The Deal
With the biggest gun at their heads imaginable -- an economic meltdown just five weeks before many of them are up for reelection -- members of Congress have just about agreed to the terms of the mother of all bailouts. They've also agreed to press two conditions -- limits on executive salaries, and some sort of public ownership proportional to the risks taxpayers are taking on.
But the devil is in the details. From what I've heard, the kinds of limits being discussed could easily be cosmetic, such as limits on golden parachutes or limits on net increases in direct salaries during the duration of the bailout. Public equity could also vaporize into conditional warrants, giving taxpayers (and the Treasury) the option to cash in on certain classes of stock or applying only where firms get direct government aid rather than where they fob off their bad debts on the public.
There will be some skirmishing over whether homeowners in danger of losing their homes should be given some breaks, but here too it's important to watch the details. Wall Street doesn't want any provision that allows distressed homeowners to wiggle out of their mortgage obligations, even though Wall Street is wiggling out of its own bad debts.
Congress knows the public is furious. That's why it's insisting on the above-mentioned provisions. But Congress and the Administration, and Wall Street, also know that the public -- and the media -- can easily be hoodwinked into believing that certain limits and protections have been built into the deal when, on closer inspection, they haven't. Wall Street is masterful at creating the appearances of value when there's no value there, and many of our representatives in Congress are well-versed in the art of creating the appearances of public gains when the gains are mostly private. So the media has to dig hard and look at the details of this deal.
Meanwhile, when no one was looking, American automakers are on the way to getting their own sweetheart deal from Congress -- billions, ostensibly to convert to more fuel-efficient cars. On a much smaller scale, this bailout is almost as outrageuos as Wall Street's. Detroit has known for years that it would eventually have to create fuel-efficient cars, but it kept producing SUVs and trucks because that was where the profits were. Japanese automakers in the US did the right thing, took the risk, made the investments in fuel-efficient technologies. But they're not getting bailed out.
In just a few weeks, capitalism has been turned upside down. The underlying question here, as with trickle-down tax policy, is whether any of this ultimately helps Main Street.
But the devil is in the details. From what I've heard, the kinds of limits being discussed could easily be cosmetic, such as limits on golden parachutes or limits on net increases in direct salaries during the duration of the bailout. Public equity could also vaporize into conditional warrants, giving taxpayers (and the Treasury) the option to cash in on certain classes of stock or applying only where firms get direct government aid rather than where they fob off their bad debts on the public.
There will be some skirmishing over whether homeowners in danger of losing their homes should be given some breaks, but here too it's important to watch the details. Wall Street doesn't want any provision that allows distressed homeowners to wiggle out of their mortgage obligations, even though Wall Street is wiggling out of its own bad debts.
Congress knows the public is furious. That's why it's insisting on the above-mentioned provisions. But Congress and the Administration, and Wall Street, also know that the public -- and the media -- can easily be hoodwinked into believing that certain limits and protections have been built into the deal when, on closer inspection, they haven't. Wall Street is masterful at creating the appearances of value when there's no value there, and many of our representatives in Congress are well-versed in the art of creating the appearances of public gains when the gains are mostly private. So the media has to dig hard and look at the details of this deal.
Meanwhile, when no one was looking, American automakers are on the way to getting their own sweetheart deal from Congress -- billions, ostensibly to convert to more fuel-efficient cars. On a much smaller scale, this bailout is almost as outrageuos as Wall Street's. Detroit has known for years that it would eventually have to create fuel-efficient cars, but it kept producing SUVs and trucks because that was where the profits were. Japanese automakers in the US did the right thing, took the risk, made the investments in fuel-efficient technologies. But they're not getting bailed out.
In just a few weeks, capitalism has been turned upside down. The underlying question here, as with trickle-down tax policy, is whether any of this ultimately helps Main Street.
posted by Robert Reich | 11:52 AM
127 Comments:
Greedy Wall Street Bastards! Petulant Predatory Lenders! Throw 'em all in Jail.
This is all their fault and we shouldn't bail out those fat cats! Can you believe how they took advantage of the poor unwashed masses while making tons of money in the process!
The Bush Administration was so concerned with the rich getting richer that it looked the other way while this happened! Oh, the humanity of it all. Woe are we!
NOT SO FAST...Here is an article from the LA Times in 1996.
Minorities’ Home Ownership Booms Under Clinton but Still Lags Whites’
By Ronald Brownstein
May 31, 1999 in print edition A-5
It’s one of the hidden success stories of the Clinton era. In the great housing boom of the 1990s, black and Latino homeownership has surged to the highest level ever recorded. The number of African Americans owning their own home is now increasing nearly three times as fast as the number of whites; the number of Latino homeowners is growing nearly five times as fast as that of whites.
These numbers are dramatic enough to deserve more detail. When President Clinton took office in 1993, 42% of African Americans and 39% of Latinos owned their own home. By this spring, those figures had jumped to 46.9% of blacks and 46.2% of Latinos.
That’s a lot of new picket fences. Since 1994, when the numbers really took off, the number of black and Latino homeowners has increased by 2 million. In all, the minority homeownership rate is on track to increase more in the 1990s than in any decade this century except the 1940s, when minorities joined in the wartime surge out of the Depression.
This trend is good news on many fronts. Homeownership stabilizes neighborhoods and even families. Housing scholar William C. Apgar, now an assistant secretary of Housing and Urban Development, says that research shows homeowners are more likely than renters to participate in their community. The children of homeowners even tend to perform better in school. Most significantly, increased homeownership allows minority families, who have accumulated far less wealth than whites, to amass assets and transmit them to future generations.
What explains the surge? The answer starts with the economy. Historically low rates of minority unemployment have created a larger pool of qualified buyers. And the lowest interest rates in years have made homes more affordable for white and minority buyers alike.
But the economy isn’t the whole story. As HUD Secretary Andrew Cuomo says: “There have been points in the past when the economy has done well but minority homeownership has not increased proportionally.” Case in point: Despite generally good times in the 1980s, homeownership among blacks and Latinos actually declined slightly, while rising slightly among whites.
All of this suggests that Clinton’s efforts to increase minority access to loans and capital also have spurred this decade’s gains. Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. The bottom line: Between 1993 and 1997, home loans grew by 72% to blacks and by 45% to Latinos, far faster than the total growth rate.
Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more.
In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. It has aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That’s made banks willing to lend to lower-income families they once might have rejected.
But for all that progress, the black and Latino homeownership rates, at about 46%, still significantly trail the white rate, which is nearing 73%. Much of that difference represents structural social disparities–in education levels, wealth and the percentage of single-parent families–that will only change slowly. Still, Apgar says, HUD’s analysis suggests there are enough qualified buyers to move the minority homeownership rate into the mid-50% range.
The market itself will probably produce some of that progress. For many builders and lenders, serving minority buyers is now less a social obligation than a business opportunity. Because blacks and Latinos, as groups, are younger than whites, many experts believe they will continue to lead the housing market for years.
But with discrimination in the banking system not yet eradicated, maintaining the momentum of the 1990s will also require a continuing nudge from Washington. One key is to defend the Community Reinvestment Act, which the Senate shortsightedly voted to retrench recently. Clinton has threatened a veto if the House concurs.
The top priority may be to ask more of Fannie Mae and Freddie Mac. The two companies are now required to devote 42% of their portfolios to loans for low- and moderate-income borrowers; HUD, which has the authority to set the targets, is poised to propose an increase this summer. Although Fannie Mae actually has exceeded its target since 1994, it is resisting any hike. It argues that a higher target would only produce more loan defaults by pressuring banks to accept unsafe borrowers. HUD says Fannie Mae is resisting more low-income loans because they are less profitable.
Barry Zigas, who heads Fannie Mae’s low-income efforts, is undoubtedly correct when he argues, “There is obviously a limit beyond which [we] can’t push [the banks] to produce.” But with the housing market still sizzling, minority unemployment down and Fannie Mae enjoying record profits (over $3.4 billion last year), it doesn’t appear that the limit has been reached.
All signs point toward a high-velocity collision this summer between two strong-willed protagonists: HUD’s Cuomo and Fannie Mae CEO Franklin D. Raines, the first African American to hold the post. Better they reach a reasonable agreement that provides more fuel for the extraordinary boom transforming millions of minority families from renters into owners.
*
Just pulling from the article:
In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers...Most importantly, Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That’s made banks willing to lend to lower-income families they once might have rejected.
"Loans with very low down payments or with mortgage payments that represent an unusually high percentage of a buyer's income."
I'm just spitballing here, but that sounds an awful lot like subprime debt. And, if I just read this a little bit more, it seems that the Clinton administration was very active and practically forced banks into these lending practices.
I don't diasgree that discrimination in lending may have been or could still be a problem. But, lending standards existed for a reason. A Democratic congress and a Democratic President mandated that those standards change and now we’re paying for it. .
Many are railing that this bailout is nothing more than corporate welfare. But I have to ask, Was the original mandate to lower standards (with the wink and nudge that the government would be there through Freddie/Fannie) welfare that the government used the banks to finance with a big bill now coming due?
The good news is that the exotic mortgage products created during this time of loosened standards have all but disappeared. The bad news is that the bad debt and associated contagion have not. The credit markets are seizing because banks are not even willing to lend to other banks on an overnight basis because nobody really understands how much risk is in the portfolio. This says nothing about lending to the consumer or businesses where the information is more nebulous.
We have to take the government created risk out of the system before the system can begin functioning again. This rescue plan is one way to do it. I don’t pretend to know if it’s the best, most efficient one. But, I do think it will work and that time is more of the essence than the need for a perfect answer.
As for the automakers, I don’t understand why they deserve a penny for their years of mismanagement. It’s not like there is even a buy American argument here because better selling cars like Accords and Camrys are also built in the U.S. That is true corporate welfare and significantly beyond the limits of reason.
Anonymous Matt
Sorry, make that 1999.
I hope the bailout terms include a provision to restructure the legal entities of these bailout firms to provide "fair" tax payments on any profits after the taxpayer debts are paid.
Not only did these firms almost destroy capitalism and initiate corporate welfare, but they did it while dodging taxes with offshore corporate entities.
I suspect they also employed a ton of green-cards to help them obfuscate their excessive greed.
One way congress can increase taxes to help pay for this... is to stop the "grey economy" in this country... many illegal aliens are not paying taxes on income, yet their extended families are smothering our social services. The illegal aliens are the hidden raiders on our economy.
Wake up all you congressional imbeciles.
Why did the executive branch "bailout" AIG and Bear Sterns but now are asking for legislative approval to bail out the next bruised and battered basket of banks.
I have trouble believing that the worst financial crisis since Hoover was in office comes just weeks before this presidential election.
The sense of urgency seems false and distracting from the issues I care about. Financial meltdown has certainly taken healthcare, social security and Iraq off the radar.
The timing of this much needed bailout simply doesn't pass the smell test.
I am 100% against any tax payer money to bailout out billionaires.
However, if this bill includes a provision paying off my mortgage, I'll wholeheartedly support it.
What can one do? The blogs, both those that focus on politics and those that focus on economics, have been energizing voters to fax, call, e-mail their representatives in Congress. And still both House and Senate cave in to the threats and demands of Paulson and Bernanke. The charade displayed this week by hearings in front of the House and Senate was insulting. So what is left? How does one fight against outrageous greed and powerful, monied thugs?
I'm not for a bailout, but if we need one, I favor a version of the Swedish Plan.
http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?em=&adxnnl=1&adxnnlx=1222372902-30PFQ7albFxo2e/i5lDeyg
First, it worked. Second, I actually understand it. Don the libertarian Democrat
It has been absolutely proven to me that I do not have enough money to make my vote count, so why bother voting? It's a waste of time. Did I write my representatives? Yes! Did they listen? Why should they when they are already bought and paid for. As of today - NO MORE charitable donations. To ANY organization. No more wasting time going to vote or listening to politicians lies (they are all lies) no more volunteer work - let someone else do it. And no more political donations when the politicians are, as I said, already bought and paid for. It makes no difference who gets elected in November - the people will get screwed.
I am not happy about the auto industry bailout.
Ford produces a 65mpg diesel car that is selling in Europe.
If the taxpayers are financing factory retooling, then I demand that America gets a 65mpg vehicle, also.
Why does the auto industry get to line up at the corporate welfare trough without any equity or return to the taxpayers.
What guarantees do we have that they won't just squander these monies .. like they have over the last 35 years of continual losses in market share. These guys are out of touch and in bed with big oil.
I might consider an American made car if it gets 65mpg… but I haven’t owned an American auto since 1978… so many failures in our country
So, RR, are you saying the plan should be voted down? Isn't this a choice between a certain expenditure of known proportions and a somewhat less certain economic disaster of relatively unknown proportions?
I like the bird in the hand.
Time to get 20 or thirty patriots who are good shots and get some on Wall street.
