We Support Democracy and Free Markets ...

[Tailgater]

It's not all anyone's fault. However, when the chairman of the Fed and the Secretary of Treasury pulled a bunch of high-profile individuals together to try to enact some reform to fix things going wrong the last time ^[link], it wasn't under a Clinton administration where they all told the Fed and Treasury "no" and that they would "rather resign" than be held accountable for "what’s going on in my company." All your "but, but... Clinton!" taken into consideration, you seem to be pegging a whole lot more of this crisis on the mortgages than what was done to them, how they were repackaged willy-nilly and sold off in securities that would have been safe if not for their poisoning of the well with the toxic repackaged (and renamed!) debt-- all because they could buy into credit default swaps and still probably make a profit whether these clumped bad debts went anywhere or not.

It wasn't regulation or deregulation, or the CRA or other low-income housing programs that led the problems we have today. It was the fact that those companies in the financial markets eschewed fiscal accountability after Enron and their refusing to accept accountability going forward-- which led to historic executive salaries and less (percentage of) capital going back to shareholders and to the company assets-- which placed their own companies at risk, their shareholders at risk, and in some cases the market at risk, all while avoiding much risk to their own selves and their lifestyles.

Basically, it wasn't any specific regulation or deregulation to point at and blame, but the environment that was allowed to flourish that lacked accountability to the market, the companies, the investors, or to anyone else. To make it a conservative/liberal or Republican/Democratic argument is just plain silly (and wrong), and falling into the same politicized, unthinking rhetoric going on in the presidential race on this topic that is making things more difficult for people to get an accurate picture of the crisis.

Short and sweet. Premium furniture built with rotting wood.

 

[Tailgater]

Tailgater et al,

I apologize, I was assuming you were defending the statements of Wildcat, who used the word "force" in almost every post on the first page of this thread.

Still, isn't saying that the CRA allowed and encouraged the brokers to abuse the system along the same lines as saying a woman wearing a suggestive outfit in a bad neighborhood is allowing and encouraging rape. Yes, she's putting herself unwisely at risk, but at the end of the day, the people who raped the economy are clear.

I'm not sure that analogy works, because in this situation the woman wants to be raped to get what she wants and someone else will do it anyway, and if they do, they will get a more rapes (which isn't a rape because she's willing)in the community.......well.......I'm not sure thats the right one.....

ETA: Well, banks are to blame, but you have to expect the worst from people in business. Democracies create alot of double edged swords under the banner of bipartisanship or one party trying to swing a situation their way to have common sense, but that's way too much derail.

 

[Tailgater]

Anyone have data on second mortgages? I know many people who have struggled with equity lines of credit and are upside down mostly due to the second and the inability to now have it absorbed into their first because the equity is gone.

 

[Dancing David]

Which one of these statements is the right one, because they contradict?

Your list of sundry issues is a list of "correlated mistakes" which themselves get fuelled by 1) human nature and 2) the incentive structures of prevailing regulation.

I agree that these general statements are not very good at discussing issues. I am concerned that certain companies generated the mortgage backed securities as bundles and sold them in a not so clear fashion. As a consequence of this certain smaller income institutions and people will not have credit.

I am also concerned about just buying the securities, if bussiness doesn't like them the government shouldn't either.

The initiatives which get referred to by a sceptical and uninformed public as "bailing out Wall St fatcats" are intended to address this, as my previous post tried to explain. If a bunch of hypothetical small businesses can't get credit because they all use the same bank which just ran out of cash, do you fix the bank in the interest of the small businesses or just loan/give them money, effectively becoming your own government bank? The latter is more expensive.

The concern I have is that money has been poured into the system in large amounts and the credit at the low end is still drying up. I am not too worried about the 'fatcat' thing, I am more concerned about tax dollars going to buy securities no one wants.

So if private banks want to manage funds to lower end borrowers, that would be better than just buying tha bundled securities.


