PIGS FLY: NYTIMES BLAMES CLINTON POLICY FOR MUCH OF THE REAL ESTATE BUBBLE

NYTIMES: Clinton Tax Break May Have Helped Cause Housing Bubble

“Tonight, I propose a new tax cut for homeownership that says to every middle-income working family in this country, if you sell your home, you will not have to pay a capital gains tax on it ever — not ever.”

— President Bill Clinton, at the 1996 Democratic National Convention

By itself, the change in the tax law did not cause the housing bubble, economists say. Several other factors — 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 — probably played larger roles.

But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law.

... Charles O. Rossotti, the Internal Revenue Service commissioner from 1997 to 2002, said: “Why insist in effect that they put it in housing to get that benefit? Why not let them invest in other things that might be more productive, like stocks and bonds?”

The provision — part of a sprawling bill called the Taxpayer Relief Act of 1997 — exempted most home sales from capital-gains taxes. The first $500,000 in gains from any home sale was exempt from taxes for a married couple, as long as they had lived in the home for at least two of the previous five years. (For singles, the first $250,000 was exempt.)

... By favoring real estate, the tax code pushed many Americans to begin thinking of their houses more as an investment than as a place to live. It helped change the national conversation about housing. Not only did real estate look like a can’t-miss investment for much of the last decade, it was also a tax-free one.

Together with the other housing subsidies that had already been in the tax code — the mortgage-interest deduction chief among them — the law gave people a motive to buy more and more real estate. Lax lending standards and low interest rates then gave people the means to do so.

• THIS LAW (COURTESY OF CLINTON), THE EARLIER CRA (COURTESY OF CARTER), THE GSE'S - FANNIE MAE AND FREDDIE MAC )PPROTECTED BY DOD AND FRANK AND OTHER DEMS) - WERE CHIEFLY TO BLAME FOR CREATING THE POISON THAT TURNED A HOUSING BUBBLE INTO A FINANCIAL MELTDOWN.

• GREENSPAN HELPED SET IT ALL IN MOTION WITH HIS 17 RATE INCREASES FROM 2004-2007, WHICH PULLED THE RUG OUT FROM UNDER ALL THE BORROWERS.

• THE OIL BUBBLE - (ITSELF FUELED BY SPECULATION THAT WE WERE IN "THE AGE OF PEAK OIL", AND AN ILL-CONCEIVED HEDGE STRATEGY WHICH GAMBLED THAT COMMODITIES WERE A SAFE HAVEN IF STOCKS WENT DOWN) - WAS THE COUP DE GRACE.

HAD ANY ONE OF THESE THREE THINGS NOT HAPPENED, WE'D BE DOING OKAY.

WALL STREET GREED AND DEREGULATION HAD NOTHING TO DO WITH IT AT ALL.