http://newsbusters.org/blogs/noel-sheppard/2008/09/25/fox-news-blames-democrats-financial-crisis-bill-clinton-agrees
"Fannie and Freddie promised to do more to help poor people get mortgages. That led them to buy riskier and riskier home loans from private lenders creating incentives for everyone to make shakier loans."
Who thought it was a good idea to give loans to people who were not likely to pay them back?
If loan originators have nothing on the line because they can sell them on the secondary market (Fannie/Freddie), they will make more risky loans...right?
"To placate those in Congress who watched over them, Fannie and Freddie promised to do more to help poor people get mortgages. That led them to buy riskier and riskier home loans from private lenders creating incentives for everyone to make shakier loans." Nevermind. Question answered. I can see where government failed.
"Eventually, they bought trillions of dollars worth of mortgages, a substantial portion of them based on poor credit, then resold many of them to financial institutions who thought they were safe because the federal government was behind them." Fannie/Freddie really messed this up. Their whole role it to ensure stability. You do not provide stability when you create incentives for bad loans to under-qualified borrowers. Government really dropped the ball and now we want more of it?
It has amazed me why nobody hadn't done anything about this sooner. Everyone I ever seemed to talk to (realtors excluded) thought that the real estate bubble would have to burst at some point. It was too good to be true. Then it never came. How could this be? Because Fannie/Freddie were there buying up bad loans so banks just kept on making them. Did anyone ever try to anything about it?
"But in 2005, the Senate Banking Committee, then chaired by Republican Richard Shelby, tried to rein in the two organizations bypassing some strong new regulations."
... "Which would have prevented Fannie and Freddie from acquiring this bad -- these bad mortgages. It actually gave a new regulator for Fannie and Freddie the kinds of powers that a bank regulator had."
"All the Republicans voted for it. All the Democrats, including the current chairman, Senator Chris Dodd, voted against it, and that was after Fed Chairman Alan Greenspan had issued a stark warning to senators that Fannie and Freddie were playing with fire. Greenspan said without stronger regulations, "We increase the possibility of insolvency and crisis. Without restrictions on the size of Fannie Mae and Freddie Mac, we put at risk our ability to preserve safe and sound financial markets in the United States."
BILL CLINTON: "Well, maybe everybody does that a little bit. I think the responsibility the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac." Doesn't this go against everything from Pelosi's scathing speech at the beginning of the bailout vote? I wouldn't vote for it either if I was on the fence after doing a little research.
Now my question is who are the ones who pushed for government to provide risky loans to unqualified borrowers? Also - who are the ones who tried to fight that nonsense?
If were voting, I would not vote on anything unless the bill stated that root cause of this mess was that policy makers encouraged banks to originate risky loans to borrowers who were unlikely to pay them off.
And better yet, throw in the Mark to Market rules from Sarbanes-Oxley and let one bad note devalue the whole lot.
http://www.nytimes.com/2008/09/30/opinion/30herbert.html
Madness.
I’m not holding my breath, but I would like to see the self-proclaimed conservative, small government, anti-regulation, free-market zealots step up and take responsibility for wrecking the American economy and bringing about the worst financial crisis since the Depression.
Even now, with the house on fire, the most extreme among them won’t pick up the fire hoses and try to put it out.
With the fate of the Bush administration’s desperate $700 billion bailout of the financial industry hanging in the balance, Representative Darrell Issa, a Republican from California, stuck to his political playbook like a man covered in Krazy Glue. He pronounced himself “resolute” in his opposition to the bailout because to be otherwise would amount to a betrayal of party principles.
To deviate from those principles, in Mr. Issa’s view, would be like placing “a coffin on top of Ronald Reagan’s coffin.”
We are in very strange territory here.
George H.W. Bush warned us about “voodoo economics” in 1980, but the ideologues clamped a gag on him and put him on the Gipper’s ticket. For much of the time since then, the madmen of the right have carried the day. They were freed of their remaining few restraints with the ascendance of George W. Bush in 2000.
These were the reckless clowns who led us into the foolish multitrillion-dollar debacle in Iraq and who crafted tax policies that enormously benefited millionaires and billionaires while at the same time ran up staggering amounts of government debt. This is the crowd that contributed mightily to the greatest disparities in wealth in the U.S. since the gilded age.
This was the crowd that cut the cords of corporate and financial regulations and in myriad other ways gleefully hacked away at the best interests of the United States.
Now we’re looking into the abyss.
When President Bush went on television last week to drum up support for the bailout package, he looked almost dazed, like someone who’d just climbed out of an auto wreck.
“Our entire economy is in danger,” he said.
He should have said that he, along with his irresponsible Republican colleagues and their running buddies in the corporate and financial sectors, put the entire economy in danger. John McCain and his economic main man, Phil (“this is a mental recession”) Gramm, were right there running with them.
Credit markets have frozen almost solid, banks are toppling like dominoes and brokerage houses are vanishing like props in a magic act. And who was one of the paramount leaders of the manic anti-regulatory charge that led to this sorry state of affairs? None other than Mr. Gramm himself, a former chairman of the Senate Banking Committee.
Where is Mr. Gramm now? Would you believe that he’s the vice chairman of UBS Securities, the investment banking arm of the Swiss bank UBS? Of course you would. A New York Times article last spring noted that the “elite private bankers” of UBS “built a lucrative business in recent years by discreetly tending the fortunes of American millionaires and billionaires.”
Toadying to the rich while sabotaging the interests of working people was always Mr. Gramm’s specialty. He was considered a likely choice to be treasury secretary in a McCain administration until he made his impolitic “mental recession” comment. He also said the U.S. was a “nation of whiners.”
The tone-deaf remarks in the midst of severe economic hard times undermined Senator McCain’s convoluted efforts to reinvent himself as some kind of populist. But they were wholly in keeping with the economic worldview of conservative Republicans.
The inescapable disconnect between rhetoric and reality is often stark. Senator McCain has been ranting recently about the excessive pay and “bloated golden parachutes” of failed corporate executives. And yet one of his closest advisers on economic matters is Carly Fiorina, who was forced out as chief executive of Hewlett-Packard. Her golden parachute was an estimated $42 million.
Voters have to shoulder a great deal of the blame for the economic mess the country is in. Too many were willing, for whatever reasons, to support politicians who spat in the eye of economic common sense. Now the voodoo that permeated conservative economic policies for so many years has come back to haunt us big-time.
The question voters should be asking John McCain is whether he has stopped serving his party’s economic Kool-Aid, which has taken such a toll on working families, and is ready to change his ways. Is his sudden populist transformation the real thing or just a mirage?
In the gale force winds of a full-fledged economic hurricane, it’s fair to ask Senator McCain whether he still considers himself a conservative, small government, anti-regulation, free-market zealot. Or whether he’s seen the light.
Here's another good one, this time from a Republican:
http://www.nytimes.com/2008/09/30/opinion/30brooks.html
House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.
Now they have once again confused talk radio with reality. If this economy slides, they will go down in history as the Smoot-Hawleys of the 21st century. With this vote, they’ve taken responsibility for this economy, and they will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the G.O.P. as we know it.
