Exploring the Policies and Causes of the Housing Crisis

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    Aug 09, 2010 11:52 PM GMT
    In another topic I had brought up that the policies continually embraced by the left are what ultimately caused the recent housing crash that we experienced and which has had a detrimental ripple effect throughout the world. It's worth nothing that the left seems to enjoy reverting to semantic subterfuge when it is pointed out that key policy decisions leading up to the crisis leaves relatively little doubt as to which political ideals (and therefore party) are mostly to blame for what happened.

    In a recent exchange with jprichva he made it clear to me that the chain of events I outlined in another thread did not actually occur (or to put it bluntly, that I'm lying), so I created this topic so that we can both of us present the issues as we understand them and provide an environment for both sides to leave feedback.

    We all know that the last things politicians want to do is to blame themselves for a disaster as large as the housing crisis and therefore it is common in politics for a scapegoat to be created. Most people seem completely unaware that that the government itself was the actual cause of the housing crisis that we had, not the popular but disingenuous idea that it was some ambiguous wave of greed that overtook big evil banks. What happened is in fact the ultimate testament to the reality that whenever the government tries to interfere or intervene with the natural flow of things that it will result in first a bubble of prosperity and then eventually a collapse.

    The root cause behind the housing crisis was not because banks were greedy (people in general are greedy no matter what), but because progressive leftwing do-gooders had this brilliant idea that they could create EQUALITY and promote more RACIAL DIVERSITY through affirmative action by LOWERING the standards so that otherwise unqualified people could buy homes. As a result, It is factual that blacks and latinos held roughly 50% of all the subprime mortgages. The other 50% were whites, Asians and other groups who otherwise would not have been eligible to purchase a home but decided to jump on the bandwagon and take advantage of lowered standards.

    These policies gave way to irresponsible behavior by the banks because they are practically guaranteed by the government. The environment created the possibility for banks to push the envelope in order to increase profits. Keeping in mind that greed will always be a part of life because it's what drives capitalism, but the negative effects of greed only happened once provision was made for it.

    It is a fact, not my idea, that Fannie Mae, Freddie Mac and Ginnie Mae were created by the government and are implicitly backed if they are ever to default despite technical wording that they are not guaranteed – the market assumes they are guaranteed (and they are through bailouts). Also, the FHA which directly offers government backed loans played a big part as well. Simultaneously, the private banks not affiliated with the government programs which held a minority of the loans were forced to dangerously lower their standards down to the level that fannie and gang had done in order to keep up with the competition while believing that fannie and gang had their calculations correct.

    A byproduct of this is that people started to overvalue their homes and there was a mad rush to buy houses and make a profit.

    If it had not been for the politically correct ideals pushed by leftist lobbyists and big government manipulation controlling banks, then none of this housing crisis would have happened. The end result is that blacks and latinos, the very people that these policies were intended to “help” ended up getting hurt the worst.


    ps. btw it would be preferable if we could avoid the typical and desperate ad hominem tactics such as "you're too young and inexperienced to understand these issues"
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    Aug 10, 2010 12:04 AM GMT
    It should also be stated that none of this information comes from fox news or any rightwing talking point. These were the facts that I deduced simply from my observations on the chain of events. My conclusions are admittedly not very politically correct.
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    Aug 10, 2010 12:39 AM GMT
    Very nice summary. One more thing to add: people whoe bought and sold houses for profit with no intention ever of occupying them. Many of these companies ultimately ended up in bankruptcy and bank foreclosures.
    Also once prices became so high due to inflation, people stopped buying them.
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    Aug 10, 2010 12:47 AM GMT
    McCain spoke forcefully on May 25, 2006, on behalf of the Federal Housing Enterprise Regulatory Reform Act of 2005:

    Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

    The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

    The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

    For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

    I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

    I urge my colleagues to support swift action on this GSE reform legislation.

    ------------------------------------------------------------------------------------------

    This was vigorously opposed by Obama and Dodd. Unfortunately, the Republicans did not fight enough, and it died in committee.

    Barney Frank was also a supporter of Freddie and Fannie, and was a big champion of "justice" to motivate low income earners to get into houses they ultimately could not afford.

    Franklin Raines, noted above, was a friend of Obama and served on Obama's committee to choose a VP.

