Lie One: Government Deregulation Caused the Mortgage and Housing Industry CrisisThe Truth: Government Regulation Caused the Mortgage and Housing Industry Crisis
The people telling this lie want more government regulation. They say that the mortgage and housing industry crisis could have been averted with tighter and closer government regulation. They say, "See what happens with deregulation? This theory of Reagan has been disproved. Say goodbye to Reagan." And then they proceed to grow government by enacting more and more regulations on as many sectors of the economy as possible.
How did the government supposedly not regulate enough? When all the bad loans were being made by unscrupulous bankers and loan brokers, lawmakers should have stepped in and written stiffer regulations to protect consumers. When the mortgage and housing industry were veering off the tracks, George W. Bush and the rich Republicans were asleep at the switch. And why? They could have stepped in to stop the debacle, but they were loyal to their Reagan principle of government deregulation and look what it caused.
Blaming deregulation for the mortgage crisis is like Hitler blaming the Communists for the burning of the German Reichstag. Of course, Hitler started the fire. The event gave the Nazis credibility and influenced his ultimate dictatorship and command economy. The blame for the fire stuck on the, in this case, innocent Communists.
The mortgage and housing industry crisis was caused by bad government regulation. In 1977 banks would not give loans to people in certain neighborhoods---it wasn't very safe banking practice to do so. President Carter changed this by signing the Community Reinvestment Act (CRA). This law made banks give loans to people who lived in bad loan areas. CRA encouraged home loans through two government sponsored enterprises: one was The Federal National Mortgage Association (Fannie Mae) and the other was The Federal Home Loan Mortgage Corporation (Freddie Mac). With this new law, to go unpunished by the federal government, banks had to find buyers who could qualify for loans under the old, reliable standards. They often could not find any so out of the lack of qualified buyers hatched the concept of the sub-prime mortgage. CRA also created hundreds of unregulated housing "agencies," who would lobby banks for more money for their agencies. If they couldn't get the money, these agencies would cause great difficulties for banks with nasty lawsuits. One of these agencies, the Association of Community Organizations for Reform Now (ACORN) bragged that because of their influence, over one trillion dollars worth of these CRA sub-prime mortgages were written. President Barack Obama was a community organizer heavily involved in ACORN.
We're not done yet. In 1980 President Jimmy Carter signed The Deregulation and Monetary Control Act. In 1982 President Ronald Reagan signed The Alternative Mortgage Transactions Parity Act. These two laws created some modern mortage products with which we have now all become familiar: adjustable rate mortgages (ARM), balloon payment mortgages, interest only mortgages, etc. In 1986 the IRS tax code was changed to give a deduction for only the interest on a home loan. Financial advisors started encouraging customers to pay off mortgage debt only and to pay off other forms of debt with the equity in their homes. In 1993 President Bill Clinton made changes to the CRA that made it even more difficult for banks to deny loans to under qualified and gave banks points for giving out the more exotic loans.
Home loans became a major business. Many made incredible amounts of money as loan brokers. Amazing numbers of loans and bad ones, deceptive ones, were given to unqualified buyers. These mortgage brokers were just swimming in the waters created by new government regulations of the industry, designed by Democrats for the purpose of social architecture in poor neighborhoods. The government regulated the loaning institutions, forcing them to give loans to unqualified buyers. So it wasn't government deregulation that caused the crisis. It was regulation.
Lie Two: The Rich Didn't Pay Their Fair Share of Taxes During the Bush Years Because He Gave Tax Cuts to the RichThe Truth: The Rich Paid a Greater Share of Taxes Under Bush Than They Ever Had Before
I think most people in America believe that President Bush gave unfair tax advantages to his rich buddies at the expense of the poor. Is that true? What really happened?
This isn't even going to be political. It's just the truth. I did not get my statistics from the Republican Party office. I took my figures from the non-partisan, completely neutral Congressional Budget Office (CBO). In order for you to see what really happened in the Bush years, I'm going to ask a few questions.
What Happened to the Share of Tax Liability for the Rich and the Poor during the Bush Years?
Again, I'm looking at the statistics available through the CBO, which presently ends in 2005. So I will give the figures in 2000 and then the ones in 2005 with which to compare. We will define the rich as those in the highest quintile (1/5, 20%) of wage earners and the poor as those in the lowest twenty percentile. The rich earned pretax on average $231,300 per year. The poor earned on average $15,900.
In 2000, the top 20% of wage earners paid 81.2% of all the individual income taxes paid in the United States. In 2005, after six years of President Bush, the top quintile in income paid 86.3% of those taxes paid in the U.S. So you can see that the rich actually paid a higher share of the taxes with George W. Bush as president. Under Bush, the rich paid a 5.1% higher share of the individual income taxes in the United States.
What about the poor? In 2000 the bottom 20% of the wage earners paid -1.6% of the individual income taxes in the United States. You may wonder how someone could pay a negative or minus income tax. Well, that means that the poor received 1.6% of the taxes from those paying taxes. They not only did not pay income tax, but they got money from the payers. Surely that number went down as the cruel presidency of the cruel George W. Bush progressed. No, by 2005 the poor were paying -2.9% of the individual income taxes. They made out like bandits under Bush, taking more than ever from the tax coffers from other Americans.
What Happened to the Incomes of the Poor and the Rich During the Bush Years?
What you heard was that during the Bush years that the rich got richer. We know they had more tax liability under him, but some would submit that they deserved it because of all the advantages they had. In 2000 the top 20% of earners in the U. S. took in a 51.4% share of the total individual income in the United States. In 2005 the top 20% took in 51.6% share of the total. So the rich grew in their percentage of the income in the United States by .2%. How is that for the rich making out like bandits?
You can believe that those top twenty percent and those bottom twenty percent fluctuate. Some of the rich drop out of the top category and some of the poor move up to another quintile in share of income. For instance, a whole lot of mortgage and housing people were in the top twenty percent five years ago, but they aren't any more. New people moved up into the top twenty when they dropped out. That is the nature of the free enterprise. Who earns money depends on the choices people make in the market. They aren't buying houses right now and the ones they're buying are much cheaper.
When you hear that the rich aren't paying their fair share of the taxes, don't believe it. When you hear that the rich got richer during the Bush years, don't believe it. That's just propaganda used to get votes. In other words, it's a lie.