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Why The 'Clinton' Recovery Is Unrepeatable

Tyler Durden's picture





 

Amidst the debates on what the US should do to re-establish an era of prosperity, there are a lot of references in the media and at political conventions to the "Clinton Recovery". This refers to the period from 1992 to 2000, the best in post-war history: 19% equity returns, 3.8% annualized real GDP growth, monthly payroll gains of 265,000 (adjusted for today’s population) and an average budget deficit of less than 2% of GDP. As Michael Cembalest of JPMorgan notes, applying a President’s name to a recovery or recession always seems to be a case of artistic license; you might as well call it "The Kardashian Recovery" in some cases, given how little Presidential policies had to do with it. Most of the time, domestic and global business cycles, monetary policy and other factors were the primary drivers. However, to recreate the policy conditions which prevailed would require a centrist - who most likely would have been excommunicated by his party for heresy as the political middle ground occupied by the party non-conformists is gone.

 

However, let us assume that there was a “Clinton Recovery”; what policies drove it?

To begin: 2 policies normally considered liberal/progressive: increase taxes on the wealthy and cut military spending to reduce the deficit. In 1993, Clinton raised the top marginal rate (also raising the top bracket, which mitigated part of its impact).

However, later in the decade, he cut the long term capital gains rate to 20%. As for military spending, the US benefitted from that brief synapse in time in between the collapse of the Soviet Union/fall of the Berlin Wall in 1989, and the emergence of another combatant 10 years later whose conflict with the US is almost as costly, and much more diffuse. The origins of this clash are complex, but can in part be traced to Operation Cyclone, a policy enacted by Carter and expanded by Reagan. It was designed to stop Soviet expansion by channeling sophisticated weapons and billions of dollars to militant Islamic groups, mostly via Pakistan. This program arguably backfired, contributing to a series of events in 2001 that brought the decline in post-war US military spending to an end.

 

Here is where the story deviates from the progressive script: Clinton Administration support for free trade and deregulation. While NAFTA was not the only catalyst for the improvement in trade (the rise of India and China after the Rao and Deng reforms played a role as well), it was a clear sign of the Administration’s support for free trade. Two years later, the Clinton Administration presided over two major deregulation efforts, one involving electricity and the other telecom. An NBER paper from 2003 analyzed data in both the US and Europe, and found that regulatory reforms that liberalize entry barriers spur investment, a trend which benefitted US capital spending during the latter part of the decade (see chart below).

 

Other aspects of the Clinton Recovery are equally centrist: welfare reform, and private sector solutions to healthcare. The 1996 welfare reform act was a fundamental shift, in that it introduced work requirements for recipients. It also delegated more responsibility to states, and reduced the burden on Federal public finances. On healthcare, it was not the intention of the Administration to rely on private sector solutions. The First Lady’s universal healthcare plan was the President’s preferred approach, but it could not get past Congress. However, around the same time, growth in healthcare expenditures began to slow, a by-product of the HMO era. While HMOs emerged in the 1970’s, private sector control of healthcare costs through managed care gained some traction in the 1990’s, and the growth in healthcare expenditures fell. HMOs leveraged increased enrollment to negotiate discounts from providers, and controlled the amount/type of care that was provided to insured members. When the US Department of Health and Human Services looked back at the 1990’s, they cited competition among HMOs as being one of the major factors leading to slower growth in healthcare expenditures. Healthcare expenditures are still growing at 3%-4% in real terms, which is a problem since the structural growth rate of the US may be declining.

 

On housing, the Clinton Recovery benefitted from conservative underwriting standards, although his administration’s policies contributed to the eventual housing crisis a decade later. I am not going to go into detail here, since I’ve written about this before. Home prices and housing’s contribution to growth were stable during the 1990’s. However, seeds were sown when President Bush passed the Federal Housing Enterprises Financial Safety and Soundness Act in 1992 (a delightfully Orwellian name since it ended up destroying them). By allowing the Department of Housing and Urban Development to set mandatory affordable lending targets for the GSEs, the government unleashed an avalanche of 3% down-payment loans by the end of the decade (see below), a trend which the private sector then followed, and the rest is history. The Clinton Administration’s contribution to the mess includes raising affordable lending targets from 30% to 50% of all GSE loans.

