Nov. 21st.- The Day the Super Committee Died

In order to vote on any proposal of the Super Committee by Wed. Nov. 23rd. the proposal needs to come before the committee members by tonight at midnight.  Apparently, the Sunday shows were full of committee members and other members of Congress discussing it’s failure but more importantly pointing fingers at the other side for the inability to reach a compromise.  Do they think the American people ever believed they would reach some decision regarding the future budget of the country?  Congressional approval hovers at 9%, that should tell you all you need to know.

Here’s a little from the WaPo regarding Super Committee failure:

“If the supercommittee fails, I think there will be a stark realization by every member of the U.S. Senate that we’re at the end of the year and these complex challenges have not been dealt with,” Sessions said. “It’s likely to be a really difficult period.”

The policy battle comes as the parties are gearing up for a high-stakes election season dominated by economic concerns, with both the White House and Congress in play. The political pressure that has helped keep the 12-member supercommittee from compromising on hot-button issues such as taxes is sure to grow more intense.

If the supercommittee does not finish on time, it would lose special procedural powers to push a tax-and-spending plan through a bitterly divided House and Senate, leaving congressional leaders without an easy path to compromise on the expiring provisions — and a potentially nasty holiday-season fight on their hands.
“We don’t have the answers,” Sen. Richard J. Durbin (Ill.), the No. 2 Democrat in the Senate, conceded recently as it became evident that the panel’s effort had stalled. “The supercommittee was put in place” to develop “a strategy to take us through the election” by resolving the toughest outstanding budget problems, he said. “If they don’t succeed, then we have to address these issues.”

David Dayen suggests burial for the super committee.

This does raise a set of key issues going forward as we reach the end of the year, however. The Super Committee is a dead letter. They are exceedingly likely not to recommend anything at all. Jon Kyl talked about the committee in the past tense on the morning shows today. It’s all over except for the finger-pointing, which will be as meaningless as it is intense.

But there are all these loose ends out there, and all of them would actually increase the deficit, just to show you what a joke fiscal responsibility has always been. First, there are the aforementioned payroll tax cut and unemployment benefits extension. Those expire at the end of the year. So do two other notable measures: the patch that avoids a cut to Medicare reimbursement for providers by over 20%, colloquially known as the “doc fix,” and the adjustment to the alternative minimum tax that helps the upper middle class avoid the additional levy. Then there are a host of other expiring tax breaks, many for businesses, that usually get lumped in and called “tax extenders.” The thumbnail cost for extending every single one of the above-mentioned items is $300 billion. By the same token, that’s the amount you would take out of the economy if you failed to extend any of these measures. And that would, as noted above, be a significant fiscal drag on the economy.

52 Responses

  1. I've always viewed the formation of the soupycommittee as just a way to kick the economic/financial/tax decisions Congress is regularly supposed to make down the road.Next up…Congress will spend the next 8-9 months fighting over undoing the automatic trigger spending cuts that supposedly kick in as a result of the soupycommittee's failure to reach agreement.In other news, just when Da Bears find their groove, they lose their Qube, Jay Cutler to a broken thumb. :-(I blame the soupycommittee.

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  2. The SuperCommittee was doomed to failure. If a camel is a horse designed by a committee, what is a committee designed by a committee?

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  3. MsJS, I don't think they will argue DOD[and other "automatic"] budget cuts again until after the 2012 election. When they put off the Sword of Damocles until 2013 they knew what they were doing.Assuming this Congress can do nothing of substance, the parties will posture and if we are lucky we will get Continuing Resolutions in lieu of the appropriations and budgeting process that will largely be ignored.My pet peeve, as everyone at PL knew, was a Congress that reported only 4/13 of appropriation bills out of committee and a Senate that reported none, zero, nada.That was the D HoR and the D Senate. This R HoR and D Senate will do no better.I say lucky to get CRs, b/c the same motivations that led to the debt ceiling debacle may lead to a stalled CR and a shutdown and a market panic, again.Each CD is a fiefdom and we are electing whom we want, CD by CD. Yet I cannot help but think that the polarization in Congress is greater than the polarization among the voters. If I am wrong about that, we are in long term deep trouble, like California.It has been said by everyone from the right to the left – failure to narrow the deficit substantially and to progress toward solvency will inevitably force harder choices upon us than we can make voluntarily, now. No purist wants to make the easier choices available to us now, I know. But most of us are anything but purists, I think. Except in California.

