Why It Wasn't George W Bush's Fault

My original title for this blog was President Bill Clinton was the worst President ever. There were many events that happened during Clinton's time in office that lead to the economic turmoil starting in 2000. After doing some research on the laws that were passed while President Clinton was in office, I found many good and great things he did and even contradicted my beliefs.

There were many things that led to the economic depression of the past 12 years and to pin it on President Bush is just not right. Unfortunately he was in office when we felt the result of different issues. The key issues that I would discuss in this blog include the US being bombed on our own soil, Internet companies were pushed for growth, and the push to help Americans purchase homes.

The United State of American has been tested many times in the history of this great country. Shortly after Bill Clinton became our President, the World Trade Center was bombed on February 26, 1993. A truck bomb was intended to knock the North Tower into the South Tower killed 6 people and injured thousands. The Al-Qaeda group was convicted in 1994, but we did not go to war or press forward with the potential threat from the Middle East. The threat appeared to be dismissed until the tragic events of September 11, 2001. Why didn't the USA become more aggressive at that time and may have prevented a future disaster from Al-Qaeda.

In fact there were unsuccessful attempts to capture or kill Osama Bin Laden in 1996, 1998 and 2000. After the Oklahoma City bombing, the Antiterrorism and Effective Death Penalty Act of 1996 was passed. It is not fair to make claims that the President Bush knew about 9/11/01 before it happened. Government and military intelligence knew who was responsible as soon as it happened, but it was not because they did not try to eliminate the cause ahead of time. 

Before the terrorist attack of 2001, the financial market had to deal with the Dot Com Bubble. During the prior 5 years we had the rise of the Internet which expanded to the use of online stock brokers. The excitement of the potential growing companies had everyone wanting to put their money on the next Microsoft. The ease of online trading and discount brokers had many believing they could make fortunes by investing now in hopes of becoming a millionaire in a short period of time. 

During that same short period of time there were many financial magazines and newspapers being published. And you could even watch channels that were devoted to the stock market all day and night. The information was being sold because the audience expanded so dramatically. But the underlying investments were still based on companies who were in business to make a profit. 

The push to buy internet companies had many companies pushing to expand their company's capital by having an Initial Public Offering. So many of these companies had not been in business long enough to make a profit, but they all had something they wanted to make money online. It was common to see a new IPO offered at $18 a share close their first day of trading near $90 a share. 

Initial Public Offerings are offered at a price that obviously someone thought was a fair and reasonable price given the value of the company. To expect the company to be worth 5 times more just doesn't make sense. Therefore many people get investing confused with gambling. 

By 2000, these companies had to start showing that they were making money and were a good investment. Some companies like Amazon were great companies although they might have been over priced. Many of the companies were established to raise capital and did not continue. The Dot Com Bubble was inevitable and was going to affect the economy regardless of who took office after President Clinton.

The economy felt the biggest blow in 2008 due to a couple of laws that President Clinton did pass. The Financial Services Modernization Act of 1999 allowed Insurance Companies, Securities Firms and Banks to consolidate their services under one umbrella as Citibank and Travelers had in 1998 to create Citigroup. This law combined with The Commodity Futures Modernization Act of 2000 which deregulated the financial products known as derivatives which translated to credit default swaps. The combination of these 2 laws created a new and bigger pile of money available to lend on credit. 

Quickly thereafter were the creation of Stated Income and No Document variations of Sub-prime Mortgages to qualify for a home. These loans were based on the credit worthiness of a customer due to the credit score rather that all factors that are traditionally used to qualify for a mortgage. With easy qualification of a mortgage, it allowed more people the opportunity to buy a home that could not before. More houses were being built because there were more eligible buyers. There were more buyers than the supply of houses, so the prices went up very quickly. The faster the rise of home prices forced many people who would have qualified normally before to be forced to "State" their income to purchase the higher priced home. 

Most of the Sub-prime mortgages were Adjustable Rate Mortgages that were based on the London Inter Bank Exchange Rate (LIBOR). LIBOR was sold to customers as a rate that did not fluctuate much over time and was lower than Prime so the buyer could afford a bigger house. Another compounding problem occurred when the LIBOR rate increased around the same time as the housing bubble.

Once the number of buyers did not outnumber the number of sellers in 1996, the housing market did not continue to climb and began to fall as sellers were forced to reduce their price to get their home sold. And what added more heat to the fire were when people who were making their mortgage payments without a problem would decide to stop making payments as their home was worth half of what they bought it for.

Obviously I only mentioned a few of the problems that were the result of the housing bubble as I am sure a whole book could be written about the many problems. This problem also was inevitable for who ever was elected as President of the United States of America following President Clinton. Unfortunately for President George W Bush that he was the man who the country looked up to when going through the difficult times although the economic depression between 2000 and 2008 was not of his making.