Do I feel bad for the Wall street Scum that died on 9-11?
Hell no
I too am opposed to the bailout and particularly any bailout that insulates the investors from loss and helps the owners of distressed homes. I am sure there were some misrepresentations made in connection with the sale of mortgage backed securities and some instances of predatory lending, but that is what lawsuits are for. In most cases investments were made because people were stupid or lazy or greedy or all of the above. People entered into morgages that they could not afford because they were stupid or greedy or both. Those of us who have lived by the rules and within our means are now being asked to foot the bill. This is exactly like the fable about the ant and the grasshopper. We are doomed as a nation if we accept the premise. Further, the financial crises is only the canary in the coal mine. Rather than trying to get back to the surface before the air runs out, we are going to give very expensive cpr to the canary and pretend that we are solving the problem. Those problems IMHO are that we as a nation spend far more than we make relying on the goodwill of folks in the Middle East and China to keep us in the style to which we have grown accustomed. We no longer mass produce goods, just mass consume them. People want to be paid much more than workers in developing countries although many do not have the education or skills present in developing countries. Even when skills and education are equal, work ethic is not. Our young people disrupt their classrooms , ignore their teachers or simply do not show up. Their parents blame the schools rather than their offspring. Our infastructure is crumbling, but we elect politicians who would rather fight wars than fix problems at home. We prefer politicians who "we would like to have a beer with" or field dress a moose with, rather than dull elites who know something about government and economics--not just politics. We want all the health care available as long as someone else is paying for it, but object to the notion that the government rather than a for profit insurance company will participate in our health care decisions. We may escape Armegeddon this time, but my prediction is that within 5 years we will see a Depression from which we will never emerge unless we address the fundamental flaws in our culture. The principle flaw is the failure to accept responsibility for our actions and the bailout only enhances that thinking.
I just finished my bailout contingency plan for a big disaster.
I took cash out of the bank in $20 bills and put them in my safe.
My safe has 5 firearms.
I have 35,000 rounds of ammo.
I have a boat, a water purifier, a generator, a wood stove and 3 months of food supplies.
I am preparing for both acts of God and man-made debacles.
I want to save next for a pair of nigh goggles... in case things get rough... I would have an advantage after dark.
What are you guys doing... just praying for Republican generosity and fairness??? Good luck boys !!
Sen. Shelby stated no plan for a bailout yet. I say no bailout. Demand Henry Paulson and Ben Bernanke resign. Deport both. Dissolve the Federal Reserve, which is no more federal than Federal Express. It's a cartel of private bankers: Rothschilds, Warburgers. If they want to reign in Europe, so be it, but kick them out of the US.
Make Alan Greenspan explain to Congress how jobs offshored mean that ARMs on houses can reset to higher monthly mortgage payments. Then put him under oath and ask him to explain, until a person reading at a 5th grade level can understand. I read at considerably higher than a 5th grade level, and I have never understood. Next, bring dimwit US Labor Secretary Elaine Chao in and have her explain the same topic.
Let the banks collapse. Let the people who work at the banks follow Alan Greenspan's advice for jobs retraining: registered nurse, anesthetist, xray technician, health sciences careers.
Problem solved......
Warren Buffet + Robert Reich + other esteemed "players" of wallstreet and macro econimics - form a board of trustees to guide entity "X Flavor" to buy, at "firesale" prices (the true value of these bull#$% notes) the pieces of these "bankrupt" financial institutions.
If the american taxpayer "has to" bailout these companies. Let them assume total control over them and benefit from the risks we are being "forced" to take. Any profits to fund the ailing areas of government and education until such time as the board of trustees determines the company is ready to release back into the "free market" or non government entity.
The key is that we need absolute altruistic and patriotic "trustees" (the ones we can't seem to find for our govenment offices). If such a thing is to be found in our leadership circles, I am starting to wonder......
Reap the whrilwind of the Bush administration..... We should have expected nothing less than a crushing "tipping point" that our made bed has finally delivered to lie in when the Bush regime was passed into office the second time.
Was our country better off at anytime after he took office.... my guess is no unless you are part of the Carlyle group or make above $500K.
http://www.dailykos.com/story/2008/9/25/143232/846/988/610247
I've read that in a casino, money is referred to as "product." That concept, that money is a product, the product, permeates our economy, and is at the core of the current "troubles." That's right, the American economy is being managed like a casino. The house is the only player that always wins, and we're not the house.
I have a gut feeling this should be called the Mother of All Rip-offs.
Any individual who failed to see the crisis coming should have no credibility in advising what to do about the crisis. They definitely should be left in charge of implementing any such plan.
-david s in california
Well, you can be sure as soon as this legislation is passes I'll be reading it and there are a lot out there that will rip it apart and tell us what it means.
Then my representatives will hear from me and I will pass that legislation around and tell EVERYONE what it means.
I have never seen the nation so outraged and nothing is calming them down. Congress must be careful because the public isn't as stupid as they think.
Once the truth hits an email chain there is no stopping it. You want someone who is good at getting at the truth? Go to market ticker blog. He was even on NBC news last night. He has been dead on with all this for the last two years.
I'm thinking a lot of congress will lose their seats. The public have finally had enough. We know they are serving themselves and the corporations. Yes, we need change, and we need to change ALL of them.
As for Wall St. we are sick of them too. They are not loyal to our country. They are only loyal to their pockets. You tell me who the bigger "enemy" is. Wall St. is bringing our whole country and the world down. Who is more dangerous? And Congress passed the legislation to let all this happen. I don't want one more penny of any of my retirement going to Wall St. They have proven over and over that they cannot be trusted. So Congress can do something useful and dream up a new retirement account system. An not the Republican one, that is nothing but a scam. I blame most of this on the Republicans in Congress. They are the ones for big business and deregulation.
Have you all seen some of the YouTube videos of outraged Americans?
Where are the handcuffs and leg Irons? Where are the perp walks. These crooks are going to get away with it again. And these people expect the "average Joe" to go along with their bailout?
Wall St. and Congress are in a fantasy world. They are so out of touch it's disgusting. We must vote them all out and then prosecute the crooks on Wall St.
If any politician thinks voting for this atrocity will help them get reelected, they are WRONG!
The idiot politicians are reacting in their typical panic mode knee jerk manner to the irrational hysteria whipped up by even MORE idiotic so-called “journalists”.
The people, demonstrably, do NOT want this bailout in any way, shape or form (and for good reason).
Politicians, beware of torches and pitchforks! The people are mad as #@%%!
Dr. Reich
I predicted that the auto makers would like up for a big hit of taxpayer money over 8 weeks ago here in the comments section. I don't feel any joy in being right. They completely are to blame for being smug enough to believe that only a small group of non mainstream consumers would be interested in high mileage vehicles.
APPEARANCE OF VALUE smoke and mirrors, that's all they have ever offered. What's the T V show ....Criminal Intent. The fat cats have always had criminal intent and should somehow be made to pay. Tar and feather is too fleeting, maybe sackcloth and a permanent yoke and no mechanical or otherwise transportation. But it should be every honest citizens duty to feed and shelter them at night so they will stay alive and be a lingering example of unfettered greed.
C Archer Woodward
I took some solace from Glenn Beck's analysis of the bailout...
http://www.cnn.com/2008/POLITICS/09/24/beck.bailout/index.html
It is a very poignant perspective that clarifies our Morton’s Fork situation.
It seems as if we are heading into a wave of de privatization. There is so much uncertainty regarding the deal, I’m not sure how the American citizens should feel about the issue. How do we tell if its worth our while. Do we just swallow what a handful of people say we should do..? Doesn’t seem as if we really have much say in the matter in either case. How do we discriminate against which groups of suffers in this country will receive help, because surely even with $700B someone isn’t going to see a penny. I suspect some(people’s) payroll will somehow increase because of this. (The rich and powerful always have a plan B). I live in Canada and things are a bit different here, if you want our perspective of the debacle have a look www.stockresearchportalblog.com
Robert,
I keep being told that there's a crisis. What numbers support this assertion? I'm not saying that there aren't any, I just haven't seen them.
===Mike
The story about American car makers is really interesting, but again is an example of where bigger profits have not lead to greater investment. Likewise with oil companies who are making huge profits right now, perhaps governments should be legislating for more of company profits to be turned over to R&D or in the case of oil companies, to alternative or zero carbon energy?
On the flip side, the Bjorn Lomborg type argument over climate change where we are told we can spend the money more effectively elsewhere seem irrelevant since any pretence of spending money 'effectively' has gone out of the window - in a crisis seems to be all about excess (numbers so big the public can't quite grasp them) just to preserve the status quo.
Perhaps in future when there is a 'real' crisis (in main street and the world) such as climate change, we can at least argue if the money was there for the banks, it should at least be there for something as essential as a stable and clean environment.
Big government is back, to meet the wrong crisis.
Why doesn't congress just give every American $1 million dollars.
It would only cost 300 million instead of 800 billion. Everyone could pay for their house or 401K and be safe. Some would lose money to be sure, but no one goes hungry or get thrown out on the street. And talk about a stimulus! WOW
"Why doesn't congress just give every American $1 million dollars.
It would only cost 300 million instead of 800 billion."
Um, check your zeros.
I want the fraudulent CEOs and other "risk takers" to go to prison for their actions.
However, I don't want the homeowner to be relieved of their obligation to pay back the principle loan amounts they borrowed.
Work out extending the terms, phasing in increases in the interest rates but the homeowner needs to be held accountable for the loans they took out.
They were issued HUD 1s and hired an attorney for the closing. If the homeowner feels they were mislead then they should be suing their closing attorney for not adequately explaining the terms.
Going forward we need to return to more conservative loan requirements such as 28% of GMI for housing debt with a maximum of 36% of GMI for total debt with a minimum of 10% down or 20% without PMI. No piggy back second loans for the down payment.
If someone doesn't have 10 or 20% then they shouldn't be buying a home until they do!
Sorry, but the American Dream isn't free, it has to be earned!
And to think it was just a couple of weeks ago tha McCain was saying "the fundamentals of out ecomomy are strong".........what a tool.
Rather than bailing out the banks, take the 700 billion (or whatever amount) and form a government loan institution with the mandate to making business loans. Let the banks that have made the bad investments sink into their own toxic debt and instead of bailing them out (and their multi-millionare officers) form a seperate institution to do just the job that they should have been doing.
Yes the government isn't particularly good at money management, but it also doesn't have to be concerned with maximizing profits and so can provide a much more reliable and reasonable loan product to the businesses that need them.
Yesterday on this blog site I saw questions, and few were shouting fraud. Today, things have changed. If this anger continues it could actually unite the country again.
And 2 days ago the Iranian President said to the world that "The American Empire" is coming to its end. And if things keep going this way he will be correct and the world will abadon us to our demise. I know that it would be hard to be more pesimistic but aggh where are the protests and our leaders when we need them to shut this thing down before a 700 billion dollar no real strings attached check to people who could only use it for a giant cash orgy which will have to be paid by those who are not allowed to vote for change. I think i'm going to check what the immigration cap is for Europe cause it is gonna cap fast!!!
Garrison Keillor: Where were the cops?
By Garrison Keillor International Herald Tribune
Thursday, September 25, 2008
Where were the cops?
It's just human nature that some calamities register in the brain and others don't. The train engineer texting at the throttle ("HOW R U? C U L8R") and missing the red light and 25 people die in the crash - oh God, that is way too real - everyone has had a moment of supreme stupidity that came close to killing somebody. Even atheists say a little prayer now and then: Dear God, I am an idiot, thank you for protecting my children.
On the other hand, the America's federal bailout of the financial market (yawn) is a calamity that people accept as if it were just one more hurricane. An air of crisis, the secretary of the Treasury striding down a hall at the Capitol with minions in his wake, solemn-faced congressmen at the microphones. Something must be done, harrumph harrumph.
The Current Occupant pops out of the cuckoo clock and reads a few lines off a piece of paper, pronouncing all the words correctly. And the newscaster looks into the camera and says, "Etaoin shrdlu qwertyuiop."
Where is the outrage?
Poor Senator Larry Craig got a truckload of moral condemnation for tapping his wingtips in the men's john, but his party proposes to spend 5 percent of the GDP to buy up bad loans made by men who walk away with their fortunes intact while retirees see their 401(k) go pffffffff like a defunct air mattress, and it's business as usual.
John McCain is a lifelong deregulator and believer in letting brokers and bankers do as they please - remember Lincoln Savings and Loan and his intervention with federal regulators in behalf of his friend Charles Keating, who then went to prison? Remember Neil Bush, the brother of the C.O., who, as a director of Silverado S&L, bestowed enormous loans on his friends without telling fellow directors that the friends were friends and who, when the loans failed, paid a small fine and went skipping off to other things?
