All those boring end-of-year / end-of-decade articles that journalists phone in so that they can take the last week of the year off are finally over.
The factor linking the two big stories of the 2000s: George W. Bush's sizable degree of culpability in both disasters:
Of course, those are by no means the only causes of the subsequent disasters. But shouldn't we at least talk about them?
And what links Bush's two blunders?
George W. Bush's Commitment to Diversity.
Bush explicitly articulated that he was fighting airline security and traditional credit standards in the sacred cause of fighting discrimination.
Was he lying? I've never seen any evidence that Bush wasn't the truest true believer in Diversity. His immigration bills, No Child Left Behind—it all testifies to his naiveté. Compared to Bush, Obama is practically Lee Kwan Yew for worldliness.
Yet how are we supposed to learn from our mistakes if nobody will mention them?
Quoting Bush is always a struggle because his transcripts usually make it sound like he had a secret stroke at some point in the 1990s and can't speak straight anymore. But, we'll just have to put up with his oral artlessness if we want to understand the last decade.
Here's Governor Bush during his second debate with Al Gore on October 11, 2000:
"And secondly, there is other forms of racial profiling that goes on in America. Arab-Americans are racially profiled in what's called secret evidence [sic]. People are stopped, and we got to do something about that. My friend, Senator Spencer Abraham of Michigan, is pushing a law to make sure that, you know, Arab-Americans are treated with respect.
"I believe though — I believe, sure as I'm sitting here, that most Americans really care. They're tolerant people. They're good, tolerant people. It's the very few that create most of the crisis. And we just happen to have to find them and deal with them."
Please be clear. The "people" that Candidate Bush said must be found and dealt with were not terrorists—but racial profilers.
In his first State of the Union Address on February 27, 2001, Bush declaimed:
"Earlier today, I asked John Ashcroft, the Attorney General, to develop specific recommendations to end racial profiling. It's wrong and we will end it in America."
To make sure the last hints of sensible intuition had been obliterated, Mineta carried out a three-week study at the Detroit airport in June 2001 to make sure that Arabs weren't suffering disparate impact due to unconscious worries by security personnel.
Would ringleader Mohammed Atta have been grounded on 9/11 if airline personnel hadn't been reminded so often to not be prejudiced against people who remind them of Islamic terrorists?
Perhaps. Michael Tuohey, the U.S. Airways desk clerk who checked Atta in that morning later admitted that he said to himself: "If this guy doesn't look like an Arab terrorist, then nothing does". But, then "I gave myself a political correct slap". And three thousand died. "["I Was The One," Interview with Oprah Winfrey, September 12, 2005]
After 9/11, Mineta reiterated the Bush Administration's policy. Wikipedia [January 10, 2010] notes:
"On September 21, 2001, Mineta sent a letter to all U.S. airlines forbidding them from practicing racial profiling; or subjecting Middle Eastern or Muslim passengers to a heightened degree of pre-flight scrutiny. He stated that it was illegal for the airlines to discriminate against passengers based on their race, color, national or ethnic origin or religion. Subsequently, administrative enforcement actions were brought against three different airlines based on alleged contraventions of these rules, resulting in multi-million dollar settlements."
Mineta, a Japanese-American, repeatedly told the press he was motivated by having been interned during WWII.
After airport security was taken away from Mineta by the creation of the Department of Homeland Security, the Justice Department finally issued more sensible guidelines in 2003 allowing the possibility of profiling at airports.
Still, Barack Obama, after eight years of ideologically-driven negligence by the Bush Administration, felt it necessary last week to strengthen profiling by nationality on international flights.
Republican politicians ought to ask themselves: What's the point of ever electing a Republican President if a Democrat can be more easily embarrassed into sensible policies than a Republican?
Similarly, Bush repeatedly framed his war on downpayment requirements as driven by his Commitment to Diversity.
Here's a graph showing how the percent of first time homebuyers putting no money down in California went from under 7 percent during the Clinton Administration to over 40 percent during the Bush Administration. Buy the middle of the 2000s, California accounted for about two-fifths of the market value of homes in America. By late in the decade, California accounted for a large majority of defaulted dollars.
Except for the last bit about foreclosures, this was according to Bush's plan. At his 2002 White House Conference on Increasing Minority Homeownership, Bush intoned:
"Two-thirds of all Americans own their homes, yet we have a problem here in America because few [sic] than half of the Hispanics and half the African Americans own the [sic] home. That's a homeownership gap. It's a — it's a gap that we've got to work together to close for the good of our country, for the sake of a more hopeful future. We've got to work to knock down the barriers that have created a homeownership gap."
