AHC: Delay Great Recession

[True Grit]

I've been thinking about ways to butterfly the 2008 American election, but one thing that keeps coming up is the notion that whichever party that wins in 2004 is doomed to lose in 2008, largely as a result of the onset of the Great Recession. To me though, admittedly with my limited knowledge, it seems on paper somewhat easy to delay until after the election, given that the crisis really only began (at least, out in the open and in the eyes of the public) around two months earlier.

Is this possible and if so, how? With a POD of 2004 (i.e. Bush doesn't have to be President), how can the Great Recession be delayed past the 2008 presidential election?

 

[Carl Schwamberger]

For the construction industry things were going bad as early as 2002. I & my peers were in deep trouble long before 2008 or 2007

 

[fb111a]

Your best bet might be to see Bush in 2001 ask for a larger military after the 9/11 attacks - say adding four Army divisions and additional units for the Air Force, Marines, and Navy. By shrinking the labor pool, it would lower unemployment for a bit, and thus, there might be fewer subprime mortgages.

Delay the buildup of the critical mass of the subprime mortgages and the resulting derivatives, delay the crisis.

 

[Indicus]

Have Kerry win in 2004. He's less likely to deregulate to the same extent, so the bubble is gonna inflate at a slower rate, and pop slightly later.

 

[Minty_Fresh]

Have Kerry win in 2004. He's less likely to deregulate to the same extent, so the bubble is gonna inflate at a slower rate, and pop slightly later.

The deregulation had already occurred long before 2004. The Democratic Party, Pelosi specifically, was actually critical of Bush going into the 2006 midterms for putting too MANY regulations and compliance costs on the financial industry through his administration's implementation of Sarbanes-Oxley, and this was an effective line of attack. I don't think that the mainstream Democratic Party that Kerry embodied was going to go on a regulatory frenzy. I also have doubts about what regulation would accomplish by that point, other than the good idea of high capital reserve requirements. CDOs and garbage bond ratings were not a political problem but rather a bureaucratic problem.

Tone at the top is important, sure, but I haven't really seen much evidence that the idea of the ownership society was challenged by the Left. It was one of the more racially progressive ideas that the government has come up with in regards to housing, a far cry from the days of redlining, and had support from both parties.

Thats not even getting to the fact that the recession was caused by a variety of factors that were not just housing related.

However, the idea that by chance due to how the market fluctuates, the recession could have happened a few years earlier or a few years later is not something I would discount. For example, if oil prices were lowered during the period, perhaps by an earlier fracking revolution, or less hardline Iranian leadership, the recession could have easily been pushed back. But there was one coming.

 

[NiGHTS]

I heard that the seeds for the recession were planted in the Reagan era.

 

[dw93]

To delay it, have Gore win in 2000. Gridlock continues, rather than Bush having a rubber stamp congress. Yes, the seeds were sown long before than but Bush, IRC, pushed a law in 2002 that further deregulated loan requirements for homeownership (and this is also keeping in mind of his half assed attempt to reign in on Fannie and Freddie). Gore would never get that through a GOP congress.

 

[Minty_Fresh]

I heard that the seeds for the recession were planted in the Reagan era.

For the deregulation of the financial industry and the start of financialization, yes. As far as the housing crash, that was probably a few years earlier in the 70s.

To delay it, have Gore win in 2000. Gridlock continues, rather than Bush having a rubber stamp congress. Yes, the seeds were sown long before than but Bush, IRC, pushed a law in 2002 that further deregulated loan requirements for homeownership (and this is also keeping in mind of his half assed attempt to reign in on Fannie and Freddie). Gore would never get that through a GOP congress.

The loan requirement repeal was more of an effort to lower down payments, which was touted by both parties as helpful for allowing more ownership obviously and closing the housing gap, which was seen as a byproduct of structural racism stemming from the days of redlining.

There was not much Democratic opposition to expanding home ownership by making homes easier to get for low income ethnic minorities. Now, there is also the question of whether or not Al Gore would even propose this kind of a measure, but I am pretty sure he would sign it. He was in the administration that repealed Glass-Steagall and was an avid proponent of NAFTA. I don't think Al Gore was particularly worried about the financial industry's stability.

 

[dw93]

For the deregulation of the financial industry and the start of financialization, yes. As far as the housing crash, that was probably a few years earlier in the 70s.


The loan requirement repeal was more of an effort to lower down payments, which was touted by both parties as helpful for allowing more ownership obviously and closing the housing gap, which was seen as a byproduct of structural racism stemming from the days of redlining.

There was not much Democratic opposition to expanding home ownership by making homes easier to get for low income ethnic minorities. Now, there is also the question of whether or not Al Gore would even propose this kind of a measure, but I am pretty sure he would sign it. He was in the administration that repealed Glass-Steagall and was an avid proponent of NAFTA. I don't think Al Gore was particularly worried about the financial industry's stability.