Note by low end this means small to medium bussinesses and private individuals. I also would not want it to just fund more credit cards.

It has been addressed by the stimulus bill in Q1 08 and by the 3.25% cut in policy interest rates since August 07, and at grass roots level by commercial lenders generally preferring to restructure a loan if they can than go for the house which is worth less. If you want more done, how much and why?

I am not able to spend the time to discuss this properly. i would like funds to be there for the medium to low end of the market, rather than purchse the high risk securities.

My main point was about the hypocrisy of people who swear by free markets and thene xpect a bailout.

I think Glasser-Steadman might need to be reinstated.

 

[Dancing David]

Wow, I have to start a new thead on this soon;

the CRA is not the cause of the lending boom in the subprime market. BussinessWeek just said so:
Of couse it is a blog enetry, sigh, by that bunch of commie loving profit haters!
http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html


More importantly according to Newsweek who is quoting Moody's Investor Services
" Moody's Investors Service recently surveyed 16 mortgage servicers that accounted for 80 percent of the market for subprime loans made to borrowers with shaky credit histories."
http://www.newsweek.com/id/61537?tid=relatedcl

Wow do any of those mortgage service companies count as depository banks that are covered by the CRA?


Thanks all, I am not about anything other than accountability. I do not hate profits, I do not hate free markets, I don't like hypocrits who hide behind free markets and democracy (which we didn't even touch).

I am also open to other POVs, I do change my mind and have done so as result of the JREF, feel free to change my mind.

 

[GreNME]

Short and sweet. Premium furniture built with rotting wood.

That's the most succinct (yet accurate) description I've read to date. If I had a prize to award, you'd have won it soundly.

 

[Francesca R]

I agree that these general statements are not very good at discussing issues. I am concerned that certain companies generated the mortgage backed securities as bundles and sold them in a not so clear fashion. As a consequence of this certain smaller income institutions and people will not have credit.

That's about correct. The ones holding the troubled assets have experienced losses and have removed the positive externality that their prior profitable existence had on the rest of the economy, which was intermediating credit.

I am also concerned about just buying the securities, if bussiness doesn't like them the government shouldn't either.

That is also reasonable--the government would not be buying these assets simply as an investment in their own right. However the government suspects that they are--in fact--good investments insofar as their price relative to their intrinsic value offers a positive future gain. But because of loss of confidence and liquidity and the attendant shortening of just-about-everyone's investment horizon bar the governments, "nobody else" can take that bet. The government (well not the house, yet) also concludes that it is in the public interest that it should.

The concern I have is that money has been poured into the system in large amounts and the credit at the low end is still drying up. I am not too worried about the 'fatcat' thing, I am more concerned about tax dollars going to buy securities no one wants.

No-one (few players) wants them now, but they likely do want the cash that the government may offer in exchange. That cash would be sale proceeds, different from Federal Reserve loans which have been "poured into the system". There is the possibility that a cash purchase of the securities can restore credit intermediation in a way that offering a loan can't.

So if private banks want to manage funds to lower end borrowers, that would be better than just buying tha bundled securities.

The fear is that private banks are in an inadequate position to do this while the securities are burdening their balance sheets. The banks screwed up, and too many of them did at once.

I am not able to spend the time to discuss this properly. i would like funds to be there for the medium to low end of the market, rather than purchse the high risk securities.

As above, the hope is that by buying the securities the government can release higher velocity money than it can by using "energency loans". Such as, if the Federal reserve loans more money to BankX, BankX won't take it because there is nothing they can do with it, but if the Fed buys a troubled asset from BankX, BankX will use the proceeds to repair its credit intermediation--to the high/medium/low end.

My main point was about the hypocrisy of people who swear by free markets and thene xpect a bailout.

You haven't cited any of these hypocrites yet. In a free market, BankX would go to the wall and customers of BankX would suffer the externality of a cessation of credit which (the way a great many businesses are run) would push them into bankruptcy because their business model expects credit to be available and affordable. The free market would eventually clear but arguably at a sharply lower level of economic output.

