Fiscal deficits were exploding and 4.3M jobs had been lost before Obama took office. Fiscal debt as of Sept 09, 8 months after Obama took office, was $11.9 trillion. "Trade" deficits subtracted $5.8 trillion from GDP from 2000 through May 2010. Democratic tax increases on the wealthy led to a boom and Republican tax cuts for the wealthy and not-paid-for spending led to a bust. The economic downturn, Bush tax cuts and wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.

Contents

• Deficit Distortion
• Who's Really Responsible?
• The "short civics lesson" is Way Too Short
• The Fiscal Deficit
• Who Decreased the Deficit in the '90s?
• The Source of So Much Debt?
• The Trade Deficit & Why Obama's Economic Policies Will Fail
• Republicans Propose More Disaster
• Who's at Fault for the Subprime Home Loan crash?
• For Shame!
• Exchange with a "conservative" on this post
  

Deficit Distortion

An ignorant "conservative" -- yes, I know that's redundant -- sent what's just below, which can be found on many websites (here, here and here, for example) in an e-mail to my sister. And I know, I know. That sounds unkind, but it's not really. We're all ignorant about many things.

Or is it ignorance? Or that "conservatives" can't admit they're responsible for the destruction of the economy; so they must blame it on someone else.

Such distortions and outright lies require correction. No matter what the facts are, I'm well aware there's not a snowball's chance in hell of convincing those who believe lies like these. Facts are more likely to further close their minds. See:

How facts backfire By Joe Keohane 7/11/10
Researchers discover a surprising threat to democracy: our brains

It’s one of the great assumptions underlying modern democracy that an informed citizenry is preferable to an uninformed one. ... Facts don’t necessarily have the power to change our minds. In fact, quite the opposite. In a series of studies in 2005 and 2006, researchers at the University of Michigan found that when misinformed people, particularly political partisans, were exposed to corrected facts in news stories, they rarely changed their minds. In fact, they often became even more strongly set in their beliefs. Facts, they found, were not curing misinformation. Like an underpowered antibiotic, facts could actually make misinformation even stronger.

This bodes ill for a democracy ...

No kidding! This relates to why "conservatives" stir up religious fervor ... facts don't matter when it's a matter of faith.

Here's the e-mail's Subject and the sender's preface:

Subject:   The Problems left behind by Bush ????

I am not bound to win, but I am bound to be true. I am not bound to succeed, but I am bound to live up to the light I have.  Abraham Lincoln

From Thucydides, the father of all military History - The society that separates its scholars from its warriors will have its thinking done by cowards and its fighting done by fools.

"Bound to be true"??? Seriously now, any "conservative" invoking these quotes has a lot of nerve, considering that the e-mail contains so much that's the exact opposite of truth.

Here's the main part of the e-mail that holds Obama responsible for the massive fiscal deficits.

     The Washington Post babbled again recently about Obama's inheriting a huge deficit from Bush. Amazingly enough,...... a lot of people swallow this nonsense. So once more, a short civics lesson.

       Budgets do not come from the White House. They come from Congress, and the party that has controlled Congress since January 2007 is the  Democrat Party. They controlled the budget process for FY 2008 and FY 2009, as well as FY 2010 and FY 2011. In that first year, they had to contend with George Bush, which caused them to compromise on spending, when Bush somewhat belatedly got tough on spending increases. 

         For FY 2009 though, Nancy Pelosi and Harry Reid bypassed George Bush entirely, passing continuing resolutions to keep government running until Barack Obama could take office. At that time, they passed a massive omnibus spending bill to complete the FY 2009 budgets. Remember? 

        And where was Barack Obama during this time? He was a member of that very Congress that passed all of these massive spending bills.  He signed the omnibus bill as President to complete FY 2009. Let's remember what the deficits looked like during that period:    (below) 
  

U.S. debt history & projections presented in the e-mail & on the web

 If the Democrats inherited any deficit, it was the FY 2007 deficit, the last of the Republican budgets.  That deficit was the lowest in five years, and the fourth straight decline in deficit spending. After that, Democrats in Congress took control of spending, and that includes Barack Obama, who voted for the budgets. If Obama inherited anything, he inherited it from himself.
 