McCain now decries greed on Wall Street and suggests a commission be formed to look into the problem. This is like Casanova coming out for chastity.
Confident men took leave of common sense and bet on the idea of perpetual profit in the real estate market and crashed. But it wasn't their money. It was your money they were messing with. And that's why we need government regulators. Gimlet-eyed men with steel-rim glasses and crepe-soled shoes who check the numbers and have the power to say, "This is a scam and a hustle and either you cease and desist or you spend a few years in a minimum-security federal facility playing backgammon."
The Republican Party used to specialize in gimlet-eyed, steel-rim, crepe-soled common sense and then it was taken over by crooked preachers who demand Americans trust them because they're packing a Bible and God sent them on a mission to enact lower taxes, less government. Except when things crash, and then government has to pick up the pieces.
Some say the tab might come to a trillion dollars. Nobody knows. And McCain has not one moment of doubt or regret. He switches from First Deregulation Church to Our Lady of Strict Vigilance like you might go from decaf to latte. Where is the straight talk? Does the man have no conscience?
It wasn't their money they were playing with. It was yours. Where were the cops?
What we are seeing is the stuff of a novel, the public corruption of an American war hero. It is painful.
First, there was McCain's exploitation of a symbolic woman, an eager zealot who is so far out of her depth that it isn't funny anymore. Anyone with a heart has to hurt for how McCain has made a fool of her. Never mind the persistent cheesiness of his attack ads. And now this chasm of debt and loss and the gentleman pretends to be shocked. He was there. He turned out the lights. He sent the regulators home.
McCain seems willing to say anything, do anything, to get to the White House so he can go to war with Iran. If he needs to recline naked in a department store window, he would do that, or eat live chickens, or claim to be a reformer. Obviously you can fool a lot of people for a while and maybe he can stretch it out until mid-November. But the truth is marching on. A few true conservatives are leading a charge against the bailout. Good for them. But how about admitting that their cowboy economic philosophy was at fault here?
Garrison Keillor is the author of a new Lake Wobegon novel, "Liberty." Distributed by Tribune Media Services.
I really worry about Faux News' push to blame minorities for the current economic problems, because they can't bear to put the blame where it belongs, on the anti-regulation Republicans who have been in power for 8 years. The first comment here is apparently trying to fan those flames. Someone on Calculated Risk had good numbers showing that CRA loans actually outperform most others, since underwriting went downhill so much during the bubble.
As the economy implodes I'm afraid the rednecks will take out their wrath on any available minority if this isn't nipped in the bud.
suecris
This post has been removed by the author.
This post has been removed by the author.
Anonymous,
Nobody is seeking to “blame minorities”. Only one who is thoroughly indoctrinated in the demonstrably Marxist doctrine of “Political Correctness” (aka Cultural Marxism) would suggest anything as idiotic as that.
Minorities are the VICTIMS of the Cultural Marxists (aka Democrats)!
1) Click here (recently updated) and learn:
A) The facts on what caused this housing mess.
B) Why this bailout is a TERRIBLE IDEA
2) Click here to get the quantitative facts on who held subprime mortgages (and why). Don’t miss the larger story here.
3) Click here and know that this bailout WILL go down in flames.
4) Click here and see that at least 165 of the nation’s leading economists have come out against this bailout.
"Privatize Profits, Socialize Debts!" and let the People Eat Cake!
Pandora's Bailout…It's Trickle Down All Over Again!
This email is in two parts since it’s a compilation of several other emails;
· 1st) An alternative solution to the Pandora’s Bailout, Bush and the Fed are demanding/extorting from taxpayers
· 2nd) A response to the question of the day, “Sounds like downright socialism to me."
Part One:
Here's an idea, pieces of ideas from a number of sources, how about a mini-Bankruptcy Court to re-negotiate mortgages directly between homeowners & the lending institutions. Those that can make it, excellent! Those that go under after that, well we tried! But I guess that would miss the real point of all this Pandora's Bailout, a free lunch for the Temple’s Money Changers on Wall St & the Big Central Banks with some trickle down crumbs for the people...after all, they can eat cake!
Let’s Trickle Up:
Working off the Bill/Hillary remarks Bill Clinton mentioned on David Letterman’s show Monday night & a short BusinessWeek article in this week's edition, here's a very simple solution to this whole problem. The Bankruptcy Court (guaranteed in the main portion of the US Constitution) already has the authority to deal with this with no new government bureaucracy. Further, having a directed "bailout" fund to tap would substantially solve the foreclosure problem at a fraction of the cost of this Pandora's bailout.
Two pieces of info first:
* When one files, petitioning the Court for bankruptcy, the Court assigns all your assets & debts to a Trustee. That trustee, an experienced, bonded laymen (usu. business-person) simply figures how much your assets are worth and finds buyers for your assets, figures how much of your debt can be paid & you walk free! Chap 7 filings liquidates all your assets (after exemptions), pays your creditors with these funds & you walk with a certain amount of your assets left for you to start over - inc. a large chunk of your housing equity (called homestead exemption). Also your retirement accounts are exempted from the Bankruptcy Court - you walk away with those intact! Chapters (9 - govts; 11 -biz; & 13 -people) filings are a reorganization under the Bankruptcy Court's & a trustee's guidance. Same setup as Chapter 7 except you repay a certain amount to creditors over a 5-7 year range (no more than that) & you keep lots more stuff but excess debt is dismissed & you walk away with assets to restart & no debts!
* All/most state courts now have a "small claims" wing where there's limited jurisdiction, both damages & scope where there's a quick (30 day) resolution.
BINGO!!!!
First: A freeze on foreclosures to defaults is re-active to some prior date.
Second: You set-up a Bankruptcy Court small claims division -centering on housing defaults only. Same setup, no new government bureaucracy, with just a much smaller bailout fund to help everyone out & hiring a few more business folks as trustees (OMG!! jobs!!). Trustees are paid on commissions! The Bankruptcy Court already has an extended network of courts, trustees & buyers (repos) in place across the country from Mid-town Manhattan to signpost Oklahoma!
The trustee surveys your ability to pay, terms are re-set based on a 3-5-or 7 years repayment schedule composed of a structured, limited payments and then afterwards you are re-evaluated to stand alone with a fair mortgage. Hopefully by then, your financial status has improved enough to carry that mortgage on reasonable terms. Those who can't do it at that point, well best efforts were made; they’ve had 3 chances! Those who can't swing it now, the trustee seizes the house, the debtor gets a chunk of his/her equity & the lender gets a big chunk or all of the payment of the housing asset. [READ: No losses here to parties but at a big discount to taxpayers!!!]
The Court’s trustee holds the house as an asset on its books, it can rent out the house as Section 8 housing, folks will need to live somewhere and then the trustee sells the house at a later time when the market rebounds, probably at a profit over the payments made to the lender & prior foreclosed buyer! This is much like the Resolution Trust Co. [RTC], which was setup & operated after the huge Savings & Loan scandal during the last Republican regime. It actually made money!!!
It's simple if you want it to be - so exactly what is BushCo trying to pull here!!!
Part Two:
Q?: "...(The Bailout) Sounds like downright socialism to me!..."
Well, what we are witnessing is the transformation of the US economy from a mixed basically, free market economy into a more overt fascist economic model. Contrary to general perception, Fascism (i.e. National Socialism) is technically an economic organization model where the means of production are privately owned but the state commands the markets & controls production. Let’s call it right wing socialism since the communist model; another organizational form of socialism is where the means are own & controlled by the State. Let’s call it left wing socialism.
In short, a command market where the State decides & controls production, allocates resources & profits to that end characterizes both left wing & right wing socialism. Right wing & left wing socialism differ in that the means of production are either privately held or held by the State “on the peoples’ behalf”. Euro socialism as we have seen it off & on, is a variant mix of left wing socialism & free market aspects.
The US state is now taking over the core & backbone of the US economy; its banking & loans industry, the securities & equities markets including investment banking and the mortgage & housing industries and insurance underwriters. While the takeover is meant to be more of a controlling entity than overt ownership, the new US economic model is now fascist model not the communist model and certainly no longer a free market model. The current model has the US owning a controlling interest in every key facet of the US economy. The “best” & most efficient, which is the best in that perspective,, fascist model doesn’t require the State micro controlling every aspect of the economy; just the key ones that control the rest of the system is good enough; more efficient, less grief for the top. At first anyway!
That's Fascism!
Excerpt from the 3-page Pandora’s Bailout edict from Bush:
“…Section 8. Review. Decisions by the Secretary 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…”
The political totalitarianism that necessarily accompanies the fascist economic model (i.e. our common concept of the fascist state) follows as an efficiency fix to the main, important goal – the economic model. Bush & Cheney, of course, have already well placed this process in motion...one of only two real accomplishments of their regime; the other being the facilitation of the destruction of our standard of living.
This destruction of our standard of living is an essential, prerequisite tactic to facilitate the fascist transformation. It creates fear, anger and eventually a sense of helplessness; all steps in herding a populace to the “white knight” of fascism.
Now, note this excerpt again from the 3 page Bailout /edict Treasury Secretary Paulson with Fed Chair Bernanke (aka: “Bailout Twins”) in tow, delivered to Congress days ago;
“…Section 8. Review. Decisions by the Secretary 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…”
Don’t underestimate the intent here! Further, note the theatrical scare tactics the Bailout Twins have spun in addition; certain financial collapse, lost of all of folks’ savings & perhaps their houses, a scenario worst than the Great Depression and Bush’s “…(the) entire economy is in danger..” Interesting! Where were the Twins or Bush for the last month, year, 2 years as folks faced foreclosure & loss of jobs? They were issuing press releases & statements that the economy is peachy fine…until about a week ago…days after a meeting Paulson called in New York with 30 of the largest bank holding companies!!! A meeting that lasted the better part of 3 days. Where’s the meeting minutes on that one??!!
Don’t underestimate the intent here!...nor the tactics!! When they move to postpone the November elections or any event associated, you need not ask why, move to protect yourself & yours!
Submitted,
Joe Krivan
Email: Its1967@Yahoo.Com
Mentioned References:
* Big Bill Clinton on Letterman Monday nite: http://lateshow.cbs.com/latenight/lateshow/video_player/index/php/965351.phtml
* BusinessWeek's Article by Jane Sasseen's RTC Solution:
http://www.businessweek.com/bwdaily/dnflash/content/sep2008/db20080918_661224.htm
* BusinessWeek's current issue in full: "Wall Street Staggers" Excellent coverage within 10-12 magazine pages of what happened, the history & solutions! http://www.businessweek.com/magazine/news/articles/business_news.htm
See esp. Slide Show: Lessons Not Learned
high debt + deflation = depression
-Irving Fisher (ca 1933; *)
We cannot correct the debt problem, at least not overnight, but the downward deflation spiral can be halted with action now.
Failure to act will slow or stop business transactions, slow the economy, accelerate deflation, and things will get worse. Given our average household debt (~$14,500, or more, excluding mortgages), I suspect things might get much much worse.
Our country is much different than it was in the 1930s. I think a large depression today would be considerably more ugly.
Some massive government action must be taken to restore credit market confidence and prevent the debt-deflation spiral. Regardless of the current political backdrop such decisive action must be taken in hours or days, not weeks or months.
-HappyInHoboken
* Fisher was actually wrong about the crash of 1929, a fact that harmed his credibility at the time, but his thoughts on the dynamics of a depression are worth a look. In particular he notes that mass debt repayment accelerates deflation and makes the depression worse.
Here's a deal.
I have a simple solution to the subprime problem that will make Main Street happy and save Wall Street. It will reduce debt for consumers and free up credit. It will save our representatives form the public's wrath because it will put Main Street first. Reset all mortgages on primary homes to 6%.
Good by ARMs, good by crazy morgages, and no rewarding of flippers. In other words a clean bill that Main Street understands and will stand for.
The homeowner would have more money in his or her pocket every month to get the economy going again and Wall Street could value their debt and write down what needs to be written down. The government could take over morgages that are defaulted on using 6% as a base.
Desperate times call for clear measures.
As an economist who articulated the idea about the work of nations, as distinct from inventing it, you should except that the financial crisis in America and its consequences for the world in which the dollar is held as reserves, reflects a substantial change in the balance of economic power worldwide. The issue is not just about greed. It also involves shifts in the locus of highest productivities of labor and capital from America to other emerging countries, as well as the concommitant disembowellment of American physical economy. Your example of the management failure of American auto makers to upgrade competitively is a case in point. Something is fundamentally amiss in the paradigms that govern decision-making among financial and other management in the US. A way out of this crisis needs to be informed by a decisive reappraisal of the changes in the direction of factor mobility as the best means for providing a context for American managers to understand the depth and breath of the crisis that they face.