Bush was sending a message to his underlings, the federal regulators, that if they take the punchbowl away from the party, they're racists.
And he was sending a message to irresponsible lenders, such as Angelo Mozilo of Countrywide: Go for it!
He went on:
"I set an ambitious goal. It's one that I believe we can achieve. It's a clear goal, that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. [Applause]…"
What if you were a lender who didn't think the President's goal was prudent? Well, maybe you should look for a different line of work. Because the federal government was now on the side of the Countrywides, Ameriquests, and Washington Mutuals.
"To open up the doors of homeownership there are some barriers, and I want to talk about four that need to be overcome. First, down payments. A lot of folks can't make a downpayment. They may be qualified. They may desire to buy a home, but they don't have the money to make a downpayment. I think if you were to talk to a lot of families that are desirous to have a home, they would tell you that the down payment is the hurdle that they can't cross."
Well, that's kind of the point of a downpayment, isn't it? Cash on the barrelhead deters, among other problems, fraud, of which there was a great deal among buyers, realtors, mortgage brokers, and appraisers. Predatory lending, predatory borrowing, predatory securitizing—whatever you want to call it, fraud is inevitable without down payments.
Although Bush's crusade against down payments was big news in the trade press in 2002-2004, it has been tossed down the memory hole by Bush's sworn enemies. For example, on January 7, 2009, Paul Krugman, who won the 2008 Nobel Prize for Bush Hatred, posted this graph at NYTimes.com, with the blue line representing home prices and the red line commercial real estate prices.
"From my perspective, the CRE [commercial real estate] bubble is highly significant; it gives the lie both to those who blame Fannie/Freddie/Community Reinvestment for the housing bubble, and those who blame predatory lending. This was a broad-based bubble."
No doubt it was. But Krugman is trying to obfuscate the direct cause of the crash: debauching mortgage credit standards. This is the first recession in memory when a wave of home foreclosures preceded the overall downturn.
That's not the only cause, but mortgages defaults were to the Great Recession as Wall Street crash of 1929 was to the Great Depression or the assassination of the Archduke was to the Great War. You can't make sense of the story without this fundamental piece of the plot.
Democrat blogger Matthew Yglesias posted Krugman's plot and attempted to excuse Bush's zero down payment advocacy:
"I know a lot of people, left and right, who seem to think this whole thing could have been avoided had we promulgated a regulation mandating that home buyers put at least 20 percent down. I think a rule like that would be prudent to adopt, but again if you look at CRE you see that the bubble was a much broader phenomenon than any quirk of the home mortgage market."
Bunk. Krugman's own graph shows that, during the Bush Administration, home real estate preceded commercial real estate into the stratosphere. Look at the consistent lag. Commercial real estate didn't turn down until it was clear that home mortgages were taking down entire economy.
Indeed, the housing bubble fueled other bubbles. Lax credit standards under a fractional reserve banking system like ours create money.
Here's how it worked: the easy mortgage era that followed Bush's 2002 advocacy of zero down payments in the name of racial equality boosted demand for homes, which boosted home prices, which boosted home equity, which boosted consumer spending as people felt richer.
The housing bubble helped Bush get re-elected. But he wasn't cynical or smart enough to re-impose regulations after November 2004. He thought he was doing a good job.
Consider the most flagrant examples of commercial real estate in the 2000s: the multibillion dollar Las Vegas casinos, such as the now-mothballed $4.75 billion Echelon resort, that arose in response to the housing bubble in neighboring California.
During the bubble, my barber, a Southern California homeowner, would gas up his car five to ten times per year and drive to Vegas to gamble for half a week. Assuming he spent about $500 per night on gas, hotels, meals, and losses at the tables, that would come to about $12,000-15,000 per year.
This might seem a bit daunting during a decade when the price of a haircut only went up from $14 to $16. But his house was appreciating $50,000 per year, so why not? You could take out a home equity loan, or merely save less for your retirement. Heck, if money got a little tight, you could always sell your house in SoCal and buy one of those new McMansions outside Vegas (built by illegal immigrants doing the work Americans just wouldn't do) and have a couple hundred thousand left over to hit the tables.
Now, it turns out, the population of California and Nevada never could afford those home prices.
And my barber has stopped going to Vegas.
We'll never eliminate bubbles completely. But it's eminently feasible to have them less often, and less catastrophically. And that makes a huge difference in the long term well-being of our descendants.
The most obvious steps are to
[Steve Sailer (email him) is movie critic for The American Conservative. His website www.iSteve.blogspot.com features his daily blog. His new book, AMERICA'S HALF-BLOOD PRINCE: BARACK OBAMA'S "STORY OF RACE AND INHERITANCE", is available here.]