        In a nutshell, when Obama says he inherited a huge deficit, what he is saying is "I inherited a deficit that I voted for and then I voted to expand that deficit four-fold since January 20th." 
 

There is no way this will be widely publicized,
 Unless each of us sends it on!

 This is your chance to make a difference.    

Gee, that's quite an indictment, isn't it? Problem is, it's full of lies and misrepresentations. Unsatisfied with the amount of prevarication in this post found on the web, the e-mail ends with yet another lie:

And the 2008 economic fiasco was produced by Barney Franks and Chris Dodd and their subprime lending of homebuying money to poor who could never afford to pay it back. There will be 3.3 million home defaults this year.  The economy turnaround could take years and will add to US deficits thru 2013, or longer.

Where to start in rebutting this nonsense?

Who's Really Responsible?

So who is responsible for ballooning deficits and the destruction of the U.S. economy? Republicans or Democrats? Bush or Obama?

Answer: Those to blame are economic "conservatives" of all stripes, primarily Bush and the Republicans, but it also includes Obama and too many Democrats (i.e., the DLC Democrats, aka Blue Dogs). 

Neither Obama nor most Democrats are liberals, much less socialists as they are being called. The policies they promote are well to the "right", whether it be "free trade", deregulation (read "lawlessness", because that's what deregulation is), or delivering 30M new customers to health insurance corporations instead of having a single-payer system. The recent 8 years of "conservative" economic policies led to The 9/22/08 Economic Crisis. 

Think about it. The destruction was well under way when Obama took office and there hasn't been time for him to reverse the destruction. Put an airliner into a precipitous dive and there's a long delay before it can pull out of that dive; even replacing the pilot won't help in the short term.

While Obama and the Democrats have largely, but not entirely, reinstated paygo (no expenditures without paying for them), they have not tried to reverse many "conservative" policies, either because they believe in them or because there are too many DLC Democrats who believe in them and Obama thinks he doesn't have the needed support.

In particular, the main policy that has fundamentally undermined the economy is "free trade". It's "free trade" policies that have allowed offshoring and cost so many high-paying manufacturing & IT jobs. See the devastation at Jobs & 'Trade' Data Update Jun10.  this has led to the economy being based on the FIRE (Financial, Insurance, Real Estate) sectors, which are so prone to fraud other forms of theft without adequate regulation.

So-called "free trade" has reduced economic activity in the U.S. and therefore reduced tax revenue from the corporations that have offshored work and tax revenue from those who did have good jobs. And, on the other side of the ledger, the loss of jobs has increased spending on unemployment benefits, food stamps, and other aid programs to help those in distress.

Then there are increased interest payments on the added debt built up in the Bush years. The unpaid-for spending was on invasions & occupations of Iraq & Afghanistan (>$1 trillion), tax cuts primarily for the wealthy ($1.8 trillion), Medicare Part D with no-competition prescription drug industry gifts (~$1 trillion), and the $700B TARP bank bailout (that was by Bush, not Obama). All in all that's about $4.5 Trillion of spending & tax cuts, all on borrowed money. And the interest on that debt is a gift that keeps on adding to the debt.

There has been spending on economic stimulus, but that has been a minor factor according to the Congressional Budget Office. See below at The Source of So Much Debt?

And another kind of offshoring is the increasing flight of corporations to tax havens to avoid paying U.S. taxes (Tax Havens; Undermining Democracy). Also see:

Small Businesses Go After Offshore Tax Havens By LYNNLEY BROWNING, NY Times, 7/20/10

... The Treasury Department estimated in 2009 that the international gap between taxes owed and taxes paid ranged from $43 billion to $123 billion a year for corporations and individuals. ...

