From Robert Lawson:
The local fishwrapper reports on some unintended consequences of Ohio’s tough new law “protecting” people from predatory lenders:
Praised by Democrats, Republicans and consumer advocates alike, the law has done much of what it was supposed to do, mortgage brokers and real-estate professionals say, by protecting consumers from incurring debt they can’t afford to repay.
But the law also has made it harder — close to impossible, some say — for certain previously well-qualified borrowers to get a loan.And file this one away under in your “rule of man” file:
“[Ohio's new Attorney General]Marc Dann is looking for someone to break his rules, and nobody wants to be his test case.”
Some of that is just that the market is unsettled. As it should be, but the regulatory regime is going to make it much harder for qualified homeowners to get loans as well. I knew that was probably coming, and has been part of my general pessimistic outlook on the US economy and financial markets. I found that out personally last night. I went to Amerisave.com last night just to get a handle on what kind of rates I might get on a home equity loan now that I have bought my house so that I can consolidate my remaining debts. Amerisave works with most of the largest lenders in the country, Washington Mutual, Morgan Stanley, bear Stearns, Chase, ABN Amro and on and on. After plugging in my data this message showed up:
We do not currently offer any standard loan programs to fit your loan criteria. Please call a loan advisor for a custom rate quote
Now, that surprised me, so I called. It isn’t me they don’t want to lend to, they do not offer home equity loans to anybody anymore. The market just doesn’t want the paper. The answer of course is to find someone local who backs the loans with their own capital rather than those who securitize it, which isn’t that common anymore. So now I have to trudge into my own credit union or local bank just to get a quote. That is ugly folks, and a sea change from just a few weeks ago. The markets are unsettled, and if you lend to someone who decides they can’t pay the regulators and press will blame you for lending to them not the borrower for not paying. Result, while I will find someone to give me a loan, I am sure that is a sign that much of the American populace has just moved from qualified to marginal in many institutions eyes. How long this lasts I don’t know, but it will crimp spending, equity in peoples homes has accounted for a large percentage of spending as the charts below from Barry Ritzholz emphasize:
The first shows the growth of net equity extraction (blue bars) and how large it had grown as a percentage of disposable income (red line.) Losing that will hurt. The second shows just how much affect it had on GDP growth and thus how hard the treading may be (Barry got the data from Calculated Risk.) 
Of course we have been hearing for a while, once those downplaying the housing bubble had to admit that it was collapsing, statements like this:
Excluding housing, the U.S. economy is doing just fine.
Uh yeah. I like this from back in May from Caroline Baum:
To say that ex-housing the economy is doing just fine is tantamount to claiming that, ex-Iraq, Bush’s Middle-East policy is a rousing success…
Backing out Housing today is like going ex-Capex in the late 1990s. Corporate Capital Spending was huge in the the nineties, and if we remove its contribution from GDP from 2000 forward, well, then there was no recession in 2001-02.
Barry Ritholz hops on board that chance to jeer:
• Back the things going up in price, there’s no inflation (Inflation ex inflation)
• Remove Housing from GP, there’s no economic deceleration (GDP ex Housing)
• Elimate the CapEx spending from the tech boom, and there was no 2001 recession (GDP ex Capex)
The economy may not collapse, but rosy scenarios are to be viewed with a great deal of skepticism.
The second graph is pretty intense. One might go so far as to look at that second graph and question if we ever emerged from the 2001 recession at all, if our emergence was based entirely on equity extraction, which is another form of debt. Where’s the genuine growth?
This is why the president’s numbers on the economy have been persistently way under historical lows for most of his term. All the people asking “why is Bush so unpopular?” always look at the economy and say, “hey, GDP has been great! It’s an untold story! Must be the media!” But that’s not it. A debt-based, wildly unequal recovery with minimal income and wage growth just doesn’t do it for the median citizen.
I don’t disagree with you that much on that. Though the growth is real. The real problem, and I am not blaming this on Clinton anymore than I think blaming this on Bush makes sense, is that we had a very unbalanced economy to start with. The cure was to not try and reflate the economy based on easy credit. Of course, the cure would have been in the eyes of many worse than the disease, and there was considerable fear of out and out deflation.
Nor would I blame either president for the silliness of people using equity extraction far more than they should have. Refinancing existing debt made sense. People assuming their houses would go up and up made little. Had they not, growth would not have been what the graphs imply, it might have even been higher, but it would have been a different composition.
Also, growth is usually financed by debt, it is still real. Once again, it is just the source of that debt that is an issue. Too much of it based on rosy scenarios leaving us overly tied to housing (and some other things.) If that adjustment could be instantaneous it would not matter, but it isn’t. All those workers, capital and ideas will have to reorient themselves. That mismatch, or disequilibrium, is the real problem. If I took a graph and showed corporate or other debt for any period and its effect on growth it would look somewhat like that. It is not that large, but at the margin it is a real problem. It only has to shave a few percentage points to be a recession.