I’ve spoken with several House Republicans over the past few days and most admirably believe in free-market principles. What’s sad is that they still think it’s 1984. They still think the biggest threat comes from socialism and Walter Mondale liberalism. They seem not to have noticed how global capital flows have transformed our political economy.
And here's a little tidbit showing once again that the Reagan Revolution is dead as a doornail not only in Congress but among the American people:
CBS/NYTimes poll: "Do you think the federal government regulates business too much these days, does it regulate business too little, or does it impose the right amount of regulation on business?"
Too much: 21%
Too little: 45%
Right amount: 18%
America has badly soured on the deregulate-deregulate-deregulate mantra of the Trickle-downers now that they've seen what it really does to an economy. Y'all are backing the wrong horse.
You may now all commence shooting the messenger. Either that, or finally, finally discover that 2008 is not 1980, and the ideas you clung to then are killing you now.
That is a lot of rhetoric, but what is the root cause of this mess?
"I’m not holding my breath, but I would like to see the self-proclaimed conservative, small government, anti-regulation, free-market zealots step up and take responsibility for wrecking the American economy and bringing about the worst financial crisis since the Depression."
I'm assuming that I qualify. In the free market, each individual bank would determine who gets a loan and who doesn't. Apparently the free market and common sense was not in play at the banks where loans originated. They were packaging and selling to the "free market".
I am trying to better understand how Fannie/Freddie dropped the ball on their #1 job: to keep the markets stable.
CLEARLY, this was not a case of banks pushing consumers into bad loans as some are trying to sell. Freddie/Fannie set the guidelines for federally backed loans, right? So was it us free market zealots or was it the policy makers mucking up the free market that caused this mess? Who are those policy makers?
"America has badly soured on the deregulate-deregulate-deregulate mantra of the Trickle-downers now that they've seen what it really does to an economy. Y'all are backing the wrong horse."
What I don't understand is that was REPUBLICANS and GREENSPAN in 2005 pushing for added regulations to Fannie/Freddie and the DEMOCRATS that opposed it. Is this not accurate?
I agree that the regulate/deregulate debate is not so important and that understanding the root cause of this is much more important. Someone made the decisions and put pressure on the decision makers to encourage risky loans to risky borrowers. Who was that?
Based on the information that is in the public domain about the financial meltdown, how can anyone figure out cause and effect. It is much too early. Too much finger pointing. Not enough work on timelines. We do not know how many more dominos will fall. Much too large and deep for people so far removed from the center of this hurricane to have any real idea of the situation. It will take the economic historians years to sort all of this out.
I look at what we are learning concerning the situation and to bring it home, I look at the CCNH disaster. No, they are not on the same scale, but there are parallels. Too many cooks in the kitchen creating the environment of easy finger pointing. Massive benign neglect and head in the sand policy/decision making. Many changes in personnel in charge over the long timeline. Lack of transparency. Lack of all parties talking with each other. Push by certain subsets to build a new nursing home/get everyone in the USA as a home owner. And when the tip of the ice berg surface, the rush to decision making because time is of the essence, even though any simple book on decision making states NEVER make a major decision under the pressure of crisis.
Pattsi Petrie
I can understand why you want to seize on this as a possible way of absolving core conservative Republican policy for its central responsibility for the current crisis. But there's a problem. It won't work.
Please post even a single example of a specific mortgage loan a bank was forced to make against its will by those evil Democrats. "We really don't want to make this loan, but the Democrats say we have to."
Just one example will do.
"Based on the information that is in the public domain about the financial meltdown, how can anyone figure out cause and effect."
Nancy Pelosi apparently had it all figured out before the vote yesterday. It was president Bush's policies, according to her. What policies?
"Please post even a single example of a specific mortgage loan a bank was forced to make against its will by those evil Democrats. "We really don't want to make this loan, but the Democrats say we have to."
Nobody is arguing this. Where do you pull this from?? The mortgage loan banks are able to originate risky loans and sell these loans on the "free market". A system was setup where there is no risk to a bank for making a risky loan, yet the originating bank still met the qualification criteria of Fannie/Freddie. The mortgage banks orginate the loans and sell it through the system that Freddie/Fannie (I think) oversees. Who was encouraging the stupid policies that promoted risky loans, and on such a grand scale?
Before the critical vote yesterday, Pelosi demonstrated her leadership style: "How did it sneak up on us so silently?" That is just shady.
BILL CLINTON: "Well, maybe everybody does that a little bit. I think the responsibility the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac."
Nobody is arguing this.
Nonsense. It's at the center of your argument. What else does "Someone made the decisions and put pressure on the decision makers to encourage risky loans to risky borrowers" mean? Banks were being pressured by elves?
Who was encouraging the stupid policies that promoted risky loans, and on such a grand scale?
Corporations exist to make profit. Nothing wrong with that, as long as they don't damage the economic ecosystem in the process. But Reaganomics is all about "screw the ecosystem, I'm in it for me alone, all that matters is my own profit." Regulations that allow these toxic loans to be disguised and sold off as mortgage-backed securities? Banks said, "Great! It doesn't matter that I'm creating these radioactive loans, as long as I can sell them to someone else. All that matters to me, as a good Reaganite, is my own ability to rake in money, and screw everyone else." But finally the level of background radiation in the economic ecosystem turned fatal. Demonstrating -- at a horrendous cost to this nation -- the basic flaw in Reaganomics: it only feels good at first.
I do have to give George Bush Sr. some credit,,,way back in the day,,he did call Reagan economic thoughts,,,,"Voodoo Economics"
"Banks were being pressured by elves?"
Banks weren't being pressured by anyone. They had nothing on the line. Those who set the standards were apparently being pressured...at least what I gather from Bill Clinton's statement.
"Banks said, "Great! It doesn't matter that I'm creating these radioactive loans, as long as I can sell them to someone else."
Yes. The system was setup to to encourage this, whether we like it or not.
"Corporations exist to make profit. Nothing wrong with that, as long as they don't damage the economic ecosystem in the process." If only if there was someone in charge of making sure that markets were stable. Who would that be?
"Regulations that allow these toxic loans to be disguised and sold off as mortgage-backed securities?"
After get through the Reaganomics rhetoric, I think we're getting to the root of the problem.
I guess the only thing that is certain is that every person with an agenda on either side of the spectrum is going to drag their favorite boogieman from the past 30 years out of the closet and parade him around some more.
Little guy gets shouted out by stooges and looses again.
I hope both parties implode.
Perhaps no one in this particular thread is arguing it right now, but talk radio for the past two weekends in a row has been ALL ABOUT the meme that what caused this was Political Correctness gone amok - the idea that the banks were forced to make loans to minorities who can't pay them back. In this fantasyland, the banks did not want to make the loans, but due to the terrible pressure of Political Correctness were unable to speak the TRVTH that everyone should know making loans to minorities is a bad idea. And yes, they are using every code word and loaded term in the book.
That's a different argument than the "well, someone left the cookie jar open so what else could we do??" or the "But Mom promised she'd clean up if I made a mess" ideas but it's certainly out there.
"but talk radio for the past two weekends in a row has been ALL ABOUT the meme that what caused this was Political Correctness gone amok - the idea that the banks were forced to make loans to minorities who can't pay them back."
LOL!
