How did we get into this situation in the first place?

[boloboffin]

This has been another edition of "Why I Don't Have To Believe Anything A Liberal Tells Me," with your host, BeAChooser. Tune in again next week when BeAChooser's guests will be any liberal he can manage to get onto the set. Until then, remember: 50% of Americans aren't just wrong, they're openly collaborating with the enemy. Ta-ta!

 

[BeAChooser]

As it is, you started this thread based on the opposite premise, and while it's a bit hard to tell where inference ends and bald assertion begins, it's pretty clear that you haven't made your case either.

Yeah, but I'm not the one getting ready to put my hand in someone else's pocket and TAKE a trillion dollars from them, then hand it to the very people who created this mess. I think that gives me a little leeway in the standard of proof.

I'd venture to guess that you've redirected some portion of the time you might otherwise have dedicated to wading through "comments" on "web pages" toward looking for some data that might provide a more direct way of comparing foreclosure rates between CRA and non-CRA lenders, and haven't had any more luck than I have.

Actually I hadn't done that, since I really didn't think there was any question whether CRA was involved in this mess. But let's see what I can find after brief search.

Here's an article from 2000 by a very prescient author warning of the trouble CRA and the left's social engineering agenda was going to cause when a recession came. You really should read in it's entirety because it totally demolishes Pressman's and the left's assertions about CRA and it's *innocence*. I've quoted a few excerpts regarding foreclosure rates from it:

http://www.city-journal.org/html/10_1_the_trillion_dollar.html

The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities

... snip ...

There is no more important player in the CRA-inspired mortgage industry than the Boston-based Neighborhood Assistance Corporation of America. ... snip ... With "delegated underwriting authority" from the banks, NACA itself—not the banks—determines whether a mortgage applicant is qualified, and it closes sales right in its own offices. It expects to close 5,000 mortgages next year, earning a $2,000 origination fee on each. Its annual budget exceeds $10 million. ... snip ... This CRA-facilitated migration makes the mortgage terms of groups like NACA particularly troubling. In a September 1999 story, the Wall Street Journal reported, based on a review of court documents by Boston real estate analyst John Anderson, that the Fleet Bank initiated foreclosure proceedings against 4 percent of loans made for Fleet by NACA in 1994 and 1995—a rate four times the industry average.

... snip ...

NACA frankly admits that it is willing to run these risks. It emphasizes the virtues of the counselling programs it offers (like all CRA groups) to prepare its typical buyer—"a hotel worker with an income of $25K and probably some past credit problems," says a NACA spokesman—and it operates what it calls a "neighborhood stabilization fund" on which buyers who fall behind on payments can draw. But Bruce Marks says that he would consider a low foreclosure rate to be a problem. "If we had a foreclosure rate of 1 percent, that would just prove we were skimming," he says. Accordingly, in mid-1999, 8.2 percent of the mortgages NACA had arranged with the Fleet Bank were delinquent, compared with the national average of 1.9 percent. "Considering our clientele," Marks asserts, "nine out of ten would have to be considered a success."

... snip ...

Though bankers generally cheerlead for CRA out of fear of being branded racists if they do not, the CEO of one midsize bank grumbles that 20 percent of his institution's CRA-related mortgages, which required only $500 down payments, were delinquent in their very first year, and probably 7 percent will end in foreclosure. "The problem with CRA," says an executive with a major national financial-services firm, "is that banks will simply throw money at things because they want that CRA rating."

... snip ...

The Neighborhood Assistance Corporation of America's own success stories make you wonder how much CRA-related carnage will result when the economy cools. The group likes to promote, for instance, the story of Renea Swain-Price, grateful for NACA's negotiating on her behalf with Fleet Bank to prevent foreclosure when she fell behind on a $1,400 monthly mortgage payment on her three-family house in Dorchester. Yet NACA had no qualms about arranging the $137,500 mortgage in the first place, notwithstanding the fact that Swain-Price's husband was in prison, that she'd had previous credit problems, and that the monthly mortgage payment constituted more than half her monthly salary. The fact that NACA has arranged an agreement to forestall foreclosure does not inspire confidence that she will have the resources required to maintain her aging frame house: her new monthly payment, in recognition of previously missed payments, is $1,879.

Nope. No problem here.

