Playing the blame game in the Wall Street crisis
The current financial crisis proves the maxim that there’s no free lunch—or rather, there may seem to be a free lunch, but the bill is merely deferred, and ultimately it comes due with interest. How is it that all these oh-so-smart people didn’t see that? I guess they just got too hungry, and the aroma of lunch smelled awfully good.
As for blame, it’s not a Democrat or Republican thing. The history of how this happened is lengthy, complex, and bipartisan. I’ve done quite a bit of cramming on the subject in the last twenty-four hours, and I was going to try to summarize it—but that’s, as someone recently said, above my pay grade.
But here’s a very small attempt. As best I can piece it together, the process of deregulation began at the tail end of the Carter Administration. Reagan continued it, with Bush I bailing out the offenders during the Savings and Loan Crisis, an act that reinforced the idea on the part of management that risky behavior wouldn’t have such terrible consequences because the government would provide a safety net (Fausta has some opinions on this subject).
In 1999, Clinton signed a bill that repealed the Glass-Steagall Act. The latter had been in place since the Depression (see here for a timeline), and the combined action of Congress and the President helped pave the way for the current crisis by ending many of the divisions between commercial and investment banks. The repeal was a result of years of patient Congressional lobbying by the banking industry.
With the proliferation of subprime mortgages in recent years, neither the Republican Congress of the early Bush years nor the Democratic Congress of the last two seem to have had the foresight to see problems coming, and/or the will to do anything about it, and/or the knowledge of what actions might be helpful. Plus, they were getting money from the entities involved—and this includes prominent Democrats, prominent among them Barack Obama.
And yet Obama intones “eight years,” as if the problem began with his nemesis George Bush and is due to no one else. This is self-serving political garbage rhetoric at its worst.
Actually, Obama’s preliminary recommendations to deal with the crisis seem quite similar to John McCain’s. But the tone of their statements is quite different.
Obama’s response has not only been more partisan, it is also more alarmist. Felix Salmon of Finance Blog compares and contrasts the candidates’ statements on the crisis, and Obama’s comes up short in more departments, including one area I had also noticed: Obama has publicly labeled it “the most serious financial crisis since the Great Depression.”
So far it isn’t. But if Obama keeps talking like this, he might do his bit to contribute to its ultimately fitting that definition.
Obama would do well to remember that it was a fellow-Democrat who understood the principle that investor panic can make these things a great deal worse, and who said as much during that Great Depression, “The only thing we have to fear is fear itself.”
Obama is reckless to speak as though a such a catastrophe has already occurred, drumming up fear rather than attempting to calm it through a realistic appraisal of what we are facing right now.
McCain, on the other hand, attempted to reassure Americans that, despite the need for reform and the fact that we are going through a very difficult period, the “fundamentals of our economy are strong” (something even the NY Times seems to believe—and they also write that the origins of the problem are bipartisan).
And yet Obama saw fit to criticize McCain’s statement of faith in the basis of our economy in order to try to paint John McCain as seriously out of touch. This is the Obama who wants us to come together, and presents himself as post-partisan? It would be almost funny if it weren’t so serious.
[ADDENDUM: Here’s more of the contribution of the Clinton years.]
Obama is desperate to divert attention away from the Sarah Palin “thing”. Attempts by the MSM to smear her have been largely unsuccessful. Obama seems to have forgotten his message and is seizing on the financial meltdown to energize his base and convince undecided voters that, like every other problem in the universe, George Bush created it and John McCain will continue the process of rewarding the wealthy while robbing the middle class.
Pingback:The Rhetoric of Crisis | curtis schweitzer (dot) net
lately I have heard all the financial reporters (from all TV and radio sources) use idiotic language. When the market drops a couple of hundred points one day they say that it has “plummeted” but when it recovers the next day I never hear them say it “skyrocketed” . A couple of days ago when the market had a very bad day they talked about the huge losses – one of the biggest single day drops in history. As usual, though, like with gas prices, the mere figures belie the true story. I think that the similar loss back in 1987 constituted 22% of the market value. The loss of a couple of days ago only 4%.
I’m not a conspiracy type guy, but never mind the “sub-prime” loans – when you see loans being made ( by supposedly reputable lenders ) to people with no jobs and no credit ratings then it seems that some hanky-panky may be going on as the loans get sold up the pipeline to where they are finally guaranteed by Fannie and Freddie. Meanwhile the guys at the top walk away with millions for virtually running companies into the ground and leave the taxpayers with the bill. I feel sorry for the employees at Lehman Bros. I hope they didn’t have all their retirement funds invested in the company stock (like the folks at Enron). So maybe I am not a conspiracy theorist but a Collusionista .
