H.R. 1424
Bush signs $700B bailout bill into law
"...the bill as it now stands gives the U.S. Treasury Secretary basically unchecked power to deal with $700 billion in taxpayer funds. According to Section 8 of the proposal, the decisions are "non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
There are 6 versions of Bill Number H.R.1424 for the 110th Congress
FactChecking Biden-Palin Debate
October 3, 2008
The candidates were not 100 percent accurate. To say the least.
Summary
Biden and Palin debated, and both mangled some facts.
* Palin mistakenly claimed that troop levels in Iraq had returned to “pre-surge” levels. Levels are gradually coming down but current plans would have levels higher than pre-surge numbers through early next year, at least.
* Biden incorrectly said “John McCain voted the exact same way” as Obama on a controversial troop funding bill. The two were actually on opposite sides.
* Palin repeated a false claim that Obama once voted in favor of higher taxes on “families” making as little as $42,000 a year. He did not. The budget bill in question called for an increase only on singles making that amount, but a family of four would not have been affected unless they made at least $90,000 a year.
* Biden wrongly claimed that McCain “voted the exact same way” as Obama on the budget bill that contained an increase on singles making as little as $42,000 a year. McCain voted against it. Biden was referring to an amendment that didn't address taxes at that income level.
* Palin claimed McCain’s health care plan would be “budget neutral,” costing the government nothing. Independent budget experts estimate McCain's plan would cost tens of billions each year, though details are too fuzzy to allow for exact estimates.
* Biden wrongly claimed that McCain had said "he wouldn't even sit down" with the president of Spain. Actually, McCain didn't reject a meeting, but simply refused to commit himself one way or the other during an interview.
* Palin wrongly claimed that “millions of small businesses” would see tax increases under Obama’s tax proposals. At most, several hundred thousand business owners would see increases.
For full details on these misstatements, and on additional factual disputes and dubious claims, please read on to the Analysis section.
Analysis
Vice presidential candidates Joe Biden and Sarah Palin met for their one and only debate Oct. 2 in St. Louis, Missouri. The event was broadcast nationally. Gwen Ifill of PBS was the debate moderator.
We noted the following:
Palin Trips Up on Troop Levels
Palin got her numbers wrong on troop levels when she said "and with the surge that has worked, we're now down to pre-surge numbers in Iraq."
The surge was announced in January 2007, at which point there were 132,000 troops in Iraq, according to the Brookings Institute Iraq Index. As of September 2008, that number was 146,000. President Bush recently announced that another 8,000 would be coming home by February of next year. But even then, there still would be 6,000 more troops in Iraq than there were when the surge began.
Biden Fudges on Troop Funding
Biden defended Obama's vote against a troop-funding bill, claiming that McCain voted "the exact same way."
Palin: Barack Obama voted against funding troops there after promising that he would not do so…He turned around under political pressure and he voted against funding the troops. ...
Biden: John McCain voted the exact same way. John McCain voted against
funding the troops because of an amendment he voted against had a timeline
in it to draw down American troops. And John said I'm not going to fund
the troops if in fact there's a time line.
biden.palin.1As we've pointed out before, the squabble refers to a pair of 2007 votes on war funding. Obama voted for a version of the bill that included language calling for withdrawing troops from Iraq. Biden is simply wrong to say that McCain voted against that bill; he was absent and didn’t vote at all. McCain did oppose the bill, and he urged President Bush to veto it. Bush did. Obama then voted against the same bill without withdrawal language. He had voted yes on at least 10 other war funding bills prior to that single 2007 no vote.
Palin's False Tax Claims
Palin repeated a false claim about Barack Obama's tax proposal:
Palin: Barack Obama even supported increasing taxes as late as last year for those families making only $42,000 a year. That's a lot of middle income average American families to increase taxes on them. I think that is the way to kill jobs and to continue to harm our economy.