The problem with laying the blame at the feet of Fannie Mae is the singular vision which must be adhered to for this logic to work. There is an absence of historical understanding about the role of Fannie Mae, and how essential it has been to the development of the large (but now rapidly shrinking) middle class in this country. It was literally an "American Dream Machine" for almost 40 years, until the late 1960s.
What needs to be assessed, if we decide to lay all of the blame on Fannie and Freddie (F&F) - and this seems to be the conservative tactic of late - is what should be the role of these companies? What I find nauseating is this idea that Fannie Mae is, at its core, a fundamentally corrupt idea. That it needs to be eliminated and, therefore, government involvement in subsidizing and insuring mortgages should also be eliminated. This is simply not the case.
F&F need to be de-neoliberal-ized. They do not need to be destroyed (well, Freddie could probably be put to pasture). The deregulatory reforms that have plagued this economy since the Reagan Revolution are responsible for the problems at F&F. This is the piece of the puzzle the conservatives do not want to admit. F&F are not fundamentally flawed programs. Fannie worked perfectly for two generations. It is the toying with the rules of these giants that has caused these problems. Fannie should be restored to its original form and no conservative should ever be allowed to "reform" it again.
This is not a D or R issue. This is an issue between the New Deal Liberals and the conservative economists. Bill Clinton is a snake in the grass, desperately trying to avoid responsibility for his role in this crisis. It was Clinton who gleefully signed off on a plethora of deregulations during the "New Economy" 90s, most of which loosened the rules for the financial sector, resulting in drastic over-reaching and now economic disaster. These kinds of stunts are exactly the reason so many liberals went to Nader in 2000. Clinton's economic policies were completely conservative. He represented no fundamental change from the policies of Reagan and Bush Sr.
At the end of the day this country needs to return to fiscal sanity. The biggest potential problem right now is that conservatives will not (surprise!) own up to the fact that their economic ideology has led to this crisis. Most are particularly good and shifting blame to "Big Government" or some other such nonsense. They do this with fuzzy facts that only account for one small area of the problem. But they drill home those facts over and over again until they seem real. Right now it is Fannie and Freddie, and the CRA. Tomorrow it may be something else. But it will never be deregulation. And it will never be the core fundamentals of conservative economics.
And that is the problem. We cannot come up with solutions if no one is willing to agree on the nature of the problem. In the meantime, it will be spin-spin-spin, just like it was regarding Iraq after that myth was exposed.
Gee, you sure there was a bill in 2005 when I was talking about didn't happen? Well of course now Clinton talks about it and its real and the Democrats killed real reform of Fannie Mae when it would have helped. They didn't want reform because it was a back door for fundraising as the list of money shows from Franklin Raines to the democrats campaigns. Now Raines who was under an ethical cloud works for Obama campaign.
The vote was Pelosi’s to lose; she stood in the well of the house before the vote and attacked the republicans who she expected to vote for the bill. They had plenty of democrats who could have voted for that bill why they didn’t vote for it, because they wanted to protect them from possibly losing their elections. I think Pelosi knows once this issue is gone then Obama has nothing left to run on. I think McCain should hammer them for doing nothing on the crisis the Democrats created
Shorter D.Boon:
At this point, your arguments are completely divorced from reality. You're now resorting to inventing new definitions for vocabulary to make this situation fit your agenda. It's really quite funny.
D Boon,
I thought the role of F&F where to ensure market STABILITY of secondary mortgage markets to help provide liquidity and affordability. What am I missing? Someone thought that it is a good idea to offer high risk loans to high risk borrowers. Who was it? F&F? Policy makers? President Reagan?
You mention this is not a R/D issue, so couldn't we argue equally that the Ds are not stepping up to take responsibiliy. Rather than going there at all, can we just assume that nobody is stepping up to take responsiblity?
For the record, I don't think F&F should go away. I do think we should find out what motivated them to think that is was ok to make risky loans to risky borrowers and then allow these risky securities to be sold on the open market so easily.
Anonymous at 8:07 a.m.: Well said. How about doing an op-ed piece for the News Gazette -- if they will run it. It is amazing to me how the Republicans have tried to distill the Wall Street meltdown into an attack on Freddie Mac and Fannie Mae. If deregulation doesn't work, why the problem has got to be not enough deregulation. If the Republican economic plan cutting taxes for corporations and the rich doesn't work, why we've got to cut more taxes. Absolutely amazing.
"If deregulation doesn't work, why the problem has got to be not enough deregulation."
Can someone please explain to me how giving special treatment to one massive government-backed entity is now somehow the new definition of deregulation?
When the government creates special rules for only one actor in the marketplace, that's not deregulation.
When the government publicly ensures a market actor will never face any negative consequences of risk, that's not privatization.
If deregulation doesn't work, why the problem has got to be not enough deregulation.
Exactly. That's the GOP stand, "the hole I just drilled in the hull of my sinking boat didn't stop the sinking, so I must not have drilled enough in the right place. Drill drill drill!"
Can someone please explain to me how giving special treatment to one massive government-backed entity is now somehow the new definition of deregulation?
Ah, now we're back to the *purity* argument. The problem with deregulation was that it just wasn't *pure* enough. If only the Trickle Down Brigade had gotten everything they wanted, every last comma of it, *then* the whole thing would have worked marvelously, you betcha, you bet your emerald-colored glasses. If it weren't for those meddlin' kids!
"If the Republican economic plan cutting taxes for corporations and the rich doesn't work, why we've got to cut more taxes. Absolutely amazing."
....and drill for oil. : )
Apparently it was deregulation that was responsible for the instability in our market and not those responsible for keeping our markets stable. I'm having trouble with this argument.
Back when access to capital was way too easy, I remember thinking (1) there must be some good explanation and (2) someone much smarter than me can probably explain how this is a good thing. At the end of the day, apparently it was not the best idea to encourge high risk loans to high risk borrowers. It actually ended up HURTING "main street" and not helping it. Go figure.
"Ah, now we're back to the *purity* argument. The problem with deregulation was that it just wasn't *pure* enough."
The problem with you citing deregulation as the problem is that this wasn't even deregulation at all!
This was the government creating a market actor it could direct and then giving that actor special rules that didn't apply to private actors, while insuring that actor against loss. Deregulation is generally understood to mean less government interference in the marketplace. It's not about purity - this situation is in fact exactly the opposite of deregulation, in about four or five different ways.
Aaaarrgghghgh!
I think the real problem is that all of us, government, business and individuals, have been living beyond our means, and now the bill's come due. You can't continue to charge everything, whether it's a new coat, or a government program, and expect to just charge your way out of the problem.
"The problem with you citing deregulation as the problem is that this wasn't even deregulation at all!"
From my research, wasn't it the republicans and Clinton who were pushing for tighter regulations of F&F? How did this argument turn into some regulations/deregulation argument that can't descend below 20,000 feet? It's dissapointing to say the least. At least explain how deregulation caused this using a little more than a collection of soundbites... if that is really your argument.
"You can't continue to charge everything, whether it's a new coat, or a government program, and expect to just charge your way out of the problem."
One way of learning this is that you cannot get a home loan if you extend yourself too much. At least, that is how I thought it worked.