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  4. OT on my own post, lol. This was an interesting piece from Forbes no less. We've talked a lot about income inequality and whether it's really important or not and what actually caused it. Could it be Capital Gains Tax?Capital gains are the key ingredient of income disparity in the US– and the force behind the winner takes all mantra of our economic system. If you want even out earning power in the U.S, you have to raise the 15% capital gains tax.Income and wealth disparities become even more absurd if we look at the top 0.1% of the nation's earners– rather than the more common 1%. The top 0.1%– about 315,000 individuals out of 315 million– are making about half of all capital gains on the sale of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400.It's crystal clear that the Bush tax reduction on capital gains and dividend income in 2003 was the cutting edge policy that has created the immense increase in net worth of corporate executives, Wall St. professionals and other entrepreneurs.The reduction in the tax from 20% to 15% continued the step-by-step tradition of cutting this tax to create more wealth. It had first been reduced from 35% in 1978 at a time of stock market and economic stagnation to 28%. Again 1981, at the start of the Reagan era, it was reduced again to 20%– raised back to 28% in 1987, on the eve of the October 19 232% crash in the market. In 1997 Clinton agreed to reduce it back to 20%, which move was an inducement for the explosion of hedge funds and private equity firms– the most "rapidly rising cohort within the top 1 per cent."Make no mistake; the battle that is to be fought over the coming attempt to reverse this reduction in capital gains will be bloody and intense. The facts are clear according to the Congressional Budget Office more than 80% of the increase in income inequality was the result of an increase in the share of household income from capital gains.

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  5. markWhat's your deal with CA? We're not much different than other states right now playing catch up to a housing crisis, lost property tax and employment revenue and a Governor who's trying to both manage cuts in a less than doomsday way, reform public employee pension and health care issues, and figure out ways to increase revenue to pay for our prior commitments. The people wanted a vote on revenue, but the R's in the legislature wouldn't even go that far.

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  6. Yes. All this arguing about top marginal rates is really arguing about molehills in the shadow of a mountain. It is only the ultra-rich who get large chunks of their income as capital gains. Normal wage earners start paying at 24% on income over $34,500 but billionaires get to pay 15% on their entire nut. The real debate should be on getting all income (which is fungible) taxed at the same rate, not messing with piddling a 'millionaire's tax' which really doesn't get to most of a high income person's income.

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  7. I was half joking about CA. Your state has a history of voting for benefits and against taxes, and Brown's heroic [from my vantage point] attempt to fix this will be thwarted by the State's Rs, as you suggest. Other states have bitten the bullet that CA seems unwilling to eat until the very bitter end.Your O/T post is actually on point, b/c it potentially narrows the fight in Congress and on the hustings if CG is the "villain".Your original post suggested all the programs and tax breaks that are likely to fail now, b/c the Select Committee will not report. I assume there will be collective will to address AMT and "doc fix". I am concerned about the probable failure to extend UC. I see that as a direct drag.

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  8. UC? I'm not up on that abbreviation.

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  9. An increase in capital gains will have to be progressive, not across the board. Any effort to tax billionaires at 35% while simultaneously taxing retirees taking $20k out of their retirement accounts at the exact same rate will meet with vigorous complaining, and is going to be fought tooth and nail. Also, if I'm a small business selling assets to stay afloat, you're going to tax any profit I realize, if any, on these sales at 35% while taxing multi-millionaire congresspeople using privileged information in front of their committee to realize a massive profit at the same rate? This will not go over well.

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  10. What's interesting to me is will Obama veto a restoration of Defense cuts (snicker). Panetta's been doom and glooming it so veto cuts his legs out from underneath. The other thing is that this returns the conversation back to out debt/death spiral. I'm not so sure this helps Obama's re-election.

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  11. What's interesting here Mark is that Schwarzenegger managed to get several temporary regressive tax and fee increases through the Legislature with a 2/3rds vote but once they expired and Brown wanted to extend them, by a vote from the people, the same R's in the Legislature said no. Of course the only leverage R's hold in CA which is dominated by D's is in budget issues. We're facing another $5 – $6 billion shortfall for 2012 so will have to cut more I imagine, unless the economy turns around. At least our air and water standards are still slightly higher than Texas although our education standards are sinking to the level of some of the worst states.

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  12. Kevin, I agree re progressive CG tax. There are short term vs long term issues as well.

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  13. Capital gains should be taxed at the same rate as wage income across the board. If you want to protect small investors or retirees you can exempt small amounts or allow for some sort of (admittedly complicated) inflation indexing. But deferring compensation for a year as stock options or another sort of capital gain is an option only available to the wealthy and financially secure.