The thing that scares me about all this is the entre it gives the government (often with the public blessing) to go in and screw things up even worse. I think things need to be done, but I’m not for over-regulation. One thing that might be considered is to prohibit CEOs of any corporation from sitting on the board of directors of another corp. Break up the “vote me a big compensation package and I’ll vote you one” gang.
“This is the Obama who wants us to come together, and presents himself as post-partisan? It would be almost funny if it weren’t so serious.”
Obama’s post-partisanship will reassert itself AFTER the election.
To achieve bipartisanship, all that will be required is for republicans to ‘see the light’ and fully cooperate in the implementation of the far left’s agenda.
Then he will lead us into the promised land.
“Obama has publicly labeled it “the most serious financial crisis since the Great Depression.”
Always with the breathless fearfull messages of dispair. Deeply cynical and manipulative. I recognize the old Clintontonian play-book.
Gads; I sound like badhaikumenter.
For your quick study:
1) a ‘crash course’
http://www.chrismartenson.com/three_beliefs
2) some key concepts presented efficiently
http://www.amazon.com/Economics-One-Lesson-Shortest-Understand/dp/0517548232/ref=sr_1_1?ie=UTF8&s=books&qid=1221579467&sr=1-1
In the case of the banks who successfully lobbied for fewer regulations between the divisions, they are simply reaping what they sowed. Fewer regulations, fewer protections. Unfortunately, the ones who should pay (and I mean financially, not prison time), are most like to escape scot free. There should be a repayment of assets to those who lost the most, starting at the bottom. Trickle up would have the most effect on the economy, plus punitive damages against those who were were responsible. Again, not jail time. Actual monetary damages charges against their personal assets, no matter where they reside on or off the planet.
The private / commercial banks diid nothing criminal.
The criminality was with Fannie Mae. They cooked the books in the early 2000s and Congress was complicit.
It was our govt that created this mess.
Hi Neo,
I’m afraid your analysis is mostly beside the point. Larger forces are at work which make your regulatory explanation a minor side note. The larger forces won’t make a huge crash, or a huge boom. We will muddle through. But your analysis doesn’t really matter. Sorry – but you did say this topic was out of your realm.
Here is one part of the big picture.
http://www.atimes.com/atimes/others/spengler.html
Another part, I don’t have a link to. That concerns the affect of having 2 billion people abandon communism and embrace capitalism all at once (India + China). I haven’t really seen an analysis of that in a cogent form.
James
The alarmist tone is nothing new. The media have been trying to gin up a depression since January 2001.
I think many people should stop, breathe, have a couple pieces of fruit and drink some chamomile tea.
The Lehman Brother’s bankruptcy is a catastrophe of the first order, especially for a bank that has never known a loss in profit, but Neo rightly points out, the solution isn’t served by exciting an already excitable situation. When a theater is on fire, people aren’t served by stampeding each other to death on top of it?
While people of partisan inclination may unscrupulously stoke the fires of worry for expedient political ends, I hope people would have the good sense to ignore the yakking Chicken Littles before something even more disastrous occurs. One can easily point fingers because, as all children on playgrounds know, it is a quick way of gaining popularity and a good way of marshaling the mob against arbitrary scapegoats.
Calm, steady deliberation is what is called for. Not hair-pulling and beating about the breast.
So, apples, pears and bananas, wash it down with some hot chamomile tea, and don’t act rashly.
Ack.. my post is gone!!!
i wont rewrite it…
i will just point out that bank leaders are in the business to make money. the images we so freely banter round of fat cats with complete autonomy and no care for outcomes because they ahve a parachute are false.
these people are not free to make decisions, and that their parachutes are there because they can be forced to make business choices that destroy their careers.
the guys heading lehman brothers are not in a happy place. they are going to be blamed for somethign that is only partially their fault.
neo… good research… however its only part of the puzzle. its the change that came later, that opened up the floodgates, after 30 years of demand and threats from groups like ACORN kept creating a false market that they were forced to deail in for social justice reasons, and the communist goal of capitalisms collapse.
before i explain, note that part of the problem is how we view things and what we accept as the unsaid premises.
in order to get upset of lehman going out of business one has tohve the mental construct that large giant businesses shouldnt fail. that they are to remain working successfully, below the level of greed, in perpetuity forever.
all failures will be because of a bad set of choices, or good choices gone bad by changing circumstances.
they are not actually made by incompetent colluders who have nothing vested in the otcomes… that description is so dear to socialists because of marx, and because they think that capitalism is exactly like socialism… in which decisions ARE made by incompetents socialy promoted in collusion who get to make their money and get more witout any connection to outcomes… so they imagine business being the same as their little socialist things.