Gee, you sure there was a bill in 2005 when I was talking about didn't happen? Well of course now Clinton talks about it and its real and the Democrats killed real reform of Fannie Mae when it would have helped.
2005 -- Republican House, Republican Senate, Republican White House. The Democrats were being held on such a short leash by the then-swaggering Republicans they couldn't have passed a resolution proclaiming the day after Tuesday was Wednesday. Get real.
BILL CLINTON: "Well, maybe everybody does that a little bit. I think the responsibility the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac."
Maybe this just isn't true at all.
Grist for the mill:
http://www.nytimes.com/interactive/2008/09/29/business/20080929-CONGRESS-VOTE-GRAPHIC.html
Bill Clinton lies as easily as he breathes. Don't believe a word of it, he is doing exactly what conservatives always do: refuse to accept responsibility for their actions.
As I said before, the problem with this entire discussion is that IP and others want to limit the scope of the deregulation/not-deregulation argument to Fannie and Freddie. Thus, all of the laws that were passed that deregulated the markets are not important. Sure, everyone else thinks they're important, but conservatives don't because the whole focus of this message (coming to you from NRO, btw) is Fannie and Freddie, Fannie and Freddie, Fannie and Freddie, damnit!
This should be exhibit "A" for how conservatives muddy the intellectual waters so to avoid responsibility when their "ideas" fail. Notice the "special treatment" in the first one. IP is actually referring to laws that made F&F immune from common regulations, like SEC oversight. But that is not deregulation (even though it is actually an incident in which common regulations were not used, thus the "de") because everyone else didn't get the same treatment.
But let's keep in mind that Fannie and Freddie are the most important actors in all this mess. But let's also keep in mind that deregulation that affected them is not really deregulation. But that doesn't mean they're not the most important actor, it just means that their personal deregulation isn't deregulation because it didn't deregulate everyone who wanted to be deregulated.
Got that? Can anyone say, "Sarah Palin"?
Yes, IP my arguments are so ridiculous as to be laughable. Got it.
"But let's keep in mind that Fannie and Freddie are the most important actors in all this mess. But let's also keep in mind that deregulation that affected them is not really deregulation."
Enacting special rules that affect only one player in the marketplace isn't degregulation! It's the exact damn opposite of deregulation; it's the government setting one set of rules for F&F and a completely different set for all the other firms in the industry. It doesn't matter if those special laws were more strict or more lax - they were different, and that difference is a perfect example of government intervention in the marketplace. The government can't "deregulate" only one company in an industry. The very concept is lunacy.
Deregulation is the relaxation or removal of regulation on every actor in a given marketplace. All of them. Not just the relaxation of regulations on those created by the government.
The funny thing is that discussions like this, in which you invent new definitions of words and ignore whatever facts are inconvenient to your agenda, used to frustrate the crap out of me. Now this sort of thing just amuses me, as I realize that the responses I write aren't for your consumption as much as they are for anyone else who happens to be reading who might be interested in discussions based on generally accepted definitions and facts and reality and such.
Enacting special rules that affect only one player in the marketplace isn't degregulation!
It is if it deregulates that special player. Really, IP, you've lost this one. Move on to the next point.
"It is if it deregulates that special player."
Declaring victory with this inherently contradictory statement: priceless.
--
Glock21 Op/Ed
The Clinton administration and Congressional Republicans failed to establish a strong framework while Democrats pushed for riskier mortgage lending, in an effort to
expand home ownershiphelp "main street".I suppose we could just say "Deregulation" is the culprit.. It's the same thing, right?
"This should be exhibit "A" for how conservatives muddy the intellectual waters so to avoid responsibility when their "ideas" fail."
Can anyone say Sarah Palin? Exactly.
Newt and his "Contract on America" or was it "With America", may have played a small part in letting the horse out of the barn.
But let's also keep in mind that deregulation that affected them is not really deregulation. But that doesn't mean they're not the most important actor, it just means that their personal deregulation isn't deregulation because it didn't deregulate everyone who wanted to be deregulated.
No twisted view of neoliberalism could lead one to believe that deregulating a single business is equivalent to deregulating an industry (a fundamental view of neoliberalism).
http://politicalticker.blogs.cnn.com/2008/09/30/bill-clinton-the-star-of-new-mccain-ad/
How about this! : )
"It is if it deregulates that special player. Really, IP, you've lost this one. Move on to the next point."
Not a chance. You couldn't be more wrong. This is such a blatant abuse of the term deregulation that I will not let it stand.
"No twisted view of neoliberalism could lead one to believe that deregulating a single business is equivalent to deregulating an industry (a fundamental view of neoliberalism)."
Thank you!
So again we're at the *purity* argument. It's not *really* deregulation because it wasn't *pure* enough. *Pure* deregulation must, absolutely must, by definition absolutely must, affect all players -- if not, it's not *pure* deregulation and therefore IP gets to say it's not deregulation at all.
Let's assume this mess is the result of deregulation....explain how deregulation caused this in simple terms so us simple folks can understand it.
"So again we're at the *purity* argument. It's not *really* deregulation because it wasn't *pure* enough. *Pure* deregulation must, absolutely must, by definition absolutely must, affect all players -- if not, it's not *pure* deregulation and therefore IP gets to say it's not deregulation at all."
Actually, it's about common sense and just the tiniest bit of economic literacy. Special rules for an individual company have never been called deregulation. Deregulation as a term has always applied to entire industries or markets.
Don't believe me? Please go find me something written by any credible economist from the last 100 years which defines deregulation as the relaxing of regulations on only one company out of many in an industry. You can start with wikipedia's discussion of deregulation, although you won't find any references there to deregulation affecting only one company - rather, the term is used as it applies to industries and markets.
As an example:
Notice they don't talk about transportation deregulation as being something that applies only to American Airlines or only to Norfolk Southern. Communications deregulations applied to all the companies in the communications industires, not just AT&T. I could go on and on and on, as it really is just common sense.
Go ahead and find something that proves me wrong, though. I'm sure you must have lots of examples of economists discussing deregulation of individual companies in a given industry while ignoring the others. Right?
Aw, c'mon, IP, you're smarter than that. *Every* regulatory loophole granted any organization is a case of deregulation, and it's hiding behind word games to say otherwise.
http://www.merriam-webster.com/dictionary/deregulation
"explain how deregulation caused this in simple terms so us simple folks can understand it."
Here you go "The fox was watching the chicken house." Fannie and Freddie gave some of the BIGGEST and BEST parties for the political elected who in turn let them 'bend the rules' or not even apply them. Same senerio with the "rating" companies. Simple enough?
Michael Lewitt of Harch Capital Management provided this piece for John Mauldin's Investors Insight. While I have my doubts that any single plan represents "the" solution, I like Lewitt's understanding of the key elements -- restoring confidence, establishing a sufficient timeline, and ensuring that the solution will have some permanence. Here are the key excerpts:
"A successful plan must address the following elements:
Here's the plan as proposed by Lewitt:
Chew on that.
My apologies for the poor formatting...
Well, I am sitting in Washington, DC right now. During a walk today, I picked up the newspaper, Politico. There are some interesting facts and articles. None of which are on the topic as to why this happened--though I still argue having this discussion right now is nothing more than spinning wheels since we do not have all of the information.