But of course, CRA's aren't the only thing used to increase home ownership in minority groups that otherwise lacked the financial means to own those homes. I never claimed they were. Sub-prime loans were used too. There are numerous articles noting that fact ... and the correlation with foreclosures.

For example, an April 13, 2007 article in the San Diego Voice by Kelly Bennett, “Foreclosure Wave Said to Hit Latinos Hard,” reported that this decade saw "a national push to increase homeownership among Latinos" and that "Latino mortgage and real estate professionals put forth aggressive outreach campaigns in the community, while lenders reached out to huge, untapped sections of the market by loosening qualifying standards." “Because a widened lending gate allowed many more Latinos and other minorities into the housing market than had entered previously, lawmakers and special interest groups championed the lenders’ efforts to extend homeownership to those groups.”

Now here's an interesting case. Milwaukee. Here's what's happening now:

http://www.jsonline.com/story/index.aspx?id=797224

Loans came easily, then fell apart

Cluster of foreclosures in four Milwaukee neighborhoods serves as microcosm of nation’s mortgage meltdown

... snip ...

Sept. 21, 2008


While earning a salary of $21,000 a year, Leesa Robinson landed on top of the real estate world in 2006, overseeing nearly $1 million in property.

... snip ...

Lenders from across the country wrote more than $800,000 in home loans in 2005 and 2006 so Robinson could buy eight north side rental properties, half of which she purchased with no money down. All but one of the loans came with high-interest, adjustable rates. Today, her credit is shot. She lost all eight houses. She went bankrupt.

Yeah, no problem there. Continuing ...

... snip ...

Robinson's situation came to light when the Journal Sentinel analyzed 2007 housing data to understand the local impact of the subprime mortgage crisis. The investigation focused on the four inner city neighborhoods with the highest percentage of foreclosed homes that were set to be sold by Milwaukee County.

The 48 properties in these four small neighborhoods - all in or near Metcalfe Park and Sherman Park - serve as a microcosm of the nation's mortgage meltdown, which is costing taxpayers hundreds of billions of dollars.

... snip ...

Three of the four neighborhoods analyzed by the Journal Sentinel had a median household income of less than $25,000 - roughly half the state's overall figure, according to the U.S. Census Bureau's 2000 statistics.

The highest income level was in a Sherman Park neighborhood - bordered by W. Locust, W. Clarke, N. 41st and N. 44th streets - which had a median income of $32,908, census figures show.

... snip ...

Three-fourths of the mortgages written in the city's poorest neighborhoods were subprime or high-interest loans, the mayor's office said.

... snip ...

In fact, in the four hardest-hit neighborhoods, about one-third of the borrowers put no money down when they bought their properties.

"Why were they making these loans?" Doyle asked. "They were just deficient from the very beginning."

... snip ...

In a letter to the Department of Housing and Urban Development, Barrett warned that Milwaukee County foreclosure filings through July were up 28% from the first seven months of last year.

In addition, the mayor said, more than $1 billion in subprime loans were written here in 2005, and interest-rate increases on many of those adjustable-rate mortgages are just now kicking in. He predicted an upcoming surge in defaults and foreclosures.

Note that the mayor of Milwaukee, democrat Tom Barrett, is complaining ... now. But what was he saying a few years ago regarding minority home ownership, CRA and sub-prime mortgages?

Well, you need to know he was in the US Congress ... the House of Representatives ... from the early 1990's to the early 2000's. He was on the Banking Committee. It turns out that he was part of the problem ... helping to force laws against redlining and encouraging lenders to increase homeownership regardless of risk. In fact, he wanted to make CRA even bigger and more inclusive than it already is ...

http://www.nhi.org/online/issues/128/CRAat25.html

The Community Reinvestment Modernization Act of 2001 (HR 865) introduced by Rep. Tom Barrett (D-WI) and Luis Gutierrez (D-IL) broadens application of CRA beyond federally chartered depository institutions, increases data disclosure requirements and strengthens oversight responsibilities of appropriate authorities.

... snip ...

And the Community Reinvestment Modernization Act would likely not have been produced if it were not for the advocacy efforts of the National Community Reinvestment Coalition, ACORN, the National Training and Information Center and community organizations around the country.

