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View Full Version : The NYT was right. And wrong.


Red_Chili
09-23-2008, 06:39 AM
Our last conversation on politics went amazingly well (due to the high quality of the club no doubt!).
:risingsun:
So I thought I would risk it.

In a September 30, 1999, article, (http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260) the New York Times predicted exactly what has recently happened with FNMA etc.:

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people . . . ''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.'' . . .

Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'' . . .


Most of the pressure from banks to underwrite loans to subprime borrowers was in direct response to the Community Reinvestment Act passed under the prior administration and Congress. This act required banks to make loans they would not otherwise make. Then the banks, historically conservative about risk, wanted to offload the risk on FNMA.

But today the Gray Lady blames the current administration for insufficient regulation (not that there is no blame to be laid at the feet of the current administration, as well as the prior one, but...). So which is it?
a) Too much regulation, instead of letting the market and risk dictate the loans that are approved vs. the ones denied due to too much risk, or
b) Too little regulation, allowing banks to make risky loans when the government would know better?

Given the fact that banks were FORCED to make risky loans due to the Community Reinvestment Act passed by Congress under the Clinton administration, option b), the NYT's current opinion, does not seem to explain the current situation nearly as well as the NYT did in 1999.

We are getting ready to draft some mighty weighty regulation and virtual nationalization of the mortgage banking industry. Does government know better than banks how the banking industry works? Is government more accountable than the banks are to the market? Or did government actually prove to be the major cause of the current situation? This phrase from the pending legislation should give one pause:

“Decisions by the Secretary [of the Treasury] pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
Non-reviewable power. Huh.

Maybe it is time to stop the politically expedient 'blame Bush' rage and take a look at 'blame government overall'. We should fear giving government more unchecked power more than we fear economic downturns, even if the latter affects us more immediately.

IMHO.

Groucho
09-23-2008, 08:19 AM
We are getting ready to draft some mighty weighty regulation and virtual nationalization of the mortgage banking industry. Does government know better than banks how the banking industry works? Is government more accountable than the banks are to the market? Or did government actually prove to be the major cause of the current situation? This phrase from the pending legislation should give one pause:

“Decisions by the Secretary [of the Treasury] pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

Non-reviewable power. Huh.
Kinda spooky as to how it insinuates power similar to the "Right Hand of God", don'tcha think?

Maybe it is time to stop the politically expedient 'blame Bush' rage and take a look at 'blame government overall'. We should fear giving government more unchecked power more than we fear economic downturns, even if the latter affects us more immediately.

IMHO.

I couldn't agree more. We can either belly-up to take our medicine now, which will hurt many of us in one way or another, or see if we can let it grow to catastrophic proportions and have it be a blow like we haven't seen in a long time (probably most of our lifetimes).

From Ron Pauls www.campaignforliberty.com website(September 22nd, 2008 by Don Rasmussen):

"Now is the Time to Unite and Say with ONE Voice…

…NO to the bailout and NO to any congressman or senator who votes in favor of this disastrous piece of legislation that will redistribute hundreds of billions, if not trillions, of dollars out of the hands of honest Americans and grant the federal government massive new powers to control and manipulate markets.

A Rasmussen Poll out today puts the support for the bailout at 7%! For any legislator to vote yes on this plan is to spit in the face of his constituents and reveal his utter contempt for the democratic process and the voice of the people. To do so would require them to utterly disavow the Constitution that they swore by oath to uphold.

It can be tolerated no more.

Contact your representatives and let them know that support of this plan constitutes a betrayal of the public trust and grounds for their removal from office. We will publicize the names of all those that vote yes so everyone will know who has been bought and paid for and no longer deserves to wear the mantle of “the people’s voice in Washington.”"

Why do we let the people who are supposed to represent us spit in our faces? I know I have personally called Perlmutter and spoke to an aide that told me their office has been flooded with calls to vote against this legislation. It will be interesting to see who votes for it in the coming days. It is also a nice little factor that this session of Congress is being pushed to make this happen before recess. I remember when I needed to finish a project before recess, I gave it just enough attention to get by. I fear tha same is happening in Congress. I also wish I could make money appear out of thin air.:rant:

Maddmatt
09-23-2008, 08:40 AM
Yeah, I'm not even going to pretend that a B in Macro-economics over 2 decades ago gives me any insight into this mess, but a mess it is.

While I'm always ready for a good "Blame Bush" session, clearly this problem runs much deeper and was longer in building than (and is too complicated :D) for Karl Rove's boy to have had much to do about it.

As Groucho said, and this is what I've been feeling lately, as a society we have some serious medicine to take - as much as it will hurt (and I've been out of work for 90 days now, I know what I'm speaking of and learning more every day) better it hurts now, and falls on my shoulders, than on my kids.

