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12 comments:
How does the Dow now compare to when the majority Democratic Congress took their seats?
Shmuli
- 2000 points, but that's possible over two years. But in eight years to have negative market growth?!
And the executive has more to say about the Fed and Treasury Dept. Just sayin' is all.
Maybe you forgot about that whole writing laws thing. It is my (admittedly non-expert) belief that Congress has a greater impact on our government's domestic policy than the President does. I think that the constitution and our country's history would generally verify this. Now I think that the ups and downs of the market are largely outside the control of our government's chief officers, so I'm not going to make any market predictions based on the identity of the oficeholders, legislative or executive. If you think you can, go ahead.
Bush is the one who appointed Bernanke to the Fed and Paulson to the Treasury and the Dow has gone down quite a bit since their appointments. Do you think their performance has been subpar? I'm not remotely qualified to assess their recent activity but perhaps you're right and Bernanke and Paulson, and through them Bush, are the principal villains of the stock market decline.
Which domestic legislation passed during Bush's presidency do you think has had the most negative impact on the Dow? Do you think it was the tax cuts or perhaps Sarbanes-Oxley? My guess is the latter. In general, I think (and I assume you agree) it more likely that the Dow is impacted by actual government policies than by the identity or party of its officers.
Shmuli
The congress does write laws that regulate markets, but the Dems have been in control of Congress for 18 months now. This meltdown was not hatched over 18 months.
There was a problem of leveraging a lot on mortgage backed securities. Everything seemed to be tied to these things (Oren would know far more than I, of course). People were happy making money and so did not do a good job of pricing risk. How do you explain to your hedge fund clients that they are making 10% while everyone else is making 20% returns because you are being cautious?
As much as it kills me to say it, it appears that there needs to more regulations on what risk you can and cannot take on, and how severely you can leverage that risk. The problem now is that the gov't is going to come down hard and regulate the hell out of everything and growth will be impeded. Congress writes the laws, but it is the responsibility of the Fed and Treasury to guide the Congress on the appropriate measures. Legislation is always ex post--it would have been nice if the Treasury could have given them a heads up,
Zev, Have you seen this: http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print
?
"This meltdown was not hatched over 18 months."
True. So why do you blame Bush for the tech bubble that burst shortly after he began his term?
Moreover, as Yehuda points out, Bush did propose to more intensively regulate Fannie and Freddie. Contrary to their statements in that that article Fannie and Freddie went into overdrive to fight the proposed legislation and it went nowhere. As the article suggested congressional dems were in the lead, but many Republicans joined them in defending Fannie and Freddie.
Trying to lay the blame squarely on the Fed and the Treasury seems a little silly. Put aside for the moment that Treasury wanted to regulate but Congress denied them. Congress has independent access to economic analysis. Investment banks have independent access to economic analysis. You seem to blame the Fed and Treasury for not telling Congress the future.
Shmuli
That is a great article Yehuda.
If we want to play a blame game, both houses were R in 2003. The general point I am making is that Bush will leave a very shaky economy as one of his legacies, and the market dip is one indicator of that (even if it is not the best indicator).
First, how is everyone? hope all is well.
Zev,
As someone who worked on Wall Street during the tech boom, it was apparent well before bush was elected that the bubble was bursting. I am sure Shmuli is old enough to remember how much he was criticized for "talking down the economy" (I remember it well). So, if you want to use the stock market as an indicator, and leave out the correction attributed to the tech bubble, you should be measuring the Dow against the bottom of the tech bear market. Using that measure, you will see that the market is actually up 45% during the Bush years. Not bad considering 9/11. Iraq war spending, new entitlements, and drop of the past few weeks.
Now, lets examine the issue of regulation. Fannie Mae and Freddie Mac were the most regulated of financial industries. Hedge funds, on the other hand, are not regualted at all and contrary to what you may think, hedge funds have not benn terribly harmed by the I-Bank implosion. (they have been harmed by other things.) You dont see government bailing out BlackRock and SAC. Now, dont think I am blaming regulation. But, regulation is useless without oversight. Congress had absolute control over everything Fannie Mae and Freddie Mac did. the problem is that Chris dodd, Barney Frank, Chuck Schumer, Joe biden, and Barack Obama are wholly owned by Wall Street.
Jacob
I forgot to mention....
Barney Frank repeatedly rebuffed efforts to control Fannie and Freddie's risk by scaling down their portfolio. (He continues to prevent them from doing so) In fact, he pushed for them to make more subprime loans. (subprime loans are loans made to people with little or no credit who can not qualify for the "prime" rate). The real blame falls on the ideology that believes that the government is in the business of making sure that everyone owns their own home, regardless of their ability to afford one.
to make matters worse, Barney Frank is now pushing to prevent foreclosure of homes.
Lets sum up:
The government encouraged and guaranteed mortgages for people who coulndt aford to buy homes. People took thos emortgages thinking that the Real Estate boom would only go up. the market collapsed, and now the goverment is going to charge every American $2000 (payable by the top 10% of tax payers who pay 90% of all taxes) to buy back the mortgages and let the people keep their homes.
What I cant understand is why the Democrats are so upset. This is the greatest transfer of wealth the world has ever seen. I wish I had bought a home I couldnt afford.
Paulson let Lehman fail just a week before seeing the entire financial system almost go to shambles. One week he was saying that Lehman's problems would not echo through the market and the next he demands a $700b mandate with no oversight. Is the economy fundamentally sound or do we need to spend 3/4 of a trillion dollars to save ourselves from catastrophe?
I know Frank forestalled legislation on Fannie and Freddie, and I don't forgive him for it. But the job of the Sec. of the Treasury is to warn congress about these problems (and construct policy to address the issues) while he was trying to maintain calm both publicly, and apparently privately. If the sky is falling don't tell everyone about it, but you might give Chris Dodd a heads up.
9/11 was a market distortion. I would not expect lingering effects seven years later.
Jacob,
"This is the greatest transfer of wealth the world has ever seen."??? What about the October Revolution? What about the French Revolution? This is bupkes.
Yehuda
Yehuda,
Why is that so hard to believe?
We have created alot more wealth since the French and Bolshevik Revolutions.
Jacob
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