So it turns out Barrett, whose city is now struggling with bad mortgages made to low income minority people, introduced a bill in 2001 that would have expanded CRAs to independent mortgage banks and created comparable obligations for insurance companies, securities firms and other financial services. And his act ties back to Obama's good friend, ACORN. You know, the group caught by republicans committing voter fraud in Milwaukee this year (http://www.jsonline.com/story/index.aspx?id=802043 ). And by the way, Barrett is an Obama supporter and contributor, along with ... you guessed it ... the National Low Income Housing Coalition. And of course, he's for the bailout.

He also has had strong tries to Fannie and Freddie.

For example,

http://www.historicgranville.com/pressReleaseFannieMae.htm

April 15, 2002

... snip ...

MILWAUKEE, WI -- For the first time in Milwaukee, a $1 million flexible mortgage pilot has been tailored specifically for a rebounding neighborhood's landmark condominium complex, mostly occupied by renters, to encourage homeownership.

... snip ...

"For as little as a $900 down payment, hard-working health care workers and others can own a $30,000 home and earn the keys to the American dream of homeownership," said Rep. Kleczka.

... snip ...

"This innovative housing ownership program will help people buy into an affordable neighborhood that's really on the upswing," said Mayor Norquist.

... snip ...

"This initiative celebrates important links between homeownership and stable neighborhoods, quality, affordable housing, and employee retention and satisfaction," U.S. Representative Tom Barrett (D-WI) said in a statement. "The collaborative efforts of Fannie Mae, St. Francis Bank, Select Milwaukee, MGIC, and neighborhood residents demonstrate just how successful these types of partnerships can be in revitalizing urban communities." Barrett, who in 1998 led efforts that brought the first statewide Fannie Mae office to Wisconsin, added ...

I tell you what ... let's give Barrett a stack of money ... YOUR MONEY ... to distribute to his low-income constituents to make up for the mess he helped create. No hard feelings. Right Dynamix? (sarcasm)

 

[BeAChooser]

I just wanted to note that the number Bernanke gives for the entire subprime market in 2006 is the number BAC quoted earlier for Countrywide in 2003. I know he'll want to correct the record, becing a stickler for facts as he is.

Now I'm not responding to MM. Just correcting a misperception.

First of all, I never said that the $600 billion was in just subprime loans. I said low income OR subprime. I used Stan Liebowit, a professor of Economics in the Business School at the University of Texas at Dallas, as a source (which I linked) for what I wrote above:

http://www.nypost.com/seven/02052008/postopinion/opedcolumnists/the_real_scandal_243911.htm?page=0

Ironically, an enthusiastic Fannie Mae Foundation report singled out one paragon of nondiscriminatory lending, which worked with community activists and followed "the most flexible underwriting criteria permitted." That lender's $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003. Who was that virtuous lender? Why - Countrywide, the nation's largest mortgage lender, recently in the headlines as it hurtled toward bankruptcy.

Now it turns out that Countrywide did service more than $600 billion in mortgages in 2003.

http://www.allbusiness.com/personal-finance/real-estate-mortgage-loans/706761-1.html

Countrywide tops $600 billion servicing mark.

But if that $600 billion is what Liebowit is talking about, then I'll grant it was incorrect for him to characterize all those mortgages as low-income since Countrywide loaned to other income brackets as well in that total.

But even then, a large percentage of those loans clearly had to have been made to folks who couldn't afford them, otherwise Countrywide probably wouldn't have collapsed as it did. I hope MM will at least admit that the reason Countrywide failed are low income and subprime loans. Afterall, way back in June of 2007, almost a quarter of Countrywides subprime loans were deliquent with 10% over 3 months late. And in 2007, nearly half of Countrywide's loans carried adjustable rates. Those are the kind of loans that appeal to folks with lower earnings. By some accounts, Countrywide had become a business based 70% on subprime and other marginal loans.

On the other hand, Liebowit may have been talking about something other than the current portfolio value when he used the word "commitment". Keep in mind that in 2003 (http://www.forbes.com/2004/04/16/cx_aw_0416cfc.html ) Countrywide "churned out $434 billion in new loans". They sold $252 billion in new loans in 2002. Add up all 11 years and they sold a lot more than $600 billion in loans so its not inconceivable that $600 billion refers to the total value of low income and subprime loans countrywide sold between 1992 and 2003. Afterall, in 2003, it's subprime loan business alone was running at over $4 billion A MONTH. Even if the average over those 11 years was only a quarter that, the total would be nearly $130 billion. And we all know that the subprime business was smaller than the low income portion being pushed by CRA during those earlier years.