 

So, where does that leave us? To recreate the policy conditions which prevailed during the Clinton Recovery (not necessarily the President’s preferred policies), we would theoretically need to find a Presidential candidate who would:

  • Raise taxes on the wealthy to improve public finances, but also be willing to reduce taxes on capital gains
  • Cut military spending whenever possible
  • Agree to reduce the scope of government entitlements and take on entrenched constituencies, in spite of multiple decades of program expansion, and in spite of the political risks (there were multiple resignations at Health and Human Services after the Welfare Reform Act)
  • Encourage free trade and deregulation
  • Support private sector solutions to healthcare
  • Maintain conservative housing underwriting standards, without coercing private sector entities to act as conduits for fiscal policy/affordable lending programs

Good luck finding this person, since he/she would be a centrist, and most likely excommunicated by their party for heresy.

 

As shown in the accompanying chart, using the Senate as an example, the political middle normally occupied by party non-conformists is gone.

Source: JPMorgan

 


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Wed, 09/19/2012 - 09:08 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Gonna need a Viagra the size of Detroit.

 

Wed, 09/19/2012 - 09:24 | Link to Comment Zero Govt
Zero Govt's picture

Viagra might help but Washington and the IRS are currently on a witchhunt of all Americans with foreign accounts which will also shutter their business interests

these 2 bodies with their heads up their rectums are carrying out the direct opposite of Barry OBastards promise to double US exports ...maybe he's hoping bubble Ben will so trash the US Dollar he'll get there

Wed, 09/19/2012 - 09:41 | Link to Comment Fredo Corleone
Fredo Corleone's picture

And all of these enumerated items "attributable" to Clinton -- all of these things: would they have existed had the Democrat Party held hegemony in Congress ? I submit to you that NONE of these things would have existed -- neither a single tax rate reduced nor a single welfare program reformed -- had it not been for a Republican Congress leading William Jefferson by the fiscal nose.

Aye, and the irony of it all is that it was largely a Republican Congress, some decade later, which largely unwound and undermined all that had been fiscally accomplished by their predecessors.

Wed, 09/19/2012 - 10:06 | Link to Comment falak pema
falak pema's picture

power is an aphrodisiac and it makes people hubristic. Bush had an agenda that was hubrsitic and he benefitted from Clinton sagacity in Defense spending and Repub fiscal "hands on nuts" restraints on Potus to keep that budget in line; all the while the New Internet economy took off like a delusionary Apollo missile fueled by BAnksta oligarchy power; that deregulation had installed and Clinton nailed to the floor with G-S revoke. 

Free trade was a boomerang in the hands of the banksta brigade; trade imbalances fueled deficits as  Bush's outlandish "clash of civilization" hubris balooned to sanctuarise the FAMILY Oil patch. Fortress Oligarchy America, is now the yoke of american ox now trying to pull in foreign oil; unsustainable addicition incompatible with unlimited fiat printing. 

Selectivity in economic thinking can create illusion to defend past delusion.

 

Wed, 09/19/2012 - 12:54 | Link to Comment poor fella
poor fella's picture

Exports AND imports as a percentage of GDP?  There's that booster of two people handing a million dollars back and for a few thousand times. Put Exports on the positive side of zero and Imports on the negative side with a corresponding U.S. GDP graph - wouldn't look anything like that.

I'd only trust John Williams to do it to.

Wed, 09/19/2012 - 13:18 | Link to Comment Precious
Precious's picture

Clinton seems pretty good himself at repeating it anywere, all the time, for $50k a speech.

Wed, 09/19/2012 - 09:10 | Link to Comment Jason T
Jason T's picture

Answer:  Demographics

Wed, 09/19/2012 - 09:13 | Link to Comment MiltonFriedmans...
MiltonFriedmansNightmare's picture

And a little bubble-blowing, courtesy of Alan Greenspan.

Wed, 09/19/2012 - 09:27 | Link to Comment LedMizer
LedMizer's picture

And a boat load of deficit spending by everyone from the .gov to Main Street.

Wed, 09/19/2012 - 10:12 | Link to Comment LongSoupLine
LongSoupLine's picture

...and a cigar.

Wed, 09/19/2012 - 09:14 | Link to Comment MFLTucson
MFLTucson's picture

The Clinton recovery did not include Barrack Hussien Obama!!!

Wed, 09/19/2012 - 09:26 | Link to Comment Zero Govt
Zero Govt's picture

the Clinton recovery didn't even include Clinton let's be honest... much more interested in girls and cigars (no i can't connect the dots either!)