but the truth is that these guys dont have the freedom to make the choices they think are best. and THATS why they get the parachutes, not because its fun. its because the job may ruin their careers and it being no fault at all of theirs!
the key here is that the image is false, and so any justification stemming from such is doubly false.
on the flip side, no one said that lehman should exist in perpetuity. so its failure is because as a company its making or being forced to make bad choices.
the lefts crying on things is because they like a huge behemoth that is incompetent and beholden to the state for its existence.
the glass act that was repealed was like a limiter on economic speed. imagine that cars speed abilities continued to progress, but we are only allowed to drive on the roads with a limieter on that prevents going over 25 miles an hour.
for 70 years that limiter is there, and so we are used to that system. now suddenly take that limiter off. you will get a majority that will adapt and have little problem in short time, and you will also have those who cant handle the change make bad choices and fly into the wall.
thats the situation we have here with the removal of the limitation. it no longer served the purpose that it had for the communists which was as a limiter. having been in place so long, it was better for them to remove the crutch and let everyone careen around, then replace the law with a even harder new brake under the justification that we just couldnt handle the freedom.
but we really dont want companies that exist despite bad choices because of state protectionism laws. while thats nice for the incompetent companies, it limits the competent ones.
this just as much as the incompetent drivers would have less accidents at 25 miles an hour, but the limiters would clip all drivers including deliveries and efficiencies because of it.
so lehman going away is not the real issue, nor are the fat cats running it that dont actually exist.
laws dont act in isolation, and the reason the left likes change is that they are creating a situations where autocatalytic events can occur.
i will show how they work using neos information.
neo… take a look at the timeline that you posted.
On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main sticking point is partisan bickering over the bill’s effect on the Community Reinvestment Act, which sets rules for lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.
the repeal was held up because of the community reinvestment act…
it was that act and adjustments later that created the mortgage problem and made sure that it would hit large banks!!!!!
The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as “redlining.” The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses.
The CRA was passed into law by the U.S. Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act. [1]
The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution’s application for deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB). In 1995, as a result of interest from President Clinton’s administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators’ attention on institutions’ performance in helping to meet community credit needs. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for five years. Thus in 2002, the regulators opened up the regulation for review and potential revision.
so basically this act was created to force banks to make bad loans to those who couldnt pay them if they happened to live in bad neighborhoods and were minorities…
the group that is the group that the dems are wailing about in this mortgage crisis!!!
however this act was in place since 77… but it wasnt till Communist Clinton, tuned it up a bit while also working to get rid of glass!!!
The Clinton Administration’s regulatory revisions [1] with an effective starting date of January 31, 1995 were credited with helping to substantially increase the amount of loans to small businesses and to low- and moderate-income borrowers for home loans. Part of the increase in the latter type of lending was no doubt due to increased efficiency in the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997. [2]
so he changed it…
and his change to the glass act opened up the flood gates from above, or rather, took the limiter off the supply of money, and took the limit off the size that bad loans could be turned into securities.
take that and a few other points, and who made the changes.. and you get them limiting growth with the glass act…
eventually we adapt and the act doesnt slow things down… so the idea is to remove it, to burn out the motors…
keep pressing the pendulum, and keep it swinging wide or in opposites.
the proof in the pudding was how the law skewed things to big banks, and that ACORN and other groups were involved.
you get democrats making the law to force bad loans (now you know one reason a president will get a parachute. eventually these loans will cause a problem, and who ever is workign at the time will get blamed, and will not get a means of defending themselves. so the parachute is money against that common future outcome)… ACORN and a few others helping…
then they attempt to loosten up the up river floodgates to make money cheaper to get, which would then make it easier to make more bad loans.
then you tweak the law to allow them to be bundled and to clip the big guys more.
all institutions over $250 million in assets were subject to a three-part CRA test that covered lending (including community development loans), qualified investments, and services (including community development services) to their assessment areas. Institutions less than $250 million were subject only to a lending test.
So what you get is someone like DANE above, who sees the outcomes, and knows something is fishy, but doesnt know enough history and of what has been going on and its implications to know what is happening.