Here's another article

http://www.hispanicbusiness.com/pr_newswire/2004/10/13/countrywide_home_loans_becomes_nations_1.htm

Countrywide Home Loans Becomes Nation's #1 Mortgage Lender in Emerging Markets

CALABASAS, Calif., Oct. 13 /PRNewswire/ -- As a result of its ongoing effort to increase homeownership in low-income and minority communities, Countrywide Home Loans, Inc., a national leader in residential finance, today announced it has become the nation's leading mortgage lender to emerging markets communities, which include African American, Hispanic, Asian/Pacific Islander and American Indian/Alaskan Native homeowners.

... snip ...

According to the 2003 HMDA data, Countrywide Home Loans' achievements include:

- Providing $74.7 billion in loans to African American, Asian, Hispanic and American Indian homebuyers nationwide

... snip ...

Chief among the new products is Countrywide's Optimum Loan(SM) program with features specifically designed to assist the many creditworthy individuals who have little or no funds for down payments and closing costs -- one of the biggest obstacles to homeownership. The program requires a cash contribution of the lesser of one percent of the home's sale price or $500.

So clearly a lot of low income and sub-prime loans were flowing through Countrywide on a yearly basis. But there may have been another basis for Liebowit's statement. One that MM would have found if he'd just browsed a bit farther. From 2003:

http://goliath.ecnext.com/coms2/summary_0199-2577988_ITM

Countrywide extends commitment to low-income and minority homebuyers

Publication Date: 01-MAR-03

CALABASAS, ALIFORNIA--BASED COUNTRYWIDE Financial Corporation has extended its previous One Hundred Billion Dollar Challenge, begun two years ago, to increase homeownership among low-income and minority homebuyers. The extended commitment will fund $600 billion in home loans to previously underserved Americans through the end of the decade.

Yes, that's definitely what Professor Liebowit was referring to when he used the word "commitment".

Now if Meadmaker could just commit to using his browser the way it was intended. So he too could be a stickler for facts.

 

[Dymanic]

Yeah, but I'm not the one getting ready to put my hand in someone else's pocket and TAKE a trillion dollars from them, then hand it to the very people who created this mess. I think that gives me a little leeway in the standard of proof.

You don't appear to have "proven" your case to anyone here but yourself. As far as proving it to yourself goes, you may of course use any standard of proof you like, but as the whole exercise seems to be about reaffirming the conclusion you started out with, I'm not sure I see the point. I'm not any more in love with the bailout idea than anyone else is, but a better understanding of the causes of the current mess seems critical to avoiding this sort of thing in the future.

Here's an article from 2000 by a very prescient author warning of the trouble CRA and the left's social engineering agenda was going to cause when a recession came.

Yeah. Like I said, I didn't have any luck either. Lots of people have opinions on this, some of them rather strong opinions -- but skeptics in general tend to be more easily persuaded by facts than by opinions. Want to persuade me? Present the data that show a higher foreclosure rate for CRA-regulated loans.

 

[Crowlogic]

Remember Rush Limbaugh during the Clinton years? "Day 323 of America held hostage!" Oh, what sad and depressing times were those!

Ahh yes good Ol' Rush Limbaugh. Good Ol' Rush "that fat junkie hypocrite" Limbaugh.

 

[Meadmaker]

But even then, a large percentage of those loans clearly had to have been made to folks who couldn't afford them, otherwise Countrywide probably wouldn't have collapsed as it did. I hope MM will at least admit that the reason Countrywide failed are low income and subprime loans.

Certainly. No one disputes that. The questions that have to be asked is which loans failed, why did those loans fail, and which loans failing caused ripple effects that led to large scale failures, especially AIG, Lehman, and IndyMac, and from there to the credit crisis that resulted in the 700 billion dollar bailout.

In your OP you fingered loans that were made in order to comply with the CRA. In doing so, you were agreeing with the watercooler conversation, and particularly the one gentleman who uttered the thought that liberals forced banks to make bad loans to melanin rich individuals in our society.