Wed, 09/19/2012 - 10:00 | Link to Comment kaiserhoff
kaiserhoff's picture

Couldn't agree more, and yet, I keep thinking Hillary would have been less of a train wreck.  She's a better man than the Kenyan ever thought about being;)

Wed, 09/19/2012 - 09:26 | Link to Comment TheSilverJournal
TheSilverJournal's picture

Interest rates were also being lowered, providing a temporary stimulus. Now, rates have been at rock bottom for years and the destructive nature of artificially lowering rates are being exposed.

Wed, 09/19/2012 - 09:18 | Link to Comment kralizec
kralizec's picture

"Good luck finding this person, since he/she would be a centrist, and most likely excommunicated by their party for heresy."

What a load of bullshit!  Raising taxes?  Since when has raising taxes done anything but result is massive new spending?!

Nice try Cembalest, what (cough) centrist do you have in mind?

Wed, 09/19/2012 - 09:28 | Link to Comment LawsofPhysics
LawsofPhysics's picture

"Since when has raising taxes done anything but result is massive new spending"-

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

What happened after WWII again?

< Sarc on >

Yeah, new spending never leads to productive labor and innovation.

< sarc off >

What kind of dipshit are you?  What we have now is liquidity everywhere thanks to ZIRP.  Unfortiunately all the liquidity is going to service fraudulent debt (thank you elitist paper-pishing fucks who add no real value) and so the capital and resources are being mis-allocated and mal-invested.  Please, pull your head out of your ass and wake the fuck up.

Once again these greedy paper-pushing fucks will bring the world to war.  fine, time to cull the fucking herd and find out the real value of everyone's labor.  Fucking bring it.  Long guillotines and any physical asset of real value.

Wed, 09/19/2012 - 09:27 | Link to Comment kralizec
kralizec's picture

So tax and spend to infinity says the clown calling another a dipshit.

Your welcome.

Wed, 09/19/2012 - 09:41 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Not much of a critical thinker are you.  Pay attention.  The debt is largly due to bailing out bad management, bad businesses.  Who profitted from this?  The owners dumbass.  Who pays?  The taxpayer.  It's called "socialization of losses". Fuck, how do you think Mitt Romney (and other venture capital firms) "turn those companies around".  They pass a majority of the debt on to Uncle Sam.  This is fascism you dumb fuck, stop reciting shit from either party.  There is only one party; for the banks  and financial houses, by the banks and financial houses.  Here's an idea for you, how about the next time a company goes belly-up the fucking owners, management, and the shareholders pay back the creditors instead.  

What I am saying is prosecute the fucking fraud and restore real consequences for bad behavior AT ALL LEVELS of society.

It will come to this one way or another, be it by an adult conversation or by civil war.  Hedge accordingly.

Wed, 09/19/2012 - 09:48 | Link to Comment kralizec
kralizec's picture

Not arguing the need to end cronyism, I am arguing the need the author of this piece is making for higher taxes as a solution to any of this when it is not.  And take the party crap and stuff it, but keep calling me a dumb fuck, it really enhances your ability to intimidate and influence people.

Wed, 09/19/2012 - 09:56 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Your post clearly infers tha all spending is bad.  This is disengenuous at best.

Won't matter now.  The elites are well positioned (I know two venture capital guys with private, well defended plantations where they can grow their own food in places like Barbados and I am a a small fish by comparison).  Unless you have a private army or private island at your disposal, what comes next will tax your resources and capital, period.  Hedge accordingly.

Wed, 09/19/2012 - 10:05 | Link to Comment kralizec
kralizec's picture

OK, all, gotchya.  ; )

And I do not disagree with the direction we are headed nor do I think a peaceful resolution is possible.  Politics cannot fix a damn thing...unless they agree to divvy up the country into several factions...well, politics cannot fix a damn thing!  Getting Obama out will at best buy time.  Some people may want that time to prepare as best they can for the collapse that is inevitable.  No, private armies and islands are not an option, just surviving the inital waves of zombies is a hefty enough task. 

Hedging as best I can.

Wed, 09/19/2012 - 10:37 | Link to Comment Vince Clortho
Vince Clortho's picture

"... prosecute the fucking fraud and restorereal consequences for bad behavior AT ALL LEVELS of society."

