You're close but not quite there. Simoly put there was only one savings and lone company that got anyone sent to jail as far as I can remember and that had nothing to do with mortgage loans but rather overly aggressive moves in the junk bond Market where an S&L had no business being in the first place. If memory serves that was Roger Milliken.

Hi, GaryD, yes, I understand you now that eliminating the tax credit for second homes reduced the number of investors that, in sufficient numbers, would have saved S&L's. The problem we saw in Texas was they bought up, often in violation of fed regs imposed after the Great Depression meant to protect S&L's from failing, portfolios of high fixed rate mortgages after the rates had fallen sharply and the housing estimates had been cut almost in half by a recession that followed a big drop in oil prices and loss of jobs. Entire new developments became "ghost towns" after middle and lower income residents abandoned homes worth far less than what they owed to move to other states for jobs. The S&Ls took an illegal gamble and lost as interest rates continued to fall and the bottom dropped out of the housing market. It took ten years for housing to return to its pre-collapse value. In the meantime, people moving and unemployed were withdrawing their money which the S&L's had tied up in bad investments. Those withdrawals of course were insured up to $100,000 by the feds, a policy which enabled S&Ls to come into business after the Great Depression destroyed public confidence in S&Ls and banks. Second home investors represent a potential cure by bringing money into banks through down payments, but same as eliminating antibiotics won't cause pneumonia or save a person whose organs have failed, tax credits would have needed to be sufficient and necessary for the health of the S&Ls to be a cause. Had the S&Ls not risked their health by illegal investments their owners would have had some lean years instead of some going to prison or having to pay the govt huge fines to offset what the govt had to pay out in insurance. Thus, sufficient tax credits for second homes would have merely enabled S&Ls to survive illegal activity, while shifting the bad investments to second home buyers. Why not double the first home tax credit to enable first home buyers to keep their home instead of allowing others to buy two? The purpose of first home tax credit is to enable the American dream of owning a house. At the level of a second home its merely an inducement to make a riskier investment. Doubling the tax credit for first home buyers is out because those who own no home yet who pay taxes are already justified in saying their American dream is being deferred for lack of a renters' credit.

GARYD, yes, I see your point now that eliminating tax credits for second homes eliminated buyers. In Texas, where I lived, S&L's, often in violation of federal regs meant to protect them, bought up portfolios of high-rate mortgages after the rate had fallen sharply, practically guaranteeing the mortgagees would default. It was gamble that failed when home prices dropped owing to growing unemployment. Would tax credits have made those bad mortgages into good enough buys? Hmmm. It was the illegality, at any rate (ooo, bad pun) that ruined newer, i.e. smaller S&L's through fines, legal fees and sometimes imprisonment of owners. Same as lack of antibiotics can't cause pneumonia, lack of tax credits can't cause S&Ls to go broke. Your point is very well-taken that to eliminate a cure would have amounted to a cause, but only if it was a sufficient and necessary cure.

Kay Bailey Hutchison would be an awesome nominee. Please write more blogs/articles on this suggestion!

The other steve,

You do know that constitutionally the congress holds the purse strings? I.E Ronald Reagan the only truly conservative President Of the last 75 years faced a Democratic house of representatives where all spending legislation must originate.

BTW, listening to Gayrd complain about the failures of Republican Presidents being the Democratic Congress, reminds me a bit of the defenders of Communism claiming you can't blame the Soviet Union because they didn't really implement true Communism.

At some point a political ideology has to come to grips that reality doesn't work well on paper.

I think many misunderstand what "business" means when they say Republicans are better. It is not a question of the market, but rather one of the handouts from government.

Business hasn't done well under Republicans, but the Business leaders have. With tax cuts, government pork, and ideas such as the Social Security Reform(otherwise known as Leave No Retirement Manager Behind). My local AG Edwards retirement manager was a big fan of the Social Security reform concept. It had nothing to do with whether or not it would help people, it had more to do with the 1-2% commissions he'd receive from all the guaranteed new business.