Does this analysis hold up? I can't see how it does, for several reasons. First, CRA loans were generally not subprime loans. Second, the risk for such loans was well understood. Why does that matter? You have to look at the anatomy of the failure.

The problem was not, specifically, that the loans failed. Loans fail. No biggie. Happens all the time. The problem was that in this case, those loans were sold in the form of mortgaged back securities. If the risk of foreclosure and loss is accurately assessed, as it would be for banks that are heavily regulated and attempting to comply with the CRA, this isn't a problem for the purchasers of the securities. The securities sell at a discount, because they are expected to have a lower return.

What caused the breakdown was that loans that weren't supposed to fail...failed. People were buying homes and not putting enough money down. These were poor people, middle class people, even rich people. Bernanke noted that around 2005, the risk assessment procedure broke down. High risk loans were sold as low risk loans. The securities they were bundled into weren't properly discounted, and so when those loans started failing, the securities lost oodles of money. The loan originators, frequently mortgage brokers, not banks, walked away with the bread, and left bondholders holding the bag. AIG failed in large part because it insured those "low risk" loans.

So, fundamentally, the problem was a breakdown of the risk assessment system, and that had absolutely nothing to do with the CRA.

Now, you took umbrage at my suggestion that you were racist. I'm not going to say that this was all in your imagination, but I never called you a racist. What I will say is that there are people who put this argument forward, knowing that it is just plain false, and knowing that they will find a willing audience who is perfectly happy to blame either the black people, or the left wing (so called liberal. I think they are unworthy of the term) politicians who pander to the black community. There are lots of such people, including my break room colleague, and you. You really are in full agreement with him, whether or not you like to admit it. That doesn't make you a racist. That doesn't make the N word user a racist. However, I stand by my assertion. Let me repeat it, rephrased slightly, for clarity.

There are people who put forward the argument that you made, knowing that it is false, but knowing that it will be repeated by people who are very willing to believe it, because it plays to their prejudices.

In your case, I don't think it's your prejudice against black people. I think it's your prejudice against liberals. They know that if they say rotten things about liberals, you will blindly repeat those things.

There's another thought from the OP. That has to do with Senator McCain's efforts to rein in one element of this crisis. I agree with Senator McCain on this one, and I think he tried to do the right thing. I think that, once again, there are people who are perfectly willing to let you believe that they were on his side, when in fact they were not. I will say again that if the Republican leadership in the Senate had wanted this bill, they would have gotten it.

Finally, there's the question of whether or not Obama lied about the issue. If distorting your opponent's record is lying, then Obama, McCain, Palin, and Biden, are all first class liars.

ETA: If you want to know what went wrong with the subprime crisis, ask Ben Bernanke. He's not a bad source. He knows a thing or two about it. He does take issue with some CRA based practices, but doesn't blame the CRA for this crisis.

 

[BeAChooser]

I'm not any more in love with the bailout idea than anyone else is, but a better understanding of the causes of the current mess seems critical to avoiding this sort of thing in the future.

On the contrary. A lot of people are very much in love with the bailout idea. Otherwise they'd entertain some other option. And I asked the question in the OP to get a better understanding of the causes. The data points to democrats and their efforts at social engineering regardless of risk. The data points to democrats not listening to republicans back in the 2000 to 2005 timeframe who sounded the warning and tried to get more regulation of the industry. The data points to criminal democrats, like Raines and Johnson, who just happen to be advisors to Obama.

Present the data that show a higher foreclosure rate for CRA-regulated loans.

"8.2 percent of the mortgages NACA had arranged with the Fleet Bank were delinquent, compared with the national average of 1.9 percent."

"the CEO of one midsize bank grumbles that 20 percent of his institution's CRA-related mortgages, which required only $500 down payments, were delinquent in their very first year, and probably 7 percent will end in foreclosure." ... compared with that national average of 1.9 percent.

 

[Dymanic]

A lot of people are very much in love with the bailout idea.

Name one.

Otherwise they'd entertain some other option.