Obama did not in fact vote to increase taxes on "families" making as little as $42,000 per year. What Obama actually voted for was a budget resolution that called for returning the 25 percent tax bracket to its pre-Bush tax cut level of 28 percent. That could have affected an individual with no children making as little as $42,000. But a couple would have had to earn $83,000 to be affected and a family of four at least $90,000. The resolution would not have raised taxes on its own, without additional legislation, and, as we've noted before, there is no such tax increase in Obama's tax plan. (The vote took place on March 14 of this year, not last year as Palin said.)
Palin also repeated the exaggeration that Obama voted 94 times to increase taxes. That number includes seven votes that would have lowered taxes for many, while raising them on corporations or affluent individuals; 23 votes that were against tax cuts; and 17 that came on just 7 different bills. She also claimed that Biden and Obama voted for "the largest tax increase in history." Palin is referring here to the Democrats' 2008 budget proposal, which would indeed have resulted in about $217 billion in higher taxes over two years. That's a significant increase. But measured as a percentage of the nation's economic output, or gross domestic product, the yardstick that most economists prefer, the 2008 budget proposal would have been the third-largest since 1968, and it's not even in the top 10 since 1940.
Biden's False Defense
Biden denied that Obama supported increasing taxes for families making $42,000 a year – but then falsely claimed that McCain had cast an identical vote.
Biden: Barack Obama did not vote to raise taxes. The vote she's referring to, John McCain voted the exact same way. It was a budget procedural vote. John McCain voted the same way. It did not raise taxes. joe
Biden was correct only to the extent that the resolution Obama supported would not by itself have increased taxes; it was a vote on a budget resolution that set revenue and spending targets. But he's wrong to say McCain voted the same way. The Obama campaign attempted to justify Biden's remark by pointing to a different vote, on a Senate amendment, that took place March 13. The amendment passed 99-1, with only Democratic Sen. Russ Feingold dissenting. It would have preserved some of Bush's tax cuts for lower-income people. The vote on the budget resolution in question, however, came in the wee hours of March 14 and was a mostly party-line tally, 51-44, with Obama in favor and McCain not voting.
Palin's Health Care Hooey
Palin claimed that McCain's health care plan would be "budget-neutral," costing the government nothing.
Palin: He's proposing a $5,000 tax credit for families so that they can get out there and they can purchase their own health care coverage. That's a smart thing to do. That's budget neutral. That doesn't cost the government anything ... a $5,000 health care credit through our income tax, that's budget neutral.
palinThe McCain campaign hasn't released an estimate of how much the plan would cost, but independent experts contradict Palin's claim of a cost-free program.
The Urban-Brookings Tax Policy Center estimates that McCain's plan, which at its peak would cover 5 million of the uninsured, would increase the deficit by $1.3 trillion over 10 years. Obama's plan, which would cover 34 million of the uninsured, would cost $1.6 trillion over that time period.
The nonpartisan U.S. Budget Watch's fiscal voter guide estimates that McCain's tax credit would increase the deficit by somewhere between $288 billion to $364 billion by the year 2013, and that making employer health benefits taxable would bring in between $201 billion to $274 billion in revenue. That nets out to a shortfall of somewhere between $14 billion to $163 billion – for that year alone.
Palin also said that Obama’s plan would be "universal government run" health care and that health care would be "taken over by the feds." That's not the case at all. As we’ve said before, Obama’s plan would not replace or remove private insurance, or require people to enroll in a public plan. It would increase the offerings of publicly funded health care.
McCain in Spain?
Biden said that McCain had refused to meet with the president of Spain,
but McCain made no such definite statement.
Biden: The last point I'll make, John McCain said as recently as a couple of weeks ago he wouldn't even sit down with the government of Spain, a NATO ally that has troops in Afghanistan with us now. I find that incredible.
In a September 17 interview on Radio Caracol Miami, McCain appeared confused when asked whether he would meet with President Zapatero of Spain. He responded that "I would be willing to meet with those leaders who are our friends and want to work with us in a cooperative fashion," but then started talking about leaders in Latin America. He did not commit to meeting with Zapatero, but it wasn't clear he'd understood the question.
But the McCain campaign denied that their candidate was confused.