A noble thought that would have played well in days gone by.

In the current system it is unfortunately:

Reward the Fraud and pass the consequences for bad behavior to the Taxpayers.


Wed, 09/19/2012 - 10:24 | Link to Comment Urban Roman
Urban Roman's picture

 Minus one for "tax and spend".

Tax has nothing to do with spending.

Wed, 09/19/2012 - 09:32 | Link to Comment Gully Foyle
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LawsofPhysics

http://www.dailytech.com/Billions+to+be+Slashed+From+US+Research+Budgets...

Billions to be Slashed From U.S. Research Budgets as Stalemate Continues

Cuts will affect startups, universities, and various government labs

Whether you're developing a cure for cancer, or dreaming up solutions to put a human on Mars, there's a chance that you could be out of a job next year.

Wed, 09/19/2012 - 09:43 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Our entire eCONomy, in it's current structural state, depends on infinite growth in a finite world.  In the absence of an adult conversation, the only thing everyone should be counting on is the following; that which cannot be sustain won't be sustained.

The laws of physics and Nature really don't give a shit either way.

Hedge accordingly.

Wed, 09/19/2012 - 10:45 | Link to Comment toady
toady's picture

Sustainability.

That's been my focus for about four years now. I've gotten to a point where me and mine can do pretty well, as long as we aren't caught up in a war. If that happens all bets are off....

Wed, 09/19/2012 - 10:18 | Link to Comment WAMO556
WAMO556's picture

Sounds just like a asshole who has never been to war. Yeah, you are long for guillotines as long as it isn't your neck. And what happened to Robespierre during the "Terror"???? That is what I fcking thought. Be VERY carefull for what you ask for, YOU just might be the first in line. Just saying.

Wed, 09/19/2012 - 10:35 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Former ARMY AMEDD corp.  I have had to clean up the mess of war.  Don't really know a polite way to say this other than, go fuck yourself -

Just saying, let us know when you are ready for an adult conservation. That which cannot be sustained, won't be. Life is hard, deal with it.

Wed, 09/19/2012 - 11:31 | Link to Comment WAMO556
WAMO556's picture

Not a trigger puller. Still just a REMF.

Wed, 09/19/2012 - 12:27 | Link to Comment Goat Cheese Please
Goat Cheese Please's picture

LoP - I might have have heard you make the "value of everyone's labor" statement before.  Innocent question...what do you mean by this - the emporer has no clothes moment where we see what a sham this debt-fueled, service driven, non-productive economy of ours is?  Please explain further.

Wed, 09/19/2012 - 09:18 | Link to Comment darteaus
darteaus's picture

Because the Internet is already invented?

Wed, 09/19/2012 - 10:26 | Link to Comment Urban Roman
Urban Roman's picture

And because the NINJA loan is already invented.

There can only be so many new inventions like that.

Wed, 09/19/2012 - 09:19 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Bullish (for civil war).

Wed, 09/19/2012 - 09:19 | Link to Comment francis_sawyer
francis_sawyer's picture

With all the ammo that the alphabet soup agencies are acquiring... Coupled with QE-infinity... The US could hit paydirt in a decade if it could just keep its guns holstered...

Wed, 09/19/2012 - 09:20 | Link to Comment insanelysane
insanelysane's picture

This time is different.  Back when it was Carter v Reagan, a vast majority of Americans needed a job to survive and thus voted for the candidate that gave them the best shot at getting a job.  If it were Carter v Reagan in 2012, the polls would be 50-50 because a much larger percentage of the population believes they can survive without a job.  Of course in 2012 Dems and Repubs could care less about jobs.  When was the last time either party mentioned anything specific about jobs?

We either need protectionists policies that force manufacturing back into the US and we need the people collecting government checks for not working to do some work and at least improve the rotting infrastructure that we hear so much about.  The government continues to whine about this rot while at the same time writing checks to millions of people to not work.

Wed, 09/19/2012 - 11:06 | Link to Comment toady
toady's picture

When was the last time either party mentioned anything specific about anything?

Wed, 09/19/2012 - 09:20 | Link to Comment Flakmeister
Flakmeister's picture

Notice how the price of oil was not mentioned.....

Wed, 09/19/2012 - 09:23 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

$4.00 gas is great if you're selling it.....not so much if you have to buy some.