I’m not a conspiracy type guy, but never mind the “sub-prime” loans – when you see loans being made ( by supposedly reputable lenders ) to people with no jobs and no credit ratings then it seems that some hanky-panky may be going on as the loans get sold up the pipeline to where they are finally guaranteed by Fannie and Freddie.
lets see… loans being made to bad people -check… mandated by dems with the help of ACORN…
the law making sure that only the big boys can play and allow bundling so they can work with it after the little guys forced tto make bad loans sell the lots under the new subprime market created by the change.
then, since one cant control the monetary supply, one removed an old limit on the monetary supply suddenly…. a recipe for bad policy till such a change get irioned out.
combine this with a left media that ignores what things are… like speculation being speculation and investment being investment, and mixing them.
and you get the semblence of hanky panky that Dane is mentioning.
except one thing..
its not hanky panky!!!!!!!!!!
they try to avoid that CRA is to blame, but they are being tricky in that once you lower standards for a few, then others hve to lower them to compete in an open market. so the disenginuity can clearly be seen
Critics claim that government policy encouraged the development of the subprime debacle through legislation like the CRA, which in effect forces banks to lend to the same otherwise uncreditworthy consumers they are now being criticized for accepting.[3] [4] Defenders of CRA disagree, pointing out that half of all subprime loans were made by institutions that are not subject to CRA and another substantial share of subprime loans were made by subsidiaries of banks that do not fully come under CRA. They estimate that the substantial number of riskier loans banks were forced to accept by CRA were not enough to be a problem.[5]
if half of the market is attracting your lenders away with easier terms, it doesnt matter if the CRA law doesnt apply to you. you HAVE to join, or face coporate death NOW, not later.
and almost anyone will tell you that dying later is better than dying now (under mmost circumstances).
Racial inequities in mortgage acceptance rates (as reported by Inner City Press, the National Community Reinvestment Coalition, ACORN and other groups) are cited as a primary reason to maintain or even increase the scope of the CRA.
well at least the communsit subversive orgs are for making the problem worse…
so its a multipronged attack on the fincancual system using disparate things to create what woudl be called an autocatalytic event. each of the elements separately would not cause such a problem, but together, they cause a problem by design that is hidden as all three are not on the table.
though i would say that such influence by one side, ACORN, Clintons, the fact that it deadlocked glass, and so forth…
means that they knew what they were making, and knew that only a very few would see how the parts fit and know they did it knowing the end result was built on the applications of a few simple rules.
foce business to accept practices that are not good for it, but they have no choice. this causes outcomes that are the states fault, but the company or leaders will be blamed… and more regulation will be the result of fixing the crisis.
when monetary policy is loose, tighten it to constrain business… when business is used to the constraints and works aroudn the false objects, remove them… always keep businesses off balance by shifting things constantly, and keep the public in the dark so they cant sympathize with the companies against the state.
have the media keep alive the false images that we dont examine, like capricious fat cats who run multinatinoal companies with little care…
note that all these things amount to constantly changing the things that we use to navigage and succeed.
basically its the same thing as rocking a large object till it rocks to the point it falls over.
outstanding.
here is a perfect example of the lefts duplicity.
the left creates a law that forces banks to loan to bad risks. they have to basically change the standards to that these peopel are allowed.
however everyone ASSUMES because of people like spengler that its the banks fault because the banks set lending policy.
It is easy to change the financial system, I argued in my May 20 essay. The central banks can assemble on any Tuesday morning and announce tougher lending standards.
http://www.atimes.com/atimes/Global_Economy/JI16Dj08.html
so you have leftists in print describing the banking industry as a free market system, when its one of the most regulated and interfered areas that government plays in.
they cant meet any teusday and tighten up loan standards and make things like the lehman situation disappear, because leftists with communist groups like ACORN, create laws that force banks to make bad loans and define what lending standards they should have.
though spengler tells us why the left would do these things…
Credit markets connect what we do today with what we plan for the future. Because the future is uncertain we must have faith in the outcome, which is why the word “credit” derives from the same Latin root that denotes belief in the religious sense. We require a certain degree of trust in our counterparties. It is the job of the great financial firms to create trust between borrowers and lenders and establish a link between the present and the future.
we now no longer trust the lending industry…
if you wnat the state to control everything do you want the people to trust independent other powers?
well, just like demonizing men is helping cause a degrade in the population that is adding to this and lower productivity, nihilism and so forth, demonizing bankers, and business men and so forth creates a population that would rather be ‘hot’ like paris, than productive like ken chennault.
(Another project started 40 years ago. you will find a lot of them are now coming to fruit. just as the conservatives of that time said they would but were booed out, or scared out)
just remember as big as this seems it only seems large.
the numbers are huge but not so huge as a percentage of the whole…
Gee Artflgersomething, Im glad you didnt have to rewrite your original post.
Dear Sirs,
I would like to address three subjects: S&L, Mortgages and Stock fluctuations.
