Many bubbles are caused by a change in legislation that either incentivizes bubble participation or removes barriers to bubble participation.
We saw this with the policies the Bush Administration adopted to further encourage an ownership society via home ownership as well as ongoing incentives to own a house. We also saw that the changes to Glass–Steagall contributed to the economic meltdown.
I'm not arguing that we are or aren't in a bubble, but instead the legislative changes are common leading up to a bubble. Some would argue that the house bubble has been building via legislative change since the 1950s.
When he says "Bush Administration" and you say "Clinton's...Community Reinvestment Act" I think you mean to say legistlation like Roosevelt's New Deal http://en.wikipedia.org/wiki/New_Deal
I agree with your premise, and I'd add to it the governmental efforts that interfere with correcting the bubble, such as the Obama administration's work to prop up home prices.
However, it's not true that Glass-Steagall contributed to the economic crisis. If anything, it served to mitigate the problem. I think the argument here [1] is pretty slam-dunk:
<quote>
The 1933 Glass-Steagal Act [] prohibited commercial banks from owning investment banks ...
Just look at which organization’s have failed:
* Bear Stearns was an investment bank before it was sold to JP Morgan Chase (which includes a commercial bank).
* Fannie Mae were Freddie Mac were government sponsored entities before the government bought them.
* Lehman Brothers was an investment bank before it want bankrupt.
* Merrill Lynch was an investment bank befor it was sold to Bank of America (which is a commercial bank).
* AIG is an insurance company with no commercial banking division.
Remember, Glass-Steagal was passed to protect commercial banks from failure by forbidding them from investment bank practices like trading in securities and underwriting stocks and bonds. As you can see above non of the failed institutions are commercial banks that got in trouble through risky investment banking. Instead, it is the commercial banks that are providing some stability to the system by purchasing troubled investment banks.
Comments
Many bubbles are caused by a change in legislation that either incentivizes bubble participation or removes barriers to bubble participation.
We saw this with the policies the Bush Administration adopted to further encourage an ownership society via home ownership as well as ongoing incentives to own a house. We also saw that the changes to Glass–Steagall contributed to the economic meltdown.
I'm not arguing that we are or aren't in a bubble, but instead the legislative changes are common leading up to a bubble. Some would argue that the house bubble has been building via legislative change since the 1950s.
When you say Bush Administration, I think you mean Clinton's 1995 and 1999 modifications to the Community Reinvestment Act. http://en.wikipedia.org/wiki/Community_Reinvestment_Act
When he says "Bush Administration" and you say "Clinton's...Community Reinvestment Act" I think you mean to say legistlation like Roosevelt's New Deal http://en.wikipedia.org/wiki/New_Deal
You are correct. Thanks.
I agree with your premise, and I'd add to it the governmental efforts that interfere with correcting the bubble, such as the Obama administration's work to prop up home prices.
However, it's not true that Glass-Steagall contributed to the economic crisis. If anything, it served to mitigate the problem. I think the argument here [1] is pretty slam-dunk:
<quote>
The 1933 Glass-Steagal Act [] prohibited commercial banks from owning investment banks ...
Just look at which organization’s have failed:
* Bear Stearns was an investment bank before it was sold to JP Morgan Chase (which includes a commercial bank).
* Fannie Mae were Freddie Mac were government sponsored entities before the government bought them.
* Lehman Brothers was an investment bank before it want bankrupt.
* Merrill Lynch was an investment bank befor it was sold to Bank of America (which is a commercial bank).
* AIG is an insurance company with no commercial banking division.
Remember, Glass-Steagal was passed to protect commercial banks from failure by forbidding them from investment bank practices like trading in securities and underwriting stocks and bonds. As you can see above non of the failed institutions are commercial banks that got in trouble through risky investment banking. Instead, it is the commercial banks that are providing some stability to the system by purchasing troubled investment banks.
</quote>
[1] http://blog.heritage.org/2008/09/22/the-glass-steagall-myth/