So, while "conservative" economic policies are to blame, that doesn't let Obama off the hook. Obama haters can rejoice with America haters, because he will fail. Below I explain why. The irony is that, if he were to try to do what's needed, economic "conservatives" would scream bloody murder and not allow it. On this page let's look at

• Who's really controlled Congress
• U.S. fiscal deficits.
• When were the biggest runups in the deficit?
• Who was responsible?
• The problme with "trade"
• Republican plans
• Who's responsible for the subprime home loan crash
  

The "short civics lesson" is Way Too Short

It states, "Budgets do not come from the White House. They come from Congress, and the party that has controlled Congress since January 2007 is the Democrat Party."

Note: Republican-speak bias is immediately obvious thanks to the illiterate slur that refers to the "Democrat Party". "Democratic" is the adjective that should be used; "Democrat" is a noun.

Fundamentally, this "short civics lesson" is way too short. It omits stating that either the House, or the Senate, or the President can block legislation. Here's how.

President: The president has veto power. He can veto anything he doesn't like. Bush vetoed very little.

House: It's true that legislation must start in the House. The political party that controls the House has virtually dictatorial control of what gets debated, voted on, and passed on to the Senate.

Senate: Thanks to the filibuster, the political party that controls the Senate can block any legislation with a minority of 41 votes. The Senate effectively runs as a dictatorship of the minority. Republicans have used this to block legislation from the House.

The "continuing resolutions", which provide funding for existing federal programs at current or reduced levels, about which this piece complains, are all that Republicans would allow to be passed. Their plan has been, and continues to be, gridlock:

Senate Republicans: Filibuster everything to win in November Senate tied up in knots 2/12/10.

Republicans are using the filibuster as a way to limit or derail the majority Democrats' ability to pass bills with the hope that annoyed voters will elect more Republicans in this fall's election. ...

"Republicans have ratcheted use of the filibuster up to completely unheard of levels. Look at the things that the House (of Representatives) has passed that can't make it through the Senate. The list just keeps growing," said Norman Ornstein, an expert on Congress at the American Enterprise Institute, a center-right policy organization.

The list includes legislation to overhaul health care, which has stalled and isn't a good bet to be revived; global warming legislation; and a bill to overhaul financial regulation. ...

What's unbelievable is that Republicans even blocked a Small Business Tax Relief Act would have provided nearly $20 billion in tax relief to small businesses and eliminated $11.6 billion of tax breaks for companies that ship jobs overseas. They clearly don't care if you lose your job.

Senate Republicans also blocked a Small Business Jobs Bill, legislation to provide tax breaks to small businesses along with a $30 billion lending fund aimed at helping community banks provide loans to small businesses.

It's clear that in pursuit of their failed ideology, Republicans will use their tyranny of the minority to assure there will be no economic recovery. Their goal: "Die, America, die ... and blame it on the Democratic Party."

Here's a chart created based on a table from the U.S. Senate showing Senate Action on Cloture Motions. Note how the number more than doubled when Republicans became the minority party in the 110th Congress.

The number of Cloture Votes indicates the number of times the filibuster was used to prevent voting on an issue. Note that in the 110th Congress, Republicans doubled the number of filibusters to stop Democratic initiatives in the Senate.

On the other hand, when Republicans control the Senate they can get virtually anything they want passed with the help of "conservative" DLC Democrats.

The Fiscal Deficit

Below is the actual deficit picture.

The data is from Public Debt Reports. The yearly data is from Historical Debt Outstanding and recent monthly data is from multiple reports at Monthly Statement of the Public Debt. You can replicate the graphs, if you wish.

Note that, because the deficit numbers for each year are reported as of September, the graph shows deficits for a given year associated with the president of the previous year.

For example, Obama took office on Jan 20, 2009. In the 8 month period from Feb through Sep there's no way any president could turn the "ship of state" to significantly affect an economy in collapse. And it surely takes much longer than that, especially with the accelerated Republican filibustering in the Senate.