According to our colleagues at PolitiFact.com, campaign adviser Randy Scheunemann e-mailed CNN and the Washington Post the next day, saying that McCain's reluctance to commit to a meeting with Zapatero was a policy decision.
Scheunemann, September 2008: The questioner asked several times about Senator McCain's willingness to meet Zapatero — and id'd him in the question so there is no doubt Senator McCain knew exactly to whom the question referred. Senator McCain refused to commit to a White House meeting with President Zapatero in this interview.
That's not a refusal to meet with Zapatero, as Biden said. It's simply a refusal to commit himself one way or the other.
Palin's Small Business Balderdash
Palin repeated a falsehood that the McCain campaign has peddled, off and on, for some time:
Palin: But when you talk about Barack's plan to tax increase affecting only those making $250,000 a year or more, you're forgetting millions of small businesses that are going to fit into that category. So they're going to be the ones paying higher taxes thus resulting in fewer jobs being created and less productivity.
As we reported June 23, it's simply untrue that "millions" of small business owners will pay higher federal income taxes under Obama's proposal. According to an analysis by the independent Urban-Brookings Tax Policy Center, several hundred thousand small business owners, at most, would have incomes high enough to be affected by the higher rates on income, capital gains and dividends that Obama proposes. That counts as "small business owners" even those who merely have some sideline income from such endeavors as freelance writing, speaking or running rental properties, and who get the bulk of their income from employment elsewhere.
Defense Disagreements
Biden and Palin got into a tussle about military recommendations in Afghanistan:
Biden: The fact is that our commanding general in Afghanistan said today that a surge – the surge principles used in Iraq will not – well, let me say this again now – our commanding general in Afghanistan said the surge principle in Iraq will not work in Afghanistan, not Joe Biden, our commanding general in Afghanistan. He said we need more troops. We need government-building. We need to spend more money on the infrastructure in Afghanistan.
Palin: Well, first, McClellan did not say definitively the surge principles would not work in Afghanistan. Certainly, accounting for different conditions in that different country and conditions are certainly different. We have NATO allies helping us for one, and even the geographic differences are huge but the counterinsurgency principles could work in Afghanistan. McClellan didn't say anything opposite of that. The counterinsurgency strategy going into Afghanistan, clearing, holding, rebuilding, the civil society and the infrastructure can work in Afghanistan.
bothPoint Biden. To start, Palin got newly appointed Gen. David D. McKiernan's name wrong when she called him McClellan. And, more important, Gen. McKiernan clearly did say that surge principles would not work in Afghanistan. As the Washington Post reported:
Washington Post: "The word I don't use for Afghanistan is 'surge,' " McKiernan stressed, saying that what is required is a "sustained commitment" to a counterinsurgency effort that could last many years and would ultimately require a political, not military, solution.
However, it is worth noting that McKiernan also said that Afghanistan would need an infusion of American troops "as quickly as possible."
Killing Afghan Civilians?
Palin said that Obama had accused American troops of doing nothing but killing civilians, a claim she called "reckless" and "untrue."
Palin: Now, Barack Obama had said that all we're doing in Afghanistan is air-raiding villages and killing civilians. And such a reckless, reckless comment and untrue comment, again, hurts our cause.
Obama did say that troops in Afghanistan were killing civilians. Here’s the whole quote, from a campaign stop in New Hampshire:
Obama (August 2007): We’ve got to get the job done there and that requires us to have enough troops so that we’re not just air-raiding villages and killing civilians, which is causing enormous problems there.
The Associated Press fact-checked this one, and found that in fact U.S troops were killing more civilians at the time than insurgents: "As of Aug. 1, the AP count shows that while militants killed 231 civilians in attacks in 2007, Western forces killed 286. Another 20 were killed in crossfire that can’t be attributed to one party." Afghan President Hamid Karzai had expressed concern about these civilian killings, a concern President Bush said he shared.
Whether Obama said that this was "all we're doing" is debatable. He said that we need to have enough troops so that we're "not just air-raiding villages and killing civilians," but did not say that troops are doing nothing else.
Out of Context?