Several places. I don't know what part of the country you are in but between the mountains the primary holding of almost all the S&L was real estate which lost significant amounts of it's value almost over night thanks to that boondoggle when a lot of the companies and fat cats who bought them as a tax shelter of sorts start selling them at fire sale prices.

You do the math. When 20 to 30% and in some case more of your assets suddenly drop in value by twenty to forty percent and occasionally more what happens to your bottom line.

Jim Campbell, in a response to this Blog, which is based, in part on my Part 2 of The Voter's Guide to Political Party Performance, found on www.outsidersdc.com, made the observation that "Every president inherits an economy from his predecessor. If you consider that it takes some time for a president to formulate a policy, for Congress to process the policy, and then additional time to implement it and for it to be felt in the economy and measured, it seems reasonable to expect a lag of about 18 months from inauguration until it is that president's economy."

This is a reasonable observation that in the interest of fairness and accuracy should be checked out. Fortunately, there is a technique called lagging which is helpful in picking up effects that show up after a specified time. An expanded example of this concept is found in Part 2A of The Voter's Guide (www.outsidersdc.com), which will be published later today.

It could be argued that a lag effect occurs when we change presidents. However, unlike Mr. Campbell, I will argue that presidential policy changes are a process and not an event. This process begins when financial markets react as soon as it becomes apparent that one candidate will win and ends sometime between the first and second year as legislation is passed and the law put into effect. Thus, it is important to make more than one measurement to see if a party effect is truly there.

In the case of my data set, the unit of analysis is the year, thus, it can only be used in increments of one year. This means that I can't test his hypothesis precisely at 18 months but I am able to do so at one and two years.

The results were facilitating. At a one year lag, the results were almost exactly the same, literally within rounding error at one significant figure. The Republican averages were 2.832 percent of GDP for the current year and 2.780 for a one year lag. The Democratic average was 4.434 for the current year and 4.370 for a one year lag. The difference was statistically significant.

The results for the two year lag showed a non trivial reduction of the effect found in the current and one year lag measurements. The average for the Republicans increased from 2.832 percent to 3.017 and the Democratic average decreased to 4.074 percent from 4.434 percent. This narrowing of the gap was sufficient to put it in the range of too close to call (p=.095).

So what does this mean? Simply put, there is a "partisan effect" as Bartels (http://www.russellsage.org/publications/workingpapers/bartels/document) would call it if markets adjust quickly to policy changes. If markets take about a year or less to adjust to a new administration then the effect is strong and favoring Democratic Administrations. If markets take more than approximately a year and a half to adjust, then the partisan effect is questionable because by two years the data do not make the required minimums for statistical significance.

In no case, however, do these data confirm the original hypothesis that Republican administrations experience greater economic growth than Democratic administrations. Thus, the conventional wisdom that it is in the best interest of business to disproportionally support Republican candidates is not supported by these data.

GARYD, the collapse of the S&L industry late last century, which I saw from the inside, was in no way owed to the elimination of tax credits for 2nd homes. The causes are myriad, but that's a new one. Where did you read that?

Almost anything you get from Krugman is going to be suspect economically and in most other ways.

Given that Eisenhower, Nixon and Ford government pretty much as Democrats and that their only real problem with the Democrats was that we weren't paying enough up front for the ever growing Welfare state labeling them Republicans in the Modern sense of the word is simply Ludicrous. Social spending as most other spending increased dramatically under Bush hence he really hasn't governed as a conservative either this means that by and large in the last 60 years we have had only 8 years of conservative rule and that was hugely handicapped by a Democratic congress that spent 2 dollars for every dollar they collected. And produced two taxes that were among the most singularly damaging soak the rich schemes that were ever foisted on the American people. The first was the luxury boat tax which almost totally destroyed the New England yacht business putting thousands out of work and, in fact, cost the government more tax dollars in unemployment benefits and food stamps among other programs than it ever took in and the second was the removal of the interest tax credit on second homes which resulted in the almost complete collapse of the Savings and loan industry by devaluing overnight much of the real estate holding often by as much as 50%.