Here are some of what is happening here. First go to Lou Dobbs web site where the congressional phone number is posted. Flood the switch board with your comments because the Senate is going to vote on the bailout tomorrow afternoon. This is too bad because two representatives have put forth an alternative that will have no cost to the taxpayers, but the House will not be back in session until after the Jewish Holiday on Thursday. All of our favorite senators are leaving their campaigns to vote tomorrow and are supporting the bailout when the alternative makes a whole lot of sense.
Back to what I have read in Politico--a break down of the House vote--74 is the number of house members who won 55% of the vote or less in 2006--of those 25 voted in favor of the bill and 18 voted in favor of the bill who are not retiring. 42 is the number of Democratic freshmen elected in Noverber 2006, of this number 20 voted in favor of the bill. 13 is the number of Republicans freshmen elected in Noverber 2006, of this number who voted in favor of the bill is 0.
Seems the Chamber of Commerce has taken an offense against the bailout defectors. An email was sent to all of the law makers. Message sent by chamber--"KEY VOTE ALERT" "Make no mistake. When the aftermath of congressional inaction becomes clear,m Americans will not tolerate those who stood by and let the calamity happen." "The chamber will score votes on, or in relation to, this issue in our annual How They Voted scorecard," read its closing underlined and bold-printed final sentence. The implicit threat: A bad rating on that scorecard could mean a loss of campaign cash, direct mail and any other help the deep-pocketed Chamber can deliver to lawmakers in tight races.
To me all of the above are today's examples that we in the midwest have absolutely no idea just what is happening her in Washington now or in the previous years.
Pattsi Petrie
"... we in the midwest have absolutely no idea just what is happening her(e) in Washington now or in the previous years." You are correct Pattsi, however the opposite is also true---Washington has absolutely no idea just what is happening here in the midwest. Or maybe they do but their primary focus is either on the two or six years of money raising needed to get re-elected.
Please just listen to B is for Business. I do not understand why everyone seems to have so much of a problem with this simple concept. If a bank can make money by servicing a Freddy or Fanny mortgage at no risk, why wouldn't they. Freddy and Fanny were also the one to make the foreclosure decisions too. On every file that came to my office for foreclosure the bank noted whether it was a Freddy or Fanny quarantee. If it was, I made the banker ask Freddy and Fanny what they wanted to do. If the bank didn't follow what they said, they were on the hook, if they did, they weren't. This is not a bank failure, this problem was caused by loosening up the debt to equity ratio so that subprime borrowers could buy a house they could not afford.
I will tell you why the "chicken's are coming home to roost" now. Many of these subprime loans were amortized over a 30 year period, but contained a 15 year balloon. In the early days of doing this (before 2000) the attorney generals did not crack down on this practice. The attorney general has levied several fines and restraining orders against such a practice. (See Mercantile Mortgage and Ron Noble)
If it wasn't obvious I should add to my last post that now that the debt exceeds the equity, these borrowers cannot get financing.
To lay this at the feet of "poor people" (which is code for "black people" if you're Limbaugh or one of his worshippers) is ridiculous. It wasn't "poor people" who took out $500,000 interest-only mortgages and kept refinancing to pull an additional $100,000 every year out of their Orange County tract homes. I know the Republican strategy is to blame Bill Clinton for everything, no matter how ridiculous one looks in the process, but the fact is this: mortgage brokers and bankers made a ton of money making bad loans and dumping them off on Fannie Mae and Freddie Mac. Mortage brokers and bankers make a heck of a lot more campaign contributions to Congress than poor people make to Congress. So it's 100% correct that it's Congress' fault, but I guarantee it wasn't poor people who were twisting Congress' arm to keep the no-documentation, no-credit-check, no-questions-asked gravy train rolling. I suppose there may be still be a few Reagan apologists who actually think deregulation leads to spontaneous acts of morality and self-regulation on the part of corporate America, but anyone with half a brain knows the truth by now: Congress is easy pickings for profiteers who are willing to kick back 1% of the profits from their criminal enterprises to Congress in the form of campaign contributions. The bankers making toxic loans on ridiculously overvalued properties with unsustainable debt-to-equity ratios knew exactly what they were doing. The executives of Fannie Mae and Freddie Mac who took these toxic loans and threw them onto the taxpayer-backed pile knew exactly what they were doing. The investment banks that tranched the toxic loans into mortage-backed securities knew exactly what they were doing, and the insurance companies that wrote credit default swaps against the holders of the toxic debt knew exactly what they were doing. What they were all doing was making money hand-over-fist, and bribing Congress to stay out of the way. The government would need to build ten new Federal prisons to accommodate all the people on Wall Street, Main Street, and Capitol Hill who deserve to be serving life sentences for their complicity in this disaster.
The funny thing is that discussions like this, in which you invent new definitions of words and ignore whatever facts are inconvenient to your agenda, used to frustrate the crap out of me.
God, why do I bother. Look, here's what you are doing
BUT ...
In other words, you're not making sense here. F&F are huge behemoths who ruined everything but the fact that *they* were deregulated means nothing because the S&L down the street wasn't. F&F weren't deregulated so deregulation plays no part in this crisis at all. Forget about the repeal of all those nifty laws that were designed to keep stuff like "securitization" from happening. Completely irrelevant! Fannie and Freddie, Fannie and Freddie, Fannie and Freddie damnit!
What-ever.
"God, why do I bother."
I kinda feel the same way, except I keep going because you insist on abusing the English language so badly.
Let me repeat, since you keep ignoring it: removing the rules for one company in a market isn't deregulation, as much you keep hoping and praying it is. Removing the rules for one company is exactly the type of direct government intervention which created this problem. It is the exact opposite of limiting government's involvement in the marketplace.
I know you have your boogeymen. Capitalism and free markets and Republicans and conservatives and choice and deregulation are all things you are absolutely convinced are intrinsically evil (almost as evil as those misguided souls who support them.) As a result, you work very, very hard to make all bad news attributable to your boogeymen, even if it means you have to create new meanings for words or completely ignore reality.
It is impossible to "deregulate" a single company in a marketplace. Doing so is the exact opposite of the traditional, accepted-by-everyone-except-for-you concept of deregulation. If you disagree, please show me any serious economic literature which discusses deregulation as a policy which applies to only a single company in a marketplace.
When the government singles out one company and gives them different, special rules and reassures everyone that this special company never needs to worry about taking risks, that's not an example of limiting government's involvement in the marketplace. It's the exact opposite. It is direct government interference in the free market, and when things get badly enough out of equilibrium, it leads to the uncertainties we're seeing now.
The point is the banks had no risk because of the Clinton Administrations regulation change which allowed subprime borrowers to borrow up to 100% on the equity of the house. Subprime borrowers have a much higher default rate. This is why interest is higher. In 2000 when a normal borrower might be paying around 8% + or - 2%. a subprime borrower was paying 14.3 or so. (based on a case where I am currently a plaintiff- but unrelated to this issue). When a default occurred, the Bank did not care because there was this Freddy or Fanny guarantee, so that the only loser was Freddy or Fanny. But Banks would not get into these loans unless there was such a guarantee. It was the public policy that loosened up the regulations to allow this and the incompetance of Freddy and Fanny in telling the banks what they had to do to keep the loan guaranteed. Where is the fault of the bank? All the bank is essentially doing is servicing the loan (for a fee) for Freddy and Fanny. You cannot lay this at the feet of "free market", at least not Freddy or Fanny.