 

Wed, 09/19/2012 - 11:27 | Link to Comment marathonman
marathonman's picture

$4 gas is not so great if you have to refine it from Brent North Sea Crude.  Better margins from WTI and Canadian Syncrude.  However in the greater scheme of things $4 gas is not good for refiners as it incentizes people to buy more fuel efficient cars and cuts your volumes over time, compresses or reverses profit margins, and increases competition.  Refiners and retailers don't want higher gas prices.  They want higher margins.

Wed, 09/19/2012 - 12:35 | Link to Comment larz
larz's picture

most of that is tax the stations are NOT killing it

Wed, 09/19/2012 - 14:10 | Link to Comment larz
larz's picture

most of that is tax the stations are NOT killing it because remember stations are owned by little people

Wed, 09/19/2012 - 09:30 | Link to Comment Gully Foyle
Gully Foyle's picture

Flakmeister

Neither are fall of the Soviet Union, the tech boom or the creation of mainly part time and low paying jobs.

Also not mentioned is the budget jiggery pokery Clinton admin used to create the smoke and mirrors surplus.

I once watched one of the Washington Times editors, I think, discuss Reagan Bush taxes. He stated that from the moment Reagan tax cuts kicked in congress was forced to add new revenue streams, like taxing tips. This eventually lead to the Bush "read my lips no new taxes" debacle where he was forced to increase taxes.

Clinton benefitted from that as well. But it will never be mentioned anywahere.

It's hard to fully explore these complex issues with a minimal amount of paragraphs.


Wed, 09/19/2012 - 09:35 | Link to Comment Flakmeister
Flakmeister's picture

Agreed, things are never so simple as they are made to be in media....

Also not mentioned was the rise of the PC and the Internet....

Hell, I still remember the pro forma EPS calculation for the Packard-Bell IPO....

Wed, 09/19/2012 - 09:46 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Don't date yourself Flak,

but yes, structurally, the world's eCONomy still relies on on infinite growth in a finite world.

Wed, 09/19/2012 - 09:52 | Link to Comment Flakmeister
Flakmeister's picture

Too late for that....

I remember RFK's funeral like it was yesterday....

Wed, 09/19/2012 - 09:20 | Link to Comment Debtonation
Debtonation's picture

It's hopeless for the USSA

Wed, 09/19/2012 - 09:25 | Link to Comment thomasincincy
thomasincincy's picture

USA! USA! USA!

Wed, 09/19/2012 - 09:29 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

We're number 7!!!!

 

Quick.....snap a picture.

 

Wed, 09/19/2012 - 09:23 | Link to Comment DaveHanson
DaveHanson's picture

Health care costs came down temporarily in the mid-90s.  This was not because of "private sector solutions", but despite them.  The cost reductions were more plausibly a reaction to fear of what would happen (single-payer, "public option", etc.) if health care costs continued to soar unchecked.

That points to a more general problem with this piece.  Correlation is not causation.

Wed, 09/19/2012 - 09:24 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

Really glad that crap is free now.

 

Wed, 09/19/2012 - 09:27 | Link to Comment Ralph Spoilsport
Ralph Spoilsport's picture

A centrist would be frustrated by the bi-partisan pissing contests we have been seeing since the last Bush administration.

Wed, 09/19/2012 - 09:28 | Link to Comment Monedas
Monedas's picture

Recovery ?  Never put semen stains in hot water .... the proteins set !   After sex, shower first in lukewarm water .... then get out the bar of soap !

Wed, 09/19/2012 - 09:31 | Link to Comment Dr. Engali
Dr. Engali's picture

There was also a tremendous amount of leverage, the expansion of the fiat currency exporting our inflation, and the productivy enhancement of the internet. Throw on top of that cheap oil and the Y2K meme and you have a booming economy.

Wed, 09/19/2012 - 09:29 | Link to Comment AgShaman
AgShaman's picture

Perhaps....but 'Wild Bill' is already on the boob tube brainwashing the public into believing it is possible.

The pied piper will lead them zombies to the voting booth for Barry's re-election

Wed, 09/19/2012 - 09:30 | Link to Comment dime2962
dime2962's picture

So Clinton's economic record is entirely based on the guns vs. butter argument and de-regulation of industry and the easing of credit. Fantastic, don't tell your liberal friends that one....