    Fast Forward to 2010 - The Democratic financial reform law still does not address Fannie and Freddie.
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    Aug 10, 2010 12:59 AM GMT
    In the wikipedia article it does mention more liberal gov't policy as part of the cause, but I really had to dig to find that particular paragraph. Probably more important was the amount of easy credit from large foreign investments and low interest rates which allowed the subprime loans to happen.
    http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

    Deregulation (typically favored by Republicans) is also to blame, esp. the repeal of the Glass-Steagall act which separated commercial and investment banks.

    Personally, I've never understood why people would buy something they would never have been able to pay off. China apparently requires 20% downpayment for a house. It's unheard of in other countries with stronger saving characteristics. (For example, I can pay for a car in full if I wanted to)
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    Aug 10, 2010 1:03 AM GMT
    lol, I'll step into this..was it a Republican gov't in control in those 8 years and with a majority, too? If so, how is it those 8 years weren't enough for the gov't to fix things before the disaster as opposed to the current gov't which was to somehow have everything fixed up in the first year?


    curious -Doug

    PS someone deregulated your banking industry, I think.
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    Aug 10, 2010 1:08 AM GMT
    meninlove said lol, I'll step into this..was it a Republican gov't in control in those 8 years and with a majority, too? If so, how is it those 8 years weren't enough for the gov't to fix things before the disaster as opposed to the current gov't which was to somehow have everything fixed up in the first year?


    curious -Doug

    PS someone deregulated your banking industry, I think.

    lol I will respond lol - The Republicans were also negligent in allowing Wall Street practices that enabled the mortgage situation to snowball. While obviously not an excuse, they were focused on terrorism and the war, and they did not give this sufficient focus. The point I made in other threads was there was blame to go around, and the current posture of Obama trying to blame Republicans for everything is dishonest. Obama was also one of the biggest recipients of Fannie contributions.
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    Aug 10, 2010 1:12 AM GMT
    It is often difficult to recognise economic crises occurring until it is too late. The government was trying very hard to ignore the bubble once it became clear that there was a problem-around 2004 or so. This was the time of the election. The government did not want to alienate the lower income groups/minorities whom these low interest rates, and poor lending standards were geared towards. Mock spoke of them. 2003-2006 included one of the biggest booms in US economy. The GDP was skyrocketing.
    Why would the government want to counteract that for a population interested only in the short term? What would the liberals have said? Certainly, something along the lines of: Bush is trying to take poor people's houses- had anything been done about raising lending standards. We can all agree that Bush was the not the smartest man around, it was due to his encouragement per the Keynesian policies that the Federal Housing Administration gave in more money to lenders already depreciating in value.
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    Aug 10, 2010 2:41 AM GMT
    I don't have the wherewithal right now to pick apart these arguments one by one. Suffice it to say, that there were several "bad actors" involved. I'm willing to stipulate the Fannie and Freddie were apparently rife with corruption and mismanagement. But that is only one part - and a small one - of the story. Had Bush not continually pushed for an "ownership society" that actually encourage even more profligate lending policies to keep the big money casino going and tried to rein in Fannie and Freddie, I'd be more inclined to say this was a partisan issue.

    But, no one on the left invented mortgage backed securities, and none of us created credit default swaps, and none of us gamed the system to makes billions by betting that the American economy would tank (as some hedge fund managers did). That level of speculation and quest for "money for nothing' exposed the rest of the economy to the dangers inherent in Freddie and Frannies practices. Further, companies like Countrywide made an entire business practice out of not "serving" the POC communities by defrauding them by lying to them about the risk they were taking on via no doc loans, ARMs, and a range of other fraudulent practices that lulled people into mortgages that were time bombs.

    One study (and I can't be arsed to find it now) stated that 80% of the fraud conducted in the sub-prime mortgage deals was done so by the lenders. In the chase for more mortgages and more short-term profits, many lenders actively encourages the falsifying of incomes, assets and other documentation sell mortgages.
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    Aug 10, 2010 2:48 AM GMT
    Christian73 saidI don't have the wherewithal right now to pick apart these arguments one by one. Suffice it to say, that there were several "bad actors" involved. I'm willing to stipulate the Fannie and Freddie were apparently rife with corruption and mismanagement. But that is only one part - and a small one - of the story. Had Bush not continually pushed for an "ownership society" that actually encourage even more profligate lending policies to keep the big money casino going and tried to rein in Fannie and Freddie, I'd be more inclined to say this was a partisan issue.

