The end of the affair

[Crabtownboy]

An important reason why the American economy has been so resilient and recessions so mild since 1982 is the energy of consumers. Their spending has been remarkably stable, not only because drops in employment and income have been less severe than of old, but also because they have been willing and able to borrow. The long rise in asset prices—first of stocks, then of houses—raised consumers’ net worth and made saving seem less necessary. And borrowing became easier, thanks to financial innovation and lenders’ relaxed underwriting, which was itself based on the supposedly reliable collateral of ever-more-valuable houses. On average, consumers from 1950 to 1985 saved 9% of their disposable income. That saving rate then steadily declined, to around zero earlier this year (see chart). At the same time, consumer and mortgage debts rose to 127% of disposable income, from 77% in 1990.

Those forces have now reversed. The stockmarket has fallen to the levels of a decade ago. House values have fallen 18% since their peak in 2006. Banks and other lenders have tightened lending standards on all types of consumer loans.

As a consequence, consumer spending fell at a 3.1% annual rate in the third quarter (in part because tax rebates boosted spending in the second), the steepest since the second quarter of 1980 when Jimmy Carter briefly imposed credit controls. More such declines are likely to follow. Richard Berner of Morgan Stanley projects that in the 12 months up to the second quarter of next year real consumer spending will fall by 1.6%—a post-war record. “The golden age of spending for the American consumer has ended and a new age of thrift likely has begun,” he says.

http://www.economist.com/world/unitedstates/displayStory.cfm?story_id=12637090&source=hptextfeature

Note, mortgate debts rose to 127% of disposable income, from 77% in 1990. That did not happen in just the last two years.

 

[carpro]

Note, mortgate debts rose to 127% of disposable income, from 77% in 1990. That did not happen in just the last two years.

That's right it didn't. It has been an ongoing democrat program for years to place people in mortgages who could not afford them.

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES
Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260

 

[donnA]

That did not happen in just the last two years

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

Didn't happen in the last 8 years either, happened during a democratic presidency, just started to show up now.
economic situations don't just happen over night, and when they do it takes years for us to experience it.

 

[Crabtownboy]

Didn't happen in the last 8 years either, happened during a democratic presidency, just started to show up now.
economic situations don't just happen over night, and when they do it takes years for us to experience it.

Actually more was just piled on during the last 8 years and we finally reached the tipping point.

 

[Revmitchell]

The Repubs called for action on poor book keeping and potential fallout form these poor loans but the Dems just viciously defended these programs that are now the primary cause for the current financial crisis.


http://www.youtube.com/watch?v=_MGT_cSi7Rs

This lies squarely in the lap of the Dems

 

[Andy T.]

I think Alan Greenspan and the Fed might be the biggest culprits. They kept lowering and lowering interest rates to an unhealthy level in the 90's. They kept doing it in the 2000's too. Bottom line: Credit was way too easy to access which led to this bubble bursting. It created artificial growth based on easy credit and now we are paying for it. Thing is, both Clinton and GWB loved the short-term outcome, because it made their economies look better than what they really were. Meanwhile, we were all living in make believe doll houses made out of Monopoly money.

 

[Crabtownboy]

The Repubs called for action on poor book keeping and potential fallout form these poor loans but the Dems just viciously defended these programs that are now the primary cause for the current financial crisis.


http://www.youtube.com/watch?v=_MGT_cSi7Rs

This lies squarely in the lap of the Dems

But the Republicans were in the majority in both houses most of the years this was building up ... so there is fault on each side.

 

[windcatcher]

I think Alan Greenspan and the Fed might be the biggest culprits. They kept lowering and lowering interest rates to an unhealthy level in the 90's. They kept doing it in the 2000's too. Bottom line: Credit was way too easy to access which led to this bubble bursting. It created artificial growth based on easy credit and now we are paying for it. Thing is, both Clinton and GWB loved the short-term outcome, because it made their economies look better than what they really were. Meanwhile, we were all living in make believe doll houses made out of Monopoly money.

BINGO!

It is a process of society's own self indulgence:

Easy loan practices: Loan brokers making handsome commissions for qualifying borrowers: Low interest rates: Fractionalized banking with decreased regulation: Derivative speculation and overconfidence in the equity market growth: A fiat paper currency where printing more money was not tied to any intrinsic value. Then add to that the fact that the baby boom of WW II is now retiring and the promotion of 'reverse mortgages' for extending one's lifestyle or for fulfilling those set aside dreams of the working years to now visit foreign lands or RV and camp across our country, etc.. We've got 'a perfect' economic storm ahead.

Unfortunately, we also lack the independance of the agririan society which existed back during the depression and the dustbowl famines of yesteryear which kept people fed inspite of hard times and scarce supply.... The work force has been deprived of the blessings of working and consuming numbers due to aborted babies, and we've regulated, taxed, and increased the labor overhead of industry within our own country forcing a migration of industry to other countries, while preferring the cheaper consumption of products imported from outside.

I've often wondered at the 'fairness' of paying a foreign laborer the wages I would not wish to work for (in conditions of environment) so that I could consume it upon my own desires. This is not a partisan thing! This is society's reward of reaping that which we've sown..... materially, which is also reflective of our spiritual depravity.