There is another factor that you need to consider. Try this. The interest rate to a borrower with an A credit score gets a lower rate than a B credit score because an A will default less than a B. Let's take a hypothetical market place for houses. A credit is 8% and B credit is say 10%.
Q. 1- Assuming that the bank had 100 house loans for 10m for both A and B credit. Do the Bank's make more off their A loans or B loans? Assuming that the credit scores are properly determined, we would expect the bank to make the same profit from each. The banks are simply trading default for interest rate.
Q 2- Assume the same facts as in Q1, but now have the government come in and quarantee both the A and the B credit applications. Which loans will make the bank more profit? Now you have taken the default trade off out of the equation. They are going to do as many B loans as they can, because in a capitalist country like this, corporations attempt to make the highest profit that they can for their shareholders. This is their job.
Q3- Assume that all A and B credit loans in the above examples are written a few years at 80%. Assume the value of the entire housing market drops by 10%. Would you expect the same profit to be made from all A and B loans under the facts of question 1. You would make the same profit because although the b's will default more often, they bear a higher interest rate to balance them off. (same as question 1)
Q4. If the government quarantees all the loans (assuming the facts of q2) no one is harmed on a 10% drop with a 20% cushion.
We have established (Q 2) that banks will prefer the highest interest rate they can get from Freddy or Fanny. But Freddy and Fanny do not write all the loans. Freddy and Fanny has reduced the supply of both A and B loans but there is still a market out there for the rest of them. What Freddy and Fanny's actions have done is to change the balance of the ratio between A and B loans defined by the credit risk. A now does not equal B for profitability because Freddy and Fanny have effectively changed the credit scores for A and B credit through their market actions. They have changed the balance between supply and demand through their misuse of their regulatory power. It didn't matter when there was plenty of equity to protect the loan, but as soon as the there was not this equity available, we had problems. The fault was not so much that the banks or Freddy wrote bad loans, the problem was that their was not sufficient equity to protect against the default.
IP - You've explained the same point quite thoroughly several times now. The same point. Over and over again. You've ignored everything else, any other attempts at the logic surrounding this simple point. Just going to repeat the same point over and over again. The same point. Over and over again. The same point.
I get it, I really do. It's not deregulation if it is only one company.
And I'm a poopy head who hates everyone because I don't agree with you. Oh, and I'm stupid. Got it.
What about the repeal of Glass-Steagal? Didn't that effect more than one company? What about securitization? Are you seriously claiming that was all caused by Fannie Mae? What about the stagnating staff levels at the SEC? Isn't that obvious proof that oversight of the financial industries was lax, at best? What about ...
You know what? I think I already know what you're going to say ...
Fannie and Freddie. It's not deregulation if it is only one company. Fannie and Freddie. It's not deregulation if it is only one company. Fannie and Freddie. It's not deregulation if it is only one company. Fannie and Freddie. It's not deregulation if it is only one company.
They've taught you well, Young Excusemaker.
You've ignored everything else, any other attempts at the logic surrounding this simple point. Just going to repeat the same point over and over again. The same point. Over and over again. The same point.
Project much?
Today the Institute for Policy Studies released A Sensible Plan for Recovery. The report can be accessed at http://www.ips-dc.org/reports/ www.ips-dc.org
Pattsi Petrie
What I previously thought of as tin foil is now starting to seem positively real.
I have been asking myself, self, why does Bush say he is going to veto any bailout bill which does not allow the US Treasury to buy up bad FOREIGN bank assets?
Self, why are both McCain and Obama so strongly for passing this hugely unpopular bill which so clearly fleeces the tax payer (who is opposed to the bill at a ratio of 300:1)?
Self, why do the actions and words of the politicians make it seem like I am not getting the whole truth?
Self, what did Paulson REALLY say to the congresscritters behind closed doors to scare them into a state of mind?
I was ridiculed when I suggested a while ago that the Chinese are holding a gun to Paulson's head, was told they don't have that kind of leverage, they need us more than we need them, etc. etc. ad nasuem.
What I think is happening is that China has told Bush and Paulson that they will no longer fund our debt load, if we do not pass this bail out in its current form.
That's what's happening. That is economic warfare.
We are gonna have two choices:
1. Pass bailout, China and other creditor nations dump a ton of junk paper on our books and pump us for another $10 trillion on top of what we are already buried under. US becomes the world's debt dumping ground, eventually defaults. Bucky ($) dies. WWIII, gates of hell open, total protonic reversal, etc etc
2. Don't pass bailout. China and other creditor nations (but especially China) fall on their own swords and stop purchasing T's and begin to unload the ones they already have. WWIII, gates of hell open, total protonic reversal, etc etc
I think this has gone from being 1929 bad to being 1864 or 1776 kind of stuff. I can seriously start to envision a world fast approaching where States begin to secede to try to get out from under the actions and liabilities of the federal government.
People are going to start to question the legitimacy of a federal government which has totally lost control of its economy and foreign policy matters.
Yes i know it sounds like tin foil and black helicopters, but almost noone would have believed just a year ago that we would be witnessing the things we are seeing today.
"Fannie and Freddie. It's not deregulation if it is only one company. Fannie and Freddie. It's not deregulation if it is only one company. Fannie and Freddie. It's not deregulation if it is only one company. Fannie and Freddie. It's not deregulation if it is only one company."
Keep repeating it often enough you can have that warm and fuzzy feeling others enjoy by not being wrong.
--
Glock21 Op/Ed
"What about the repeal of Glass-Steagal?"
It is fantastic that the people who are saying that deregulation is culprit and then arguing semantics instead of backing their position. Obama says "deregulation" and his followers blindly repeat the soundbites. So explain how the repeal of GS caused this. I'm sure there is good justification, but us normal folks are willing to try and learn how exactly this happened.
Why did the repeal of GS cause this? How did the repeal of GS open the door for idiots to encourage high-risk loans to high-risk borrowers? Could it be the same people who are pushing for more regulation are actually the ones who encouraged high-risk loans to high-risk borrowers?
I'm going to set the house on fire and then arrive in the firetruck to save the day and then blame the person who made it possible for me to buy the fuel.
On the other hand:
- It could have been corrupt banks who conspired to give radioactive loans.
- CEOs pay is much more important than admitting that high-risk loans to high-risk borrowers across a huge system wasn't the best of ideas.
- If regulation was in place, it would have prevented those from encouraging high-risk loans to high-risk borrowers even though it was those typically on the side of deregulation who were pushing for tighter controls since the Clinton Administration.
So Fannie and Freddie are now one company. I'm not buying this new definition nor is anyone who even remotely knows the housing industry.
Sorry, LV. You just don't get it. And you're making up terms, and stuff. I am so shocked that you would dare to point out that F&F are two companies (do you not know the meaning of the word company?) that I am now laughing at how little you know compared to me.