S&L
The S&L’s were in the riskiest of all banking situations: borrowing short and lending long. They were protected by Regulation Q which allowed them to pay one percent more interest than bank passbook savings accounts.
Depreciation schedules are very important in long term investment.
Congress hit them with a double whammy.They repealed regulation Q and changed the depreciation schedules at the same time. KABOOM!
Mortgages
Congress forced Fanny and Freddy to accept bundled mortgage instruments that contained riskier loans. At the same time they kept their required capitalization lower than is prudent. The big problem is that there was no experience in assessing the risk factor in these instruments. They guessed wrong. KABOOM!
Stock Market
More than ninety percent of the trades in the stock markets are programmed trades. The portfolio is managed by programs that take many factors into account. When the factors say sell they sell. They sell until they reach the floor of that stock – a little too complicated to go into here. The current drop is not the result of panicked investors – they don’t interfere with the models.
The last big crash was caused by models not accounting for the peculiar behavior of the market at that time. The regulators stepped in, found the false assumptions being used and fixed them.
Regards,
Roy
Good post, good comments, good links. I think people are quick to disagree with each other when they have many points of agreement, and their different perspectives are not mutually exclusive.
I will add in my bit to the understanding. A free market is dependent on trust, far more than a socialist market which depends on compulsion, soft or hard. We pay in advance online because we trust a particular vendor. People lend money because they believe it will be repaid.
Leverage is even more dependent on trust – geometrically more. At a real level, not just on paper, we have more wealth available as a society as trust increases. This can fool us into thinking that if we stretch and force trust a bit further, we will have more wealth. But every false inflating of our trust over what is rock-solid guarranteed also increases our risk. When people are asked – or made – to trust beyond their judgment they get skittish.
Bold or foolhardy investors make bets on how much you can push the risk before others get skittish and start putting their money elsewhere. As long as the balloon is inflating, they are winning their bets and making more money.
Sometimes their forcing the issue proves to us that a higher level of trust is warranted (such as buying things online) and we all benefit. Sometimes their force proves that such trust is not warranted and the balloon explodes.
We have a number of trusts that we are being forced into by the government that people are increasingly doubtful of. Young people are essentially being forced to bet that Social Security will be there, but the facts on the ground suggest it won’t. Our government promises to regulate large commercial entities and protect us from the greed of businessmen, but increasingly show themselves to be more damaging than the robber barons they warn us about.
Forced trust – making banks lend unwisely, giving rule-making authority to partisan politicians – eventually snaps back to its sustainable level.
Pingback:Fausta’s Blog » Blog Archive » The Real Culprits In This Meltdown, and other roundup items
Thanks everyone. I filled in some of the many gaps in my understanding of this mess.
For what it’s worth, I caught part of Sean Hannity’s show in the car – he was reading a transcript of McCain addressing the Fannie Mae/Freddie Mac thing a few years ago – in front of hte Senate? I wasn’t clear on exactly when or where it was, but he warned of what was coming and why…
Hannity’s comment was why do we have to do the work the reporters should be doing – instead they are all over Troopergate and Lipstick on a Pig storeis…
I expect you’ll see more about it, just not on MSNBC, maybe not on CNN…
Anybody have any more info?
When a liberal Democrat like Obama talks about “bipartisanship” and “bringing us together” that means we come together on his terms without compromise on his part and that his opponents remain quietly supine or prone while the liberal agenda is instituted.
I had to laugh at the first part of artfldgr’s post when he said these people get these golden parachute’s because they are forced to make decisions that can end their careers. None of the people have their careers ended UNLESS they go to jail. Once these CEOs reach a certain level they can run several companies into the ground. walk away with huge money, and get another CEO job within months. As we used to say in the west “It’s Rar’fied up Thar”. Unless the stockholders get involved (which they rarely do) these folks just keep getting recycled. If you show me a company where the CEO and other top exec’s salaries are tied to profits (not stock prices) then I can be pretty sure it is well run and will make a profit most years.
Here is a link to Q&O, which shows that Bush tried to fix the problem 5 years ago and the Democrats stopped it:
http://www.qando.net/details.aspx?Entry=9323
Oh, and I don’t think deregulation is the problem. The fundamental problem is making it too easy to obtain a morgage, and removing the market incentive to make smart decisions (removing the risks of failure).
I think it may be a little harsh to call Obama reckless for his reaction to this problem. To be reckless is to assume that he knows what is happening and I don’t think he has a clue. I don’t doubt he would be reckless if given the opportunity, but I don’t think he’s that bright.
On the other hand he certainly is opportunistic.
Doesn’t it just make you sick???!!! Obama’s been telling everyone we’re back in the Depression for at least a couple of months My jaw dropped the first time when I heard.