Biden claimed a comment he made about "clean coal" was taken out of context:
Biden: My record for 25 years has supported clean coal technology. A comment made in a rope line was taken out of context. I was talking about exporting that technology to China so when they burn their dirty coal, it won't be as dirty, it will be clean.
Was it really taken out of context? Here’s the full exchange, which took place while Biden was shaking hands with voters along a rope line in Ohio.
Woman: Wind and solar are flourishing here in Ohio, why are you supporting clean coal?
Biden: We’re not supporting clean coal. Guess what? China’s building two every week, two dirty coal plants, and it’s polluting the United States. It’s causing people to die.
Obama-Biden campaign spokesman David Wade later said that “Biden’s point is that China is building coal plants with outdated technology every day, and the United States needs to lead by developing clean coal technologies.”
Whatever Biden meant or didn’t mean to say on the rope line, he has supported clean coal in the past. When the McCain camp used this one remark from Biden as the basis for a TV ad saying that Obama-Biden oppose clean coal, we said the claim was false. Obama’s position in favor of clean coal has been clear, and pushing for the technology has been part of his energy policy.
McCain in the Vanguard of Mortgage Reform?
Palin said that McCain had sounded the alarm on Fannie Mae and Freddie Mac two years ago.
Palin: We need to look back, even two years ago, and we need to be appreciative of John McCain's call for reform with Fannie Mae, with Freddie Mac, with the mortgage-lenders, too, who were starting to really kind of rear that head of abuse.
Palin is referring to a bill that would have increased oversight on Fannie and Freddie. In our recent article about assigning blame for the crisis, we found that by the time McCain added his name to the bill as a cosponsor, the collapse was well underway. Home prices began falling only two months later. Our colleagues at PolitiFact also questioned this claim.
And There's More...
A few other misleads of note:
* Palin said, "We're circulating about $700 billion a year into foreign countries" for imported oil, repeating an outdated figure often used by McCain. At oil prices current as of Sept. 30, imports are running at a rate of about $493 billion per year.
* Biden claimed that McCain said in a magazine article that he wanted to deregulate the health care industry as the banking industry had been. That’s taking McCain’s words out of context. As we’ve said before, he was talking specifically about his proposal to allow the sale of health insurance across state lines.
* Biden said five times that McCain's tax plan would give oil companies a "$4 billion tax cut." As we’ve noted previously, McCain’s plan would cut the corporate tax rate from 35 percent to 25 percent — for ALL corporations, not just oil companies. Biden uses a Democratic think tank's estimate for what the rate change is worth to the five largest U.S. oil companies.
* Palin threw out an old canard when she criticized Obama for voting for the 2005 energy bill and said, “that’s what gave those oil companies those big tax breaks.” It’s a false attack Sen. Hillary Clinton used against Obama in the primary, and McCain himself has hurled. It’s true that the bill gave some tax breaks to oil companies, but it also took away others. And according to the Congressional Research Service, the bill created a slight net increase in taxes for the oil industry.
* Biden said that Iraq had an "$80 billion surplus." The country was once projected to have as much as a $79 billion surplus, but no more. The Iraqis have $29 billion in the bank, and could have $47 billion to $59 billion by the end of the year, as we noted when Obama used the incorrect figure. A $21 billion supplemental spending bill, passed by the Iraqi legislature in August, knocked down the old projection.
* Biden said four times that McCain had voted 20 times against funding alternative energy. However, in analyzing the Obama campaign's list of votes after the first presidential debate, we found the number was actually 11. In the other instances the Obama-Biden campaign cites, McCain voted not against alternative energy but against mandatory use of alternative energy, or he voted in favor of allowing exemptions from these mandates.
-by Brooks Jackson, Viveca Novak, Lori Robertson, Joe Miller, Jessica Henig and Justin Bank
Sources
Belasco, Amy. "The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11." 14 July 2008. Congressional Research Service. Accessed 2 October 2008.
Pickler, Nedra. "Fact Check: Obama on Afghanistan." The Associated Press. 14 Aug. 2007.