Secretary Reich,
I couldn't agree with you more. I think the provision allowing judges to change the terms of mortgages is the most critical, and yet that seems to be the one that is dropped. This is even more crucial than the equity stake. Wall Street got themselves in to this mess, and once again they are wriggling out of it, probably with cash to spare. CEOs and fat cats wanted a free lunch, so we are being stuck with the bill.
I wish more talk had been given to your suggestion about nixing further Wall street campaign donations and closing the appropriate PACs. I heard no one else even mention this. Of course that was never suggested over here on the Hill for obvious reasons, but it sure might have helped break the cycle of influence here in DC, as both presidential candidates are pledging to do. Although I suspect those are just promises, promises.
That said, I'm a huge fan of yours and love reading your thoughts. I currently work at DOL but I was not here when you were ~ wish I could have been. I adored Locked in the Cabinet! Also, its so good to see you on Rachel Maddow!
Keep up the good work.
Sara in Washington, DC
Dr. Reich,
The Treasury plan is to purchase the "distressed investments" of Wall Street not knowing what they are worth!
If too much is paid, taxpayers lose and Wall Street wins. If too little is paid, the firms might reject bailout offer and/or sell only the most toxic portion of their investments. Taxpayers also lose here and nation might get the long drawn out "Japanese stagnation sickness." Latter means Wall Street will ultimately lose here too.
So why are we stuck on one golden option of a $700 billion Bailout of toxic debt?
Why not still consider your option of pumping money DIRECTLY into good and troubled (but not hopelessly troubled) financial institutions in exchange for a reasonable ownership Stake? Goldman didn't balk when Buffet asked for a 7% Stake in exchange for a $5 billion loan. Why would AIG balk with a balance sheet that is ten times worse?
This is how Sweden successfully solved, for all parties, their equally serious 1992 financial crisis in 4 years and how Japan finally solved their 12 year crisis.
Some combination of Ownership and Debt financing that sharply minimizes the government being offered (or forced to accept) the obviously worst toxic debt waste is minimized. Companies then have greater resources, control and responsibility for recapitalizing their balance sheet soundly. Strict rules controlling obscenely excessive top management salaries, bonuses and stock options would still be enforced under this option also.
Again. Why can't we achieve some more equitable variation for taxpayers and financially distressed institutions along lines Buffet and Sweden achieved?
A Bailout formula based on "the hold to maturity price" (whatever that value is) without any ownership Stake is compounding potential taxpayer risks without a commensurate reward. This option may drag the whole recovery process out with resultant prolonged economic stagnation.
Maybe the financial institutions should be given little voice on these Debt + Ownership terms?
This is all going too FAST! ...
especially considering the still lurking UNKNOWN Credit Default Swap risks ... a market some say amounts to $45 Trillion or more!
... and especially considering another +-$700 billion mountain of bank Debt maturing in 2009, according to JP Morgan!
Frank Thomas, The Netherlands.
By investing huge sums DIRECTLY in our financial institutions, wouldn't this lead to better Oversight and public confidence in the system's liquidity and self-improvement ... without leaving the taxpayers as the ultimate dupes by freeing up more capital to DIRECTLY help those facing foreclosure?
Dr. Reich,
Please consider my last paragraph as a Footnote.
Mistyped proper location
Who, in the end, runs this country? I am of the opinion that voting some dumb-ass out of office plays like a slap of the hand to the real interests. Money talks, and I am no conspiracy guy either (maybe a little). Do we live in the dumbest frickin country in the world? Have we been dumbed down by a sold out media? (yeah, those are rhetorical answer, no need to answer). Does the power structure rely on us bickering over the small stuff (gay marriage, immigration, religion) while we are financially raped by the powers that be? Seriously, why do we give a shit who's stooping who when our futures are at stake? Because it serves a political purpose. If you have a crooked agenda, like most of those wankers in DC, you shower them with proxy bullshit diversionary issues like gay rights, affirmative action, immigration, etc. etc. etc., then you pick their pockets, and most importantly, and here's the finale.......... wait for it.....
You keep us divided, and unaware that we all desire the same thing; fairness, justice, a good life, harmony, a safe world for our kids, a clean environment in our backyard, a good job, some leisure, a country to be proud of. You keep us apart by distracting us form these very things. Its brilliant really. And we are just dumb enough to fall for it. Imagine the day we all stop!
Secretary Hank Paulson was CEO of Goldman Sachs before he became Treasury Secretary. When he left Goldman he had $500 million worth of Goldman stock with a $200 million basis. Due to a technicality he didn't have to pay capital gains on his $300 million profit when he disgorged himself of the stock. Goldman was the only company on Wall St that wasn't brought down by the sub-prime mortgage mess. Why? Because they bet that the sub-prime market would fail and that bet saved their ass because the sub-prime market did fail. The bet was made after they sold their own investors billions of dollars worth of worthless sub-prime "tranches." So they bet against their own investors. They shorted an index. Paulson oversaw this mess. Does that tell us anything about his veracity? Which brings us to the heart of the problem. Paulson wants $700 billion of taxpayer money with no strings attached to spend as he pleases "bailing out" banks. By the way it was tried by Herbert Hoover in 1931 and the depression happened anyway. So bailing out banks didn't work for Hoover nor did it work for the Japanese in the 90s. But getting back to Paulson, he doesn't want any oversight or liability. He wants to spend taxpayer money as he sees fit buying and selling financial "assets."
Should we trust Paulson? Hell, no! Anyone who made a tidy profit of $500 million on Wall St with Goldman Sachs should not be in charge of bailing out Wall St. because he's just going to hand it out to his rich friends on the Bush administration's way out the door. It's just one last money grab for the wealthy. Now the fact that Goldman stayed solvent by betting the sub-prime market would fail offers a little clue as to what the real problem is. It's derivatives. And they're a bottomless pit. When Goldman bet the sub-prime market would fail, they used a derivative. They shorted an index. There are $1000 trillion of derivatives out there. The GDP of the whole world is only $60 trillion! Derivatives are a financial black hole that will suck in Paulson's $700 billion of tax payer money and keep on sucking. This bail-out is not about mortgages or loan liquidity. It's about derivatives and who has used derivatives to the greatest possible extent? Hedge funds. It's what they're all about. Now to get into a hedge fund you have to have a net worth of millions of dollars so you know there are no poor or middle class in there. When Paulson talks about buying and selling assets, he's really talking about buying and selling derivatives in order to bail out his rich friends who are invested in hedge funds who have lost their shirts. Putting this guy in charge of the bail-out is like putting a fox in charge of the henhouse.
"The Bush bail-out is a corporate give-away, with no quid-pro-quos requiring companies to act responsibly in the future, limit outrageous executive compensation, or help ordinary homeowners to keep their homes. For example, Goldman Sachs recently paid out $16.5 billion in year-end bonuses to its employees. That worked out to over $620,000 per employee. The Bush plan will give the administration a $700 billion check with no strings attached, which they'll hand over to the Wall Street firms that got us into this mess."
But actually, who better to pay for the bail-out than the rich investors in hedge funds who largely caused it in in the first place. During the last 8 years the 400 richest families in the US have added $670 billion to their net worth while the poor and middle class have lost ground. Rather than middle class taxpayers bailing them out, let the rich hedge fund investors bail out the banking system by losing the hundreds of millions they bet on derivatives. Maybe the bets were good. Maybe they were bad. Makes no difference. If the banks can't make good on them, why should the taxpayers? If they were bad, why should the taxpayers buy these "assets"? It's not about liquidity. The Fed has opened its discount window to everyone. What more liquidity do you want than that? Where the system is illiquid is in bad debt from derivatives, and of course they are illiquid because only a fool would want to buy a bad debt. But that is exactly what Paulson is proposing that he will do with taxpayer money. He says the taxpayers might even make money because of his prowess in buying and selling assets. Snake oil!
Here's a better solution. Don't pay off on derivative bets. If the hedge funds fail, the rich folks end up paying for the bail-out and that's simple justice. They and their hedge fund managers got the banking system into this bind. Solution #2: To the extent that Wall St is bailed out at all, and I can see that there might be a case for bailing out non-derivative assets, the taxpayers will be paid back by the banks themselves when they become profitable again. This can happen by the government taking an equity stake in the banks or it can be set up in such a way that the taxpayers take 10% of the profits year after year until the entire amount of the bail-out is paid off. During this period no bonuses should be paid to any CEO or employee of these companies and this includes stock options, and CEO salary should be capped at $1 million a year. Also no lobbying activity will be permitted by any of these financial instituions that get taxpayer bail-outs. And put a 0.25% tax on every stock tansaction with 0.50% on every derivative transaction like short selling. Make Wall St pay for its own bail-out! Tax the Speculators!
Now I understand that banks will not loan money to other banks so they have to borrow directly from the Fed. So what? The point is that they are getting liquidity whether from other banks or from the Fed. It makes no difference. There's still liquidity in the system for legitimate loans contrary to what Paulson would have the American people believe. The Fed has become a de facto central bank which makes my case that the government should formalize a de facto situation and create a real central bank since it has nationalized Wall St already and the Fed is acting like a real central bank already. Combine the two and formalize a de facto reality.
More here.
Bailout of Wall Street!? Wake up American people! There is no Wall Street left to bail out. Bear Stearns…gone. Lehman Brothers…gone. Merrill Lynch…gone. The bailout plan that no one likes is a long term investment that Bill Gross believes will end up making money for the taxpayer. And that is without the government taking equity stakes. In so doing, the value of everyone's homes will stabilize. The bailout is not of Wall Street, but of commercial banks that owe billions of depositors’ money to the same Americans who don’t like the plan. The bailout is a bailout of all these people. WALL STREET IS GONE. Think, people.
Also see "What is This Money Even For".
John Lawrence,
You make 1000% sense , John! This is exactly what Dodd, Barney, Obama and others should be considering hard and fast. They are ignoring alternatives such as yours.
I'm very, very nervous of the huge risks lurking behind the DERIVIATIVE market! The $700 billion Bailout is a drop in the bucket in relation to these risks.
We haven't got this Bailout plan right yet.
We're simply MOVING TOO FAST and Paulson has HUGE conflicts of interest. Don't trust the situation at all with his intermingling Goldman background. I never realized how deep his conflicts of interest truly are.
What a dirty MESS!
Matt:
Not surprising your problem with years, chances are math is not your forte. ;)
It would appear that cause and effect is not real high on your capabilities list either. The legislation and subsequent stumping for increasing mortgage loans to minorities was a good idea, economically and socially. The benefits are well laid out in the article.
The problem in Washington is that laws are often passed assuming the private sector will act on them with integrity, honesty and efficicency. They too often adhere to the fallacy that the private sector is more efficient and more innovative and will therefore figure out ways to achieve the intents without stepping over the line. A very naive view of the private sector. Profits seek the path of least resistance.
Even securitization on its face was not a bad idea in that it freed up bank's reserves enabling them to make even more loans. Abuse of the process, both in creating exotic mortgage plans that the pushers knew were more than just risky, in fact most had to know they were doomed to failure, and the realization that with packaging fees and resales, profits seemed infinite. The whole rationale was predicated on housing prices continuing to rise. The history of the previous 50 years at that time didn't appear to make that assumption frivilous. Aside from a few minor blips, often regional in nature, housing prices had risen continually; sometimes at astronomic rates in certain areas but steadily across the board.
With the securitization we went from a fairly small investment universe to a worldwide market, which increased profit opportunities; all that was needed were more mortgages and more packaging. It seems to make sense that given the vast increase in the levels of home ownership that the population of good credit risks was waning. To keep the pump primed attention was focused on poorer credit risks. This provided two advantages; it opened up a vast universe of previously unlikely home buyers and since the mortgages were immediately sold, profits were instant with no ongoing risk. The icing may have been that this universe of buyers were far less likely to have any understanding of the specifics of the loans they were signing up for, so conjure up all kinds of ridiculous terms and just say, "Not to worry, sign here!".
Given the statistics quoted in the article it would appear the goals of the legislation were working. It is highly unlikely that those who had taken out mortgages in the 90s are the bulk of those defaulting in the last few years.
Greenspan gets a lot of heat for lowering interest rates for an extended period; actions which poured gasoline on the simmering coals, but he was attempting to follow accepted monetary theory in trying to overcome a recession. His biggest fault was in knowing what was happening in the mortgage loan world and failing to take regulatory actions to mute it. Even his proclamation that everyone should take advantage of ARMs was not completely unsound financial advice. His failing, as with the entire banking industry, was in ignoring that ARMs only make sense as long as housing prices rise. Once they start declining conversion becomes nigh onto impossible. For normal ARMs this hasn't been a huge dilemma because mortgage interest rates have not returned to imposing highs but for the exotics the resets are absurd unless the option for conversion is available.
Your cause and effect argument is akin to blaming all the wars of the past few centuries on the inventor of gunpowder. Though you can make the case, the premise is ludicrous on its face. In a response to sbvor I stated that the logical extension of such an argument is to end up blaming God for creating man in the first place.