 

Wed, 09/19/2012 - 09:30 | Link to Comment Spastica Rex
Spastica Rex's picture

Bubba was the first president who inspired me to begin questioning the mainstream narrative; I was an NPR listener up until Bubba.

I got gassed at the WTO protests in Seattle by Bubba.

Thanks, Bubba - you opened my eyes.

Wed, 09/19/2012 - 09:31 | Link to Comment icanhasbailout
icanhasbailout's picture

There ain't so such thing as "centrist" when both parties are socialist-fascist hybrids.

Wed, 09/19/2012 - 09:49 | Link to Comment LawsofPhysics
LawsofPhysics's picture

It worse, there is only one party, for the banks and financial houses, by the banks and financial houses.

Wed, 09/19/2012 - 09:56 | Link to Comment Spastica Rex
Spastica Rex's picture

of the people (who matter), by the people (who matter), for the people (who matter)

Wed, 09/19/2012 - 09:59 | Link to Comment thomasincincy
thomasincincy's picture

as someone said to me 4-5 years ago, the former USA is long gone

Wed, 09/19/2012 - 09:34 | Link to Comment arkady
arkady's picture

What a strange post.   Never have I seen defense of HMOs, NAFTA and centrism as critical components for economic freedom and growth. 

The charts presented are too narrow in time, zooming them out further indicates that all is not well, including the famous welfare reform.

There is not one mention of social security and how its funds were used to create an illusion of a much greater deficit reduction than actually happened

Finally, how about the total credit in America during that time?  There was a whopping doubling of overall (revolving/non-revolving) credit that created a massive boom in tech and fueled everything from job growth to unprecedented tax receipts.  What does that have to do with Clinton?

Strange post.

Wed, 09/19/2012 - 09:35 | Link to Comment Snakeeyes
Snakeeyes's picture

Well, despite what Willy Slick said in the Obama commercial, he LOWERED capital gains taxes (which are now rising), he deregulated (with Obama regulating like crazy) and Gingrich forced a spending slowdown. And don't forget Clinton's idiotic National Homeownership Strategyy which screwed millions of vulnerable households,

http://confoundedinterest.wordpress.com/2012/09/09/clinton-miracle-was-really-spending-slowdown-gingrich-revolution-and-tax-cuts-of-1997/

Wed, 09/19/2012 - 09:36 | Link to Comment Crtrvlt
Crtrvlt's picture

I think Clinton was partly responsible for the housing bubble by signing the republican sponsored Graham Leach Bliley Act and the Commodities Future Modernization Act of 2000

I'm not so sure the GSE's had as much to do with the crisis as people think they did.  The majority of the defaulting mortgages and mbs were private label (wall street) not gse loans. Not to mention the 35:1 leverage on Wall St Balance Sheets, 750 trillion of derivatives, and a plethora of other instruments no one understood.  There were housing bubbles all over the world in countries' that did not have GSEs.  A study by the Federal Reserve (i know from the Fed Reserve but there's other evidence supporting the same conclusion) shows that more than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions. http://www.federalreserve.gov/pubs/feds/2011/201136/index.html Consider a study by McClatchy: It found that more than 84 percent of the subprime mortgages in 2006 were issued by private lending. These private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year. And McClatchy found that out of the top 25 subprime lenders in 2006, only one was subject to the usual mortgage laws and regulations.

If so, one would presume the delinquency rates suffered by the GSEs during the crisis would have been very high. But David Min, an analyst with the Center for American Progress, shows that the after-crisis delinquency rates on the large additional portion of GSE mortgages that Pinto claimed were high risk, and that was termed “toxic” by Morgenson and Rosner, was roughly 10 percent, far lower than the 25 to 30 percent default rate of true subprimes.4 In fact, the rate of delinquencies for all GSE securities in 2004 was 4.3 percent, compared to a delinquency rate in private industry of 15.1 percent of mortgages. In 2005, the GSE rate was 7.8 percent compared to 28.7 percent, and in 2006 and 2007, the rates reached 13.2 and 14.9 percent in the GSEs and 45.1 and 42.3 percent in the private market.5 None of these figures are cited in Reckless Endangerment. In fact, losses as a proportion of mortgages guaranteed or bought by the GSEs were far lower than in private industry.