Yesterday, I wanted to swat the both of them (Obama and McCain). If you ask me, besides there usually being a pause (at best) if not some downturn in election years — specifically due to the uncertainty of the outcome — I would venture to say that a good part of our present economic downturn has been hastened with reckless claims since the start of primary season, and has simply been amplified as the election grows closer. Obama’s been the worst; being the superior intellect he is, and with all his economic experience and training he has blamed the evils of our monetary system (along with all evils of the world, hurricanes included, to be sure) on George Bush. He’s a little confused now, though since, he’s blaming John McCain, too. Hasn’t he been telling us all this time that they are THE SAME PERSON?
(that’s all besides the fact that our economy was pretty fine for most of Bush’s Presidency save post 9/11 — when it seems everybody forgets that it was a pretty scary time in the market: everyone instantly stopped travelling, no one went on airplanes, hotels were empty, people weren’t shopping, going to restaurants — just work or school and go home! (Mr. Obama recently made some slimy allusions to Pres. Bush telling us “to shop.” He just doesn’t seem to want us to remember why, since thinking of Obama as a protector and leader in times of attack is the last thing we’ll do) Mr. Bush held us together at that time quite well. But then, G-d help anyone giving that man ANY credit these days. (altho, FYI, Wall Street Journal had a rather nice tribute on the editorial page yesterday)
Here is a good article on this by John Lott:
http://www.foxnews.com/story/0,2933,338629,00.html
This is why I don’t recommend that conservatives delude themselves into thinking that they can punish Republicans by electing a Democrat. The only person you will be punishing are the poor, the weak, and probably yourselves as well.
Democrats, like Obama, can make any problem or disaster somebody else’s fault. Electing them and expecting that they’ll be seen for what they are, is pointless. They are never seen for what they are.
The only people that see them for what they are are the ones that have personally suffered under their power. And making Americans suffer simply because you dislike the GOP, is neither ethical nor honorable.
Democrats thrive on disasters and poor performance. They are like Arabs, they sure as heck do not want things to be better, for then it would contrast negatively with Democrat performance.
Look at how long Arafat has been able to keep his little con game in operation.
Don’t think the Democrats can’t do the same, using the same tools.
i made similiar observation before. after arguing on the internet for years i noticed that sometimes you cant tell if you’re talking to a muslim or a far leftists because they argue in almost identifcal ways
Great Depression=Caused by Republican President
Vietnam=Nixon’s War
Katrina=Bush killing black people
Iraq=Bush killing brown people
Afghanistan=Bush keeping BIn Laden locked up until the 2004 election
It’s all about Democrats and their power, you see.
Civil War=The North’s radical Republicans don’t have the guts to fight so let’s start a war about it.
WWII=Republican fascism got defeated in Germany.
I can continue, I suppose, but what’s the point.
This problem has many fathers. Congress pushing for easier loans to make home ownership availabe to more people, etc.
Then there was the Yen carry trade, which provided a lot of the mortgage money that was flowing. Lenders could borrow in Japan at 1% and loan here at 5-6%. They would then sell the loans to Freddy/Fannie, take their profits, pay off their Yen loans and do it all over again. The money was there and it fueled the big housing boom.
Anyone who has been around for fifty years or more had seen other real estate booms and knew it couldn’t last, but a lot of less experienced people said, “This time it’s different!” It wasn’t.
What really kicked off the sub prime panic was the collateralized mortgage obligation (CMO) instruments that were sold to many financial institutions, pension funds, and insurance companies. These instruments were normally carried on their books at cost because they were long term investments that they were holding for the income payments. They counted as capital for their balance sheets and were usually considered to be solid investments and collateral.
Then the Fed began raising interest rates to cool the housing market and the economy. The “experts” said that the housing market would hold up okay because there was still a lot of demand out there. They were wrong. When morgage rates went above 6% demand slackened.
Then some of the sub prime loans started to default. This time there were more sub prime loans than in the past and many were in the CMOs held in various compamy’s accounts. This triggered a change in FASB accounting rules. The risk in the CMOs was unknown, so the way to define the value of the CMOs was “mark them to market.” The problem was there is not and never has been an active auction market for these instruments. This led some companies to try to find buyers for their CMOs but since there was now a rumor out that these things were laden with sub prime loans that were all going to go bad, there was no market for them. Thus the FASB decreed that they must be “written down” to some acceptable level – usually about 20 cents on the dollar. This is what has caused all the write downs and destruction of capital in so many firms. The simple fix would be to suspend this “mark to market’ rule for CMOs/CDOs for a year or two and allow the companies to go through the mortgages case by case to come up with the real value. 95% of these CMOs are made up of sound mortgages that will have a less than 2% default rate. Several people in the financial world are starting to call for this, but nothing has been done yet.