    But, no one on the left invented mortgage backed securities, and none of us created credit default swaps, and none of us gamed the system to makes billions by betting that the American economy would tank (as some hedge fund managers did). That level of speculation and quest for "money for nothing' exposed the rest of the economy to the dangers inherent in Freddie and Frannies practices. Further, companies like Countrywide made an entire business practice out of not "serving" the POC communities by defrauding them by lying to them about the risk they were taking on via no doc loans, ARMs, and a range of other fraudulent practices that lulled people into mortgages that were time bombs.

    One study (and I can't be arsed to find it now) stated that 80% of the fraud conducted in the sub-prime mortgage deals was done so by the lenders. In the chase for more mortgages and more short-term profits, many lenders actively encourages the falsifying of incomes, assets and other documentation sell mortgages.

    What you say is consistent with the point I have been trying to make. Simply there is sufficient blame to spread around. The interesting thing is Obama trying to say it was all the other side, when he was one of his party very heavily involved.
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    Aug 10, 2010 3:49 AM GMT
    http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis

  • GQjock

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    Aug 10, 2010 4:00 AM GMT
    'Cept you forgot one thing

    If it was because left wing "do-gooders" were the cause of all this mess

    HOW THE HELL DID WALL STREET MAKE HUNDREDS OF BILLIONS
    by chopping up those mortgages and selling them as commodities?

    Jeezus .... you know that statement if it crawled up your ass? icon_confused.gif


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    Aug 10, 2010 8:06 AM GMT
    theatrengym saidhttp://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis



    The problem here is that these pesky facts get repeated and linked to over and over yet those who have closed their minds to facts and are instead awash in ideology are not going to see them.

    Even the one who goes on about "there is blame to spread around" is more enamored of that phrase than he is the facts that show that some of his statements are blatant lies.

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    Aug 10, 2010 8:18 AM GMT
    socalfitness saidObama was also one of the biggest recipients of Fannie contributions.


    The tiniest effort to verify this would have show you that not only was this money from _employees_, not from the company itself, but that contributions from Fannie and Freddie board of directors and lobbyists (who are not counted as "employees") - those you would expect to come back and ask for something for their contribution - gave an amount that was almost 40% larger to McCain.

    You're trying to imply that Obama resisted regulating Fannie and Freddie because of this money when these contributors would have little input into anything he did, and if you assert that Obama by taking the money was by definition influenced by it then you have to agree that McCain would have been far deeper in the pockets of those who would actually influence him.

    Correct?
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    Aug 10, 2010 10:31 AM GMT
    Christian73 saidI don't have the wherewithal right now to pick apart these arguments one by one. Suffice it to say, that there were several "bad actors" involved. I'm willing to stipulate the Fannie and Freddie were apparently rife with corruption and mismanagement. But that is only one part - and a small one - of the story. Had Bush not continually pushed for an "ownership society" that actually encourage even more profligate lending policies to keep the big money casino going and tried to rein in Fannie and Freddie, I'd be more inclined to say this was a partisan issue.

    But, no one on the left invented mortgage backed securities, and none of us created credit default swaps, and none of us gamed the system to makes billions by betting that the American economy would tank (as some hedge fund managers did). That level of speculation and quest for "money for nothing' exposed the rest of the economy to the dangers inherent in Freddie and Frannies practices. Further, companies like Countrywide made an entire business practice out of not "serving" the POC communities by defrauding them by lying to them about the risk they were taking on via no doc loans, ARMs, and a range of other fraudulent practices that lulled people into mortgages that were time bombs.

    One study (and I can't be arsed to find it now) stated that 80% of the fraud conducted in the sub-prime mortgage deals was done so by the lenders. In the chase for more mortgages and more short-term profits, many lenders actively encourages the falsifying of incomes, assets and other documentation sell mortgages.


    "Had Bush not continually pushed for an 'ownership society' ", you must have Bush confused with Barney Frank.



    As for Fannie, Freddie and Countrywide, it wasn't Republicans propping them up. Again Frank comes to mind along with Dodd. And how could you leave out the beginning of the problem, the Community Reinvestment Act, I remember that being a Clinton baby.
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    Aug 10, 2010 10:48 AM GMT
    shybuffguy said
    As for Fannie, Freddie and Countrywide, it wasn't Republicans propping them up. Again Frank comes to mind along with Dodd. And how could you leave out the beginning of the problem, the Community Reinvestment Act, I remember that being a Clinton baby.


