AHC Prevent The Great Recession

With any PoD after 1992, prevent the Great Recession. Bonus points if the PoD is after 2001. Extra bonus points if Obama is still President TTL. To fulfill this challenge, there can be a recession but unemployment must not go above 8.0% at any time after 2000. If it us due to different legislation, eg stronger Sarbanes-Oxley, detail how the different legislation passed, Go ahead!

PS: This could become a TL if fulfilled well.

Around '98 or 99, just good solid journalism which shows the mortgage industry is not engaging in due diligence. The investigative reporting embarrasses the industry.

Legislation afoot to shore up regulation, also you've got to include spot-checking no matter how good the regulation. So, money is voted on and appropriated for this purpose, too.

Investigative reporting also shows that lower-income persons and families are overcharged on interest and fees, as well as marginally ethical debt collection procedures, above and beyond what a solidly collaterized loan should be charged. Full disclosure laws with teeth are passed. In addition, Sherman Anti-Trust and similar legislation is started to be used to break up the big boy banks and ge some authentic competition going.

Al Gore is elected President in 2000 and never deregulates the finance industry or lowers interest rates. 9/11 will cause a brief recession in 2001/2 regardless. If Bush remains President then no Iraq War or 9/11 would prevent it also because there is no need to jump start an economy thrown into recession. This would prevent real estate speculation around the globe.

GeographyDude said:

Around '98 or 99, just good solid journalism which shows the mortgage industry is not engaging in due diligence. The investigative reporting embarrasses the industry.

Legislation afoot to shore up regulation, also you've got to include spot-checking no matter how good the regulation. So, money is voted on and appropriated for this purpose, too.

Investigative reporting also shows that lower-income persons and families are overcharged on interest and fees, as well as marginally ethical debt collection procedures, above and beyond what a solidly collaterized loan should be charged. Full disclosure laws with teeth are passed. In addition, Sherman Anti-Trust and similar legislation is started to be used to break up the big boy banks and ge some authentic competition going.

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How could this scenario be done? What are the little details needed to make this happen?

GeographyDude said:

Around '98 or 99, just good solid journalism which shows the mortgage industry is not engaging in due diligence. The investigative reporting embarrasses the industry.

Legislation afoot to shore up regulation, also you've got to include spot-checking no matter how good the regulation. So, money is voted on and appropriated for this purpose, too.

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This is good, but I don't think investigative reporting will make Congress pass regulations.

Bill Clinton loses the '96 election. The aftermath delays the deregulatory push by the Republican-dominated Congress just long enough for the '98 midterms to interfere as they go against the governing party. The deregulation is thus more limited in scope, and more oversight is retained. A nasty recession brought on by Dot-Com bust sours President Dole's second term, but said recession is brief. However, the economic hit is enough to torpedo the republican candidate's chances in 2004. 2008 is a middling year with the slow yet steady economic growth typical of the 00s. It's not the glory days of the '90s, but then again there aren't any surprises lurking beneath the waves either. The Democrat gets reelected on the grounds that he hasn't fucked up. OTOH that Democrat used his 2008 reelection to push for greater deregulation of the US financial industry. In 2014 people are unaware of the gathering storm...

What would really help is to prevent the Gramm–Leach–Bliley Act, preserving Glass-Steagal's division of banking and investment. And the best way to do that, is to prevent the Citigroup merger. So this is doable with a PoD circa 1998, I think. (Delaying the passage of the act until after the 2000 Election should be enough -- I doubt something this important would pass in Bush's first, uneasy year, and after 9/11 there's the Enron and Worldcom scandals putting the country much less in the mood for deregulation.)

I suspect it would help to have a proper Democrat instead of a 'new democrat' in office from January 1993

King Nazar said:

This is good, but I don't think investigative reporting will make Congress pass regulations.

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If TV and radio journalists were as interested and as confident in covering the practices of corporations as they were in covering the coaching decisions of professional sports teams --- that would change everything.