All these write downs are destructive of capital and are forcing deflation on the system. Now that commodity prices are responding to less demand we are in danger of a full fledged deflation. To restore confidence to the system we need to allow these instruments that are the root of the problem to be evaluated in a sober and serious way to stop the destruction of companies that are suddenly undercapitalized because they have to drastically write down the values of the CMOs.
The managements of Fannie and Freddy are somewhat related to this but more so to just out and out raiding of the companies by the politically oriented managers. They have been taken over because they are undercapitalized by the standards of the FSAB rules. Many people believe the worst case scenario there is very manageable. In fact the whole sub prime problem is very manageable if confidence and order can be restored to the credit markets. That is hard to do when the MSM and the Democrat standard bearers are trumpetinmg a new depression.
Anyway that’s my take on the crisis. It’s very true that, “The only thing we have to fear is fear itself.”
It seems peculiar to me that all of these problems have been brewing for years, actually decades, and then in approximately the same 48 hrs. the news explodes with Lehman, AIG, and Merril Lynch imploding, almost simultaneously. Where were the professionals, from executives to accounting firms? Where was the investigative press? It seems strange that these particular failures weren’t 1 month, or six months, or a year apart, but “appear” to have been almost simultaneous. Anybody have any observations?
I was around in 1979. I had me a starter marriage and needed a starter house to go with it. The problem was interest rates i recall around 15%. So i rented an apartment and did without.
My gut tells me thats about where interest rates should be now. There is a major flaw in a fed chairman coming out every quarter and just speaking attractive rates into existence. Those rates should be based on the mathematical reality of market conditions. Not some feel good number that merely postpones the shit hitting the fan.
Shit, meet fan.
Our ever vigilant news media are on top of this “crisis”, that’s for sure.Last night on the CBS evening news an intrepid reporter interviewed two people in foreclosure. The first was a trusting soul, married with a child who signed an ARM that increased her rates by a factor of two. The reporter didn’t comment on her monthly income, but one look at the house (in Las Vegas) was all it took to realize she was in way over her head. When I re-financed my mortgage six years ago, I had to initial what seemed like page after page of truth in lending statements. The fact that the rate was adjustable was repeated ad infinitum. I don’t know how you can legislate against stupidity.
The second “victim” had owned her home for eleven years and lost her job as a mortgage sale rep (ironic) and now couldn’t afford to make payments. Nobody asked her why she lived in a gigantic home in Las Vegas, and what she had done about saving money for emergencies. She clearly was not a sub-prime mortgagee, she just had lived beyond her means and now has to deal with the consequences.
Last time I checked, the US constitution lacked an amendment guaranteeing a mortgage to all citizens. Nobama wants the government to guarantee 30 year fixed rate mortgages for anyone with a pulse and blood pressure. How is he going to pay for all this? Oh yes–I remember: just tax the wealthy!
Neo –
What? Didn’t you get the word???
We have an opportunity to throw out the sector of government most directly responsible for the current mess in less than SIX WEEKS.
We should throw the bums out. Dem, Rep, it really doesn’t matter now, does it?
Regulating the legislative roster based on when a rep or senator has decided they’ve made enough money is killing the country.
TTBO!
What about the rating agencies? The ones that waited until after AIG was in visible trouble to drop the ratings? Their job is to be detectives, not reporters, to find trouble and bring it to light, not to confirm what everyone knows.
Dane,
I had to laugh at the first part of artfldgr’s post when he said these people get these golden parachute’s because they are forced to make decisions that can end their careers.
Dane, are you speaking from knowing such people, or speaking from the fat cat assumptions that I also was referring to? You totally missed something key in my post. A clear example of such a situation created by state mandate!
I have worked corporate for most of my career, and have watched people tank this way. I have watched them live and die in stress related conditions because they know that if they lose this, they don’t get another chance like it. they become married to the companies they work for more often than not. Over the years i have watched lots of management types come, rise, make a screw up, and have to switch careers as they are dead in the water.
You didn’t listen to what I said in my post that backs up what I am saying. However, you spouted the Marxian thing that being a CEO is easy street and candyland, and actually think I am the one being silly “because everyone knows” that Marxian descriptions of the world are the valid ones (and never ask how come so many layabouts in the west happen to be controlling the worldl and outproducing the socialists who toil so hard).