Fiscal Deficits under Republican Presidents have soared.

As evidence of the timing of the economic collapse, note in the graph below that employment reached its latest peak in November 2007. A total of 4.3 million jobs were lost before Obama took office at the end of January 2009. While the downward trajectory has been reversed, the lost jobs total is 7.4 million as of June 2010.

That's because the economy and employment finally succumbed to the "free trade" deficit drain on GDP (negative net exports subtracts from GDP). From 2000 through May 2010 the cumulative trade deficit (trade debt) has been $5.8 trillion; that's how much GDP has been reduced by this insane policy. Since 1980 it's $7.7 trillion of debt to other nations. While the $787M stimulus helped reverse the decline, there's no possible amount of stimulus that can make up for this drain on GDP.

How could anyone not expect large deficits with tax revenue down accompanied by much greater unemployment and welfare expenses.

U.S. employment began its latest dive in November 2007, about 14 months before Obama took office.

Who Decreased the Deficit in the '90s?

Here's the deficit chart again, adding arrows to show Republican control of Congress and the timing of Clinton's tax increases on those with higher incomes, which passed with zero Republican votes.

This figure shows that Republicans controlled the House, the Senate, or both from 1994 through 2006.

Fiscal Deficits and Republican control of Congress. Note Republicans controlled either the House or the Senate or BOTH from 1994 through 2006. And Bush was President from 2001 through 2008.

The "conservative" myth, maintained in the piece above when citing "the fourth straight decline in deficit spending" in the late 90s, is that the Republicans are responsible for reducing the deficit because they controlled both the House and Senate from 1994 through 2000. Their false line is that they held back the profligate spending of the Democrats.

The truth is that the reason deficits declined was the Democrat’s 1993 tax increase on those with very high income, which passed with zero Republican votes. Here are some of the comments from conservatives on the economic catastrophe that would result: 

• Sen. Pete Domenici (R-NM): “April Fool, America. This Clinton budget plan will not create jobs, will not grow the economy, and will not reduce the deficit.”
• Stephen Moore, Cato Institute, predicted: “Clinton’s plan will torpedo the economy”.
• Newt Gingrich: “The tax increase will kill jobs and lead to a recession and the recession will force people off of work and onto unemployment and will actually increase the deficit.”
• Sen. Phil Gramm (R-TX), economist: “I want to predict here tonight, that if we adopt this bill the American economy is going to get weaker and not stronger, the deficit four years from today will be higher than it is today and not lower… When all is said and done, people will pay more taxes, the economy will create fewer jobs, the government will spend more money, and the American people will be worse off.”
• Rep. Dick Armey (R-TX), economist: “a job killer”.
• Rep. John Kasich (R-OH): “This plan will not work…. If it was to work, then I'd have to become a Democrat…”

Perfect thinking according to Economics 101. And exactly wrong! What happened instead was the longest period of prosperity in U.S. history. While it's true that the tax increase was not the only reason for the boom, and that the booming economy planted the seeds for much of the later decline when the dot-com bubble burst, "conservatives" were absolutely wrong. There would have been no dot-com bubble had the Fed raised margin requirements to reduce speculation.

Did they learn from the failure of their false predictions? Of course not. Conservative ideology ignores reality, which makes them incapable of admitting they're wrong. They're saying the very same things again now about the potential impact of letting the Bush tax cuts for the extremely wealthy expire. It's pathetic and dishonest that conservatives would push the same false logic in again.

Instead of the top-weighted Bush tax cuts, what should have been done was to cut taxes for those with lower incomes and to raise taxes on those with very high incomes. The economy would have boomed had that been done.

Even some Republicans realized this.
Split in Ranks of Business and G.O.P. on Tax Cuts
11/29/02 By EDMUND L. ANDREWS ... excerpt:

... a growing number of business and political leaders, including at least one influential industry group, want to funnel more money to lower- and middle-income taxpayers in an effort to generate more demand for goods and services. ... 