Somewhere along the line the private sector needs to realize that the goal is moving all of our society forward and creating nonsensical methods of increasing profits is not necessarily consistent with that goal.
Given all this, it is not clear that the mortgage defaults themselves are the real culprit. The rate of default may exceed previous levels but in the huge, overall mortgage market it shouldn't be wreaking this havoc. Part of Paulson's argument, not loudly pronounced, is that in the final tally the universe of CDOs, etc., have a net positive value.
Adding to the fiasco are those homeowners who could wrestle with house payments but are deeming to walk away because their homes have decreased in value. This makes very little sense to me since they have to pay to live in a dwelling of some kind and rents get you no equity where the chance that home values will rebound, even if not to previous highs, will end you up with a positive equity position eventually. In the interim, assuming they are still working, they get some tax relief for their payments.
Though there are exceptions, the principle players in this game who were not focused on improving the "general welfare" were the business players. They may have started out adhering to the intent of the legislation but then we bean counter types discovered gold at the end of the rainbow.
It would appear that in the fancy computerized models developed by math whizzes they didn't include a factor for a nationwide decline in housing values. Seemingly a minor probability, even a boring one, but one line of additional code might have stopped this slide before it began. "For want of a nail the war was lost."
This plan is the mother of all supply-side economics, if it succeeds at all, it will only kick the can down the road.
Wages and productivity will balance eventually, and hence the violent corrections.
Since finance wants this money to prop up the banking system, the public should ask the same terms as a bank would, a mortgage. $700bil + interest + % interest for the public's benefit.
This plan should be paid for before agreeing to it, by capital (those that make money off of the ownership of money) i.e. an increase in capital gains tax, or simular arrangement. That would be most fair, as labor is already struggling with servicing debt, and doesn't need more debt to bear on it's back.
Debt = Servitude
And to think those lending capital to the country, will benefit twice, from a propping up of an imbalanced system, and secondarily by the interest payments of it's rescue, is truly unfair.
Dollar = unit of American labor
Why are lending institutions (of all entities) entitled to a 'no strings attached' lump sum of cash? If this bailout came in the form of a loan, couldn't we eventually use the interest to off-set the post-industrial maladies of the American enterprise (re-training workers, technological innovation, fair debt consolidation for struggling borrowers, etc.)? I would think these stalwart capitalists on wall street and on the hill would have a basic understanding of usury, and how it can be implemented in a constructive fashion. just sayin'...
Art:
I wasn't trying to make the point that the banks, etc. are blameless. Instead, I was saying that root cause of all of our current problems was a systematic lowering of credit underwriting standards. The government kicked it off with the 1992 legislation and it snowballed (through incompetence, greed and predatory practices) to the problem we now face.
You're right about investment models..."we need to factor out 3 sigma events to get a working model..." Only problem is that the models then can't deal when those once in a blue moon events happen. This same modeling assumption, albeit in a different form, is what brought down LTC.
AM
If this is such a big crisis why is the Federal Reserve draining liquidity from the system over the past few days? Why has JP Morgan been allowed to buy WaMu assests for about .005% of the value? I'll take 10 WaMu 400K mortgages in my neighborhood for $2,000 each. What a deal! What a ripoff! Dems need to get into the leadership position on this and not take Bush bull any longer. This mess has been developing for a long time now, surely there are solutions that can be offered that can defuse some of the "fire".
I've been hearing about creating exchanges for this toxic paper to trade on to discover it value. Why is that not on the table?
Good luck on bending some ears on this. Your insight is always appreciated.
Matt,
I agree with you as to why we are in this financial crisis ... i.e., because of a "systematic lowering of credit underwriting standards through incompetence, greed and predatory practices."
But there's even much more to it than that.
We have a system that rewards PROFIT at almost any cost to the hard working middle class. Outsourcing, downsizing, redundancy dismissals, plant closings all have a Human pain and Destruction our system of profit maximization comfortably ignores while feverishly protecting Shareholder interests.
We have a system that stagnates middle class wages, thus encouraging massive credit card and home equity loan borrowings at exorbitant and tantalizing cheap interest rates to simply maintain the marginal standard of living of the middle class.
We have a society that is driven by OVER CONSUMPTION with yesterday's and tomorrow's SAVINGS... thus causing many to become ideal fodder for the loan sharks, who exploit anyone naive and uneducated in prudent money management.
I could go on and on. For 90% of may career, I've always been in
business for myself. So I know and respect traditional American values of initiative and self-sufficiency.
But it's sad to see how our country has dissolved into an ordinary "survival of the fittest" business culture of making money over other people's bodies, security and dignity as fellow human beings.
Let's make this simple:
Public ownership in these companies should be a majority interest, at least 51%. If this happens, WE the citizens have oversight over the execs pay, profits, and final say if they want to sell the company. This is the only way that they will be accountable.
Any bailout from public taxpayers money should have this clause written in. This should be non-negotiable. I am sure a number of Democrats and Republicans will agree on this.
If this will be done, McCain will stop his silly political maneuvering.
Matt:
Didn't suppose that you were holding anyone blameless but, again, I don't see the legislation as the beginning of a problem but rather as a resolution to an inequity that was long overdue. As I stated, it would appear from your posted article, that the idea was working well until the private sector, needing more fuel to stoke the profit fires, began to practice witchcraft.
Although it would appear financially illogical I keep seeing this picture where we started with say, $100 billion of mortgages, and through smoke and mirrors we expanded it to a $100 trillion of problems.
You can argue that if the legislation had never existed then we would not have today's problem. A very gross assumption and again argues that if we never had a Revolutonary War we also might not have today's problem.
One man's 3 sigma event is another's looming catastrophe. It is what sets wise accountants apart from bean counters. Ignoring a deleterious possibility simply because it is rare offers few options when it does reoccur.
The business world might do well to heed Hippocrates: "First do no harm".
Matt.
Another deep cultural probel we have is that we don't attack structural problems until we are at the "Edge of the Precipice."
This, by definition, means we tend to seek solutions that are driven by an unhealthy dosage of PANIC.
So people say we must take care of the Symptom NOW (i.e., lack of system liquidity), and worry about the CAUSE later. This is very costly habit for all of us! ... $1.5 trillion in this current financial drama!
Matt,
correction: 1st paragraph:
Another deep cultural propensity we have ...
Workerbee,
Fight the power, you're so right. My kids are the ones who will suffer by this decision to give-in to the wall street bogey man. When they are ready to enter the workforce the greenback will be less than the one peso. Everyone knows this is a very expensive temporary fix. You don't fix a dam about to burst by giving giving a contractor a credit card to Home Depot and saying go ahead and buy as much fix-a-crack epoxy as possibe to stop the leaks and pray to god it works. If its going to topple over for god's sake let it be a controlled topple and let's start planning and building a new dam.
Frank:
It's another one of those cultural segues we have meandered.
There is little need to be well schooled in Crisis Management if we never have crises.
Heroes don't solve problems in the calm of looking ahead. Let us display our superior management ability by averting crises after they occur. John Wayne would be proud.
Art,
The idea is to be well schooled in NOT having the need for Crisis Management. Welcome to Europe!
Frank:
Boring!
This is America! We are steeped in the fierce urgency of now. Instant gratification is our byword and nothing is more gratifying than solving a crisis.
We are mired from childhood with fictional renditions, be it books or TV or movies, of those who, when faced with the most heinous of circumstances, overcome and reign supreme. It has become a part of our heritage.
You will never see a TV series heralding a plodding CEO who makes profits year after year using foresight and planning benefiting his employees and shareholders through rock solid fiscal responsibility. It won't sell in America.
We not only love our fiction, we live our fiction.
A few weeks ago Matt said he had to go and find $400,000 of working capital. Would that exercise have been to fill out some long range plan? More likely it was to avert a crisis in their quarterly financial reporting.
As always, I'm not arguing against what should be, merely pointing out what is. Reality, in America.
The current wrangling going on in Washington is less about problem solving and more about lingering the crisis, milking all the political mileage available out of it. D-Day supposedly is Monday. Why then come up with a resolution prior to late Sunday night? Champions always come through in the clutch and the clutch begins at the two minute warning.
crossposted from DailyKos because I figured someone here might know if this would work...
OK, it's clear that something has to be done. It's also clear that bailing out wall street is political poison. House republicans are against it, (actually house repubs are all for bailing out wall street, as long as it doesn't LOOK like bailing out wall street, but rather giving them a big tax and regulation cut goodie box) and quite a few dems to boot.
How about if we did nothing for wallstreet. How about if the government temporarily took their place as far as main street goes and let the big boys deal with their own damn crises.
Intro
You must enter an Intro for your Diary Entry between 300 and 1150 characters long.
OK, it's clear that something has to be done. It's also clear that bailing out wall street is political poison. House republicans are against it, (actually house repubs are all for bailing out wall street, as long as it doesn't LOOK like bailing out wall street, but rather giving them a big tax and regulation cut goodie box) and quite a few dems to boot.
How about if we did nothing for wallstreet. How about if the government temporarily took their place as far as main street goes and let the big boys deal with their own damn crises.
URL: http://
Label: Image
cdholds's diary :: ::
Let me preface this by saying that I know nothing about the world of high finance, so I encourage those of you that do to tell me if this is a useless idea. I won't be offended, just educated.
Instead of 700 billion to buy bad debts, so that banks can start making good loans again, even though no new regulations have been passed yet, why not make those good loans directly. The small businesses, potential home/car/education buyers, etc. could have loan requests forwarded to the government by their local banks, and the government could set up sober responsible standards for loan approval and repayment. Meanwhile banks have time to gradually liquidate their holdings and work the sludge out of their own systems. When they have regained solvency, the good loans can be sold to them. Also refinance loans for people in danger of forclosure, with fixed rate mortages at longer payoffs.
Guarantee the IRA's and money market accounts of those who would be affected by bank collapse up to a maximum of say 1.5 million at 70% of its previous maximum value, so that people who can wait are encouraged to ride it out, but those who need to get at their money have reasonable recourse.
Reform the credit regulations, including very strict rules on transferring mortgages and other debts that require complete transparency and prevent resale. In other words, the days of shell game finance have to be over.
Once regulations are in place, allow other well capitalized entities to step into the void left by those banks which were unable to work through their troubles. Googlebank anyone?
Main street is saved, wall street has to deal with its own problems, small investors are protected. I think. Ok experts, chime in, am I nuts?
Art,
I am fully familiar with what you are saying about our culturally habituated excesses, but isn't it time to begin to call this
"Reality" (you dwell on) what it truly is ... an endemic "Unreality."
When we've gone sofar as to wait, observe, and argue about brewing financial-social problems on grounds our gift for Crisis Management brilliance will save the day, even in the face of a near total financial collapse, for example, I hardly call this "Reality" ... but "Self-Delusional" stupidity that destroys peoples livelihood.
So, I just don't accept the term "Reality" if it means the central government and even some state governments sit idly by as many cities (small and large) across America last year start having catastrophic financial problems with school, police , fire dept. budgets, etc. because of a steady rise in housing foreclosures and unsaleable real estate ... all devastating real estate tax base of American communities.
This is not "Reality." This is a sort of social-cultural decadence.
UBL,
I like the idea of the Treasury simply taking over the bad Debt of banks and using $700 billion to handle distressed loans, rather than buying this Debt from financial institutions.
This means the financial institutions are left with their big liquidity problem ... which maybe they can solve better by bond or stock flotations once the bad Debt is off their books.
Not a bad idea! Simple, but worth exploring if times were rational.
You know what? If we give these elitist crooks this money, when we do crash, because this won't fix the problem, we won't have any money for reconstruction.
If these corrupt republicans are saying we don't have the money for children's health, they will also say now with certainty, that there is no money for infrastructure repairs.
We are toast, this isn't going to fix a darn thing. Some one please explain to me how this is going to fix it? How is the 700billion from taxpayers going to fix it when there are 400 Trillion out there in derivitives, or like the crooks like to call it illiquid assets. HOW ARE WE GOING TO FIX THIS? It's not going to be fixed.
Why aren't these crooks in jail? Why wasn't the protest on Wall St. on TV yesterday? You can find it on youtube on uptake video.
The world is pissed, go watch "the real news" either at their website or on youtube.
We are the laughing stock of the world. Our dollar will crash because 1. nobody trusts Wall St. to invest anymore. 2. Foreigners will stop buying our debt. 3. If they bail out we will see hyperinflation.
So someone please explain to me how this will fix anything???
And yes, our credit markets are frozen, I just got word of another business closing it's doors because he couldn't get his short term loans to do business or meet payroll. Good luck to you all. You are going to need it.
I thought pyramid schemes were illegal. Why did Wall St. just get away with the biggest pyramid scheme in history?