    And you remember it wrong. From the article theaterngym posted:

    "CRA has always had critics, and they now suggest that the law went too far in encouraging banks to lend in struggling communities. Rhetoric aside, the argument turns on a simple question: In the current mortgage meltdown, did lenders approve bad loans to comply with CRA, or to make money?

    The evidence strongly suggests the latter.
    First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened.

    Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn't even apply to most of the loans that are behind it. As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

    Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households." "
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    Aug 10, 2010 10:58 AM GMT
    Very nicely put Christian.

    Why aren't there more centrists in this country? Because you can't win votes with complexity. Both the left and the right both want to pin blame on a single devil, whereas the reality is that devils are all around us and to ignore them is just, well, a sign of immaturity.

    If there was a RINO party I would vote for it, but as of right now, I still have to vote for the Democrats because at least their hearts are in the right place.
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    Aug 10, 2010 12:04 PM GMT
    There is one other thing that has not been talked about and that is the buyer and the estate agents. Too many times the buyer was put into a deal of too much home and a mortgage they could never repay. Estate agents were selling homes based on the size loan a buyer could get which drove up there commissions. They were not selling what the buyer wanted or needed.

    I myself went through this with 6 different estate agents when I got out of the Army more than 2 years ago. Every one of them were more interested in how big a loan I could get before they wanted to know what I wanted in a house. I wanted something small that could fix up the way I wanted it. All they were interested in selling were big house because of the loan I could get and what commission they would earn.

    After about 3 months of this I was able to find an agent who was more interested in my needs and wants rather than just there commissions. I now have what I wanted.
  • n2Hoss

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    Aug 10, 2010 12:53 PM GMT
    I think we can all agree that there was one single cause to this crisis to which we can blame. The culprit is GREED. We can try to point fingers at programs and legislation, but somewhere along the way people got GREEDY, corrupt, lazy and unaccountable for their action or lack or action. You have all brought up some key elements that are contributing factors and this discussion is quit refreshing. Maybe we can now start working on solutions so as not to repeat history.
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    Aug 10, 2010 1:29 PM GMT
    Interesting bed time read for the children of the tea party. However, this form of "analysis lite" is a bit devoid of facts for most thinking people on the left, center and even the right side of the political spectrum.

    Luckily, you have Christian73, theatrengym, jprichva and gregography to help fill in the blanks for you.


    mocktwinkie saidIn another topic I had brought up that the policies continually embraced by the left are what ultimately caused the recent housing crash that we experienced and which has had a detrimental ripple effect throughout the world. It's worth nothing that the left seems to enjoy reverting to semantic subterfuge when it is pointed out that key policy decisions leading up to the crisis leaves relatively little doubt as to which political ideals (and therefore party) are mostly to blame for what happened.

    In a recent exchange with jprichva he made it clear to me that the chain of events I outlined in another thread did not actually occur (or to put it bluntly, that I'm lying), so I created this topic so that we can both of us present the issues as we understand them and provide an environment for both sides to leave feedback.

    We all know that the last things politicians want to do is to blame themselves for a disaster as large as the housing crisis and therefore it is common in politics for a scapegoat to be created. Most people seem completely unaware that that the government itself was the actual cause of the housing crisis that we had, not the popular but disingenuous idea that it was some ambiguous wave of greed that overtook big evil banks. What happened is in fact the ultimate testament to the reality that whenever the government tries to interfere or intervene with the natural flow of things that it will result in first a bubble of prosperity and then eventually a collapse.

    The root cause behind the housing crisis was not because banks were greedy (people in general are greedy no matter what), but because progressive leftwing do-gooders had this brilliant idea that they could create EQUALITY and promote more RACIAL DIVERSITY through affirmative action by LOWERING the standards so that otherwise unqualified people could buy homes. As a result, It is factual that blacks and latinos held roughly 50% of all the subprime mortgages. The other 50% were whites, Asians and other groups who otherwise would not have been eligible to purchase a home but decided to jump on the bandwagon and take advantage of lowered standards.

    These policies gave way to irresponsible behavior by the banks because they are practically guaranteed by the government. The environment created the possibility for banks to push the envelope in order to increase profits. Keeping in mind that greed will always be a part of life because it's what drives capitalism, but the negative effects of greed only happened once provision was made for it.