I think Glasser-Steadman might need to be reinstated.

I assume you mean Glass-Steagall, and specifically the law that prevented regulated banks from dabbling in securities trading. If that happened the options would be to allow stand-alone trading shops to do that by themselves, or to cancel most forms of securitisation outright so that nobody does it. The first option does not seem to be any less troublesome to the system, since this is what the previously independent investment banks did, and they are now all broke, taken over by a regulated bank holding company, or converting into one. The second option is draconian and arguably reduces societal benefit much more than societal cost (even though it does not seem that way to a rationally ignorant observer reading today's news). So a reinstatement of Glass-Steagall, or rather a repeal of the 1999 Financial Services Modernisation Act 99, appears not to be viable.

 

[Dancing David]

That's about correct. The ones holding the troubled assets have experienced losses and have removed the positive externality that their prior profitable existence had on the rest of the economy, which was intermediating credit.

That is also reasonable--the government would not be buying these assets simply as an investment in their own right. However the government suspects that they are--in fact--good investments insofar as their price relative to their intrinsic value offers a positive future gain. But because of loss of confidence and liquidity and the attendant shortening of just-about-everyone's investment horizon bar the governments, "nobody else" can take that bet. The government (well not the house, yet) also concludes that it is in the public interest that it should.

No-one (few players) wants them now, but they likely do want the cash that the government may offer in exchange. That cash would be sale proceeds, different from Federal Reserve loans which have been "poured into the system". There is the possibility that a cash purchase of the securities can restore credit intermediation in a way that offering a loan can't.

The fear is that private banks are in an inadequate position to do this while the securities are burdening their balance sheets. The banks screwed up, and too many of them did at once.

As above, the hope is that by buying the securities the government can release higher velocity money than it can by using "energency loans". Such as, if the Federal reserve loans more money to BankX, BankX won't take it because there is nothing they can do with it, but if the Fed buys a troubled asset from BankX, BankX will use the proceeds to repair its credit intermediation--to the high/medium/low end.

You haven't cited any of these hypocrites yet. In a free market, BankX would go to the wall and customers of BankX would suffer the externality of a cessation of credit which (the way a great many businesses are run) would push them into bankruptcy because their business model expects credit to be available and affordable. The free market would eventually clear but arguably at a sharply lower level of economic output.

I assume you mean Glass-Steagall, and specifically the law that prevented regulated banks from dabbling in securities trading. If that happened the options would be to allow stand-alone trading shops to do that by themselves, or to cancel most forms of securitisation outright so that nobody does it. The first option does not seem to be any less troublesome to the system, since this is what the previously independent investment banks did, and they are now all broke, taken over by a regulated bank holding company, or converting into one. The second option is draconian and arguably reduces societal benefit much more than societal cost (even though it does not seem that way to a rationally ignorant observer reading today's news). So a reinstatement of Glass-Steagall, or rather a repeal of the 1999 Financial Services Modernisation Act 99, appears not to be viable.

Thanks, your response requires more consideration that I can apply in a short time.

I understand the credit crunch issue, which is the actual cause for concern, and certainly the genie bottle is open.

More later...

Thanks!

 

[Dancing David]

That's about correct. The ones holding the troubled assets have experienced losses and have removed the positive externality that their prior profitable existence had on the rest of the economy, which was intermediating credit.

Sorry that is on the edge of my comprehension, i assume you mean that they no longer have the money to invest in other places? And I agree, there was also the housing bubble and the 'irrational exuberance' of the stock market, as well as huge mutuals and soverreign funds sloshing around.

That is also reasonable--the government would not be buying these assets simply as an investment in their own right. However the government suspects that they are--in fact--good investments insofar as their price relative to their intrinsic value offers a positive future gain. But because of loss of confidence and liquidity and the attendant shortening of just-about-everyone's investment horizon bar the governments, "nobody else" can take that bet. The government (well not the house, yet) also concludes that it is in the public interest that it should.