John Fredrick Parker said:

What would really help is to prevent the Gramm–Leach–Bliley Act, preserving Glass-Steagal's division of banking and investment. And the best way to do that, is to prevent the Citigroup merger. So this is doable with a PoD circa 1998, I think. (Delaying the passage of the act until after the 2000 Election should be enough -- I doubt something this important would pass in Bush's first, uneasy year, and after 9/11 there's the Enron and Worldcom scandals putting the country much less in the mood for deregulation.)

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So how does this prevent the Great Recession?

The POD needs to be pushed back to the 80's, the foundations for the Great Recession were made by Ronald Regan and his deregulation policies. Every single President afterward followed suit and the meltdown of 08 was the result.

ManintheField said:

So how does this prevent the Great Recession?

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I say it would be a big help, not that it would necessarily prevent the whole thing, much less any recession at all. Mind you, as with just about any economic question, this is a contested point; as such, this is as good a start as any.

John Fredrick Parker said:

I say it would be a big help, not that it would necessarily prevent the whole thing, much less any recession at all. Mind you, as with just about any economic question, this is a contested point; as such, this is as good a start as any.

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All that article seems to bring forward is that it's not clear the repeal of particular provisions of Glass-Steagall had anything at all to do with the financial crisis. There is speculation about it helping banks to grow bigger, but one of the articles linked to in that article points out that Canada's very concentrated financial sector did not suffer like the American one did, so size doesn't itself seem to have been an influence.

So I don't really know if stopping the repeal would prevent the Great Recession.

The real question seems to be: What caused the housing bubble?

We were due for a recession after the DotBoom of the 90's. But then we had the California electricity crisis, the uncertainty re: the 2000 election, 9/11, and the Enron scandal all within a year or so.

IMHO the Bush administration caused the Great Recession by steadily pushing the federal funds rates down to ~zero, so that by 2003 we could pretend the economy was healthy enough to fund the Iraq and Afghanistan wars they wanted. This forced banks to drop their interest rates to 3%, so investors couldn't make a decent return on sound investments and started making unsound ones. We got a false recovery based on military spending and subprime loans, which blew up in our faces in 2008.

So, prevent 9/11 (no casus belli for Iraq or Afghanistan, no incentive to dope the economy before the 2001 recession could take its natural course). Or put Gore in the White House; he'd give us four years of malaise followed by Bush getting elected. We'd still get the Bush tax-cuts but probably not the 0% prime rate or the housing bubble.

1993 POD - Bill Clinton removes all US armed forces from Saudi Arabia. US military is still in Kuwait, Quatar, Bahrain, and UAE but not in Saudi Arabia proper.

Other measures by Clinton
Foreign affairs - US begins warmer relations with Iran, Vietnam and Cuba.

Clinton actually travels to Iran to make peace. Iran in turn reduces anti-American and anti-Israel rhetoric. US drops sanctions as Iran pursues peaceful nuclear intentions. US also sees Iran as defender of Shia Muslims. Ties are still strong with Arab states. Radical muslims denounce USA-Iranian relations and vow to topple both.

NAFTA still occurs.

Domestic affairs POD - Instead of the healthcare push by Hillary Clinton, an education push is started. Legislation, tax breaks, government spending is directed towards educations on all levels. A push is for more kids to read and sharpen math skills in elementary, a push for trade schools to train workers for industry, and a push for four year education in college. For certain majors, the government will 100% fund four years in college for three years service after college. Majors include education, engineering, sciences, medicine, law ..... anything helpful to society

Domestic POD #2 - no Monica L. !!!

2000 - Gore elected POTUS, riding popular Clinton coat tails. He keeps up the education initiatives. Instead of being hell bent on the environment, he wants to be known as the energy POTUS. He uses the education initiative to boost energy alternatives.
- Regulations for drilling in locations are eased, this is a compromise with Republicans. Drill baby drill is started !!!
- US begins to build nuclear power plants again, ten will be built in the 2000's to strengthen energy in California, Las Vegas, and Phoenix.
- Other alternative energy research is initiated and starts to make impact in 2010's. Two forms are the wind turbines and tide turbines.
- Advances in solar energy, to make solar energy more affordable to home owners occurs. Solar shingles are more prevalent. Solar devices are used more. More housing divisions use solar energy.

Housing regulations still same - but college graduates after serving their three years are debt free. They start purchasing houses sooner.