Committee for a Responsible Federal Budget. "Promises, Promises: A Fiscal Voter Guide to the 2008 Election." U.S. Budget Watch. 29 Aug. 2008.
Williams, Roberton and Howard Gleckman. "An Updated Analysis of the 2008 Presidential Candidates' Tax Plans." Urban-Brookings Tax Policy Center. 15 Sep. 2008.
"Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf." 2007. Energy Information Administration. 8 Aug. 2008.
Petroleum Basic Statistics. The Energy Information Administration, 3 Oct. 2008.
NPC Global Oil & Gas Study. “Topic Paper #7, Global Access to Oil and Gas,” 18 July 2007.
Clarke, David and Liriel Higa, "Blueprints Gain Narrow Adoption," Congressional Quarterly Weekly, 15 March 2008.
"Iraq Index," Brookings Iraq Index.
Baldor, Lolita C, "General: Urgent need for troops in Afghanistan now," Associated Press. 2 Oct 2008.
"Bush: 8,000 Troops Coming Home By Feb," CBS/AP. 9 Sept 2008.
Tyson, Ann Scott, "Commander in Afghanistan Wants More Troops," Washington Post. 2 Oct 2008.
Barnes, Julian N., "More U.S. troops needed in Afghanistan 'quickly,' general says," Los Angeles Times. 2 Oct 2008.
Table T08-0164 "Distribution of Tax Units with Business Income by Statutory Marginal Tax Rate, Assuming Extension and Indexation of the 2007 AMT Patch, 2009" Urban-Brookings Tax Policy Center, 20 May 2008.
Who Caused the Economic Crisis?
October 1, 2008
MoveOn.org blames McCain advisers. He blames Obama and Democrats in Congress. Both are wrong.
Summary
A MoveOn.org Political Action ad plays the partisan blame game with the economic crisis, charging that John McCain’s friend and former economic adviser Phil Gramm “stripped safeguards that would have protected us.” The claim is bogus. Gramm’s legislation had broad bipartisan support and was signed into law by President Clinton. Moreover, the bill had nothing to do with causing the crisis, and economists – not to mention President Clinton – praise it for having softened the crisis.
A McCain-Palin ad, in turn, blames Democrats for the mess. The ad says that the crisis “didn’t have to happen,” because legislation McCain cosponsored would have tightened regulations on Fannie Mae and Freddie Mac. But, the ad says, Obama "was notably silent" while Democrats killed the bill. That’s oversimplified. Republicans, who controlled the Senate at the time, did not bring the bill forward for a vote. And it’s unclear how much the legislation would have helped, as McCain signed on just two months before the housing bubble popped.
In fact, there’s ample blame to go around. Experts have cited everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan.
Analysis
As Congress wrestled with a $700 billion rescue for Wall Street's financial crisis, partisans on both sides got busy – pointing fingers. MoveOn.org Political Action on Sept. 25 released a 60-second TV ad called "My Friends’ Mess," blaming Sen. John McCain and Republican allies who supported banking deregulation. The McCain-Palin campaign released its own 30-second TV spot Sept. 30, saying "Obama was notably silent" while Democrats blocked reforms leaving taxpayers "on the hook for billions." Both ads were to run nationally.
And both ads are far wide of the mark.
MoveOn.org Ad:
"My Friends' Mess"
MoveOn.org Ad, "My Friends"
Narrator: We all know the economy is in crisis, but who's responsible?
McCain: My friends. My friends. My friends.
Narrator: John McCain's friend Phil Gramm wrote the bill that deregulated the banking industry, and stripped the safeguards that would have protected us.
McCain asked Gramm to help write his economic plan.
John McCain's friend Rick Davis lobbied for Fannie and Freddie for years, "defending" them against stricter regulation. And now? He runs McCain's presidential campaign.
And John McCain himself? He's stood by "deregulation" time and time again.
McCain: I think the deregulation was probably helpful to the growth of our economy.
Narrator: And now that the markets are in meltdown? John McCain's friend George Bush wants hardworking Americans to write the biggest blank check in history, bailing out the Wall Street firms and the Washington lobbyists who got us into this mess. Main Street giving Wall Street $700 billion and getting nothing in return? It's outrageous.