That is the beauty of the divided powers the Hous is meant to worry when it stand for election every two years and that is why it has the power of the purse. yet i have to wonder why the US government should take the soaking, if private bussiness or other sovreign funds do not want the securities then it probably won't work out. Now if the companies want to put a proportional share of their stock up as collateral then i would be happy as a clam. provided the plan was to sell the stock at some future date.

No-one (few players) wants them now, but they likely do want the cash that the government may offer in exchange. That cash would be sale proceeds, different from Federal Reserve loans which have been "poured into the system". There is the possibility that a cash purchase of the securities can restore credit intermediation in a way that offering a loan can't.

possibly but maybe not, that is why as I said, if they wish to insure liquidity in a particular area, then that is where the money should go, or if the Uncle Sam gets a propotional amount of stock as collateral against the securities, I would be cool with that. The deal being that there would be a time window, like X years, if the securities continue to shrink in value then Sam keeps the same amount of the stock in value as shrank in the securities. If the securities maintain or incease value then all the stock is returned.

The fear is that private banks are in an inadequate position to do this while the securities are burdening their balance sheets. The banks screwed up, and too many of them did at once.

Oh , I do undersatnd and Bernanke probably does know the cause of the Great Depression (other than the loss of value in leveraged stocks.)

As above, the hope is that by buying the securities the government can release higher velocity money than it can by using "energency loans". Such as, if the Federal reserve loans more money to BankX, BankX won't take it because there is nothing they can do with it, but if the Fed buys a troubled asset from BankX, BankX will use the proceeds to repair its credit intermediation--to the high/medium/low end.

And I understand it, I just am not sure I and my children should get hosed. So many different measures could be used, collateral stocks (say 30% of the value of the securities), encouraing private firms to buy these securities (through US loans or waht have you), blended appraoches where there is a mix of many strategies. But if privates don't want the securities, why should Uncle Sam? (Or my 23 yo daughter, 13 yo son and 9 yo nephew.)

I understand the credit issue, would there be a way to put that money more directly and say get an X% rate of return on it?

You haven't cited any of these hypocrites yet.

I will get back to you on that, Phil Gramm and many many many have proposed the deregulation or non regulation of securities and things like the credit debt swap. i will see what i can find for you.

In a free market, BankX would go to the wall and customers of BankX would suffer the externality of a cessation of credit which (the way a great many businesses are run) would push them into bankruptcy because their business model expects credit to be available and affordable. The free market would eventually clear but arguably at a sharply lower level of economic output.

I understand that , which why i wonder if there isn't a better way to throw $700 billion at it. maybe not, but maybe.

I assume you mean Glass-Steagall, and specifically the law that prevented regulated banks from dabbling in securities trading. If that happened the options would be to allow stand-alone trading shops to do that by themselves, or to cancel most forms of securitisation outright so that nobody does it. The first option does not seem to be any less troublesome to the system, since this is what the previously independent investment banks did, and they are now all broke, taken over by a regulated bank holding company, or converting into one. The second option is draconian and arguably reduces societal benefit much more than societal cost (even though it does not seem that way to a rationally ignorant observer reading today's news). So a reinstatement of Glass-Steagall, or rather a repeal of the 1999 Financial Services Modernisation Act 99, appears not to be viable.

I undersatnd that but i also remember who certain politicians and bussiness leaders said that they knew what was best and that it wouldn't cause problems. Just as some are saying that less regulation of reporting teh basis of securities would be a good thing.

I don't want to loose my job, sorry I did that in 1979, it wasn't fun. I don't want people to loose money on their homes or the stock market either. But I am a reformed socialist, i believe there is a very strong place for the free market (within the bounds of public safety) and so now that i have converted to mixed captalism I shocked at this apparently socialist program.

 

[Mark Alan Sauer]

It's a black-hole bailout of the derivatives market (500 - 2000 trillion).