The House entertained one other option: do nothing. The market responded immediately, and the same constituents who had been calling for the measure's rejection only a day earlier suddenly began insisting that their Representatives "do something". The success of the plan seems to depend a lot on the Fed being able to do what nobody else has been able to do, which is to place values on those mortgages. It will be interesting to see how they do that, but I don't see any reason to be particularly optimistic that the thing will work, beyond perhaps buying us a little time. If we use that time to come up with better options, maybe that will be enough to justify calling it a success. If you have entertained any other options, maybe we could look at those.

"8.2 percent of the mortgages NACA had arranged with the Fleet Bank were delinquent, compared with the national average of 1.9 percent."

"the CEO of one midsize bank grumbles that 20 percent of his institution's CRA-related mortgages, which required only $500 down payments, were delinquent in their very first year, and probably 7 percent will end in foreclosure." ... compared with that national average of 1.9 percent.

I see what you mean. About the standard of proof.

Anecdotes are nearly as plentiful as opinions on this. We already know that half of the subprime loans weren't CRA. What I'd like to know is: of all (ALL) the ones that were, how many ended in foreclosure?

 

[BeAChooser]

Originally Posted by BeAChooser
A lot of people are very much in love with the bailout idea.

Name one.

The folks who created the problem (get's them out of a jam). Like the democrat Mayor of Milwaukee, Tom Barrett. They'd no sooner passed the bailout in the house and he congratulated them.

The House entertained one other option: do nothing. The market responded immediately

It went down and then went back up the next market day before anything else happened. So what's that prove? The day the House passed the bill, the market went down ... almost 200 points. Why didn't it go up if market response is your indication of what's the right or wrong thing to do? Why are we so quick to not let the market economy take care of the problem when the market is what got us to a 13 trillion dollar economy in the first place? Why are we so quick to hand a trillion dollars to the very people who created the problem? When has government successfully fixed ANYTHING in an efficient and lasting manner ... or at all? The problem isn' that the market can't evaluate the value of these mortgages, the problem is that we haven't let it. And I'll bet you the government does a terrible job and soon comes back to put their hands in our pockets again.

 

[gdnp]

The problem isn' that the market can't evaluate the value of these mortgages, the problem is that we haven't let it. And I'll bet you the government does a terrible job and soon comes back to put their hands in our pockets again.

The market has had plenty of time to evaluate the value of these mortgages and they can't, the degree of uncertainty is too great. Their value depends on the default rate over the next 30 years or so, which will depend on economic conditions. If there is a robust recovery next year and the default rate is low the securities are worth near face value. If we go into a decade long depression and the default rate is 50% they become worthless. Thus the institutions that hold the debt want near face value, and those who might be willing to buy the debt will only offer pennies on the dollar. The market has thus seized up. Worse than that, if the banks that hold the debt are forced to value it at what they can sell it for (near zero), then they become insolvent. Since no one knows who is insolvent, no one wants to lend anyone any money. So the credit markets have seized up as well.

Only the government has deep enough pockets to possibly head off a collapse of the financial system. I am not sure this is the best way to do it, but the private sector has tried and failed.

 

[Dymanic]

The problem isn't that the market can't evaluate the value of these mortgages, the problem is that we haven't let it.

As gdnp has just pointed out, the market is presently evaluating those mortgages as essentially worthless. That's the problem -- that is, it is the start of a whole new set of problems. There is tremendous potential for self-fullfilling prophesy here.

I'll bet you the government does a terrible job and soon comes back to put their hands in our pockets again.

We may have found something we can agree on. I'm also very concerned about the ability of the Fed to responsibly administer this medicine.

 

[BeAChooser]

The market has had plenty of time to evaluate the value of these mortgages and they can't

FALSE. The government started talking about intervention before the market had a chance to react. That *promise* interferred with the process.

Their value depends on the default rate over the next 30 years or so, which will depend on economic conditions. If there is a robust recovery next year and the default rate is low the securities are worth near face value. If we go into a decade long depression and the default rate is 50% they become worthless.

And why is that my problem? Let the companies that made or bought worthless loans go bankrupt. They probably shouldn't be in the business. Let the people who bought mortgages they couldn't possibly have afforded pay for their mistake by losing their investment. Maybe next time they'll be more cautious or less greedy. Let the corporate executives that acted criminally be prosecuted and go to jail. Let the court and bankruptcy system do what it was intended to do ... be a way for those who suffered losses find satisfaction ... IF THEY DESERVE IT. Let the politicians who for decades led us down this path suffer the consequences at election time. But don't reach into the pocket of those who did none of the above to STEAL a trillion dollars and give it to the people who caused the problem, and then call that fair, smart or sound economics. It isn't. It's theft.

