Did Bush tax cuts create the housing bubble?

[theeedude]

Where did those tax cuts for the wealthy, and other trickle down money, go? They got invested, all right. In things like collateralized debt obligations which fueled the housing bubble. So not only did those "job creators" got to "keep more of their money" but when they gambled and lost it, they were bailed out and got to keep more of your money too. So when you hear that tax cuts will spur investments, don't automatically assume they'll spur investment in job creation, and that "investment" may end up costing you more money than you think.

 

[her209]

American Dream Down Payment Act of 2003
http://www.americandreamdownpaymentassistance.com/whsp12162003.cfm

Guess what happened?

 

[halik]

The run up started before 01/03

Housing price appreciation (with extremes)

 

[sunzt]

"Ownership Society"

GWB mantra.

 

[rudder]

That economic growth from the tax cuts was cancelled out by dubya's bad monetary policies which weakened the dollar.

Tax cuts are effective. End of story.

 

[quest55720]

No easy to get loans thanks to fannie, freddie and government intervention caused the bubble. More people were in the housing market driving up the prices pretty simple supply and demand. Housing prices have actually returned to a reasonable level thanks to banks only giving out loans to people who can actually afford them.

 

[rudder]

American Dream Down Payment Act of 2003
http://www.americandreamdownpaymentassistance.com/whsp12162003.cfm

Guess what happened?

By the height of the housing crisis... Fannie mae and freddie mac were purchasing 40% of all sub-primes. Created quite the market and encouraged slack underwriting don't you think? I mean the risk was not on the lender, but the taxpayer.

 

[quest55720]

By the height of the housing crisis... Fannie mae and freddie mac were purchasing 40% of all sub-primes. Created quite the market and encouraged slack underwriting don't you think? I mean the risk was not on the lender, but the taxpayer.

Exactly and we can thank the OWS hero's Frank and Dood for blocking reform to stop this practice which made the crash much worse.

 

[Ausm]

I think the Housing Bubble was caused by many factors such as the Repeal of Glass-Steigall, Incompetence by Alan Greenspan,Lack of Financial Regulatory over sight and loosening the constraints that keep Fannie/Freddie from buying ASSLOADS of Toxic Debt.

 

[theeedude]

That economic growth from the tax cuts was cancelled out by dubya's bad monetary policies which weakened the dollar.

Excuses are ineffective. End of story.

FTFY

 

[Ausm]

That economic growth from the tax cuts was cancelled out by dubya's bad monetary policies which weakened the dollar.

Tax cuts are effective. End of story.

Yeah if your in the top tier tax brackets

 

[her209]

I think the Housing Bubble was caused by many factors such as the Repeal of Glass-Steigall, Incompetence by Alan Greenspan,Lack of Financial Regulatory over sight and loosening the constraints that keep Fannie/Freddie from buying ASSLOADS of Toxic Debt.

People were also encouraged to flip homes because there was legislation that allowed a certain amount of capital gains to be tax free. Differing limits were set for single and married couples.

 

[theeedude]

If you give more money to the middle class, it will spend it on what it needs to buy. The government can spend it on infrastructure. It is going to create demand for goods that are actually needed.
But if you give more money to the wealthy, they aren't going to spend it, they are going to "invest it" which means give it to some financial advisor to gamble with on Wall Street. And if those bets go south, they'll use their political power to get themselves a bailout from the taxpayer. Giving the wealthy tax cuts is just giving them more money to gamble with, and putting the rest of us on the hook for even bigger bailouts.

 

[mshan]

Bubbles Greenspan:

Asian Financial Crisis / Long-Term Capital Management crash --> Internet Bubble --> Housing Bubble -->> Commodity Bubble (?) in future.

Second Bush tax cut poured gasoline on a smoldering fire and turned it into an inferno. There was too much cheap liquidity sloshing around the world, so I don't think Bush tax cut caused the bubble, just exacerbated it greatly.

I forgot exact year, but it was about 2003 or 2004 when housing prices started to really get out of whack with historic norms.

 

[her209]

By the height of the housing crisis... Fannie mae and freddie mac were purchasing 40% of all sub-primes. Created quite the market and encouraged slack underwriting don't you think? I mean the risk was not on the lender, but the taxpayer.

OK, but why would someone making $30,000 take out a loan for $300,000? Because they thought they could flip it for a nice profit in a couple of years meanwhile only have to pay interest on the mortgage and got to deduct said interest off their income taxes too.

 

[rudder]

If you give more money to the middle class, it will spend it on what it needs to buy. The government can spend it on infrastructure. It is going to create demand for goods that are actually needed.
But if you give more money to the wealthy, they aren't going to spend it, they are going to "invest it" which means give it to some financial advisor to gamble with on Wall Street. And if those bets go south, they'll use their political power to get themselves a bailout from the taxpayer. Giving the wealthy tax cuts is just giving them more money to gamble with, and putting the rest of us on the hook for even bigger bailouts.