CHLOE, thanks for pointing out that business and our economy are not to be confused, as they are, even by Democratic politicians. The GOP must be good for something, they probably think, else why do they win elections? In fact, it's entirely logical that the GOP has come to be good for nothing good, as that's how parties die. Their resemblance of late to the party of Benedict Arnold is eerie. The American Whigs likewise remained loyal to an unpopular war against an insurgency (the future usses) waged by another very unpopular George. The Whigs were bound by a common fear of liberalism not to be sustained when their disparate fears proved unfounded after those they labeled traitors won the war. Already in Canada and Europe, the right-wing has been reduced to a fringe, owing to widespread acceptance of social and economic policies the GOP has thus far kept from Americans.

I reexamined party effects using the Bureau of Economic Analysis' most recent GDP data
and assuming a one year lag between a president taking office and his being really responsible for the economy. This is probably too short a period, but looking back on the records of major economic policies, Congress usually does not pass them until late summer and it takes awhile for them to be implemented and felt in the economy. Using this one year lag, the party of the president does NOT have a statistically significant effect on economic growth.

Looking at the data more closely, you can see why Kinsley got his results. Republican presidents have been saddled with weakening economies by their Democratic predecessors. Unfortunately, Kinsley and some political scientists have added insult to injury by blaming these Republican presidents for the economic messes that they inherited.

Since 1947, there have been four transitions from a Democratic president to a Republican president: Truman to Eisenhower in 1953, Johnson to Nixon in 1969, Carter to Reagan in 1981, and Clinton to Bush in 2001. In those transition years, 7 of the 16 quarters (44 percent) exhibited shrinking real GDPs (the percentage of all post-1947 quarters with GDP declines was
only 15 percent). The median GDP growth was an anemic 1.2 percentage points. In contrast, none of the twelve GOP-to-Dem transition year quarters had shrinking GDPs and the median growth was 3.0 percentage points.

The real question embedded in the question of which party has had a better record on the economy is when can we expect a president's economic policy to have had an effect of any sort of the economy. It is unreasonable to expect that it takes place on Inauguration Day. Every president inherits an economy from his predecessor. If you consider that it takes some time for a president to formulate a policy, for Congress to process the policy, and then additional time to implement it and for it to be felt in the economy and measured, it seems reasonable to expect a lag of about 18 months from inauguration until it is that president's economy. Using this lag and the National Bureau of Economic Research's identification of the peaks and troughs in the business cycle, since 1948, the economy has expanded in 84.4 percent of the months under Republican presidential stewardship and 85.2 percent of the months when Democratic presidents were responsible--a statistically insignificant difference.

Re: Democrats vs. Republicans on the economy. Here's a link to an extraordinary paper by Larry Bartels.

(http://www.russellsage.org/publications/workingpapers/bartels/document)

I first saw this link in Paul Krugman's blog over at the NY Times. After reading this paper (and its ideas are very accessible to the lay-person), you'll wonder how any economist could possibly be a Republican.

You can see the synopsis of Ron Paul at the Florida debate and see for yourself why he won it at:
http://www.youtube.com/watch?v=zPij7fyIiUQ
Dr Paul is the only candidate who will stop the economic collapse which is upon us, and keep the poor and middle income people afloat. Even if you are rich you may want to vote for Paul so the market doesn't crash.

The fact that business prefers the GOP even though the economy does better under Democrats is good evidence that "business" and "the economy" are not the same thing.

You come very close when you point out that "business leaders" believe that Republicans will let them keep a larger share of the pie is certainly borne out by trends since 1980.

Beyond that: while politicians and "business leaders" love to talk about the "free market" and the "glories of competition", most of not all CEO's really want to be running monopolies, with all of the extra profit that that implies, and they want government to help them by making it illegal to compete with them.