Tax Break Contributed to Bubble
Don’t blame it all on Bush, or on deregulation-crazed Republicans. An article in the NY Times today suggests that the housing bubble, and its subsequent bursting, may have been aided by a Clinton cut on capital gains tax. One real estate broker made $700,000 in three years, “and thanks to a tax break proposed by…
Don’t blame it all on Bush, or on deregulation-crazed Republicans. An article in the NY Times today suggests that the housing bubble, and its subsequent bursting, may have been aided by a Clinton cut on capital gains tax. One real estate broker made $700,000 in three years, “and thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him.” Such situations enticed more and more folks into real estate, making homes “tax-free windfalls” and increasing sales by 17 percent. The tax breaks caused a zeitgeist shift, whereby a home became less an abode than an investment. They admit, though, that a tax break alone is not responsible for the mess. Other reasons include “a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall.” And it turns out the tax cut came from the Clinton administration, but was in the mind of the Dole camp; they rolled out the idea first, making Clinton nervous; he pledged to cut capital gains to catch up.
Tax Break May Have Helped Cause Housing Bubble [NY Times]
Photo by Paul Graham Raven.
I’ll happily include the repeal of Glass Stegal and the market fundamentalism of Rubin. But the pied piper here was Greenspan, under the auspices of Reagan; and eight years of massive underregulation under W. Bush. To claim this is an equal opportunity cataclysm is to be a complete partisan hack.
PS. This isn’t a Dem/Rep issue. They are all in it together and have been for some time. Let’s get real about that.
Whuh;
The NYT ran a story about one month ago about the lack of regulation in the derivatives market. It highlighted one of the key events: the head of the government agency that regulates the commodity markets (a woman whose name escapes me no) was raising the alarm that derivatives trading was a time bomb waiting to explode. She was paid a “visit” by none other than Alan Greenspan, Robert Rubin and Larry Summers (together) who stared her down on it.
Trying to pin this all on one side might make for great politics. in much the same way as blaming the auto mess all of one side. It does not conform to reality, however.
LilBitOfLuck,
The “Intent” and end results (Greed) are two different things so your stats don’t mean anything to me. Fortunately, once all of our opinions are dead and buried with us, history and historians will judge it more accurately.
The causes of the bubble are well-documented: it never would have ravaged the entire economy if bankers hadn’t leveraged up the bad securitized loans, period. Who let them do this? Phil Gramm; Chris Cox; W. If you want to live in some fantasyland, where the GD 2 is Clinton’s fault, god bless you. Not even Paulson agrees with you.
PS I love that DIBS is a closet wingnut, too, even as he begs the government to bail him out. And yes, Dave, enforcing ZIRP policy is a bailout. Take some night classes, they’ll explain it to you.
Ringo – simplistic. the blame should clearly be apportioned to both sides. I assume its all the managers fault eh? yawn.
… social distribution of credit to the underprivileged …
um, no:
… whites (non-minorities) received 72.5% of subprime mortgages. Blacks got 16.2% of subprime mortgages, (and make up 12.4% of the general population), Hispanics about … 6.2% of subprime mortgages (significantly less than their 14.8% of the general population)…
See Professor Bainbridge:
http://www.stephenbainbridge.com/index.php/punditry/they_make_you_embarrassed_to_be_a_conservative/
HILARIOUS graphic. Love that it is “not affiliated with Mr. Internet Bubble.”
Why is there a mortgage tax deduction for second homes? It is reasonable to support primary home ownership, but not vacation home ownership. Talk about a subsidy for the wealthy.
While there were many factors aiding and abetting this mess, the primary factor was that the risk of many loans was first underestimated and then hidden (“diversified”) among otherwise healthy portfolios. What is the risk? Where is the risk? No one knows, so everything is suspect.
This will go down as a madness akin to the tulip debacle: the idea that real risk can be diversified down to zero. IM. POSS. IBLE.
What about the Property Tax Abatements here in NYC? I specifically bought my condo in Brooklyn and probably paid a small premium for the loophole exempting me from property tax for the next 15 years. Surely this at least contributed to some of the price gains in the last few years as well…