But the "unreviewable power" clause is terrifying. Our government already has way too much "unreviewable power" when it shouldn't have any.
-Matt

Red_Chili
09-23-2008, 08:46 AM
I expect - I hope - that that clause is stricken. In any event, given the mess we have gotten ourselves into, and the alternatives that exist, we do have to do some sort of bail out or face a new Depression with a collapsing banking system (of that I have no doubt). But we had better do so with a great deal of care and caution, and make sure it does not become a new governmental intrusion that has no expiration date.

Paulson and Bernanke are pushing for a quick passage. Let's hope it is not too quick, and that it does not create more handouts than the core issue.

I cannot support doing nothing. Our grandparents told us plenty of stories about the Depression. We don't need that. Whoever is at the helm next administration better be someone with a seasoned understanding of economics and market dynamics as well as politics and regulation.

Red_Chili
09-23-2008, 11:33 AM
A tongue-in-cheek analysis suggesting complete nationalization - for cheaper than the bailout.

http://www.smartmoney.com/blog/

We already have the enforcement of oversight organized.


http://www.smartmoney.com/blog/images/venezuela.jpg

gr8fulabe
09-23-2008, 11:40 AM
That clause was actually taken out late yesterday, as too many congressman said that they wouldn't vote for it if they didn't. So whatever the final outcome of the bailout bill is, it should include the ability to have any and all decisions reviewed.

Inukshuk
09-23-2008, 11:48 AM
First of all, I am looking forward to a week in Utah and escaping the politics. Second, I am constantly impressed how responsible all of you are in having good political discussion. Third, as a daily New York Times reader since childhood in NY, I am constantly amazed how many people deride that paper. Like anything else, one has to read with your mind turned on, but this is another example of how the Times' in-depth reporting provided good information.

My substantive $.02 is that it was in the execution of the expanded availability of credit that disaster took root. It was abuse I saw every week as a real estate lawyer. When the "Nehemiah" downpayment assistance program came out I was shocked, called an experienced banker/lender I know and we agreed it was institutionalized loan fraud. That policy I could not support. But greed and abuse ran rampant and the expanded availability of credit turned into a free-for all and no one did anything.
In my opinion the failure exists at society's general lack of personal responsibility. Most people think "it will all work out" and then stick their heads in the sand. Its the Tragedy of the Commons all over again.
Ok, off to Utah. Have fun and keep the debate going!

Nick F.
09-23-2008, 12:28 PM
I liked this

http://townhall.com/video/TheFivewithAmandaCarpenter/1450_091708Five

Yes I blame the democrats for the current mess. And I do believe that mccain warned of the coming disaster. As did the Bush admin. for that matter. Why not keep after it? I told you so isn't a comfort to anyone. I'll vote for him but I haven't been a mccain fan for years

Groucho
09-23-2008, 12:59 PM
Listen to this...

Ron Paul interview today on NPR on the bailout (http://www.npr.org/templates/story/story.php?storyId=94926280)

Red_Chili
09-23-2008, 01:05 PM
Second, I am constantly impressed how responsible all of you are in having good political discussion. ...Have fun and keep the debate going!
+1!
Rare and worthwhile.

Nay
09-23-2008, 01:09 PM
I've always thought this was kind of simple:

1) People don't buy house price, they buy payments, because payments relate to cashflow, not house price. If you could get a $2M house for $2K a month, there would be a run on $2M houses;

2) The Federal Reserve dropped rates to avoid a recession and held them at historical lows. You could get a 3/1 interest only ARM for about half the payment of a 30 year fixed with 100% financing. Because people buy payments and not house price, the prices of homes doubled in many markets. This is raw inflation ignored by the Federal Reserve;

3) The Federal Reserve marketed a "soft landing" and raised rates and therefore mortgage payments back to the 6% level;

4) The house price market, being based on the payments of a 3% rate, started to come down. In a long term environment of stagnant wage growth, house prices have to come all the way back down. Because people buy payments, not house price, and household cashflow is falling, not rising, due to inflation;

5) The trillion dollars of fake wealth created by the Federal Reserve to avoid a recession early in the decade that was spent in the form of home equity has vanished, but the debt remains. This is why the assets are becoming worthless in the mortgage securities market - homeowners have no room to spare in cashflow;

The role of government is supposed to be to regulate the tension between free market growth to expand the economy and protection against destabilizing excesses. Our government has designed a financial system that feeds off the economy to create individual wealth rather than supporting its long term growth, and the system has produced exactly what it was designed to produce.