Let Wall Street finance its own bail-out with a Securities Turnover Excise Tax (STET). For an excellent write-up see How Wall Street Can Bail Itself Out Without Destroying the Dollar by Thom Hartmann. We've got to stop borrowing money from China and the Saudis and then paying it back plus interest or rather borrowing the interest to pay them back.
Unfortunately most of the media today is just there for business. Lamentably the majority of people (especially those who are easily swayed and brand loyal) care more if Britney is being screwed than if they are being screwed by wall street.
When you mentioned "So the media has to dig hard and look at the details of this deal." the media that does dig and does a great job (NPR, etc) isn't the media that the average person uses to get informed. Thank God for the Daily Show with Jon Stewart...
I think we should fire Paulson and Bernanke (okay I know we can't do it, but still...) for not allowing enough time to discuss this debate rationally. I still think that a knee jerk reaction will land the American People into our financial Iraq.
I would feel much better if you had the details and could give this the Dr. Reich's seal of approval.
This makes sense -- why isn't anyone else talking about reviving the tools that have worked in the past???
--------excerpt-------
... let's go back to what we know works. After Hoover's 1931 bailout of the banks failed, FDR did a cold reboot of the entire system, putting into place strong rules to prevent speculative abuse. And he doubled the STET tax, both producing revenue that more than funded the Securities and Exchange Commission and further prevented a repeat of the speculative bubble of the 1920s that led directly to the Republican Great Depression.
We've done it before. We financed the Spanish American War and partially financed the Civil War, WWI, and WWII with STETs. We stabilized our stock market with a STET from the mid-30s to 1966, and other nations are doing it today. It's time to do it again, this time using the STET so tax Wall Street can pay for its own bailout.
Thom Hartmann (thom at thomhartmann.com)
I think banks are curse to the people and the economy. They are simply a middle-man between the government printing presses and the people. They take money in from the fed, skim a profit from the top and pass it out to the economy. Why can't we get rid of privatley run banks? I wish someone would seriously answer that question? Why can't I(or a business) go to the local "US government-run treasury bank" and get a loan/money I need? Please help me understand. Thank you.
Read "The Limits of Power" by Andrew Bacevich, professor at Boston University. He was interviewed on Bill Moyers Journal last night.
All these tensions how ever the exotic financial instruments, all boils down to.
Labor vs. Property
Devalue labor, you devalue your nation, it's currency, the citizens, and their future. All for the glory of a few monopolists, who make the rules.
Poverty = Poor productivity, degeneration of society.
This plan is only staving off the collaspe, not addressing the cancer. We will only be further indebt looking for more money to shovel down the rat hole of propping up the temples of the money changers, soon enough.
Robert said...
"In just a few weeks, capitalism has been turned upside down. The underlying question here, as with trickle-down tax policy, is whether any of this ultimately helps Main Street."
Good way of concepualizing this. Many others have suggested that a bottom-up approach would provide the relief that mainstreet needs while appropriately letting the chips fall where they may for the wall street group. With Paulson apparently in command on this project getting the better alternate approach is wishful thinking. He's the ultimate fox guarding the massive mainstreet henhouse.
What's going on with John McCain? The past few weeks give us some insight on how this guy responds under pressure. He's been running around like a chicken with his head cut off. hahaha Very scary! Obama is at the other end of the continuum...cool and analytical...but maybe too much so for the small slice of independents who will decide the race.
Frank:
"Reality" is fact, it describes what is. "Self-delusional" stupidity and "social-cultural decadence" are merely judgments regarding the sensibility and sustainability of what is. I do not disagree with your disdain, your judgments. I, perhaps to absurd extremes, try to understand the root causes of the negative aspects of "reality" and I keep coming back to our cultural influences as the real culprit. Of course that realization and a few bucks will buy me a latte at Starbucks.
Changing our culture, as I have oft mentioned, is impossible in the short term and highly improbable in the long term. We can find a new voice with new ideas for our Presidential position and he/she might initiate some changes that will influence our culture but our views and habits are so entrenched that it would take decades of adhering to new ideas for them to have long lasting effects. Our election cycles and the vehemence of our two party ideologies render most positive fixes as little more than blips.
Even Reagan, who admittedly ushered in a new dawn, did little more than shift the paradigm from focusing on aid to the poor and opportunity for the middle classes, to punishing those on welfare and assisting the middle classes by giving them a target to shoot for by enabling those in high positions to obtain insane wealth.
Bush 41, whom I have a lot of respect for, with his "thousand points of light", garnered chuckles from the masses and raucous laughter from some in his own party.
The cultural histories of Europe and the US, strange as it may seem, are significantly opposed. I continue to ascribe that to the fact that the US was settled and established by misfits from European countries for the most part. Being a new wide open country, free from direct oppression by the King, we, very early on, created this idea of self first, community second.
Likely this attitude bode us well as we moved forward creating wealth and opportunity for many. It fed innovation that improved lifestyles by providing more stuff and a more comfortable life. Our isolationism and abundance of natural resources allowed us to progress through self-reliance, building our own economy without concerns for the rest of the world. Our physical separation from friends and foes alike kept us from the ravages of wars and allowed the drumbeat to race on.
Throughout this growth we were far more successful than the rest of the world. Our much touted freedom and economic opportunity made us the envy of the world and we saw legions of immigrants pouring to our shores, seeking what we had to offer . This led to the logical conclusion that we have better ideas and are superior to all other nations. Our history of military success and the continued strength of our military defenses furthered the idea that we had become "she, who must be obeyed".
Given all this it was natural for us to establish that the American way was the benchmark for all other nations desiring freedom and economic growth to follow. After WWII we bankrolled the rebuilding of Europe and Japan and influenced the governmental/economic models to be established. Little did we know that there were better ideas out there.
While we sat back and watched as the world followed, we turned our focus to manipulating wealth accumulation and the self-gratification of comfortable living. Jobs were plentiful, wages were good, and families centered on living the good life and the benefits of education, especially higher education for our children. The accepted paradigm was that the key to success was education. Get a college degree and opportunity doors swing open.
Since we were supremely successful, especially economically, our business schools taught business management from an American perspective, establishing axioms and postulates culled from American commercial history. During much of the 50s, 60s, 70s, Economics courses were taken simply as an introduction of how it all fits together. To a great extent graduating with a degree in Economics would get you, at best, a job as an accounting clerk or a bank teller. Could that have been because the foundations of economic thought were not of American origin?
Our educational system, primarily in the business curriculums, focused on how to succeed the American way. This approach influenced the reliance on shareholder value and profits as the driving force of commercial success, in fact, these ideas were taught as paramount. As Japan moved from cheap plastic products and gimmicks to more sophisticated products with a significant emphasis on quality, some woke up and said, "Hey! That's a good idea!" While we focused on faster, cheaper production methods and materials, much of Europe was focused on producing extremely high quality products with outstanding engineering and tight specifications. Few dispute the superiority of German cars or Swiss watches. We seem to have made great strides in winemaking but my understanding (I don't drink wine) is that European wines are still the gold standard.
Can you explain to me why, after Katrina, we did not contract with a Dutch firm to rebuild and shoreup the levies around New Orleans? Could it be that we know better or at least as much?
Off on our excursion, during the 50s through the 70s, 80s, we attained a reasonable degree of stability. Our approach in higher education coupled with our increasing reliance on entertainment tended to make stability boring. We needed to shake things up. Corporate executives needed to prove their mettle. In the 60s, 70s, large corporations commenced horizontal integration buying up companies in totally unrelated industries relying on business management being a generic ability. This then lead to the advent of the corporate raiders, perhaps fed by the failing of many of the horizontal integrations.
Buying even a failed company requires cash and acquisitions of questionable assets does not find a ready credit market. Voila! Junk bonds! Issue bonds with astronomic interest rates and resistance wanes. Financial leverage became the way to make something out of nothing. To be on the safe side and assure the bondholders that their risk was worth it, we'll layoff a bunch of employees and sell off some of the segments of the business. Who cares if some of the sold segments offer the better future prospects. We are living in the now and we have to produce profits and shore up potentials. If all goes well we can sell off the slimmed down company or go public with it and pocket gazillions. Then it's on to the next venture.
This didn't seem too impactive because much of the goings on were being reinvested in the US and jobs remained available in new companies. Even those sliimed down companies, once back on their feet, would begin hiring people. Seeping in this aura was a change in how employees were viewed. Employees were always expendable in slow or bad times but for the most part there had been a subtle sense that employees were a highly valued asset. As we segued to this make money from money scenario, employees became highly valued, not for their loyalty, experience and hard work, but because they were expendable assets that could be used to appease the moneychangers by getting rid of them. XYZ company could do without them and surely ABC company will come along and hire them. Ergo, no impact on the workers. They may have to manage with lower wages, but what the hell, Americans are resilient.
All of the sudden our heroes were no longer cowboys - by this time it's illegal to kill Indians - war heroes are great but wars are bad, we all know that action heroes are pure fiction, so what's left? Business leaders! Corporate execs who create wealth for the many and who exist from day to day putting out the fires of too much expense or venturing into new markets. College entrants swell the ranks of business schools and degrees. The curriculums are much easier than math and science and the payoff opportunities are much greater. In a world where success is predicated on moving money around forget even normal business operations. Those are careers for the state school graduates. The best and brightest head towards Wall Street where the millions are there for the taking.
Even in Wall Street stability becomes boring. If my bonus was $400,000 last year, I'm a failure if it's not at least $600,000 this year. Now there are only so many customers and so many hours in the day so success comes from innovation. Creating new and original and confusing investment opportunities keeps the bucks rolling in and no one ever has to get their hands dirty by using a wrench. It's the new world of wheeler-dealers, buy, sell, sell short, take the same assets and repackage them and sell them again and do it all in a flurry proving I can come through in the cluch. The new American hero has evolved! The proof of his contribution to society is in his Net Worth statement.
And then along came Jones in the guise of globalization and things really get complicated.
This is a brief(?) synopsis of why we are where we are. I know a lot of simplification and most is personal perspective, but in a nutshell this is how I see we got from there to here. It ain't pretty but to me it is Reality.
Art,
It's the weekend, I'm trying to rest and get musingly enthusiastic for a long lecture class Monday morning, and you hit me with your in depth views of "Reality."
Will respond later, but one little fact in your personally charming treatise immediately caught my eye that maybe Art is a bit more the provincial American than I had thought him to be.
You said why isn't the US using Dutch knowhow to engineer solutions to the levies and water overflows brought by Katrina?
Art, a delegation of Americans representing government, engineering and citizen groups made a grand vist here to see the Dutch engineered dikes last year which are a world marvel of engineering against potential water floods.
The US Corp of Engineers subsequently gave a $100 million engineering contract to a Dutch firm that has been working on the problem for more many months now!
So New Orleans and Louisiana are very good hands.
As a footnote, the Dutch government has just recently completed a mammoth study recommending a $145 billion investment to re-engineer an even higher offshore ceiling of 4-5 meters as protection to seriously rising and severe sea levels expected over next 100 years.
The project is in final approval stages and will be carried out over 15 years. Leave it to the Dutch to keep their small land from disappearing to nature's forces!
I'm proud of my Dutch and American heritages ... I have dual passports. I've spent some years with Dutch firms engaged in dredging worldwide and water management. They are masters in this field.
Just a quick retort. Still don't totally agree with your easy recourse to "Reality" reasoning as it often has the sense of a disguised nihilism or rationalizing things statically away... which slows you in being as creative in solutions to problems as you are in analyzing problems.
Thought I would give you some forewarning of my eventual response so you can start taking a couple of aspirins Now. Ha. Just joking ... you'd better hope!
PS. Another great article from Garrison Keillor. Have listened to him often on the radio in past years ... great story teller and humorist who can speak so colorfully and anecdotally in Mainstreet language. It's most unusual for him to write political satire which he really deeply feels!
Frank:
Get lots of rest. Senior citizens need that. ;)
My bad on New Orleans. I do recall hearing that we were considering consultation with the Dutch following Katrina but then heard nothing more of it. When NO was at risk again this year I heard multiple interviews with the Corps of Engineers but no reference as to any Dutch involvement in solutions.
As one can see I have opinions on a variety of subjects but in the final analysis I am but what my name suggests. Mine is truly that of amateur observer.
$145 billion? Well forget that! Conservatives don't even think Mainstreet runs through New Orleans. Bailing out Wall Street is one thing but bailing out a hallowed heritage? Wasteful!
I am certainly not nihilistic nor do I tend to rationalizations. I will admit to being so cynical, at times, as to scoff at creative solutions simply because I have watched, over the many years that you and I hold as the "good old days", the steady decline of our culture. I can applaud the seeming turnaround of the Clinton years but assess that any cultural changes brought about were far less impressive than the fiscal ones.