The Business Roundtable, an organization of chief executives from large corporations, startled many of its normal allies last week by arguing that tax breaks for individuals would be more helpful than tax breaks for business.

Indeed, the Roundtable’s top recommendation was one favored by many Democrats: bolstering tax relief for low- and middle-income families by temporarily cutting payroll tax contributions for Social Security and Medicare.

There is substantial overcapacity in the economy, so we don't need more capacity right now,” said John J. Castellani, the president of the Business Roundtable. We felt it would be more prudent and effective to stimulate consumption.” ...

No kidding. And this is why Bush's tax cuts have produced such anemic results and so much less investment than conservatives expected ... no demand, no investment.

So Democratic tax increases on the wealthy led to a boom and Republican tax cuts for the wealthy and not-paid-for spending led to a bust. Yet they still maintain that tax cuts do not need to be paid for, they pay for themselves. Here's Mitch McConnell, Republican Minority Leader, on the matter while pretending to care about "small business" in August. Here are Republican Lies about the Bush Tax Cuts.

From Calling out Greenspan and Paulson for Pure Hypocrisy on Bush Tax Cuts vs. Deficits:

... Fareed Zakaria argued on February 4 that the budget Obama inherited was completely broken in the first place, first by the Bush tax cuts and secondly by the prescription drug plan for the elderly and two wars that were "off budget." The Bush Administration set the next several generations up with a massive budgetary mess that will not go away with politics running the governmental show. ...

The Source of So Much Debt?

The Bush tax cuts, the economic downturn, and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.

At right is a great graphic from the article,

Critics Still Wrong on What’s Driving Deficits in Coming Years Economic Downturn, Financial Rescues, and Bush-Era Policies Drive the Numbers By Kathy Ruffing and James R. Horney, 6/28/10.

The article's bottom line: along with the economic downturn, the Bush tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.

Note that under George W. Bush, the Republican Congress used the reconciliation process, about which they complained so vociferously this year, to enact three major tax cuts. The 2001 tax cuts were predicted to reduce surpluses by $1.35 trillion between 2001 and 2011. The 2003 cuts were predicted to increase deficits by $349.7 billion between 2003 and 2013. The 2006 tax cuts were predicted to increase deficits by $70 billion between 2006 and 2010.

That's a total of $1.8 trillion in not-paid-for tax cuts. And some wonder why the U.S. has a deficit problem?

Also see this analysis based on CBO data:

America’s Sea of Red Ink Was Years in the Making By DAVID LEONHARDT, NY Times, 7/9/09.

There are two basic truths about the enormous deficits that the federal government will run in the coming years.

The first is that President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. The second is that Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested.

The New York Times analyzed Congressional Budget Office reports going back almost a decade, with the aim of understanding how the federal government came to be far deeper in debt than it has been since the years just after World War II. ...

The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.

You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama. ...

Here's a summary of the main points in this article:

37% of the deficit was caused by what the CBO calls the "economic cycle." [Note: that's actually not from a "cycle", but from "long-term structural changes" that have destroyed the economy thanks to "free trade" & deregulation.]
33% is from new legislation signed by Bush.
20% is from Obama’s extension of several Bush policies [those who supported Bush shouldn't complain about the above ... they supported them].
7% "About 7% comes from the stimulus bill that Mr. Obama signed in February.
3% And only 3% comes from Mr. Obama’s agenda on health care, education, energy and other areas. If the analysis is extended further into the future, well beyond 2012, the Obama agenda accounts for only a slightly higher share of the projected deficits. ..."

The Trade Deficit & Why Obama's Economic Policies Will Fail

Even though the vast majority of the deficits -- fiscal or "trade" -- are not Obama's fault, Obama-haters can rejoice that Obama will fail, but not for the reasons they maintain. It won't be because of his "stimulus" package. And it won't be because he's governing "from the left" and a "socialist".

