan
Just to get you on my side right off the bat here I want to point out that the past two bubbles, the Dot-Com collapse as well as the housing collapses have come about as a result of the policies of the same Federal Reserve Chairman, the oft lionized and idolized and dare I say it, even, “Obama-ized” , Mr Allan Greenspan! He was Fed boss when the S&Ls and the housing market collapsed in 1990 but we can’t give him direct credit for that or for the 87 market crisis.
Greenspan even felt compelled to try to defend his legacy but his defense was so feeble that it became a de facto mea culpa. His reasoning, that he bares no responsibility for the Real Estate bubble because he lowered short term rates while real estate mortgages are long term thirty year loans, is at best weak. Many have pointed out that ARMS are of course adjusted based on the shorter end of the curve so Greenspan’s argument is not valid.
Its interesting to recall that prior to the Dot-Com collapse, in fact it was so much prior to the actual collapse that it became the laughing stock of a generation of traders, Geenspan actually issued the infamous “irrational exuberance warning”. In spite of that Greenspan did little to stave off the bubble. Sure he was under tremendous political pressure to let Camelot ride and buy a Clinton legacy on overly inflated stock prices propelled ever higher by cheap money, but that’s no excuse is it? Is there a lesson to be learned from this? Sure, first of all responsible monetary policy is paramount.
Second even a Fed Chief as brilliant and experienced ad Greenspan cannot predict the markets with any certainty or consistency and should therefore be focused on responsible fiscal policy. Not just ‘responsible” but considering that no more then two months ago we were told that we were on the verge of financial Armageddon our fiscal policy should be down right conservative with the possible exception of periods of negative economic growth.
Real Estate is easily manipulated
Real estate, being so dependent on fiscal and monetary policy is an industry that can easily be both inflated and rapidly deflated by government policies. Careless governments can create real estate boom and bust cycles and they do so with alarming regularity.
The previous real estate collapse, accompanied by the Savings and Loan collapse was both inflated and deflated by government policies . The tax advantages offered by the purchase of a second home fueled the demand for second homes and that in turn fueled the demand for construction and for loans to finance the construction and the mortgages. When the Democrat congress closed that particular tax loop hole, second homes were no longer a tax shelter and therefore no longer a viable investment so people stopped buying them and then stopped paying the mortgages and stopped construction projects in their tracks.
The S&Ls got stuck with all that worthless paper and collapsed and the recession ensued. Could there be a more clear cut example of the government inflating and deflating a bubble? Its interesting to note that that particular economic crisis also resulted in the election of a democrat president, Bill Clinton, just like the current one!
UBL and the real estate bubble
The cause of the real estate boom and bust cycle that we are now experiencing is directly linked to the 911 tragedy and therefore to Bil Clinton.
Ossama Bin Laden’s stated goal for the attack on the WTC was to destroy America’s economic power. He very nearly succeeded and we aren’t out of the woods on that one yet. Faced with a multi trillion dollar bill from the attacks, the “W” administration did all that they could do offer cheap money. Because of the recessionary environment the cheap money wasn’t enough to jump start most sectors as fast as the administration wanted. The idiotic label “jobless recovery” was the demonic cry with which the left hoped to continue the recession and to create the crisis that would destroy the administration and the nation.
While other industries may have lagged behind, cheap money however was good enough to kick real estate and construction into high gear. Construction was the only industry that we had that was running on all cylinders. The administration did all possible to ensure that the only industry that was actually creating jobs at a good pace kept doing so and continued to offer cheap money to keep that going. When the tax cuts took hold and other industries recovered the same cheap money that was meant to help our economy recover form the Osama Bin Laden attack now sent the housing market into an unsustainable upward spiral. Irresponsible socialist policies rode in on the back cheap money and the housing market became as unstable as a house of cards in a tornado.
Responsibility
In the sixty or seventy years that we have been micro managing the macro economy we have had no depression is true but what of the cost of practically uninterrupted inflation? How much has and will that cost us?
That question was perhaps not all that immediate, not since Carter anyway, but it will be front and center very soon. Isn’t it typical that instead of taking a long hard look in the mirror the Government prefers to use ‘bubbles” as an occasion to add more regulations? Maybe they should add regulatory guidelines and oversight infrastructure for monetary and fiscal policy. One way to maybe achieve that is to institute personal responsibility and liability for those making our monetary and fiscal policy, and then maybe extend that to all policy makers and then… oh, sorry I am day dreaming again.
Update.
I don’t want to leave you with the impression that our government is only able to destroy an industry after it has inflated it. Oh no, they are quite capable of killing an industry that may not have experienced a honest to goodness “bubble” at all.
Such a case is the automotive industry. Sure the Management of Chrysler and GM bear a tremendous amount of burden as do the the unions. But don’t sell the government short. The US Government’s standard operating procedure as far as automotive companies are concerned has been very simple, mandate, legislate, regulate and litigate. The result is that as of now we only have one single independent viable American car company. The other two are looking for someone to take them. Not buy them mind you but to take them. Fiat is playing hard to get to even accept a 20% stake in Chrysler for FREE! And GM? Oh yeah that’s such a mess its beyond comprehension. Many great GM brands will be no more and the ones that will remain will be either imported form China or maybe with some luck we’ll get to glue on the silly “bow tie” emblem in Detroit.
If you don’t think that the government played a dominant role in the destruction of our automotive industry ask yourself this question.
Why are there no brand new American car companies sprouting up?
Sure the GM and Chrysler disaster can, like I said, also be blamed on their management and labor, but what about new car aompanies. You can hardly blame the labor and management of GM or Chrysler for the lack of new car companies?
When a government’s policy towards an industry is MANDATE, LEGISLATE, REGULATE AND LITIGATE WHAT THE HELL DO WE THINK WILL HAPPEN?