Recessions are a natural element of the economic cycles in a free market society. They even serve a useful purpose. Recessions put a damper on the irrational exuberance that leads to boom and bust. Recovery from recession is just as natural as its recurrence.
MOTHER OF SEVEN Photo from FDR Library via National Archives and Records Administration
Since the end of the Great Depression the average length of a recession has been 11 months; the longest was 16 months in duration. The National Bureau of Economic Research is the universally accepted arbiter for determining when these periods began and when they ended. The NBER has set December 2007 as the start of the current recession. That makes it 2 years and 9 months old. It is by far, the longest recession on record.
Banks have cash to lend, corporations are flush, interest rates are low, labor is plentiful and cheap. These are the seeds for renewal of growth that naturally occur in any recession. But they are not taking root. It is the herbicidal policies of the Obama Administration we have to thank for that.
Taxes will rise but the details remain unknown. The rule of law has been subrogated to executive dictate. Assets have been acquired by government through intimidation. Unions are supported by government as seldom before. Obamacare has significantly increased the cost of adding new employees to a payroll. The Dodd and Frank Act for financial reform has given regulators carte blanche to make the law, no one knows what’s in store. Cap & Trade and Card Check hang as specters for 2011. The Federal debt is set to soar. Socialism is knocking at the door. There is no need to wonder why business is not rushing to expand and banks are reluctant to lend.
The collapse of the mortgage industry brought on this recession. It was the Community Reinvestment Act (CRA) and the actions of the government sponsored enterprises Fannie Mae and Freddie Mac that fed the real estate bubble which, one day, simply had to burst. It was Andrew Cuomo, Secretary for HUD who threatened the banks because “only” 42% of their loans were to sub-prime lenders. This was not a naturally occurring recession. It was government induced and now it is being government prolonged. It is FDR redux.
What did Reagan say? “Government is not the solution to the problem. Government IS the problem”.
We have written that the Act is vague in many respects. However, some of it is specific and some of it is good. For example, it puts an end to “Liars Loans” also called NINJA loans because you could get a mortgage with No Income, No Job and No Assets. Also good is the provision known as the Volcker Rule that puts limits on how far a bank can go in trading in derivatives and swaps for their own account, i.e, how much risk they may take in search of trading profits.
Anyone who listens to the excellent Howard Clark show knows there is need for reform in the credit card industry. We have no details, but the Act purports to bring needed reform here. Sounds good.
What the Act fails to do, and fails completely, is to fulfill its stated purpose. That is to take measures to prevent a recurrence of the financial collapse from which we are all still suffering. Can anyone deny the primary cause was too many sub-prime loans? Fannie Mae, Freddie Mac, Barney Frank, Franklin Raines, Andrew Cuomo and Jamie Garelick were the major players in designing, building, promoting and protecting the house of cards whose inevitable collapse created the crisis. It would be naïve to expect Barney Frank to censure Barney Frank but not to reform Fannie and Freddie is an unmitigated disgrace.
Space here does not allow a complete analysis of the causes and contributors to the crisis and the recession. Fortunately, some excellent, well written articles on the subject were published at Town Hall a year and a half ago. I urge you to click the blue links and read them.
Mortgage Mess Blame Game.
The Day the Democrats Brought Down the World
(Confession: I wrote them)
Associated Press quotes Barney Frank
“I believe this committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,”
That’s as frank as Frank can get.
AP continues: “His comments show how much the financial crisis has upended the relationship between lawmakers and the two companies. Frank was long one of the staunchest supporters of Washington-based Fannie Mae and Freddie Mac, based in McLean, Va.
The two companies, which have been run by the government since they almost collapsed in September 2008, have required $111 billion in federal aid to stay afloat. Late last year the Obama administration pledged to cover unlimited losses through 2012 for both companies, lifting an earlier cap of $400 billion.
Regulators announced last month the CEOs of Fannie and Freddie could get paid as much as $6 million for 2009. That has outraged Republican lawmakers on Capitol Hill.”
Got that? Lost 11 billion so far. Preparing for a loss of over 400 billion. CEOs getting 6 million. Government run.
Barney Boy wants to replace this horror of a government program with a whole new government program. New vehicle, same drivers. Instead of Fannie and Freddie what will it be Barney? How about Dizzy and Doozy?