9/11 still happens - just no getting around it. It is a result of warmer US-Iranian relations that piss off the radicals.

US reaction is same

No Iraq though.

Gore does strengthen the military with anti-missle technology, and beefs up counter insurgency forces, special forces, air force drones ....

Gore is re-elected in 2004. Continues programs. Defense spending increases.

More countries are added to NAFTA - becomes AFTA as Cuba, Venezuela, Brazil, Argentina ... are added.

2008 - John McCain (R) is elected POTUS

Arab spring happens earlier. NATO airstrikes occur in Libya. US stays neutral in Syria as to keep good relations with Iran.

Iraq is in chaos during this time as well.

2009 major POD - Tiger Woods is not run over and beaten by his wife with golf club. He falls a little, but recovers by the end of 2010. (it is funny that the US economy tanks around the same time that Tiger does. THe economy actually was starting to tank before but hit the fan as Tiger got hit.)

Economy does the same, stalls in 2008, tanks some in 2009, recovers by end of 2010. No collapse in housing, banking and US automotive. No big government bailouts. The education initiative by Clinton is seeing results.

All McCain does is to help unemployed and companies that hire. As well as reduce taxes.

The USA teams up with a coalition of allies to remove radical elements from Syria. US airstrikes on radicals with drones and warplanes. US uses special forces against radicals in Syria and Iraq. McCain uses the military to team up with regional opposition groups. Congress defines the enemy as any group that pledges to harm USA. These groups feel the might of USA military. No large amount of ground forces are used. A few thousand special forces are used though to team with air force bombing and local militia groups to wipe out the radicals. Eventually Syria and Iraq are stabilized. Iran aids with the stabilization as well.

McCain cannot win in 2012, looses to Barack Obama. Obama stresses the education and energy initiatives.

(This is probably all ASB as there is probably no way that universal college education can pass a Republican dominated Congress. I cannot believe that I have 16 years of the Democrats in the White House.)

One way might be to have the early 2000s recession be a full-fledged recession lasting into early to mid-2002 instead of being a U-shaped one. It might lessen the excess of the housing bubble before it burst. That wouldn't solve everything of course, but it would help.

Also, as Mad Bad Rabbit said, the drop in the federal funds rate in 2001 was one of the big causes of the Great Recession. Additionally, the change by the SEC to the net capital rule in 2004 that exempted big brokerage firms like Bear Stearns and Lehman Brothers from the debt limit led to the overextension of a lot of those companies' lending over the next few years. Avoid that and they don't become as insolvent as they were in 2008.

From a long-term perspective, there's no way to avoid a Great Recession without massive structural reform. Just butterflying away the specific causes of the 2008 one wouldn't be enough. What the author specified is that unemployment can *never* go above 8% after 2000, and that's a quite tough challenge indeed.

Seleucus said:

From a long-term perspective, there's no way to avoid a Great Recession without massive structural reform. Just butterflying away the specific causes of the 2008 one wouldn't be enough. What the author specified is that unemployment can *never* go above 8% after 2000, and that's a quite tough challenge indeed.

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The US had that from 1938 to 1975 (according to the BLS unemployment calculation anyway), so it shouldn't be too tough to keep unemployment below 8% for 14 years (I assume "never" means up to present day). The early 2000s recession ended in November 2001 but the unemployment rate didn't reach its peak of 6.3% until June 2003. A slightly worse recession there should delay or at least slow the housing bubble, which could lessen the impact of a late 2000s/early 2010s recession.

wilcoxchar said:

The US had that from 1938 to 1975 (according to the BLS unemployment calculation anyway), so it shouldn't be too tough to keep unemployment below 8% for 14 years (I assume "never" means up to present day). The early 2000s recession ended in November 2001 but the unemployment rate didn't reach its peak of 6.3% until June 2003. A slightly worse recession there should delay or at least slow the housing bubble, which could lessen the impact of a late 2000s/early 2010s recession.

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See, my assumption was that by 'never' he actually meant 'never.' At least it doesn't really fit the spirit of the AHC if you manage to put off the Great Recession until 2015 (right after present day) and call that a victory.