True. Greenspan could screw him over though if he wanted a Republican in 2004. If he doesn't lower interest rates as much as OTL or not at all, that to could delay the crisis.

 

[True Grit]

To be clear, I'm not looking to delay it a couple years or butterfly it away entirely, I'm just curious how easy it would be to delay it until after November 2008.

 

[Dunning Kruger]

For the deregulation of the financial industry and the start of financialization, yes. As far as the housing crash, that was probably a few years earlier in the 70s.


The loan requirement repeal was more of an effort to lower down payments, which was touted by both parties as helpful for allowing more ownership obviously and closing the housing gap, which was seen as a byproduct of structural racism stemming from the days of redlining.

There was not much Democratic opposition to expanding home ownership by making homes easier to get for low income ethnic minorities. Now, there is also the question of whether or not Al Gore would even propose this kind of a measure, but I am pretty sure he would sign it. He was in the administration that repealed Glass-Steagall and was an avid proponent of NAFTA. I don't think Al Gore was particularly worried about the financial industry's stability.

CRA had very little to do with the housing bubble and bust. By 2004, fannie and freddie were complaining they were losing market share to private lenders like Washington Mutual and Countrywide.

 

[Dunning Kruger]

To be clear, I'm not looking to delay it a couple years or butterfly it away entirely, I'm just curious how easy it would be to delay it until after November 2008.

Your best bet is to postpone the dotcom crash/recession in 2000 and 9/11. Push those back and the interest rate cycle gets pushed back. Problem is dotcom was going to crash in early 2000. So, push back 9/11 for 6 months and you might get a similar effect.

The only other possibility is, IMO, the Fed waited too long to start cutting rates. By August 2007, things started to get wobbly. They could have started easing then, which might have delayed and even softened the hit.

There are so many interrelated factors that created the bubble and the subsequent bust that it's really hard push back the timing after 2004 or so. By 2005 and certainly 2006 it was too late avoid it and outside of more aggressive Fed action earlier, its really hard to postpone it. Once the breakdown started in 06 and 07, it just gets really hard to stop.

 

[Pericles]

If Barclays was allowed to buy Lehman Bros, there wouldn't be a full-on crash, though still an ailing economy that edges towards recession, until after the election. The PoD could be that UK Chancellor Alastair Darling allows the deal, which had already been put in place, to occur, sidelining regulatory concerns to save the global financial system. So no crash until after the election, and by then it's possible the Fed and Treasury can persuade Congress the situation is serious enough to need a bailout package. Still, there is still a recession later on, if not a crash of another bank or institution.

 

[Mad Bad Rabbit]

To be clear, I'm not looking to delay it a couple years or butterfly it away entirely, I'm just curious how easy it would be to delay it until after November 2008.

In late August, the government agrees to some sort of bailout for Lehman Brothers. As a result, Bank of America buys them at the 11th hour, and they don't file bankruptcy in September. This delays (and worsens) the gotterdammerung, until after the November elections.

 

[jmc247]

In late August, the government agrees to some sort of bailout for Lehman Brothers. As a result, Bank of America buys them at the 11th hour, and they don't file bankruptcy in September. This delays (and worsens) the gotterdammerung, until after the November elections.

They had an agreed buy out to a bank in London, the European regulators killed the deal at the last minute by demanding a month long review... that is the easiest point of diverge to create a soft but not in freefall economy by Election Day.

 

[Mad Bad Rabbit]

They had an agreed buy out to a bank in London, the European regulators killed the deal at the last minute by demanding a month long review... that is the easiest point of diverge to create a soft but not in freefall economy by Election Day.

They were in talks with Korea Development Bank, Investment Corp. of Dubai, Metlife, Barclays and Bank of America, all of which failed because the would-be buyers quickly figured out Lehman was deeply insolvent and not worth buying unless the U.S. government would agree to a bailout.

 

[Dunning Kruger]

In late August, the government agrees to some sort of bailout for Lehman Brothers. As a result, Bank of America buys them at the 11th hour, and they don't file bankruptcy in September. This delays (and worsens) the gotterdammerung, until after the November elections.

This might do it. But after the Bear Stearns fiasco and grief from just about everyone, I think Paulson, Geitner or Bernanke were going to avoid government intervention with Lehman at all costs. They still thought moral hazard was an issue and wanted to send a message that other firms in trouble couldnt sit around assume a bailout in the end. IIRC, Lehman had opportunities in the spring but passed once or twice because they thought the price was too low.

The question remains that remains though is: even though Lehman no longer provides the tipping point, all of the other CDO's were already collapsing. So Merrill, Wachovia, Washington Mutual, and AIG might have still hit the fan with barely any delay.