It's because he's not doing anything about the "trade" deficit that has undermined the U.S. economy. It's undermined wages and purchasing power. No wonder the economy is collapsing due to lower demand and therefore lower investment in the absence of demand. It's mainly for this reason that I'm very critical of Obama.

Here's the "trade" deficit picture; every dollar subtracts from GDP. And that's why the U.S. economy WILL NOT RECOVER until this is corrected.

US Trade Deficit ... the upward move in 2010 is not good news for deficits or GDP

Republicans Propose More Disaster

The main Republican proposal is to fully extend the Bush Tax Cuts, which would increase deficits and debt by $3.8 trillion over ten years. Now Republicans say that not doing this is equivalent to a tax increase, which would crash the economy. Of course, they said the same about the Clinton tax increases on higher incomes. Note their "the sky is falling" comments above.

Who's at Fault for the Subprime Home Loan crash?

Was the "subprime lending of homebuying money to poor who could never afford to pay it back" the problem and the fault of Democrats? 

No, it was not. It's another lie. And was it "subprime lending of homebuying money to poor who could never afford to pay it back"? No, the major problem wasn't the "poor". This is typical of "conservatives" who seem to always blame the disadvantaged instead of powerful economic interests and the wealthy.

Biggest Defaulters on Mortgages Are the Rich By DAVID STREITFELD 7/8/10

... Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent. ...

The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

How about that? For those owning property for housing, it was greater than 1 in 7 (14%) for "lavish housing" compared to about 1 in 12 (8%) for "less lavish housing". For investment property it was 23% for property with mortgages greater than $1M versus 10% for "cheaper homes."

And the "poor who could never afford to pay it back" do not purchase Commercial Real Estate where the FBI says CRE loans are "expected to produce more than $100 billion in losses by the end of 2010." 

FBI 2009 Mortgage Fraud Report

The Federal Bureau of Investigation (FBI) has just released the 2009 mortgage fraud report.

The year saw massive increases in the number of pending fraud cases, the dollar amounts and even the number of investigations (up 71 percent from 2008).

Open sources and FBI analysis indicate that the $6.4 trillion commercial real estate (CRE) market is experiencing a high incidence of loan origination fraud similar to that seen during the last few years in the residential real estate market. Perpetrators, including loan officers, real estate developers, appraisers, and apartment management companies, are increasingly submitting fraudulent documents that misrepresent their assets and property values to qualify for loans to buy or retain property. When the loans are funded, the perpetrators often cease payment of their mortgages, resulting in foreclosure. According to open-source reporting, CRE loans are expected to produce more than $100 billion in losses by the end of 2010.

Was there any warning that "fraudulent mortgage practices" would create an Enron-like "crisis"? Yes.

When was that warning? In 2004 when Republicans controlled everything: the presidency, the House, and the Senate. Obviously therefore, it was the fault of the Democratic Party for ignoring the warning.

FBI Deputy Director John Pistole LA Times, 2/12/09
http://articles.latimes.com/2009/feb/12/nation/na-fraud12

... [FBI Deputy Director] John Pistole said he expected the number of major investigations to rise into the many hundreds, focusing on big-name companies that "everybody knows about," and to be similar in scope and complexity to the massive probe of energy company Enron Corp. after its collapse in 2001. ...

Pistole noted that former FBI Assistant Director Chris Swecker warned Congress in 2004 about the looming crisis posed by fraudulent mortgage practices. ...

And what did George W. Bush have to say about giving loans to "minority homeowners"? He touted a program "designed to help deserving families who have bad credit histories to qualify for homeownership loans."

Bush's speech at the Conference on Minority Homeownership at George Washington University in Washington, D.C. on October 15, 2002. Go to this whitehouse.gov link for audio, video and full transcript. Bush and Republicans branded this initiative as building an "ownership society." Here are excerpts (edited audio of these Bush remarks):

More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That's a homeownership gap. It's a gap that we've got to work together to close ...