I am a government pragmatist. I want government to competently perform essential functions that cannot be performed by any other entity, and I want to pay into a tax base to perform those functions to meet overall long term societal goals.

We are so far away from any idea of pragmatic government that this country is in real and perhaps permanent trouble. The bailout is just another trillion dollars of your money gone, and every trillion they waste will cost a family of four with parents paying taxes as part of the working class a national debt burden of about $20K.

So in the last eight years the government has assigned my family of six about $100,000 of debt, in return for which I am paying double for energy and far more for food and other essentials, with virtually nothing to show for all of this.

Of course, this is all part of Starving the Beast, and by all accounts the plan would seem to be on target. The details would seem to be far less important to discuss than the endgame.

corsair23
09-23-2008, 04:32 PM
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0


I usually stay out of anything political, but I found this article interesting to say the least...There is enough blame to go around for all to get their fair share :(

Red_Chili
09-24-2008, 08:20 AM
This is an interesting article on weighing what McCain, Obama, and Biden will do, as Senators. For once we get to see how they really will vote concerning economics, national debt, government intervention, avoiding a depression due to banking and credit collapse...


Or not.


http://www.smartmoney.com/theeconomy/index.cfm?story=Candidates-Face-Tough-Choice-on-Bailout-Plan

If one steps up, the others have to.

Red_Chili
09-24-2008, 08:31 AM
Jeff, I just read your article. Looks like we already DID see how they voted.
:rant:

Red_Chili
09-24-2008, 08:44 AM
Snippet from an AP story:
Without the bailout plan, Paulson and Federal Reserve Chairman Ben Bernanke have sketched out a grave scenario for lawmakers: Neither businesses nor consumers would be able to borrow money, and the world's largest economy would grind to a virtual halt.
No wonder the executives at Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Merrill Lynch, and a host of others live in gated communities. :mad:

Groucho
09-24-2008, 09:13 AM
No matter if you put a timeline on it, or leave it as a blank check, the $700 billion dollar bailout proposal by the Fed is still a classic case of socializing the risk while privatizing the profit. Otherwise known as "National Socialism".

Red_Chili
09-24-2008, 10:59 AM
But what would you do about credit collapse? Nothing? Would you support another Depression? That would cost a lot more to the American public than $700 billion. I don't like it either ... certainly not in its current form, which will likely be changed... but...

I know for a fact that if credit froze and our economy came to a standstill (exactly what precipitated the 1929 crash and subsequent inability to climb out of it) I would certainly lose my job, and my company very well would fold. And this is a company with a solid balance sheet and conservative fiscal management. I cannot imagine this would be an exception.

Tight credit has already cost me half my raise.

Groucho
09-24-2008, 12:15 PM
But what would you do about credit collapse? Nothing? Would you support another Depression? That would cost a lot more to the American public than $700 billion. I don't like it either ... certainly not in its current form, which will likely be changed... but...

I know for a fact that if credit froze and our economy came to a standstill (exactly what precipitated the 1929 crash and subsequent inability to climb out of it) I would certainly lose my job, and my company very well would fold. And this is a company with a solid balance sheet and conservative fiscal management. I cannot imagine this would be an exception.

Tight credit has already cost me half my raise.

Like I said in my original post, this country has a dose of medicine it will have to take, either now or later. I, too, have suffered in my compensation due to the economic condition we are currently feeling.

It should anger all of us that we have been put in this position without any choice in the matter. By all means we would be justified in that feeling. We have been coerced into this corral quietly and deliberately by the doings of a select few who do so in their own financial interests.

The very institution that is poised right now as the supposed "savior" for the economic crisis is actually the one who put us here in the first place. The Federal Reserve is responsible for what we refer to as inflation, because it is the institution charged with the creation of new currency units, or "bank credit". When newly created bank credit is injected into our fractional-reserve banking system, the credit expands, thus enhancing the inflationary effect.

And what do you think the $700 billion dollar bailout is? Exactly that-bank credit. Yes the credit market may freeze next week if we don't do something today. But if we allow the Fed to continue to do this bailout, it will only cause worsening circumstances in the future. If we continue to artificially try to "stimulate" the economy through "encouraging" money supply growth and further borrowing via artificially low interest rates, we just end up digging our (or our kids and grandkids) own graves.

I ask this: If the bailout were to be put in place, would anyone assume that the Fed would pay out any dividends to taxpayers should AIG or any of the other banks “assisted” by the bailout start to see increases from losses to gains? Yeah right.

I don't know what the answer is; I just know it is not to continue to perpetuate what we have done for so long. If credit markets were frozen, many companies who are otherwise financially responsible and sound would be gone in an instant, not just a few. As soon as banks start calling on notes, doors would be locked and people would be out of jobs.