The market has thus seized up.

No, the market and credit have seized up because the government interfered ... held out the promise of a massive bailout at taxpayer expense ... and thus caused those who should already be bankrupt from declaring it and letting the system work as it would have worked had the government not interferred. The government caused buyers and sellers to wait to see what happens ... buyers who would have bought whatever assets remained at whatever value THEY assessed (right or wrong) for those assets. But that's the market system. Sometimes you guess right, sometimes you don't. And government interference has also caused the courts to not do their job. You folks never seem to learn.

Only the government has deep enough pockets to possibly head off a collapse of the financial system.

GARBAGE. The government has no pockets at all. The government is going to STEAL a trillion dollars from OUR POCKETS and give to a lot of people who don't deserve it. And the fact that you can't see that is half the problem here.

 

[gdnp]

FALSE. The government started talking about intervention before the market had a chance to react. That *promise* interferred with the process.

Bear Stearns failed in March. Why? subprime mortgage securities. How much time do you think the markets need to value these assets? That was 7 months ago. Do you see the market now doing a better job valuing these securities than they were then?

And why is that my problem? Let the companies that made or bought worthless loans go bankrupt. They probably shouldn't be in the business. Let the people who bought mortgages they couldn't possibly have afforded pay for their mistake by losing their investment. Maybe next time they'll be more cautious or less greedy. Let the corporate executives that acted criminally be prosecuted and go to jail. Let the court and bankruptcy system do what it was intended to do ... be a way for those who suffered losses find satisfaction ... IF THEY DESERVE IT. Let the politicians who for decades led us down this path suffer the consequences at election time. But don't reach into the pocket of those who did none of the above to STEAL a trillion dollars and give it to the people who caused the problem, and then call that fair, smart or sound economics. It isn't. It's theft.

Because when the banks all fail the FDIC will have to bail out the depositors anyway. People won't be able to get car loans and the automakers will loose billions, leading to more layoffs. Because if the chinese and the middle eastern sovereign wealth funds stop lending us back the dollars that we've spent with them then a lot of farmers and small businesses that depend on credit will fail as well. When those business's employees also default on their mortgages the housing market will plummet still further, pushing more banks into bankruptcy. Tax revenues will fall and governments will default on debt. Massive inflation will ensue as the government tries vainly to prop up the economy with monetary stimulus, pushing those on fixed income and dependent on retirement plans invested in falling stocks and bonds to slip into poverty. Those companies still in business will cut back on benefits and hire temps, leading to more and more people without health insurance. Policemen, firemen, and teachers will be laid off. Bridge and road maintenance will be deferred. Once prosperous neighborhoods will become ghettos. Crime will increase, food banks will run out of food, people will die because they can't afford heat in the winter or air conditioning in the summer, and disaffected unemployed inner city youth will riot. Military spending will be cut because we can't afford it, and our enemies will be emboldened to further attack American interests as we are too preoccupied with our domestic problems to deal with foreign adventures.

No, the market and credit have seized up because the government interfered ... held out the promise of a massive bailout at taxpayer expense ... and thus caused those who should already be bankrupt from declaring it and letting the system work as it would have worked had the government not interferred. The government caused buyers and sellers to wait to see what happens ... buyers who would have bought whatever assets remained at whatever value THEY assessed (right or wrong) for those assets. But that's the market system. Sometimes you guess right, sometimes you don't. And government interference has also caused the courts to not do their job. You folks never seem to learn.

Yours is the system that the Japanese tried after their real estate bubble burst. They now refer to that period in Japan as the "lost decade".

GARBAGE. The government has no pockets at all. The government is going to STEAL a trillion dollars from OUR POCKETS and give to a lot of people who don't deserve it. And the fact that you can't see that is half the problem here.

BAC, what part of "worst financial crisis since the great depression" don't you understand? Two of the top four investment banks have already failed and the other two have converted to bank holding companies and are being propped up by new infusions of billions in capital. Countrywide, the largest mortgage company failed. Fanny and Freddy, who provided most of the liquidity in the mortgage market, failed. AIG, the largest insurance company, failed. Wachovia, the 4th largest bank holding company, is being sold off before it fails. Washington Mutual, the largest S&L, failed. Have I left anyone out? Who will be the next domino? Would you rather wait until we are reduced to a barter economy before realizing that your wingnut libertarian principles are just not going to fix this?