 

[Francesca R]

Sorry that is on the edge of my comprehension, i assume you mean that they no longer have the money to invest in other places?

No I mean that too many banks, overburdened with the wrong sort of debt in a crisis, no longer have the ability to do the routine lending they do to small, medium and large private and public-sector firms. Given enough time, banks that are once again strong enough to do that will re-emerge, in much the same way as a new civilisation would eventually arise to deliver the lemon-soaked paper napkins being awaited for thousands of years by Douglas Adams' spaceship in "The Restaurant at the End of the Universe", but the cost to society even though it is caused by the removal of something that was voluntarily provided by profit-seeking actors, would be much to high to make this sensible, and we do not have the technology to keep the economy in "suspended hypersleep" in the meantime.

i have to wonder why the US government should take the soaking, if private bussiness or other sovreign funds do not want the securities then it probably won't work out.

I don't think that this logic always works in an environment of correlated distress in the market. Put as simply as I can, there does not seem to always be a private buyer of last resort, even though there should be using efficient markets theory. That theory is flawed and incomplete in several respects, and I suspect that many mortgage-backed assets "could not" be trading at the fire-sale prices that are reflected in some mark-to-market valuations now, if the theory was true.

Now if the companies want to put a proportional share of their stock up as collateral then i would be happy as a clam. provided the plan was to sell the stock at some future date.

As I understand it, the EES Act would allow the authorities to "forcibly" take equity stakes in firms at their own behest. But in general that fits the description of the government becoming the nation's bank rather than intervening to re-equitise the balance sheets of the nation's banks. And make no mistake there will be increased regulation of private sector banks around the corner. Some of it might be smart, some of it might be dumb, but its over-arching objective will be to make it harder for this sort of thing to happen again (it lilely won't make it harder for whatever the unknown next bubble-bust is to happen though . . . )

The deal being that there would be a time window, like X years, if the securities continue to shrink in value then Sam keeps the same amount of the stock in value as shrank in the securities. If the securities maintain or incease value then all the stock is returned.

I think that what you are describing here is some mechanism whereby, if the economy continues to implode towards armageddon over X years, the taxpayer has some get-out clause on the 700 billion. Five seconds' thought suggests to me that such a proviso would be futile cold comfort in the extreme

And I understand it, I just am not sure I and my children should get hosed. So many different measures could be used, collateral stocks (say 30% of the value of the securities), encouraing private firms to buy these securities (through US loans or waht have you), blended appraoches where there is a mix of many strategies. But if privates don't want the securities, why should Uncle Sam? (Or my 23 yo daughter, 13 yo son and 9 yo nephew.)

Recall that emergency loans of one sort or another have already been repeatedly extended by central banks everywhere, to the tune of trillions of dollars, and that has included long term loans in the case of AIG, JP Morgan and others. They did try that first.

With respect to future generations, the counter-view is that they will get hosed far worse if they grow up in a world of needless ruin that was caused by politicians fiddling while Rome burned because they were worried about saving the one who started the fire along with everyone else.

I am a reformed socialist, i believe there is a very strong place for the free market (within the bounds of public safety) and so now that i have converted to mixed captalism I shocked at this apparently socialist program.

I disagree that government intervention against severely negative externalities--even if it could have been earlier, which is a separate debate--is "socialist".

 

[Dancing David]

Thanks for such peaceful dialouge!

No I mean that too many banks, overburdened with the wrong sort of debt in a crisis, no longer have the ability to do the routine lending they do to small, medium and large private and public-sector firms. Given enough time, banks that are once again strong enough to do that will re-emerge, in much the same way as a new civilisation would eventually arise to deliver the lemon-soaked paper napkins being awaited for thousands of years by Douglas Adams' spaceship in "The Restaurant at the End of the Universe", but the cost to society even though it is caused by the removal of something that was voluntarily provided by profit-seeking actors, would be much to high to make this sensible, and we do not have the technology to keep the economy in "suspended hypersleep" in the meantime.