Red_Chili
09-24-2008, 12:58 PM
OK, so we should let it all fold, have ourselves a Depression hoping it is less than a decade, and take our medicine... let's be the ones to advocate for that.

You first...


:lmao:

J/K, I know you are not saying that. Couldn't resist. But it is kinda where Congress finds itself.

Groucho
09-24-2008, 02:05 PM
I don't want to see any of us in financial peril, families living on the street in a car, or normally good people resorting to stealing food to feed their families, no.

But I don't think that we should sell out future generations of what the candidates are referring to as the "middle class" into a society of feudalism, either. Therein lies the rub. When do enough Americans stand up and say "Enough is enough." --I'll be first.:D

Lets see if our voices inspire our leaders to brainstorm a better solution.

Red_Chili
09-25-2008, 08:19 AM
I dunno, you may be very optimistic there. Freezing credit, and therefore cash flow, is exactly what precipitated the Great Depression and the collapse of financial institutions.

Helluva gamble.

Groucho
09-25-2008, 08:50 AM
What precipitated the Great Depression was a number of factors. We got to the point where banks froze credit because there was too much fractional reserve on too many of our financial holdings, both private and public. Not enough solid commodities (most often in Gold) to back the amount of money invested and distributed.

Banks (and more specific to the current problem, investment banks) make money by charging interest on the notes they write WITHOUT a major percentage backed by commodities. The result we are looking to avoid with the bailout is simply the risk they take in doing so.

Now, it has been said everywhere in the past 24-48 hours that it is necessary to pass the bailout legislation to avoid catastrophic results. Where are the investors with liquid capital going to come from in order for the plan to work? Asia? Europe? China has already asked its local lenders to stop lending to the US because of worry that there will be significant loss.

China won't lend to $700 billion bailout. (http://www.marketwatch.com/news/story/china-asks-local-lenders-not/story.aspx?guid=%7B389CCD2E-9D08-4A8B-A512-F1B3E0B0BE19%7D)

The German government refused to contribute to a $700bn (£378.7bn) rescue package proposed by Washington.

Germany slams the US over credit crisis. (http://www.guardian.co.uk/business/2008/sep/22/marketturmoil.creditcrunch)

If there is no one there to buy the liabilities that the FED wants to buy, then all we have done is injected more bad debt into our economy. More bad debt will not sustain us for long at all. Chairman Bernanke, when asked about how he can justify more inflation by injecting the $700B of bad debt into the economy, stated yesterday that he sees no increased inflation as a result of the bailout. All signs are pointing toward the opposite.

Honestly, as this has also been a smokescreen for the $25 Billion aide to the US automakers that congress just passed yesterday, I am beginning to see why this bailout is doing what it is doing. Regardless if it passes or fails, the idea is to give the fat-cats time enough to get out now before they lose everything like the average Joe will once the situation turns worse. LIMITS on compensation? How about lack of compensation through significant loss to the risks that the over-inflated salaried executives made in the first place?

Red_Chili
09-26-2008, 12:35 PM
A SEARING (as only the Brits can do it, understatedly) article from across the pond:
Financial Times (http://www.ft.com/cms/s/0/1338266e-8b42-11dd-b634-0000779fd18c,dwp_uuid=11f94e6e-7e94-11dd-b1af-000077b07658.html)

You have to sign up to read it, but it's free, and worth it.

Red_Chili
09-26-2008, 12:54 PM
More good discussion from outside the Republican vs. Democrat dance:
FT's editorial on the bailout and proposed alternatives (http://www.ft.com/cms/s/0/676fecaa-8a5f-11dd-a76a-0000779fd18c,dwp_uuid=11f94e6e-7e94-11dd-b1af-000077b07658.html)

Red_Chili
09-26-2008, 01:08 PM
More informed perspective:
Banking after the Bailout (http://www.ft.com/cms/s/0/63523c3a-8a60-11dd-a76a-0000779fd18c,dwp_uuid=11f94e6e-7e94-11dd-b1af-000077b07658.html)
Note who Mohamed El-Erian is (at the bottom).

Elsewhere I joked about taxpayers holding subprime paper - like we would want to. The more I learn about this one though, and the likelihood that 'we' would buy this paper at the bottom of an overcorrection, that may not be a bad thing at all, and (unless utterly mismanaged by gov't - could it be?) might actually make back more than is committed.

Or not. :lmao:

One real benefit of all this, and I am not being facetious, is that to those who are really looking at all this, it is like a graduate level seminar on international finance and macroeconomics. Fascinating. Not that I understand all that much, mind you.

Our politicians are certainly getting an edumacation. In between sniping each other.