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  14. "It's crystal clear that the Bush tax reduction on capital gains and dividend income in 2003 was the cutting edge policy that has created the immense increase in net worth of corporate executives, Wall St. professionals and other entrepreneurs."I'd dispute this. The "cutting edge policy" on capital gains taxation was Clinton's Taxpayer Relief Act of 1997. Bush's capital gains cuts continued the trend. The 1997 act also eliminated the capital gains tax on most home sales entirely and helped to kick off the housing bubble. With regards to income inequality there are really two issues that are conflated:1. Significant growth of the income of the top earners.2. Middle class wage stagnation. If you fix #2, #1 is pretty much irrelevant (and that happened for a brief time in the 1990's). And no, #1 does not cause #2."There are short term vs long term issues as well. "Keep in mind that short term capital gains are taxed at the same levels as wages. All the capital gains tax disputes are over the long term rates."Capital gains should be taxed at the same rate as wage income across the board."This is something I completely agree with, provided it's combined with tax reform that results in fewer, lower brackets and eliminates deductions. In addition, the FICA taxes should be rolled into the standard income tax which will have the effect of removing the income caps.

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  15. If FICA were truly included in income tax rate schedules, the total taxation would be shown to be far less progressive than advertised. The 28% bracket which for a single person is from 83.6k to 174.4k is really a 34.2% bracket on income lower than $106k.

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  16. yj – UC = unemployment compensation in this context.I think there is justification for classifying CG differently from ordinary income, but the justifications depend on the holding period, the inflation rate, and whether or not we have a progressive income tax system, otherwise.I have explained this before, I am tired of explaining it, and I concede in advance that any simplified generalized CG treatment does not fairly fit all cases. So what else is new?A related issue is whether or not to exempt the CG [fully or partially] from the sale of a primary residence, for a period of time, to allow reinvestment in another house of similar price. This is not an exemption, actually – it is structured as a delay. You roll the original basis of the house sold into the house purchased, postponing the tax.

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  17. Mark:My pet peeve, as everyone at PL knew, was a Congress that reported only 4/13 of appropriation bills out of committee and a Senate that reported none, zero, nada.That was the D HoR and the D Senate. This R HoR and D Senate will do no better.According to Thomas, the Senate has reported 11/12 appropriations out of committee and the House has reported 9/12. Ag was signed by BHO last Friday. Veterans is likely in conference right now.Status of FY12 appropriations

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  18. Fantastic! Really.

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  19. Mike, if this flurry of activity began after the debt ceiling debacle it would make me think they were getting their act together. It seems like two months ago that AG came out of Committee and was the first Senate Appropriations bill in YEARS. This points up the failure of the Ds in the Senate when they had absolute control at their disposal.Do you know what has changed?

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  20. Not being a policy wonk but my bet is that since spending levels were set at the debt ceiling debate, dividing the pie is just easier.

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  21. "Fantastic! Really."Better than usual, I'll agree but we are still two months into the fiscal year that these bills are supposed to fund. If there was one Congressional reform I'd put forward, it would be for biannual budgeting so that they could get through this process once per Congressional session and then be done with it.

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  22. "…but we are still two months into the fiscal year that these bills are supposed to fund."Right.

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  23. Do you know what has changed?No. Yellojkt's bet is probably a good one. All the Senate bills except Veterans came out of committee after Labor Day, IOW after the August recess that was the "deadline" for the debt ceiling vote.Senate report for HHS cuts NIH funding. No committee report from the House yet. Sigh.

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  24. Kevin Drum's take on the super committee? Republicans win again.We already have a plan to cut the budget by $1.2 trillion over ten years. So who really cares whether there's a different plan to cut $1.2 trillion from the budget? Why isn't the existing plan good enough?In any case, this should basically be viewed as a total victory for Republicans. Any alternative plan would have included some tax increases, so failure to come up with an alternative means that we get a big deficit reduction that's 100% spending cuts, just like they wanted. And the 50-50 split between domestic and defense cuts was always sort of a joke. Republicans never had any intention of allowing the Pentagon's half of the cuts to materialize, and the domestic spending half of the cuts was about as big as they wanted them to be. Big talk aside, they know bigger cuts would run the risk of seriously pissing off voters.So Republicans got domestic spending cuts that were about as big as they really wanted. They know they'll never have to implement most of the defense cuts. And there are no tax increases.Given all that, why is anyone surprised that they were unwilling to seriously consider any alternative? Why should they when they already had what they wanted?

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  25. $1.2 trillion over ten yearsBut these are phantom cuts. they're cuts off of projected increases. spending still goes up, just not as fast. it's slowing the rate of growth and calling it a cut. also known as lying, IMHO. mrrcatus center chart

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  26. yello: Capital gains should be taxed at the same rate as wage income across the board.Then they're going to be taxed at 15%. At least for the foreseeable future.But deferring compensation for a year as stock options or another sort of capital gain is an option only available to the wealthy and financially secure.Then it should not be unusually difficult to tax them at a higher rate, while leaving retirees alone.