Americans shouldn't have to foot the bill for mistakes that John McCain and his friends made.
Narrator: MoveOn.org Political Action is responsible for the content of this advertisement.
Blame the Republicans!
The MoveOn.org Political Action ad blames a banking deregulation bill sponsored by former Sen. Phil Gramm, a friend and one-time adviser to McCain's campaign. It claims the bill "stripped safeguards that would have protected us."
That claim is bunk. When we contacted MoveOn.org spokesman Trevor Fitzgibbons to ask just what "safeguards" the ad was talking about, he came up with not one single example. The only support offered for the ad's claim is one line in one newspaper article that reported the bill "is now being blamed" for the crisis, without saying who is doing the blaming or on what grounds.
The bill in question is the Gramm-Leach-Bliley Act, which was passed in 1999 and repealed portions of the Glass-Steagall Act, a piece of legislation from the era of the Great Depression that imposed a number of regulations on financial institutions. It's true that Gramm authored the act, but what became law was a widely accepted bipartisan compromise. The measure passed the House 362 - 57, with 155 Democrats voting for the bill. The Senate passed the bill by a vote of 90 - 8. Among the Democrats voting for the bill: Obama's running mate, Joe Biden. The bill was signed into law by President Clinton, a Democrat. If this bill really had "stripped the safeguards that would have protected us," then both parties share the blame, not just "John McCain's friend."
The truth is, however, the Gramm-Leach-Bliley Act had little if anything to do with the current crisis. In fact, economists on both sides of the political spectrum have suggested that the act has probably made the crisis less severe than it might otherwise have been.
Last year the liberal writer Robert Kuttner, in a piece in The American Prospect, argued that "this old-fashioned panic is a child of deregulation." But even he didn't lay the blame primarily on Gramm-Leach-Bliley. Instead, he described "serial bouts of financial deregulation" going back to the 1970s. And he laid blame on policies of the Federal Reserve Board under Alan Greenspan, saying "the Fed has become the chief enabler of a dangerously speculative economy."
What Gramm-Leach-Bliley did was to allow commercial banks to get into investment banking. Commercial banks are the type that accept deposits and make loans such as mortgages; investment banks accept money for investment into stocks and commodities. In 1998, regulators had allowed Citicorp, a commercial bank, to acquire Traveler's Group, an insurance company that was partly involved in investment banking, to form Citigroup. That was seen as a signal that Glass-Steagall was a dead letter as a practical matter, and Gramm-Leach-Bliley made its repeal formal. But it had little to do with mortgages.
Actually, deregulated banks were not the major culprits in the current debacle. Bank of America, Citigroup, Wells Fargo and J.P. Morgan Chase have weathered the financial crisis in reasonably good shape, while Bear Stearns collapsed and Lehman Brothers has entered bankruptcy, to name but two of the investment banks which had remained independent despite the repeal of Glass-Steagall.
Observers as diverse as former Clinton Treasury official and current Berkeley economist Brad DeLong and George Mason University's Tyler Cowen, a libertarian, have praised Gramm-Leach-Bliley has having softened the crisis. The deregulation allowed Bank of America and J.P. Morgan Chase to acquire Merrill Lynch and Bear Stearns. And Goldman Sachs and Morgan Stanley have now converted themselves into unified banks to better ride out the storm. That idea is also endorsed by former President Clinton himself, who, in an interview with Maria Bartiromo published in the Sept. 24 issue of Business Week, said he had no regrets about signing the repeal of Glass-Steagall:
Bill Clinton (Sept. 24): Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill. ...You know, Phil Gramm and I disagreed on a lot of things, but he can't possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence. But I can't blame [the Republicans]. This wasn't something they forced me into.
No, Blame the Democrats!
McCain-Palin 2008 Ad: "Rein"
McCain Ad, "Rein"
Narrator: John McCain fought to rein in Fannie and Freddie.
The Post says: McCain "pushed for stronger regulation"..."while Mr. Obama was notably silent."