</sarcasm>
For a primer on what has been going on, I would suggest:
Should I go on? This is not a topic that can be easily explained by cutting and pasting sources, regardless of what IP and the other excusemakers would have you believe. The economy is extremely complicated and the deregulation has been wide and deep over the last 30 years. Pointing out one company, or arguing over the definitions of words is a convenient ploy to distract attention away from what is really happening. The myths of neoliberalism have been exposed as lies repeatedly over the last five years, just as the myths of neoconservativism have also been exposed as lies. The problem is that conservatives and "liberals" who believe this myths can't bring themselves to see the train wreck in front of their eyes.
Thus, the "fundamentals are strong", or as IP put it last week, "this is not a big deal".
In other words" Just keep moving ... nothing to see here. Look! Over there! Isn't that Obama's former pastor? My gosh! He said something unpatriotic! See? See? He hates America!
Sigh.
"And I'm a poopy head who hates everyone because I don't agree with you. Oh, and I'm stupid. Got it."
Nah. You're just desperate to assign every bad thing that happens to one of your favorite boogeymen, regardless of whether the facts fit your agenda.
"Thus, the "fundamentals are strong", or as IP put it last week, "this is not a big deal"."
First, you should pay more attention to your hero: “After this immediate problem, we’ve got the long-term fundamentals that will really make sure this economy grows.” I assume you would never vote for anyone who could say such a thing?
Second, I don't think I ever said, "this is not a big deal." I certainly can't find it anywhere on IP.com. I assum you mean that because I oppose a $700 billion boondoggle, that I must think the "crisis" isn't a big deal. I won't comment on yet another example of your sterling logic, but I must say that opposing government intervention as something that will make a bad situation worse isn't the same thing as denying that the situation is bad in the first place. I just happen to think that the bailout will make things worse in the long term. Unlike you, I don't think the government getting even more involved will make things better, because it rarely does, and because I think the government (under both Dems and Republicans) is largely responsible for the problem in the first place, between regulations unevenly applied, awful regulations, and direct intervention.
"Project much?"
Thank you again.
Anonymous 9:43--in what world is the phrase "poor people" code for black people? The examples that you cite don't necessarily hold up--the reason that people could pull equity out of houses that they ultimately couldn't afford is because the real estate market continued to rise. As long as that happened, there was value against those loans. Once real estate dropped, they were upside down on the loans and losing their houses. This is simple speculation on their part. This is the same thing that happened back in the 70's and early 80's--I saw plenty of farmers who bought land with 18% loans--when the land did not continue to rise, and the banks called in their loans, you saw lots of farm sales, bankruptcies, etc. This is a systemic crisis with plenty of blame to go around--not just the fault of the evil Republicans.
"This is not a topic that can be easily explained by cutting and pasting sources, regardless of what IP and the other excusemakers would have you believe. The economy is extremely complicated and the deregulation has been wide and deep over the last 30 years."
During the housing boom, those of us non-"intellectual" types were scratching our heads wondering how this could be a good thing in the end. Such easy access to capital causes prices to rise. Risky loans would be ok because housing prices always go up, right? How can this be? What if prices actually...just maybe...go down? The enconomy is too complicated..... I will no longer buy that the economy is so complicated that stupid ideas stop being stupid. Apparently, stupid does in fact mean stupid.
In the end it appears that it actually wasn't "intellectual" to encourage risky loans to risky borrowers. I admit...I was thinking there must be some good reason behind this all that I could not explain. Nope.
On more time: D - E - R - E - G - U - L - A - T - I - O - N.
...in what world is the phrase "poor people" code for black people?
Actually, the Rightiest of the right wing has dropped the "poor people" code and is now out-and-out saying it's all the fault of the blacks and Hispanics. Oh, yes, and the queers. My guess is that the Jews would be in there too except everyone knows (a) they're all too busy running Hollywood and (b) that would be too 1930s to say openly.
"Actually, the Rightiest of the right wing has dropped the "poor people" code and is now out-and-out saying it's all the fault of the blacks and Hispanics. Oh, yes, and the queers. My guess is that the Jews would be in there too except everyone knows (a) they're all too busy running Hollywood and (b) that would be too 1930s to say openly."
Clearly my intellectual focus does not have any legs.
Here is something for you, B is for Business:
Well, people respond to incentives, and so the banks responded to the incentives the government provided. They wrote bad loans, to avoid trouble with the regulators, and secure in the knowledge that Fannie and Freddy would take up the slack if things went south.
This line is so ridiculous as to be laughable. They wrote bad loans to avoid trouble with regulators? Yeah, that whole get-quick-rich mentality that was pervasive in the mortgage securities industry since the destruction of Glass-Steagal had nothing to do with it. These were just upstanding bankers who were forced by the government to deal loans like cards at a Texas Hold 'em game on Friday night.
Please. IP - do yourself a favor and listen to "The Giant Pool of Money". Listen to the people who were actually responsible for the whole thing explain how it all went down. Please?
This is what markets do. They always have. They are run by human beings and they are designed to exploit the greediness of the average human. Nowhere else in the world will you find people who will argue so passionately against rules than in conservative economic circles. Nowhere else will you find people to eager to tap into one of the worst human qualities (greed) in order to create wealth. Conservative economics comes down to this: let the greedy be really, really greedy and we'll all be better for it. Take away the rules, take off the leash, and let the dogs out. And we'll all be better for it.
Well folks, the verdict is in. You can't find much more raw greed than what has been exhibited in the financial markets over the last ten years. And here we sit.
"There was a failure, such as relaxing the leverage ratios of the investment banks from 12:1 to 30:1. That was simply a bad idea."
I personally think that keeping at 12:1 was pretty stupid if we were going to be encouraging high-risk loans to high-risk borrowers.
"Ah, but comply with the mandates, and write bad loans, and if things got tough, there was Freddie and Fanny, who were keen to buy those bad loans off you."....."They only create the incentives. And hold a gun to the banks head to comply with them."
This is just disturbing.
So Fannie/Freddie package these loans and sell them on the secondary market. Investors probably think they are low-risk because Fannie/Freddie are the to ensure......STABILITY. Whoops.
The market responds in the end and people will dump crappy holdings. It seems the system works in the end once the system sorts out all the crap thrown into the system to fight the system. : )
"Well folks, the verdict is in. You can't find much more raw greed than what has been exhibited in the financial markets over the last ten years."
Just over the past 10 years?
one of the worst human qualities (greed)
I completely disagree with this view. I'm guessing that's why we have completely opposite views on the subject.
I think Gekko said it best...
"Nowhere else in the world will you find people who will argue so passionately against rules than in conservative economic circles."
Wasn't it the republicans and the clinton administration who were pushing for more "rules" so we weren't encouraging high-risk loans to high-risk borrowers?
For the record, I am against STUPID AND UNECESSARY rules that encourage high-risk loans to high-risk borrowers.
"This line is so ridiculous as to be laughable. They wrote bad loans to avoid trouble with regulators? Yeah, that whole get-quick-rich mentality that was pervasive in the mortgage securities industry since the destruction of Glass-Steagal had nothing to do with it. These were just upstanding bankers who were forced by the government to deal loans like cards at a Texas Hold 'em game on Friday night."
So regulations like the Community Reinvestment Act have had no effect on lenders' behavior?
I'm amused that you seem to think that regulations have little-to-no effect, yet you seem to think this problem could have been avoided by more regulations.