I enjoy Keillor too. Have not read much from him but the local NPR station carries his A Prairie Home Companion program every Saturday and I get to listen to half of it on my way to the nursing home. He has a marvelous wit.
The Republicans are the party that wrecked America. Crashed the country.
Dear Reader,
This Saga Has all the signs of the great intrigue. CALLED
DRUGS LIES & SEX
There is a drug, that is so potent that no man/woman has been able to get (un)hooked from. This drug is solely controlled buy CENTRAL BANKERS ( SOPITALIST MAFIA ) of the world. They have been distributing this drug without prescription to anyone with or without pulse. Money Cartel has bought/bribed/conned the Governments at all levels, created Wall Street and Enlisted Multinationals to distribute the drug. The DRUGS name is CREDIT. Credit without measure, without accounting , without supervision. That drug is the the foundation of the problems we face today. Yet, the same pushers and the hired help of the pushers is now working on the lies to sell the rescue of these pushers to public as a main street problem to be solved. Bailout of Drug/Credit Cartel is now On the backs of you and me. Ok, so where we know the drugs, the lies where is the SEX Boris?. I say to that, go get your own(:-
for more fundmaental/technical understanding of the ECONOMICS and MARKETS visit
ANTI-SOPITALIST
Good Tradng
It is now Saturday, September 27, and it is notable that just as an Economic Category 5 is approaching the United States, an Army combat brigade is to be deployed within our Constitutional Republic. Following is part of an article reported By Gina Cavallaro - Staff writer for the Army Times
Posted: Monday Sep 8, 2008 6:15:06 EDT
“The 3rd Infantry Division’s 1st Brigade Combat Team has spent 35 of the last 60 months in Iraq patrolling in full battle rattle, helping restore essential services and escorting supply convoys.
Now they’re training for the same mission — with a twist — at home.
Beginning Oct. 1 for 12 months, the 1st BCT will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks..."
To read the whole article, go to:
http://www.armytimes.com/news/2008/09/army_homeland_090708w/
I thought that the role of the National Guard, which is under the authority of the States and the Governors, is to help in natural and man-made disasters. It is bizarre to send the Guard to Iraq to do the job of combat troops and bring combat troops home to do the job of the Guard.
What a strange convergence of three things that do not seem to have anything to do with each other: 1. an Economic Category 5 in the last week and a-half of September 2008, 2. an Army Combat Bragade to be "under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks...", and 3. the upcoming Presidential and Congressional elections on November 4th. Is this a coincidence? I sure hope so.
The $700 billion bailout of Wall Street may well be an out and out scam and no deal should be signed until the American people are informed, in detail and in public, why the deal is, a) necessary and, b) why it has to be done immediately. Where are the outside experts? Where are the outside economists? The Bush Administration blew their credibility a long time ago, so why should we now believe their treasury secretary and their federal reserve chairman, both of whom are Wall Street insiders? What should be done immediately is to put this deal on hold, and then have a public airing: Where is this money going, and why is it going there? And why does it have to be now? The political maneuvering and posturing over the past few days has been revolting, and the longer it goes on the smellier it gets.
Excerpt from "New Nationalism" speech Theodore Roosevelt Osawatomie, Kansas on August 31, 1910.
"No man should receive a dollar unless that dollar has been fairly earned. Every dollar received should represent a dollar's worth of service rendered - not gambling in stocks, but service rendered. The really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and in another tax which is far more easily collected and far more effective - a graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate.
The people of the United States suffer from periodical financial panics to a degree substantially unknown among the other nations which approach us in financial strength. There is no reason why we should suffer what they escape. It is of profound importance that our financial system should be promptly investigated, and so thoroughly and effectively revised as to make it certain that hereafter our currency will no longer fail at critical times to meet our needs."
Link: http://en.wikisource.org/wiki/The_New_Nationalism
As CNN is showing Warren Buffet is urging the bailout (conflict of interest for Buffet; he just bought GS stock). Great juxtaposition. From Nouriel Roubini, last paragraph
http://www.rgemonitor.com/roubini-monitor/253783/is_purchasing_700_billion_of_toxic_assets_the_best_way_to_recapitalize_the_financial_system_no_it_is_rather_a_disgrace_and_rip-off_benefitting_only_the_shareholders_and_unsecured_creditors_of_banks
Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown. It is pathetic that Congress did not consult any of the many professional economists that have presented - many on the RGE Monitor Finance blog forum - alternative plans that were more fair and efficient and less costly ways to resolve this crisis. This is again a case of privatizing the gains and socializing the losses; a bailout and socialism for the rich, the well-connected and Wall Street. And it is a scandal that even Congressional Democrats have fallen for this Treasury scam that does little to resolve the debt burden of millions of distressed home owners.
http://www.youtube.com/watch?v=H5tZc8oH--o this is interesting, I'm just wondering if there is a good rebuttle.
Hope-o-crisy is quite catchy.
Perhaps there is no rebuttal. No one is perfect. Let's fix it and move on. But how do we prevent this sort of thing in the future? What, specifically can be done?
-rj40
I JUST SAW REICH ON THE GEORGE STEPHANOPULOUS THIS WEEK SHOW. NEXT TO HIM WAS GEORGE WILL, WHO MANIFESTED THE MOST BITTER CONTEMPT FOR 'THE SAINTED AMERICAN PUBLIC' WHO, ACCORDING TO WILL, IS TO BLAME FOR THIS MESS BY LIVING 'BEYOND THEIR MEANS.' REICH SHOULD HAVE COUNTERED BY MENTIONING THE BARRAGE OF OPPORTUNITIES WE HAVE FOR CREDIT AND THE MANTRA OF 'BUYING IS PATRIOTIC' THAT FILLS THE MEDIA, NOT TO MENTION THE FACT THAT THE GOVT TAXES OUR INTEREST, SO WHY SHOULD WE SAVE? THIS IS THE CRUELEST JOKE OF ALL. MR. REICH, IF YOU READ THIS, PLEASE DON'T LET THESE PEOPLE GET AWAY WITH BLAMING THE VICTIM.
I'm sick of people blaming this mess on the people.
It is Con-gress and Wall Street's fault.
None of this would have happened without the actions of these two corrupt institutions.
Thanks though Con-gress, I have never seen my country so angry and so against you! I hope you are all voted out of office. We know you all own stocks in these companies.
Time to vote these crooks out of office! All of them.
Then it's time to put the Crooks on Wall St. in jail.
I think this bail-out is trickle down policy. But, everyone knows the root of the problem is housing values and risky ARMs that force homeowners to throw in the towel. So, having said that, I'm certain we'll see a trickle up approach very soon. One that starts with the homeowner. It will still be unpopular because those who need the financial help mostly got risky loans, couldn't afford the home in the first place, or speculated on home values increasing for profit taking.
Many out there who are responsible homeowners, from what I see, don't want ANYONE involved in this problem to benefit, whether it be a homeowner buying a house they knowingly couldn't afford or a C.E.O. of the firm who sold their loan for profit.
This is what happens when the country is run by actuaries. Imagine Secy. Paulson and FDIC honchos sitting around a table calculating the cost of making whole the depositors of the failing banks ... about $700 billion ...
Bankruptcy of the auto manufacturers would likewise cost Uncle Sam a lot of money to cover pensions and whatnot; that would easily amount to another %50 billion ...
May as well hand over the cash when it is in hand rather than wait, when a replacement Congress will oppose any bailouts of any kind.
Serious, underlying problems are not addressed by the bailout ... so the corrosion of balance sheets will continue leading to the nest credit squeeze and the next and the next.
I would like to think THIS will be the last bailout, which is what I said after Fannie and Freddie were bailed out of existence. Compared to those twin pillars of insolvency, the tab for the banks and auto makers is small change. Fannie and Freddie have the taxpayers on the hook for as much a $2 trillion ... and maybe more. They are 'banked' against the housing market which is being shed of speculators and all the so-called value that those miserable creatures have ginned up out of thin air.
When all speculators are gone and real estate belongs to those who actually use it ... the remaining values will be small indeed.
If Congress was smart in the collective ... which they are not ... but if someone over there had a grip, a bill to create firewalls between the various real- and- derivatives markets would be created and an interbank simplicity and tranparency act would be enacted.
While all the tumult surrounds the bailouts ... the corrosiion of the derivatives against sound(ish) balance sheets never sleeps ...
... there is nothing so sweet as the smell of futility in the autumn ...
....
"Labor is prior to, and independent of, capital. Capital is only the fruit
of labor, and could never have existed if labor had not first existed. Labor
is the superior of capital, and deserves much the higher consideration."
- Lincoln December 3, 1861 First Annual Message to Congress
"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."
-- Lincoln, Nov. 21, 1864 (letter to Col. William F. Elkins)
Anonymous said:
In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers...Most importantly, Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That’s made banks willing to lend to lower-income families they once might have rejected.
I'm just spitballing here, but that sounds an awful lot like subprime debt. And, if I just read this a little bit more, it seems that the Clinton administration was very active and practically forced banks into these lending practices.
It might be worth noting that Bill Clinton, though the most bizniz friendly prez I can recall, was not elected until 1992 and therefore did not take office until 1993, so he could not have mandated this increase.
Just sayin……………………
Conchgal
john m.:
Would tend to agree with your assessment but all this wrangling over no benefits to any "guilty" parties is futile. There is no plan that could be conjured up that would allow for all the variables of guilt and innocence in the buying of homes.
Were there speculators seeking only fast gains? I would guess many. Were there greedy but hard working people attempting to follow the paradigms of the finance world and turn a quick profit by either rolling their house or using refinancing as their tool for booking a quick equity? Possibly but that process requires some degree of financial sophistication which many of them would not have possessed.
Much has been said here and elsewhere that the foundation of our economic wealth has historically been innovation. The one paramount intangible in all innovation is optimism. In fact it might be more approprate to suggest that optimism is the true driving force to all our successes.
Suppose that you and your wife are reviewing a mortgage with a payment that you can afford, as long as you don't lose your job, but when the first reset comes up the payment will skyrocket well beyond your ability to pay. Your nervous, but whether due to solace offered by the lender or your simplistic understanding of the housing market, you reason that risng home prices will allow you to either sell at a profit at reset time or refinance with payments you can afford. So you sign the bottom line and commence your trip to home ownership and a more comfortable life.
Your friends Tammy and Joe and Isabelle have all seen significant increases in the value of their homes in recent years and home values always seem to rise and never fall so it's a minimal risk. It's almost like taking candy from a baby. In defense of the lenders, crooks though many of them may be, until the bell began to toll, most of them thought home values would continue to rise. Even Alan Greenspan thought so. It appeared far more likely that the driving force was supply and demand and as long as contractors kept on building the market would keep on rising.
Worst case if you and your wife get your annual raises and maybe a promotion here or there you could afford the reset payments, even if difficult, and you could ride the wave until things settled back down. No doubt you would consider what would happen if prices stagnated but I doubt you would have given much thought to prices tumbling.
Well, we all now know what happened. You and your wife after moving in and enjoying the start of the American dream were faced with the absolute worst case scenario. One I doubt your lender even mentioned. You were left with no alternative but to face foreclosure and surrender your home.
The world will judge that you made a greedy, selfish, financially stupid decision and that you are guilty. Actually, you made a risky but reasoned decision based a great deal on optmism. Are you to be further punished for that in a workout?
There are untold millons of stories similar to that portrayed here. To unravel all the nuances of rationales would be impossible. For those who grieve over a few that might benefit unfairly, I suggest that John Stuart Mill had the right idea: "...the greatest good for the greatest number". That view is the only way we protect all the innocent even while rewarding some of the guilty.
Why doesn't anyone see this as I do - a game changer. Isn't the US treasury, with this $700bl actually creating its' own SWF with hundreds of billions of dollars/assets in it? Isn't it true that there are 44 SWFs with over $5 trillion just waiting for US laws to allow them to get at US assets? Would somebody a lot smarter that I please explore this idea?
I found this on
http://perotcharts.com/category/challenges/national-debt
Emergency Financial Rescue Plan
Phase One — Immediate Action
1. Suspend or modify the “mark-to-market” accounting regulations that have caused the write-down of mortgage backed securities on the books of the financial institutions, which in turn have caused their capital positions to become impaired.
2. Declare a 120-day moratorium on mortgage foreclosures to plug the financial black hole
a. Keeps families in homes while components of the plan are put in place
b. The property does not fall into disrepair
c. Values in the surrounding neighborhood do not fall due to unoccupied homes
3. Declare a 120-day moratorium on payment of dividends by banks
a. Banks that need capital are worried that failing to pay dividends will be seen as a sign of financial instability.
b. A temporary ban across the board will end fears and allow strengthening.