    It is a fact, not my idea, that Fannie Mae, Freddie Mac and Ginnie Mae were created by the government and are implicitly backed if they are ever to default despite technical wording that they are not guaranteed – the market assumes they are guaranteed (and they are through bailouts). Also, the FHA which directly offers government backed loans played a big part as well. Simultaneously, the private banks not affiliated with the government programs which held a minority of the loans were forced to dangerously lower their standards down to the level that fannie and gang had done in order to keep up with the competition while believing that fannie and gang had their calculations correct.

    A byproduct of this is that people started to overvalue their homes and there was a mad rush to buy houses and make a profit.

    If it had not been for the politically correct ideals pushed by leftist lobbyists and big government manipulation controlling banks, then none of this housing crisis would have happened. The end result is that blacks and latinos, the very people that these policies were intended to “help” ended up getting hurt the worst.


    ps. btw it would be preferable if we could avoid the typical and desperate ad hominem tactics such as "you're too young and inexperienced to understand these issues"
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    Aug 10, 2010 7:48 PM GMT
    creyente saidInteresting bed time read for the children of the tea party. However, this form of "analysis lite" is a bit devoid of facts for most thinking people on the left, center and even the right side of the political spectrum.

    Luckily, you have Christian73, theatrengym, jprichva and gregography to help fill in the blanks for you.


    The fact that these guys will NEVER respond to links to facts or analysis based on facts - like the post I made yesterday, which goes unaddressed - totally gives them away. It's all ideology, all the time.
  • metta

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    Aug 10, 2010 8:10 PM GMT
    The main cause of the housing crisis is deregulation. The deregulation was pushed by lobby groups in the financial industry.

    I really doubt that politicians would have pushed for deregulation as well if it was not for public campaign financing and the control corporations have within our government. Corporations and the government are too interconnected to be impartial or ethical.


    The only way to prevent such things from happening again is to not allow public financing of campaigns and to require that politicians not be able to work in a position that works closely with the government for many years, (maybe 7-10 years) after they leave, which includes, of course, any lobby group. Politicians should not feel like they have to repay in some form to their financial supporters. They should make their decisions based on what is the best thing to do and the system should be designed to encourage this. They should also not be allowed to earn active income for corporate work related to the government while in office either.

    It would be nice if we had a government "for the people, by the people" and of course, not allowing a corporation to be considered a person.

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    Aug 10, 2010 9:08 PM GMT
    OP, where did you get your misinformation? Did you not research the Reagan presidency? Do you honestly think Democrats were a major contributor to this disaster? Yes, there is plenty of blame to go around, but there's far more from the Right than anything the Left could have delivered.

    This has been written about in several threads. Please, in the future, do some research in the RJ forums before you post a topic that has been done to death.
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    Aug 10, 2010 10:28 PM GMT
    southbeach1500 said
    creyente saidInteresting bed time read for the children of the tea party. However, this form of "analysis lite" is a bit devoid of facts for most thinking people on the left, center and even the right side of the political spectrum.

    Luckily, you have Christian73, theatrengym, jprichva and gregography to ....

    ... put forth liberal Democrat socialist lies.


    SB - "Liberal" is one thing, "Socialist" is another thing. An American Democrat can be a liberal or conservative Democrat, but cannot be a socialist.

    And despite Twinkie's valiant effort, nothing has been accomplished here but an agreement from some that there were many bad actors. The reality of the crisis and it's impact on our economy has much more to do with corporate greed than with the public policy, which they twisted in the pursuit of profits.
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    Aug 10, 2010 10:30 PM GMT
    southbeach1500 said
    reppaT saidOP, where did you get your misinformation? Did you not research the Reagan presidency? Do you honestly think Democrats were a major contributor to this disaster? Yes, there is plenty of blame to go around, but there's far more from the Right than anything the Left could have delivered.

    This has been written about in several threads. Please, in the future, do some research in the RJ forums before you post a topic that has been done to death.

    Here is all the proof you need (again).


    Now, you're just being ridiculous. I'm sorry if the history of policy evolution in our country is too complicated for you to grasp. That's the only reason I can see as to why you keep posting pictures of Barney Frank and Chris Dodd. Instead of having a debate, or worse, an honest reflect from both sides about how a good policy was abused, yes, by some individuals, but mostly mortgage lenders, and helped lead to the current economic crisis, you want to post silly pictures. ,