"They are run by human beings and they are designed to exploit the greediness of the average human. Nowhere else in the world will you find people who will argue so passionately against rules than in conservative economic circles. Nowhere else will you find people to eager to tap into one of the worst human qualities (greed) in order to create wealth. Conservative economics comes down to this: let the greedy be really, really greedy and we'll all be better for it. Take away the rules, take off the leash, and let the dogs out. And we'll all be better for it."
I forgot that you think when somone acts in their own self-interest that it's greedy. That explains a lot.
Well, since you think greed created the problem, all you need to do is make it illegal for people to act in their own self-interest. Good luck with that.
Quick question: Can someone explain to me, as precisely as possible, how the repeal of the Glass-Steagall act created the recent housing bubble (the bursting of which is a, if not the, prime trigger for the current credit crisis)?
One more thing, somewhat OT: former Pres. Clinton agrees that the banking industry was still heavily regulated in the wake of repealing Glass-Steagall in 1999.
HG
I'm amused that you seem to think that regulations have little-to-no effect, yet you seem to think this problem could have been avoided by more regulations.
I'm amused that you think every regulation is exactly the same. That there is no difference between good and bad regulations, or the extent to which regulations impact the economy. Yes, this is Simple Land, where a regulation that pushes a small percentage of mortgages toward the poor is just as important (in fact, far more important!) as a law that allows banks to underwrite and trade mortgage-backed securities. You bet.
I forgot that you think when somone acts in their own self-interest that it's greedy. That explains a lot.
Oh, it's not me. Some famous economist (obviously an idiot like me) once said that Wall St. runs on two things: fear and greed. But again, he obviously didn't understand the financial sector as well as a local blogger who gets his talking points from Jonah (I don't know the difference between fascism and socialism) Goldberg.
Can someone explain to me, as precisely as possible, how the repeal of the Glass-Steagall act created the recent housing bubble (the bursting of which is a, if not the, prime trigger for the current credit crisis)?
This is very easy to explain. Glass-Steagall made it illegal for a bank to underwrite stocks or, in this case, mortgage securities. They had to just be a bank, and lend money to people, or be a brokerage and do investments. The reason for the law is that many banks had a huge conflict of interest when they promoted to borrowers certain stocks that the bank would be heavily invested in. Or, in the recent examples, banks were encouraging their customers to take out loans that they couldn't afford because many of the banks were selling those loans in the mortgage securities market. They were looking for suckers, basically, because suckers made the securities market go up.
It was actually Greenspan (I think) who began this process in like, 1995 when he allowed banks to have 25% of their business as underwriting of securities. And that explains Bill Clinton's tap dance about how he (surprise!) is not to blame for any of this stuff. When, of course, his conservative economic positions are exactly to blame for most of it.
I don't know if that helped. There was a great Frontline episode a few years ago that went way into this stuff. I don't remember what it was called, but it had to do with Spitzer and the work he did in NYC dealing with the rampant fraud that was taking place after GS was repealed. It is worth searching for if you can find it.
Like I said earlier, this is complicated stuff. Do your best to not get suckered into believing that there is an easy answer or place to lay blame. Neoliberalism is to blame, imo, but that is a huge concept that encompasses dozens of industries and hundreds of laws that have slowly deregulated large swaths of the economy over 30 or 40 years. It is an entire mindset that must be changed. Greed is not good. No rules, not limits are not ethical statements. Our ancestors understood all of this very well and worked carefully to craft laws and regulations that were designed to protect us, their posterity, from ever having to suffer as they suffered in the Great Depression. The neoliberals have pissed all over those efforts, thinking themselves smarter and more enlightened than their predecessors. And now we are in deep doo-doo because (guess what!) our grandfathers weren't so stupid after all.
Cheers!
@D. Boon: Thanks for the (admittedly) brief paragraph on Glass-Steagall. And do I ever understand how complicated this matter is; I've been reading consistently on it since the Bear Stearns collapse, and I'm about, oh, 10% conversant (I think, maybe, on a good day)...
To your point: if I understand you correctly, repealing Glass-Steagall allowed too many institutions to get involved in mortgage-backed securities, thus spreading the "virus" of bad mortgages around to a number of players; when the housing market bubble burst, too many players were holding crappy securities ("bad paper", if I'm understanding the term correctly...?) that were divided so many times over, few, if any, people knew the actual value of the mortgage.
Again, if I'm understanding you correctly, repealing Glass-Steagall essentially opened the faucet (housing boom) even wider than it was previously (housing bubble). Correct?
HG
I forgot that you think when somone acts in their own self-interest that it's greedy. That explains a lot.
Well, since you think greed created the problem, all you need to do is make it illegal for people to act in their own self-interest. Good luck with that.
Well, I'll be happy to remind you--when people act in their own self-interest in blatent disregrad for others' well being, that's "greed".
Of course you can't make it illegal for people to act in their own self-interest. You could however--as many societies do--teach people that there are alternatives to being a raging ego-maniac; many of which feel a lot better than being self-absorbed.
Furthermore, without making it illegal to be greedy, you still don't have to based the entire economy and social hierarchy on greed.
I don't understand this extremism--thinking you are the only important force in the universe is cute when you are one, but by two, most people agree that's it's "terrible". Why is this still a question at 45 or 60?
HG - GS was all about not letting the people who do credit also do investments. The idea is that a bank should only be concerned about the credit worthiness of its borrowers. In other words, is this person sitting in front of me capable of paying back this loan, or not? GS mandated that banks could only really do one thing: dispense credit.
Taking away GS allowed banks (the creditors) to intermingle with securities (investments). Thus, now you have banks whose sole purpose is no longer, "is this person credit worthy". Instead, there is a very real understanding that the bank is packaging and selling mortgage-backed securities. So it doesn't really matter if this person is credit worthy - the bank is still going to make money off of the loan on the securities market.
Once upon a time the idea was that a bank should only concern itself with lending, and a brokerage house should only concern itself with investing. The neoliberals tried to convince us that this was holding back the Invisible Hand of the market, and that allowing mergers of banks and brokerages, and their intermingling would be great. Maybe not so much.
Thank you, Thomas Frank:
Again, I encourage people to really educate themselves about what went on here before eagerly consuming the NRO's garbage about Fannie, Freddie, and the CRA. When people like IP try to convince you that the brokers at Bear Stearns didn't care about handing out crappy mortgages "because they knew Fannie and Freddie would buy them up" ask yourself this: where is Bear Stearns now? In fact, where are almost all of these mortgage houses now?
They're belly up. So apparently the whole "Fannie and Freddie will say us" idea didn't really play out so well. To think that the incredibly intelligent (but incredibly greedy) SOB's who dealt these mortgages are perfectly happy losing their jobs is ludicrous. Nobody thought it would ever come to this, because the believed in greed. They believed in the invisible hand. They believed in neoliberalism.
These are the excusemakers at work. They are trying to convince you and this is just a blip that can be cured by a return to the market fundamentals that screwed us in the first place.
Don't believe it for a second.
Plus this from the WSJ: What They Said About F&F:
Facts are stubborn things.
http://blog.heritage.org/2008/09/22/the-glass-steagall-myth/