The vast majority of subprime mortgages — the loans at the heart of the global crisis — were underwritten by unregulated private firms. These were lenders who sold the bulk of their mortgages to Wall Street, not to Fannie or Freddie. Indeed, these firms had no deposits, so they were not under the jurisdiction of the Federal Deposit Insurance Corp or the Office of Thrift Supervision. The relative market share of Fannie Mae and Freddie Mac dropped from a high of 57 percent of all new mortgage originations in 2003, down to 37 percent as the bubble was developing in 2005-06. aking up that extra share were nonbanks selling mortgages elsewhere, not to the GSEs. Conforming mortgages had rules that were less profitable than the newfangled loans. Private securitizers — competitors of Fannie and Freddie — grew from 10 percent of the market in 2002 to nearly 40 percent in 2006. As a percentage of all mortgage-backed securities, private securitization grew from 23 percent in 2003 to 56 percent in 2006 http://www.ritholtz.com/blog/2011/11/charts-facts-economic-crisis/

Lastly, here's what happened to tax revenues as a % of gdp under clinton increasing to a record high of 21% and tax revenues almost doubling as well  http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200  Compare that to about 15% as a % of gdp now or on a 15 trillion economy a turn around of about 900 bln a year

Wed, 09/19/2012 - 09:39 | Link to Comment notadouche
notadouche's picture

Well if you could recreate the Y2K phenomon and the thousands of bogus dot com companies that created a ton of phantom wealth and temporary jobs along wiht temporary stock wealth that started evaporating into thin air as Clinton was leaving office and extort 10's of billions of dollars from tobacco industry to help line the treasury coffers, at least on paper, then sure, Clinton was a boon to the economy.  Of course in the year 2000 as 98% of the dot com companies were bankrupt and absoltuely fraudulent and Y2K came and went like a fart in the wind and the wealth efffect "created" by all of this became nothing but an illusionary footnote as the first of many bubbles to pop over the next decade Clinton and his followers conventiently leave out the facts of the era and it's failed to be mentioned that the Nasdaq had already crashed by 50% as Bush took office.  But hey, lets never let the facts get in the way of the politcal elites version of their "truths"

Wed, 09/19/2012 - 10:19 | Link to Comment A_MacLaren
A_MacLaren's picture

Thank you for pointing out the non-discussed elements of the private sector that were sadly missing from the "analysis" of this article.  The paradigm shifting tech and telecom boom that began prior to the Clinton years had huge effects in the period discussed.  Neither Clinton nor Reagan/Poppy-Bush are eligible for credit, rather the entrepeneurs of the era are those that deserve the credit. 

But as you wrote, 

lets never let the facts get in the way of the politcal elites version of their "truths"

Wed, 09/19/2012 - 09:41 | Link to Comment Negro Primero
Negro Primero's picture

"from 1992 to 2000, the best in post-war history"

Maybe it's time to bomb (ex) Yugoslavia, again.

Wed, 09/19/2012 - 09:41 | Link to Comment Omen IV
Omen IV's picture

reverse the WTO & GATT agreements - create tariffs of 40% across the board for same products as 1990 - with exception --- for those countries with comparable wages to USA ie: europe - wage parity provision!

this is quicker and cheaper than any other solution and will increase GDP by more than 3.5% per year as people go back to the factories- accept the higher inflation costs as a cheaper solution than lost productivity and GNP opportunity cost

government cannot provide work  - but can provide  - only policies -  that recognizes you will never beat $2.00 per hour wages in china - never ! - so accept it - the usa has enough demand and consumption as well as europe 400 million population  ( total 700 million in aggregate ) we dont need the rest of the world demand

Wed, 09/19/2012 - 09:52 | Link to Comment Nacho Libre III
Nacho Libre III's picture

Lol... everyone knows that the clinton recovery is not possible because President Clinton is no longer in office. No charts or complex explanations are needed. Cohiba anyone?

Wed, 09/19/2012 - 09:59 | Link to Comment larz
larz's picture

Please dont confuse the sheeple with facts the oligarchy behind the curtain will get mad and they have been loading up on whoopass in the courts and with military style hardware
red gets reagan
blue gets clinton
we ALL get screwed

Wed, 09/19/2012 - 10:08 | Link to Comment CheapBastard
CheapBastard's picture

At least Yugoslavia is 'free' now, right?

Wed, 09/19/2012 - 17:37 | Link to Comment Umh
Umh's picture

NATO and the US by inclusion are still camped out there.