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  27. yello:If FICA were truly included in income tax rate schedules, the total taxation would be shown to be far less progressive than advertised.Who is "advertising" highly progressive "total taxation"? There is a reason that FICA taxes are calculated seperately from income taxes, and spoken of seperately from income taxes. And that reason is precisely why it makes no sense to speak of the progressivity of a hypothetical rate that includes both combined.

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  28. yello:Capital gains should be taxed at the same rate as wage income across the board.It doesn't make a lot of sense to talk about what the CG rate should be outside of the context of what the corporate tax rate is, since each represents a seperate tax on the same income.

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  29. "… since each represents a seperate tax on the same income."Two implied assumptions here that I will challenge.1] CG is applicable only to ownership of equity in corporations.2] Increase in net worth of equity in an entity is the alter ego of the income earned by that entity. First, equity increase in real property purchased for investment purposes is a strong and widespread reality. Second, increase in the price of an equity is often dissociated from the earnings of the entity. You know that.Still, I think that CG should be taxed more favorably to the taxpayer than ordinary income, for the reasons I have stated previously.

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  30. I'd set individual wage income, corporate income and capital gains/dividends all to the same rate as part of tax code simplification by eliminating deductions to get to a flatter rate structure. I'm willing to make the trade off of double taxation of corporate earnings if it helps get rid of tax code arbitrage.

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  31. Selectively including or excluding FICA as a tax on income is one of the major sleights of hand used when talking about tax burden. The talking point that 41% of the population doesn't pay income tax ignores the fact that all income is subject to FICA from dollar one.The regressivity of the system when combining income taxes, FICA, and capital gains is the crux of Warren Buffet's argument that the system needs to be revamped so that the ultra-rich pay AT LEAST as much tax as their secretaries, which many currently don't.

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  32. jnc, How about permitting the taxation of both corporate income and dividend income but making the dividend payment deductible to the corporation? It seems to me that it would encourage more dividend payments, and reduce corporate taxable income by perhaps 1/3. Any other constraints?

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  33. YJ, it is important for folks to know that SS/Medicare is a huge part of the budget,and that their payroll taxes and the employer match are a huge part of revenues. But attempting to keep at least the semblance of an insurance program going requires the separation of the dedicated funding [ which is not truly dedicated, as we all know ].

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  34. Further, arguing that FICA is "regressive" obscures the semblance of an insurance program. You give Scott the chance to demonstrate to you that it is not only a Ponzi scheme but a mere welfare program and SS and Medicare are surely doomed. They have only been accepted on the insurance premise all these years. Only the fact that we all paid into the program makes it different from pure welfare. In the end, it has been publicly assisted insurance because of the way it has been handled by Congress from time to time. But faith with the public would be broken if we saw this as just another welfare scam.

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  35. There is no longer any income limit on Medicare taxes so that Rubicon has been crossed. And all capital gains is exempted from FICA, giving it a lower effective tax rate than even comparing it to just straight income tax.Money is fungible and the rich reallocate resources to take advantage of the lowest effective tax rate. This was the cause of the real estate bubble in the 1980s as well as the financial crisis we are in. Taxing all income at the same rate lets the market decide the correct asset distribution.

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  36. Mark:Two implied assumptions here that I will challenge.It is a fair point that not all income subject to a capital gains tax is also subject to a corporate income tax. Although, in the context of a discussion about executive compensation through stocks and stock options, that point doesn't seem particularly relevant.And while I don't think it is true that the value of a piece of equity can ever be truly disassociated from its earnings, it is fair enough to point out that earnings are not the sole contributer to that value. Still, I think what I said remains true. It doesn't make a lot of sense to talk about the capital gains tax rate outside of the context of the corporate tax rate, since generally speaking what gets taxed at corporate income with also get taxed later as capital gains.Raising the capital gains tax to reflect the same rate as ordinary income might make more sense if the corporate tax is eliminated.

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  37. "jnc, How about permitting the taxation of both corporate income and dividend income but making the dividend payment deductible to the corporation?"That works. "Further, arguing that FICA is "regressive" obscures the semblance of an insurance program. You give Scott the chance to demonstrate to you that it is not only a Ponzi scheme but a mere welfare program and SS and Medicare are surely doomed. They have only been accepted on the insurance premise all these years. Only the fact that we all paid into the program makes it different from pure welfare. In the end, it has been publicly assisted insurance because of the way it has been handled by Congress from time to time. But faith with the public would be broken if we saw this as just another welfare scam."The faith has already been broken. It's either a Ponzi scheme or welfare. I happen to think the welfare argument is stronger, so that's why I advocate rolling the FICA taxes into the regular income tax structure and also means testing the recipients. Among other things, this eliminates the BS about the Social Security Trust fund solvency which is dependent on the Federal government raising taxes or cutting spending to pay back the Treasuries that the Social Security surpluses have been invested in over the years.