I understand that, and I just don't use the appropriate language.

However if the reason that there is collapse is that there is the spending of liquid cash and trading of assets that are overinflated in value (my own belief, the rise of stocks, housing values in the 90s and 00s) and the impact of assets that are overvalued, the over extension of credit in general (when I lost a job in 2001 the first thing I did was trade my 401k to pay off my credit card, my wife and I did not buy the house the bank said we could afford, we are paying down the principal on out credit cards, etc... which seems to be counter to the trends in general), the inflation of assts that are not in hand (I think of a neighbor/cousin who had their house free and clear and borrowed against the equity to the tune of $120,000 to buy fancy cars, take Hawaiian vacations, and then they got divorced the house was more correctly valued at $80,000) and the effect of consolidation of banking in the 90s (boo Bill Clinton) and how that was again inflating the value of assets not in hand.

The point being there appears to be a lot of value in the markets and other places that is going to deflate, so why should the government try to intervene in maintaining a market that is going to shrink? To the tune of $700,000,000,000.
I know there are good reasons but it seems to be building next to the river that is known to flood.

Again I don't take this as gospel, but I do believe that the value of many assets is way overvalued and that there is this credit bubble. So I think it could most likely be a waste of $700 billion.

I don't think that this logic always works in an environment of correlated distress in the market. Put as simply as I can, there does not seem to always be a private buyer of last resort, even though there should be using efficient markets theory. That theory is flawed and incomplete in several respects, and I suspect that many mortgage-backed assets "could not" be trading at the fire-sale prices that are reflected in some mark-to-market valuations now, if the theory was true.

I know, and I am not sure just buying them would have the desired effect either, the deficit is already huge.

As I understand it, the EES Act would allow the authorities to "forcibly" take equity stakes in firms at their own behest. But in general that fits the description of the government becoming the nation's bank rather than intervening to re-equitise the balance sheets of the nation's banks.

Which to me seems to say that the government should take the loss but not the profit. just my overstated belief, no real argument.

And make no mistake there will be increased regulation of private sector banks around the corner. Some of it might be smart, some of it might be dumb, but its over-arching objective will be to make it harder for this sort of thing to happen again (it lilely won't make it harder for whatever the unknown next bubble-bust is to happen though . . . )

I don't know, there has been a decrease in over sight and regulation most of my life and it seems that many are opposed to nay oversight at all. Seems to be a bit of a pig in a poke to me.

I think that what you are describing here is some mechanism whereby, if the economy continues to implode towards armageddon over X years, the taxpayer has some get-out clause on the 700 billion. Five seconds' thought suggests to me that such a proviso would be futile cold comfort in the extreme

Just as throwing $700 billion away would be cold comfort as well.

Recall that emergency loans of one sort or another have already been repeatedly extended by central banks everywhere, to the tune of trillions of dollars, and that has included long term loans in the case of AIG, JP Morgan and others. They did try that first.

Which makes me wonder why this $700 billion would make a difference as well

With respect to future generations, the counter-view is that they will get hosed far worse if they grow up in a world of needless ruin that was caused by politicians fiddling while Rome burned because they were worried about saving the one who started the fire along with everyone else.

And if we say "At least I threw $700 billion on the fire" it will make the same difference.

Why the rush, if the market needs to shrink, it needs to shrink, and throwing $700 billion at it will be a waste.

(Just my opinion, not an argument). That is why I think there might be better ways to throw away the money.

Why the rush? It took at least twenty years to get here, why should the bandaid the government applies be done on 2 weeks.

I am not worried about saving the ones who started the fire, that is not my concern, my concern is wasted effort that equals a years spending.

I disagree that government intervention against severely negative externalities--even if it could have been earlier, which is a separate debate--is "socialist".

The government intervening to stabilize markets and control them for the common weal is socialism.