Wed, 09/19/2012 - 10:21 | Link to Comment Medea
Medea's picture

Believing in "centrists" is just another way of buying into the phony left/right paradigm.

 

This and the Heritage charts earlier? Clean it up, Tylers.

Wed, 09/19/2012 - 10:30 | Link to Comment American Sucker
American Sucker's picture

The Clinton Era was the first part of the Dubble Bubble of 1992-2008.  If the stock bubble had popped in March 1999 instead of March 2000, no one would remember Clinton's era fondly.

Wed, 09/19/2012 - 10:38 | Link to Comment boiltherich
boiltherich's picture

That recovery had less to do with political considerations than with Fed policy and lack of enforcement, both the US and Fed stood idly by and watched as Wall Street cooked up an evil brew of toxic new credit instruments and trading practices which leveraged our whole economy and essentially counterfeited the dollar.  The lower budget deficits helped but it is not like the GOP cut Clinton any slack, after all they did shut down government and impeach the man, the real mover of the economy was the banking houses doing what the Fed would not itself do but had no problem standing by and watching as Wall Street did it, flooding the globe with invented money.  Those Wall Street actions and government inactions were the seeds that grew into the bubbles that one after another have popped and we have been forced to bailout.  The tech bubble, the RE bubble, and the remaining commodities bubble, debt bubble, and equity bubbles.  I would also argue that excessive ForEx reserves by mercantilists represent a bubble in danger of collapse as well.  We have only just begun to see the carnage in economics and finance globally, the real crash is not yet happened and the depression that follows will be long and extremely destructive and possibly not survivable.

Wed, 09/19/2012 - 11:00 | Link to Comment LooseLee
LooseLee's picture

Unfortunately, any recovery resembling 1992-2000 has to first go through the total collapse of the debt super-cycle. Until the debt brought on by the limits of the debt super-cycle are eliminated no such recovery can begin. For Clinton, he just happened to have been the POTUS as the Federal Reserve 'goosed' the final blow-off top of the debt super-cycle.  I believe it will be stagflation leading to deflation which then will lead to inflation....the 'recovery' will begin during the next 'inflationary' period (2017 or so)....

Wed, 09/19/2012 - 12:30 | Link to Comment Duke of Con Dao
Duke of Con Dao's picture

Romney's camp should have taken Obama to task for the You Didn't Build It remarks... bunch of Dumbass Political Hacks!

and now???    had my 1st response out on july 23rd... you hear that spencer?

YouTube - Tower of Babel? You didn't build that!
YouTube - "You Didn't Build That Frankenstein!' sez President Obama
YouTube - 'Nazi Party? Adolf Hitler... You Didn't Build That!' sez President Obama 

Wed, 09/19/2012 - 12:30 | Link to Comment gismo
gismo's picture

Would lowering corporate tax rates to 10% and closing all loop holes solve a lot of issues.  I'm for free trade but, it's not fair trade.  Lowering tax rates would give US manufacturers an advantage or at the least level the cost to consumers and encouraging US jobs.  This idea isn't talked about much.  Is it just a bad idea?

Wed, 09/19/2012 - 16:55 | Link to Comment RMolineaux
RMolineaux's picture

Closing loopholes would yield more revenue.   Currently the corporate tax rate has become almost irrevelent as the loopholes and strategies to evade have become massive.   Revenue from the corporate tax has been declining rapidly as congress opens up ever greater loopholes for their friends and financiers.  Multinational corporations with no loyalty to any country constantly outdo each other in the race to the bottom of social responsibility.  Not to mention those executive bonuses that are tantamount to embezzlement of stockholders money.

PS:  Compliments to Tyler for his fair summary of the Clinton years.

Wed, 09/19/2012 - 14:35 | Link to Comment Grand Supercycle
Grand Supercycle's picture

Due to QE3 and short covering spikes, all these daily charts are extremely overextended & significant correction expected very soon ~ SPX, NZDUSD, GBPUSD, AUDUSD, COPPER, CRUDE, GOLD, SILVER.

http://www.zerohedge.com/news/2012-12-24/market-analysis
http://trader618.com

Thu, 09/20/2012 - 01:35 | Link to Comment Problem Is
Problem Is's picture

You Forgot Reign in Wall Street: The Biggest Welfare Ho of Them All

My dear Michael Cembalest of JPMorgan: Complete Wall Street propaganda bullshit...

Do NOT follow this link or you will be banned from the site!