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  38. jnc:I'm willing to make the trade off of double taxation of corporate earnings if it helps get rid of tax code arbitrage. Eliminating the corporate tax while setting all rates to the same level would get rid of the arbitrage and prevent double taxation.

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  39. "Raising the capital gains tax to reflect the same rate as ordinary income might make more sense if the corporate tax is eliminated."All you have done there is increase the benefits to self incorporation and making everything a business expense.

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  40. yello:This was the cause of the real estate bubble in the 1980s as well as the financial crisis we are in.Really? Sub-prime borrowers were trying to arb the tax rate difference between capital gains and regular income? I thought this was a benefit only the wealthy could take advantage of.

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  41. jnc:Fair point.

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  42. Sub-prime borrowers did not create the financial crisis. The CDO house of cards that was built on them did.

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  43. yello:The CDO house of cards that was built on them did.CDOs didn't inflate the housing bubble. In fact CDO's represent one of the only ways to effectively short the housing market. Had there been more people trying to short it, it may well have deflated the bubble earlier and with fewer consequences.

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  44. "CDOs didn't inflate the housing bubble. In fact CDO's represent one of the only ways to effectively short the housing market. Had there been more people trying to short it, it may well have deflated the bubble earlier and with fewer consequences. "I don't believe that's the argument being made, but rather the CDO's were what turned the housing bubble into the "financial crisis" and thus (ostensibly) required a government bailout of the banks and AIG. This can be contrasted with the dot.com bubble which did not require a bailout.

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  45. Selectively including or excluding FICA as a tax on income is one of the major sleights of hand used when talking about tax burden. The talking point that 41% of the population doesn't pay income tax ignores the fact that all income is subject to FICA from dollar one.First, it isn't a talking point, it's a fact. Second, it isn't 41% but 47%. Third, the reason FICA is distinguished from income tax is that that is how its proponents and sponsors set it up. You can't have it both ways depending on which argument you want to make at the moment.The regressivity of the system when combining income taxes, FICA, and capital gains is the crux of Warren Buffet's argument that the system needs to be revamped so that the ultra-rich pay AT LEAST as much tax as their secretaries, which many currently don't.The overall tax system is not regressive. That is a talking point. I linked a study on this at PL several months ago. You can take all the taxes at all levels into account that you want, including FICA, and the tax system is still progressive.

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  46. jnc:but rather the CDO's were what turned the housing bubble into the "financial crisis" and thus (ostensibly) required a government bailout of the banks and AIG.Well, he originally referred to the "financial crisis we are in." We are no longer in the immediate liquidity crisis that prompted government bailouts, as evidenced by the fact that the vast majority of the bailout money has been repaid. Our on-going problems are largely due to domestic de-leveraging, primarily as a result of the collapse of the housing market. As I said, CDOs were not responsible for that at all.

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  47. Except that the voracious appetite for CDOs did drive some of the bubble. The financial collapse took down housing prices across the board, affecting both the sub-prime borrower and the legit and current homeowners.

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  48. yello:Except that the voracious appetite for CDOs did drive some of the bubble.How?

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  49. yello:The financial collapse took down housing prices across the board…You have reversed cause and effect. The financial crisis of '08 did not cause housing prices to collapse. It was the increasing collapse in housing prices, starting in the fall of '06. that precipitated the crisis.

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  50. This comment has been removed by the author.

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  51. It was the increasing collapse in housing prices, starting in the fall of '06. that precipitated the crisis. Now you are getting into chicken and egg territory. Yes, the 2006 defaults started a vicious feedback loop but the market was overly exposed to the risk. Here is one explanation.

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  52. yello:My mistake. You said CDO's, and I was thinking of synthetic CDO's. Hence my reference to shorting the housing market, which can be done with a synthetic CDO, but not a regular CDO. I made this leap because of your reference to a "house of cards" built on sub-prime borrowers. I'm not at all sure how lenders to sub-prime borrowers represent a "house of cards".In any event, yes, CDO's did help fuel the housing bubble, by expanding the universe of investors willing to lend to home buyers, particularly sup-prime borrowers. But to get back to your original point I am not sure how this represents how rich people arb tax rate differentials.

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