... by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. (Applause.)

And, of course, one of the larger obstacles to minority homeownership is financing ...

... Fannie Mae and Freddie Mac ... have committed to provide more money for lenders. They've committed to help meet the shortage of capital available for minority home buyers.

Freddie Mac recently began 25 initiatives around the country to dismantle barriers and create greater opportunities for homeownership. One of the programs is designed to help deserving families who have bad credit histories to qualify for homeownership loans. ...

... you don't have to have a lousy home for first-time home buyers. If you put your mind to it, the first-time home buyer, the low-income home buyer can have just as nice a house as anybody else.

From a previous speech, June 18, 2002: President Reiterates Goal on Homeownership (alternate link) including the

I've asked Congress to fully fund an American Dream down payment fund which will help a low-income family to qualify to buy, to buy. (Applause.) ...

The second barrier to ownership is the lack of affordable housing. There are neighborhoods in America where you just can't find a house that's affordable to purchase, and we need to deal with that problem. The best way to do so, I think, is to set up a single family affordable housing tax credit to the tune of $2.4 billion over the next five years to encourage affordable single family housing in inner-city America. (Applause.) ...

The third problem is the fact that the rules are too complex. People get discouraged by the fine print on the contracts. They take a look and say, well, I'm not so sure I want to sign this. There's too many words. (Laughter.) There's too many pitfalls. So one of the things that the Secretary is going to do is he's going to simplify the closing documents and all the documents that have to deal with homeownership.

Gee, that was funny, wasn't it?

Naturally, this initiative was popular with Republicans, many of whom are developers enabled to build more homes (and, by the way, externalize costs onto the public by way of implicit subsidies as Republican control in Colorado Springs has allowed ... see the Growth Facts of Life and Taxes: 2C or Not 2C?).

Are Democrats clean in this? No. It found support from Democrats wanting to help minorities. So it is true that Fannie Mae was under pressure to ease credit.

Fannie Mae Eases Credit To Aid Mortgage Lending, NYTimes, 9/30/99

... 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.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans. ...

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

Unfortunately, too many were encouraged to buy fixed rate, balloon mortgages requiring refinancing, refinancing too expensive to afford when the housing bubble (blown up by the Fed's low, low interest rates) burst. The relaxing of leverage requirements (see the 3X increase in leverage allowed in 2004 below), and the resulting high-leverage speculation in these sub-prime loans, turned a bad situation into a disaster. Along with deregulation that allowed "liar loans".

The explosive charge that led precipitated the crisis was enormous debt driven by a lower margin requirements. It was the SEC that lit the fuse in 2004 by allowing an over 3X increase in leverage. Again who was in charge in 2004?

Ex-SEC Official Blames Agency for Blow-Up of Broker-Dealers
'They constructed a mechanism that simply didn't work', New York Sun, 9/18/08

Summary: In 2004 the SEC changed the "net capital rule." created in 1975, from requiring that broker dealers limit their debt-to-net capital ratio to 12-to-1 to allowing the "broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1."

A lot of distraction has laid the blame on the 1977 Community Reinvestment Act ... as if a lending crisis in 2004 to 2007 could have been caused by a 1977 law. Hardly.

Community Reinvestment Act had nothing to do with subprime crisis by Aaron Pressman, 9/29/08

Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.

The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here). ...

And:

Bush Administration Weakened Lending Rules Before Crash, 12/1/08.

The Bush administration ... ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying _ along with assurances from banks that the troubled mortgages were OK _ regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way. ...

The administration's blind eye to the impending crisis is emblematic of a philosophy that trusted market forces and discounted the need for government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s. ...

Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false.

So by all means, go after the "poor who could never afford to pay [loans] back", just know that ignores reality to blame the poor for a national economic crisis.