 

[Francesca R]

The point being there appears to be a lot of value in the markets and other places that is going to deflate, so why should the government try to intervene in maintaining a market that is going to shrink? To the tune of $700,000,000,000. I know there are good reasons but it seems to be building next to the river that is known to flood.

No, the view is that many, if not most, of the distressed securities are fire-sold below their intrinsic value in the absence of government support. For example, you could knock down the redemption value of a mortgage-backed bond (par value $100) to--say--$75 if you assumed that a quarter of the motgages will not pay off, which is itself quite pessimistic. If the current fire-sale price on that bond is $35 (a quite typical mark-to-market valuation I believe) then it is not an asset "that is going to shrink", arguably unless no public entity acts. Current pricing is rational yet not efficient.

Again I don't take this as gospel, but I do believe that the value of many assets is way overvalued and that there is this credit bubble. So I think it could most likely be a waste of $700 billion.

Do you mean house prices?

I know, and I am not sure just buying them would have the desired effect either, the deficit is already huge.

I can't work out what you think *would* have a positive effect, giving you the benefit of the doubt that this is not a "chicken little" statement. You have alluded to putting money in the hands of "end users" (small/medium businesses who can't get credit) and I have responded that I think that is substantially more futile if banks continue to retrench.

I don't know, there has been a decrease in over sight and regulation most of my life and it seems that many are opposed to nay oversight at all. Seems to be a bit of a pig in a poke to me.

Not in mine, at least not in respect of banks (which is where I work). I experience regulation to a noticeably greater extent now than in the mid 1990s (such as Sarbanes-Oxley act certifications etc.)

Just as throwing $700 billion away would be cold comfort as well.

Expensive though that is, it is possible to imagine worse. The total taxpayer cost (including public debt expansion) to Japan coming from the Japanese government's less rapid efforts to recapitalise its busted banks and revive its slumping economy came to 24% of the country's GDP. That's about 5 times as much.

Which makes me wonder why this $700 billion would make a difference as well

You seem to be ignoring what I said, or dismissing it without saying why. TARP would be an asset purchase, not a loan.

[ . . . ] (Just my opinion, not an argument)

I guess I'll stop responding to it then, until such time as you come up with an argument

The government intervening to stabilize markets and control them for the common weal is socialism.

Disagreed, again. It is pragmatism, not to mention welfare economics. I assume you don't think that having a fire department paid for with compulsory tax is socialism . . .

 

[Dancing David]

I am reading what you right but I may not agree with you. I do not usually try to resolve complex issues into nice little packages. That is the beauty of the JREF I assume we all disagree with each other.

No, the view is that many, if not most, of the distressed securities are fire-sold below their intrinsic value in the absence of government support. For example, you could knock down the redemption value of a mortgage-backed bond (par value $100) to--say--$75 if you assumed that a quarter of the motgages will not pay off, which is itself quite pessimistic. If the current fire-sale price on that bond is $35 (a quite typical mark-to-market valuation I believe) then it is not an asset "that is going to shrink", arguably unless no public entity acts. Current pricing is rational yet not efficient.

I understand it, and it does mean that it is likely to be stable and increase in value, my feelings are often not in harmony with my thoughts. I have a visceral reaction to the package, even if some of my thoughts agree with yours.

Do you mean house prices?

No I mean the huge amount of ‘capital’ or whatever imaginary assets result from credit lending.(Interest/profit on debt, I know.) It is sort of crazy here in the US, it seems as though people can use a credit card (spending is good) that they are likely to never pay back. To my mind this is like spending money that isn’t there. Some of it will be, but others parts won’t. Call me old fashioned, I have a cell phone and a landline.

I can't work out what you think *would* have a positive effect, giving you the benefit of the doubt that this is not a "chicken little" statement.

I don’t claim to have all the answers, which is good. As I said if the money is needed to float credit markets so people and businesses can operate. Well that would be what I think would be best. That doesn’t mean it would work either.

Chicken little to you too, I have given you the benefit of that doubt.