But, Democrats blocked the reforms.
Loans soared. Then, the bubble burst. And, taxpayers are on the hook for billions.
Bill Clinton knows who is responsible.
Clinton: I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac.
Narrator: You're right, Mr. President. It didn't have to happen.
McCain: I'm John McCain and I approve this message.
The McCain-Palin campaign fired back with an ad laying blame on Democrats and Obama. Titled "Rein," it highlights McCain's 2006 attempt to "rein in Fannie and Freddie." The ad accurately quotes the Washington Post as saying "Washington failed to rein in" the two government-sponsored entities, the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), both of which ran into trouble by underwriting too many risky home mortgages to buyers who have been unable to repay them. The ad then blames Democrats for blocking McCain's reforms. As evidence, it even offers a snippet of an interview in which former President Clinton agrees that "the responsibility that the Democrats have" might lie in resisting his own efforts to "tighten up a little on Fannie Mae and Freddie Mac." We're then told that the crisis "didn't have to happen."
It's true that key Democrats opposed the Federal Housing Enterprise Regulatory Reform Act of 2005, which would have established a single, independent regulatory body with jurisdiction over Fannie and Freddie – a move that the Government Accountability Office had recommended in a 2004 report. Current House Banking Committee chairman Rep. Barney Frank of Massachusetts opposed legislation to reorganize oversight in 2000 (when Clinton was still president), 2003 and 2004, saying of the 2000 legislation that concern about Fannie and Freddie was "overblown." Just last summer, Senate Banking Committee chairman Chris Dodd called a Bush proposal for an independent agency to regulate the two entities "ill-advised."
But saying that Democrats killed the 2005 bill "while Mr. Obama was notably silent" oversimplifies things considerably. The bill made it out of committee in the Senate but was never brought up for consideration. At that time, Republicans had a majority in the Senate and controlled the agenda. Democrats never got the chance to vote against it or to mount a filibuster to block it.
By the time McCain signed on to the legislation, it was too late to prevent the crisis anyway. McCain added his name on May 25, 2006, when the housing bubble had already nearly peaked. Standard & Poor's Case-Schiller Home Price Index, which measures residential housing prices in 20 metropolitan regions and then constructs a composite index for the entire United States, shows that housing prices began falling in July 2006, barely two months later.
The Real Deal
So who is to blame? There's plenty of blame to go around, and it doesn't fasten only on one party or even mainly on what Washington did or didn't do. As The Economist magazine noted recently, the problem is one of "layered irresponsibility ... with hard-working homeowners and billionaire villains each playing a role." Here's a partial list of those alleged to be at fault:
* The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.
* Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.
* Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
* Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
* The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
* Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
* Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
* Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
* The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
* An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
* Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.
The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation. Claiming that a single piece of legislation was responsible for (or could have averted) is just political grandstanding. We have no advice to offer on how best to solve the financial crisis. But these sorts of partisan caricatures can only make the task more difficult.
–by Joe Miller and Brooks Jackson
Sources
Benston, George J. The Separation of Commercial and Investment Banking: The Glass-Steagall Act Revisited and Reconsidered. Oxford University Press, 1990.
Tabarrok, Alexander. "The Separation of Commercial and Investment Banking: The Morgans vs. The Rockefellers." The Quarterly Journal of Austrian Economics 1:1 (1998), pp. 1 - 18.
Kuttner, Robert. "The Bubble Economy." The American Prospect, 24 September 2007.
"The Gramm-Leach-Bliley Act of 1999." U.S. Senate Committee on Banking, Housing and Urban Affairs. Accessed 29 September 2008.
Bartiromo, Maria. "Bill Clinton on the Banking Crisis, McCain and Hillary." Business Week, 24 September 2008.
Standard and Poor's. "Case-Schiller Home Price History." Accessed 30 September 2008.
"Understanding the Tax Reform Debate: Background, Criteria and Questions." Government Accountability Office. September 2005.
Bianco, Katalina M. "The Subprime Lending Crisis: Causes and Effects of the Mortgage Meltdown." CCH. Accessed 29 September 2008.
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