So then the issue in not tax cuts... but not allowing these companies to fail when they make stupid decisions. this is what a lot of people have been saying here for a long time. No one should be to big to fail. And judging by your perception... if they did fail.. they would lose their own money... so one wonders why people were chastised for saying these companies should go under.

 

[halik]

By the height of the housing crisis... Fannie mae and freddie mac were purchasing 40% of all sub-primes. Created quite the market and encouraged slack underwriting don't you think? I mean the risk was not on the lender, but the taxpayer.

By 2007 the mandate was 55% of the loans purchased had to come from below-median income borrowers.

http://en.wikipedia.org/wiki/Fannie_Mae#1990s

 

[rudder]

OK, but why would someone making $30,000 take out a loan for $300,000? Because they thought they could flip it for a nice profit in a couple of years meanwhile only have to pay interest on the mortgage and got to deduct said interest off their income taxes too.

In a saner world someone approaching a lender with $30,000 income and zero down wanting to buy a $300,000 home would be shown the door. But hey, the lender made the money setting up the loan... fannie mae and freddie bought it... the $300,000 house went into foreclosure because everyone else was trying the same thing... and the taxpayer is on the hook.

 

[mshan]

Yeah, but as Kudlow used to crow, subprime was only 15% of GDP and can only cause mild recession, at worst...

 

[halik]

Bubbles Greenspan:

Asian Financial Crisis / Long-Term Capital Management crash --> Internet Bubble --> Housing Bubble -->> Commodity Bubble (?) in future.

Second Bush tax cut poured gasoline on a smoldering fire and turned it into an inferno. There was too much cheap liquidity sloshing around the world, so I don't think Bush tax cut caused the bubble, just exacerbated it greatly.

I forgot exact year, but it was about 2003 or 2004 when housing prices started to really get out of whack with historic norms.

Doesn't follow empirically, Canada central bank rate follow the FED essentially lock step (and did in the time period in question), yet they didn't experience anything like us in terms of real estate prices.

http://www.clevelandfed.org/research/commentary/2009/0909.cfm

 

[quest55720]

OK, but why would someone making $30,000 take out a loan for $300,000? Because they thought they could flip it for a nice profit in a couple of years meanwhile only have to pay interest on the mortgage and got to deduct said interest off their income taxes too.

And government let Fannie and Freddie buy those horrible mortgages. If banks were not giving out mortgages to people who were obviously were not qualified none of this would of happened. Why did banks give out the loans that be Fannie and Freddie who bought them up. Goverment caused this entire mess.

 

[halik]

Yeah, but as Kudlow used to crow, subprime was only 15% of GDP and can only cause mild recession, at worst...

Why listen to people like Kudlow, commondreams.org, Beck etc. - you know what their answer will be, regardless of reality.

 

[Genx87]

Well what is it? Did his tax cuts make a difference or didnt it? I have heard only the rich got cuts and it did nothing. Now the OP is asking if it caused a severe bubble. Which meant it did something in a drastic fashion.

 

[JTsyo]

Trickle down won't work at all when the money is going overseas.

 

[mshan]

Kudlow probably would have been right if the problem really was just subprime, but it wasn't. It was about the leveraged speculation based upon those subprime loans (I think these too big to fail institutions were also using overnight funding, so loss of liquidity triggered crash in October 2008):

"In October 2008 the global financial markets crashed.

The story in the media is that it was a panic caused by the insolvency of Lehman Brothers.

This is not the truth - or at least not all of it. The crash actually followed a $2 trillion margin call by these four global banks on their prime brokerage clients

and OTC counterparties - effectively a 30 per cent increase in required margin.

It was the margin call that forced liquidation of global portfolios of all asset classes - and particularly the high quality, most liquid asset classes."


http://londonbanker.blogspot.com/2011/05/concentration-manipulation-and-margin.html

I believe Canadian banks were appropriately regulated and maintained traditional underwriting standards (25% down payment, etc.) and that's why they didn't have the same crash we did:

http://www.businesspundit.com/sub-prime/page11.php

Gordon Gekko speech in Wall Street - Money Never Sleeps (Oliver Stone's father worked on Wall Street so I suspect Stone has a lot of insight into how the street really works):


"Hedge fund managers came home with 50 to 100 million bucks a year.

So Mr. Banker, he looks around and says.

My life looks pretty boring.

So he starts leveraging his interest up to 40 - 50 to 1. With your money not his.

Yours. Because he could.

You are supposed to be borrowing not them.

And the beauty of the deal is no one is responsible.

Because everyone is drinking the same cool-aid."

http://political-economy.com/wall-street-money-never-sleeps/