You have alluded to putting money in the hands of "end users" (small/medium businesses who can't get credit) and I have responded that I think that is substantially more futile if banks continue to retrench.

I understand what you think, you say that my idea wouldn’t help and that is fine. I sort of doubt most ideas will work. If giving banks the money to lend to medium and small borrowers won’t work, then it won’t, I just like that idea.

I know the securities may increase in value.

Not in mine, at least not in respect of banks (which is where I work). I experience regulation to a noticeably greater extent now than in the mid 1990s (such as Sarbanes-Oxley act certifications etc.)

You most likely have a different view from me, and that is fine.

Expensive though that is, it is possible to imagine worse. The total taxpayer cost (including public debt expansion) to Japan coming from the Japanese government's less rapid efforts to recapitalise its busted banks and revive its slumping economy came to 24% of the country's GDP. That's about 5 times as much.

I appreciate that, but I still don’t have to like it. Hmm, I didn’t own a microwave until I was 25, either.

You seem to be ignoring what I said, or dismissing it without saying why. TARP would be an asset purchase, not a loan.

I haven’t dismissed it, I just am not in agreement, if I ponder upon it I might or I might not. I am pondering.

I guess I'll stop responding to it then, until such time as you come up with an argument

Disagreed, again. It is pragmatism, not to mention welfare economics. I assume you don't think that having a fire department paid for with compulsory tax is socialism . . .

Well some have defined such institutions as such, even if they are pragmatic, socialism need not be crazy.

 

[Francesca R]

Never mind . . . .

 

[Dancing David]

That is too bad, I have read what you say and do consider it but if you want me to just agree with you

"Whatever", which is an older phrase than the Legaly Blond, more along the lines of Peace to You and Que Sera Sera.

I hope this is just a brief market correction:
http://news.yahoo.com/s/ap/20081006/ap_on_bi_ge/as_world_markets;_ylt=AnNCOmP1PdGlk4bAQE4vYQ.s0NUE

BTW your photos are cool!

London and the UK are on my list.

 

[WildCat]

Tailgater et al,

I apologize, I was assuming you were defending the statements of Wildcat, who used the word "force" in almost every post on the first page of this thread.

Oh sure, they weren't "forced". Those banks simply could have elected to get out of the mortgage loan market and thus not fallen under the CRA.

 

[Darat]

Oh sure, they weren't "forced". Those banks simply could have elected to get out of the mortgage loan market and thus not fallen under the CRA.

Are you now retracting your original claim?

 

[WildCat]

At least you posted something other than a newspaper article!
Where does the word default or foreclosure appear in that document?

So here is the deal you keep making this assertion:

1.The CRA encourages investment in low income and racialy identified neighborhoods.

2.Then you assert that those are the neighborhoods where the foreclosures are the highest.

3.ERGO you hold the CRA responsible.

You have yet to show what the default or foreclosure rate is for CRA loans and you have yet to show what the data is on foreclosures in general.

So you have to do the following to make your case:
A. Demonstrate that there is a high rate of foreclosures in the CRA loans.
B. Shows that the CRA loans are the ones responsible for the mortage securities collapse.

Again it all sounds reasonable, but sounding reasonable and being true are two different critters.

You don't seem to understand the issue at all. There is no such thing as a "CRA loan". The CRA simply requires that a mortgage lender must issue loans across all income levels in the community in which they're located - regardless of the pool of credit-worthy customers. You can't point to loans the bank made and say "that one was a CRA loan, this one was not". What you can do is look at foreclosure rates in areas in which the CRA required loans to be made - and these areas have far higher foreclosure rates than areas not targeted by the CRA.

What we do know is that the mortgage securities collapse is caused by loans that have defaulted and are in foreclosure, and that the foreclosure rates in areas targeted by the CRA are far higher than in other areas.

 

[WildCat]

Are you now retracting your original claim?

eta: Your argument is akin to claiming I'm not forced to buy a vehicle sticker for my car, since I don't have to own a car in the first place.