 

[gdnp]

From Roubini's blog yesterday:

It is now clear that the US financial system - and now even the system of financing of the corporate sector - is now in cardiac arrest and at a risk of a systemic financial meltdown. I don’t use these words lightly but at this point we have reached the final 12th step of my February paper on “The Risk of a Systemic Financial Meltdown: 12 Steps to a Financial Disaster” (Step 9 or the collapse of the major broker dealers has already widely occurred).

This is indeed a cardiac arrest for the shadow and non-shadow banking system and for the system of financing of the corporate sector. The shutdown of financing for the corporate system is particularly scary: solvent but illiquid corporations that cannot roll over their maturing debt may now face massive defaults due to this illiquidity. And if the financing of the corporate sectors shuts down and remains shut down the risk of an economic collapse similar to the Great Depression becomes highly likely.

This credit crisis is both a crisis of confidence and illiquidity and a crisis of credit and solvency. But while the insolvent institutions should go bust we have now reached a point where many financial institutions and now non financial firms may become insolvent because of pure illiquidity; and this would lead to an extremely severe economic contraction similar to an economic depression rather than a mild recession. At this point the US, the advanced economies (and now likely even some emerging market economies) will experience an ugly recession and an ugly financial and banking crisis regardless of what we do from now on. What radical policy action can only do is preventing what will now be an ugly and nasty two-year recession and financial crisis from turning into a systemic meltdown and a decade long economic depression. The financial and economic conditions are extreme; thus extreme policy action is needed now to save the global economy from an ugly depression.

You can argue with the solution chosen by the fed and the congress, but "letting the financial markets sort themselves out" does not appear to be a viable option.

 

[BenBurch]

gdnp;

Worst *since* eh? I think worst *ever* would be most accurate.

Back when the Great Depression hit most Americans were still on farms and could feed themselves without a whole lot of help from the economy. That has all changed. And we no longer have the factory jobs OR THE FACTORIES to put people back to work in.

We killed the goose that laid the golden eggs.

-Ben

 

[corplinx]

You can argue with the solution chosen by the fed and the congress, but "letting the financial markets sort themselves out" does not appear to be a viable option.

I don't see why the finance markets should have to sort it out since they didn't cause it. Doesn't the government have a duty (in light of the constant stream of discoveries about Mae/Mac and the congress) to step in?

My only problem is, accountability. Nobody in congress is going to resign over helping Mae/Mac underwrite these toxic loans and crashing the investment banks who bought the debt and turned them into MBS/COM.

 

[gdnp]

On the other hand, we have social safety nets in place that did not exist in the 20's. People at least should not starve.

I wonder what Ayn Rand had to say about depressions? Probably that they were caused by government interference and that if the capitalist system were just allowed to operate without interference they wouldn't happen. And free enterprise would somehow fund the soup kitchens.

 

[BenBurch]

I believe the Randites (and I used to be one) think that recovery would have actually been FASTER from the Great Depression without government intervention. They see it as a failure of intervention as opposed to a failure of capitalism.

 

[Meadmaker]

Reading blogs like Roubini's is enough to keep one awake at night.

 

[gdnp]

Reading blogs like Roubini's is enough to keep one awake at night.

A friend referred to his 12 steps to Systemic Financial Meltdown in early march. He was predicting a trillion in real estate losses while others were predicting much less. That trillion is now considered an underestimate. He predicted one or 2 investment bank failing. They did. He predicted the spread to fanny and freddy, with a government takeover because of the implicit guarantee and their position as "too big to fail". He predicted the insurance companies that insured the mortgage backed securities would fail, thus threatening the markets of the other bonds they insure, including municipal bonds. AIG failed. He predicted a liquidity crisis and runs on banks. We are seeing that now.

As was brought up in the VP debate when discussing global warming, when you don't know the cause it's hard to come up with solutions. Roubini at least seems to understand the cause, or at least understood the cause well enough to predict the unraveling of the financial system. I thus trust him more than others when he suggests possible solutions.