My post presented a law created in 1977. That law proscribes business practices that are bad. You are claiming they can run the business into the ground and get new jobs, but I showed that the state created a situation of hot potato. That at some point, the banks were going to have to pay for the bad loans that the state was mandating they make! Of course the CEO in charge at that time would have an impossible time explaining that the reason things are running into the ground is the law. So what BOARDS do, you know, the people you claim “Unless the stockholders get involved (which they rarely do) these folks just keep getting recycled”, is fire the CEO, and put a new one in place to clean the slate. His first task is to re-org so that you cant compare prior productivities to current ones clearly. The CEO fired now is looking for a board to hire him. your post shows that your TOTALLY ignorant at business at that level, and how a lot of it is mandated by SEC rules and so forth. How many boards does each of the people on the board that fired him sit on? do you think they will let him sit on other companies boards? Do you think his industry will just put him at the top of another company. Obviously you do. but then again, obviously your not a CEO, know how hard they work, or a board member or major stock holder.
Dane pt2
Once these CEOs reach a certain level they can run several companies into the ground.
what level is that? meta ceo? This is not what happens not by a long shot. The ONLY people I know that talk like this are those that actually have no idea and have spent time gaining status as one of the prols complaining about the top to others that don’t know. kind of like feminists telling women what men really think. You get the same validity.
This is a totally false statement. There is no magical level and a cursory glance at ceo histories shows it to be a lie.
walk away with huge money, and get another CEO job within months.
Their settlements are no where near what they make if they succeed (and many of them are tied to performance and special rules!). What you see as huge money is a huge financial hit to them. They don’t want that settlement. That settlement often means that they have to start over, and often means they lose their wives and family.
You obviously are not a person with a high level position who has been sacked. The line workers get jobs much faster than those at higher places as the turnover at that level is low. I am not a CEO but it took me more than a year to get a new job, because the higher the salary, the fewer the jobs, the higher the competition, and the slower the consideration, and so forth.
over the years i have met lots of people that talk like you DANE but never one who actually did the kind of work that they are claiming to know all about.
Their mental image descriptions don’t match reality at all.
The CEO reports to a BOARD. They don’t get to run companies into the ground then get a new change a month later. your snarky quick view is great when talking to factory workers when you want them to rally and strike to get you power, but it sucks if its trying to actually talk about what they really do and what they really face.
The ones that your looking at that get those chutes are people that run corporations whose numbers of employees exceed the populations in large cities and some small countries.
Walmart has 1.8 million employees… However wal mart made 11 billion in profit… that was after paying high CEO salaries. If walmart tanked tomorrow, you would look at it as the history meant nothing, and that if run correctly it would have lasted in perpetuity.
do you really think the CEO of that can find a comparable position in a few months?
Fuld, the head of lehman brothers was number 21 on CEO compensation.
Want to hear how much you sound like a parrot? (probably not)..
Here is someone that sounds like you… a Marxian
The Today Show this morning had a segment about all the “Golden Parachutes” — it’s enough to make you puke. Top financial execs walking away with MULTI-MILLIONS and turning around and buying mega-mansions and multi-million dollar residences while their employees go hat in hand trying to find a job now, and while their clients watch their 401Ks and IRAs and other investment accounts drop like rocks.
Here’s a sampling:
Bear Stearns – James E. Cayne: $13.4 Million
Wachovia – G. Kennedy Thompson: $34.5 Million
Lehman Brothers – Richard S. Fuld, Jr.: $22 Million
Merrill Lynch – John A. Thain: $25 Million (current BOA sale)
Merrill Lynch – Stanley O’Neal: $161.5 Million (October 2007)
Citigroup – Charles O. Prince, III: $40 Million
Countrywide – Angelo R. Mozilo: $120 Million
Your spouting a view point that is 100 years old and false.
Do you want to hear how much yours is a party line?
I think the important point that one of the gentlemen was trying to make (when not being interrupted and talked-over by the guy) was that it’s fine to pay these hot shots the big bucks while the companies are performing at their best (keeping in mind that is what they were hired to do in the first place); however, for them to run the companies into the ground and leave everyone holding the bag and just walk away with millions in their pocket is grand larceny. While their companies can be subjected to a “down turn”, there is no “down turn” for them — they ride on a one-way ticket to wealth.
Can you please give me an example Dane of Fuld running the company into the ground?
having a problem posting…
Check your comment for spam blocked words and too many/too long links, Art.
Hey, just thought I would drop a line to let you know that your site took a little while to load… are you using a caching plugin? I don’t know if they have caching plugins for Blog Engine, but I know they do for WordPress and it makes my WordPress sites load A LOT faster! Maybe it is just my internet connection though, check the webmasters tools and see what it says the load time is.
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