4. Require banks to strengthen their capital base to meet a new, higher national standard.
a. Federal government provides capital for banks that are unable to meet the new standard.
i. Federal government gets warrants for making a loan.
ii. Federal government gets immediate equity for a capital investment.
b. This procedure enables the banks to retain the troubled mortgage backed securities to provide time for them to work out the problems with the loans rather than dropping the problem in the lap of the federal government. The government never touches the bad loans.
5. Raise the FDIC guarantee on bank accounts from $100,000 to $250,000,
a. This provides banks with opportunities to expand their deposit base through increased confidence of depositors.
b. With adequate capital requirements in place, there should be very few bank defaults, thus adding no additional cost to the federal government.
c. Add brokerage accounts to the insurance coverage
6. Create a true “Social Security Lockbox” for the profits to be earned by the federal government (from the warrants and equity in Item 4, above)
a. Strengthen the Social Security system.
b. Enable all Americans to share in the profits of the rescue plan.
7. Require the Social Security Lockbox to invest the proceeds in something other than federal government bonds, as under current law.
a. This would ensure that lawmakers could not put their hands on the proceeds to spend making up shortfalls caused by deficit spending.
b. Permit the lockbox proceeds to be invested in AAA-rated state and local infrastructure bonds.
i. Provides safe, long-term investments
ii. Creates jobs
8. Create a strong, independent board to oversee the rescue plan, including the administration of the warrants and equity of the financial institutions held by the federal government.
a. The board would advise Congress.
b. The board would consist of:
i. Secretary of Treasury (Chair)
ii. Federal Reserve Chairman
iii. Comptroller General
iv. Appointees of House and Senate (both parties)
v. Outside, independent experts
9. Create a new Joint Committee of Congress to oversee the plan and provide recommendations to Congress.
a. This removes oversight responsibility from the Senate Banking Committee and House Financial Services Committee.
b. This allows all committees that have some shared responsibility to participate in oversight.
10. Create an Emergency Financial Crimes Unit in the Department of Justice>
a. Investigate any criminal acts that led to this crisis
b. Seek disgorgement of assets from individuals and institutions found guilty.
c. Put a career prosecutor in charge of a staff of 300 or more qualified attorneys and support staff.
d. Assures the public that if crimes have been committed, the guilty will be held accountable.
Phase Two – Action by Congress in early 2009
1. Reinstitute a modernized Glass-Stegall Act, which covers all financial institutions including hedge funds.
2. Amend bankruptcy regulations to give federal bankruptcy judges ability to modify the terms of mortgages and give homeowners more time to work through their financial problems.
3. Give HUD/Fannie Mae/Freddie Mac emergency authority/monies to do workouts with homeowners on individual, troubled mortgages before foreclosure.
Would someone please explain “mark-to-market” accounting regulations that have caused the write-down of mortgage backed securities on the books of the financial institutions, which in turn have caused their capital positions to become impaired.
Also, why don’t we hear about Private Mortgage Insurance (PMI) paying off troubled mortgages?
I do not understand why Social Security should be involved in a bailout? See 6 & 7 above.
I cannot believe the central premise of the "bail out" plan recently formulated by the US Congress. According to secretary Paulson, the explicit intent of this plan is to buy mortgage-backed securities at a price HIGHER than their current market value. I would like to offer an alternate approach that may be just as effective as the current plan in unfreezing the credit market, but provides greater benefit to the tax payers.
Instead of purchasing securities at some artificially and, to one degree or another, arbitrarily inflated prices, the government SHOULD PURCHASE THEM AT THE LOWEST PRICE POSSIBLE in the current market. In turn, the government could provide low interest (e.g. 0% for 4 years, followed by Fed Fund rate for 4 years, followed by something higher) loans to these institutions.
In the currently envisioned plan, if a security is to be purchased for $100, but that same security can be purchased at the current market value of $20, the difference of $80 is essentially a free gift. In the alternate plan, the $80 would be provided as a very cheap loan.
The alternate plan has the following benefits:
1. It provides as much liquidity to the financial system as the current plan. It also removes the "toxic loan" from the credit market as the current plan.
2. It does not reward those who have obviously made imprudent business decisions with free tax payer money. As a result, the alternate plan discourage those behaviors more effectively than the current plan.
3. It significantly increases the future profit potential for tax payers.
How can the tax payer paying for something above the market price help the tax payer? This just defies common sense!
The current situation can and should be viewed as a business opportunity for the US tax payers. There is demand for something that only the US tax payers can provide, capital for mortgage-backed securities. Certainly, we need to quickly "unfreeze" the credit market without delay. But we should also take advantage of this situation to maximize the return on our investment by being brutally tough in extracting absolute lowest priceses for the securities. In fact, these two can, should and do go hand-in-hand.
Bruce Baines,
The mark to market rule, passed (I think) after the Enron debacle, requires firms to mark their assets at the market price. This mean the sub-prime mortgages purchased by investment banks for their portfolios, for example, have been forced to mark these mortgages -- which are the equivalent of "junk bonds" -- down severely because no one knows what they are worth. Generally, it is felt they are worth more than preditorial and unrealistic
"auction market prices."
The dilemma is how do you mark to market when the market has in effect vanished?
So in times like this, this rule has very distortive and dangerous effects in intensifying a financial domino effect of lost confidence in the system. As we all know, liquid assets are invested in assets that must be held for a time, or remain illiquid, in order to earn a return. But when forced to mark at market on the huge scale we've seen lately, strong and troubled illiquid assets are prematurely excessively marked down, creating huge balance sheet problems ... as typically experienced by Bear Stearns and others recently.
Many believe this rule has contributed to the bankruptcy of some of our financial institutions.
Experts correctly say the root cause of this financial Mess we're in is overspeculation with extreme leverage. That's where the pro-active regulations should be focused, rather than on the mark to market accounting procedures.
Frank Thomas, The Netherlands
Frank:
Would agree with your analysis. Am not familiar with all the "mark to market" provisions, they came around after I was out of accounting management, but it doesn't sound too much different than the old "lower of cost or market" GAAP requirement. The only difference might be that the "lower" doctrine was a little more flexible when true market value was not readily apparent or stable.
Even though these might be held as Marketable Securities, normally a current asset, their nature is that of a long term asset and while some reserves might be appropriate to adjust cost for market conditions, weight should also be given to the long term value (payback) of the assets.
To eliminate "mark to market" and bypass "lower of cost to market" would seem to me to just be adding more smoke and mirrors to the process. In either case it would appear to be attacking a symptom rather than a cause.
Frank:
I need to get a more intelligent keyboard; "lower of cost or market".
This is actually a response to the conversaton yesterday on Stephanopholis. On the show you mentioned the stagnation of middle and working class wages.
I want to add that for me and my peers, stagnant-to-declining income is just one ingredient in the economic pain. By far the most painful blow has been the blinding inflation in costs for housing, transportation, education and healthcare. Starting in the 70s they soared beyond the reach of my median income.
I wish Stephanopholis would invite Elizabeth Warren onto the show to set some of these folks straight. Professor Warren advises that in a balanced family budget necessities should not consume more than 50% of income. You cannot imagine how hard it is to stay within range of even that modest guideline.
Before the 70s, rent only consumed 25% of my net pay. Now housing costs chew up 35% of the income I can generate working two full-time jobs. Without the second job, they would account for a wildly unworkable 75% of my take home pay.
It would be wonderful if the televison pundits would stop insulting me with jibes about lattes. Keeping my inner Madame Defarge on a short leash is exhausting and I don't know how much longer I can do it.
radish:
I understand your consternation but many here will suggest that you're paying the price for living beyond your means.
For shame that you had the audacity to hope and dream. Go back to living in a shack and riding a bicycle and your troubles are over.
There has been a "silent depression" in America.
• 1960’s Women having to move into the work force and out of their key family role = breakdown in core family structure, communications, values, guidance, etc.
• 1960’sAmerica drops mental health programs & institutions = mentally ill on streets and in neighborhoods
• 1970’s Families forced into credit spending to maintain lifestyles = consumer debt, saving rates fall
• 1980’s Corporate America moving offshore with jobs = loss in corporate taxes, lack of good jobs,
• 1980’s Illegal immigrants start taking minimum wage jobs, many are paid under the table (gray economy) = loss of taxes, loss of decent wage increases
• 1980’s Countries infrastructure fell behind = more traffic congestion resulting in longer commutes = loss in family time, more expense
• 1990’s Longer working hours, jobs more competitive, went from 8 hr days to 10 hr days to maintain
• 1990’s Borrowing (spending) home equity to maintain lifestyle = current mortgage defaults (predatory practices by financial institutions)
• 2000’s Corporate America moves from defined benefit plans to 401ks = employee must become investment professionals to ensure retirement = low pension funding
• 2010’s Retirement age increases = Baby boomers must work until 70 or beyond
• S&L debacle 80’s, dotcom bubble 90’s, credit crisis 2000,s = lost investments and net worth
They say that "prisons are a reflection of society". Now in America, 1 out of 275 persons are in jail. The social-economic problems from the silent depression in America have contributed to crime, a sense of hopelessness, and lack of opportunity for many. There is apathy towards politics and distrust in government.
Many young kids today are raised with a disconnect to family (values) and education (opportunity).
I fear for America's future. Please vote for change.
McBush keeps pushing his experience, but we don’t need the kind of “old boy” experience that he brings… enough of the republican ideologies that lead to a greater wealth disparity in this country and the social breakdown it brings
Finding it fascinating to be reading Naomi Klein's Shock Doctrine in the middle of this mess. There are whole passages regarding Milton Freidman's Chilean "experiment" that could be placed in today's newspaper. Is the media (or anyone who follows your blog) looking at this as fodder for comparison? I tried to search comments here, but didn't see anything. I understand she'll be a guest on Colbert report later this week. Would love to have someone with a greater intellect than my own examine it and "tell me" what to take and what to leave.
anonymous:
Outstanding presentation of time sequence of the "Fall of the American Empire".
Always amazes me that McCain's heroes are Teddy Roosevelt and Ronald Reagan, opposite ends of the same continuum.
SMaher, you're not the only one that sees this whole debacle as a restructured IMF Austerity package.
Any nation going down the toilet, resource-wise is first drained of it's resources, then it's handed a bill to repay the resources stolen.
That bill of course, has to be repaid at a very high interest rate.
What comes next is higher taxation, dramatically rising price inflation, then a rapid sell off of public facilities to the private sector for fast cash for local governments.
If we follow that trend, then public facilities like water and sewage treatment plants will fall into disrepair, as rates are jacked up high. Private competition such as homeowner rain water harvesting will be criminalized.
This is what has been happening to nations in our position for decades.
We're following a very similar pattern. Will it continue?
No bailout scheme can fix this problem.
The core issues are simple.
The USA does not have production levels nearly high enough to support our massive financial system. There is enough money sloshing through our financial system to power dozens of planet Earth's. Likewise it would take the productive capapcity of dozens of planet Earth's just to support the USA's financial system.
The whole point of the bailout is to get the financial sector growing again, so that the massive influx of money can kick start our economy again.
But our productive base is still in decline. We are still shedding jobs.
The size of our financial system and it's need to grow to infinite size is the problem. But the bailout's purpose is to make it grow larger.
Our politicians have bought into the mantra that infinite growth must be maintained at all cost. Nothing can grow to infinity. Infinite growth must then end at some point.
The bailout will pass. It will spur another growth bubble in finance. But as it does so, finance will suck more of the life blood out of the industrial side of the economy that produces things of value in the physical world.
Still the GDP will rise as jobs are lost. Still the money supply will rise.
Price inflation will still march higher.
The talking heads will continue to proclaim, "All is well!" At least until bubbles can't be blown anymore.
Through the wonderful power of hte exponential function, in a year or two, we may be looking at bailouts in the hundreds of trillions of dollars, with real losses in the $quadrillions. It will take many hundreds of planet Earths to catch up to the growth of our financial sector in the short term.
New York Times, 2003:
September 11, 2003
New Agency Proposed to Oversee Freddie Mac and Fannie Mae
By STEPHEN LABATON
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
''There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,'' Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.
Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.
The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws.
The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.
After the hearing, Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration's proposal. Industry executives said Congress could complete action on legislation before leaving for recess in the fall.
''The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,'' Mr. Oxley said at the hearing. ''We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,'' the independent agency that now regulates the companies.
''These irregularities, which have been going on for several years, should have been detected earlier by the regulator,'' he added.
The Office of Federal Housing Enterprise Oversight, which is part of the Department of Housing and Urban Development, was created by Congress in 1992 after the bailout of the savings and loan industry and concerns about regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.
At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve. Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families. This year, however, the chances of passing legislation to tighten the oversight are better than in the past.
Reflecting the changing political climate, both Fannie Mae and its leading rivals applauded the administration's package. The support from Fannie Mae came after a round of discussions between it and the administration and assurances from the Treasury that it would not seek to change the company's mission.
After those assurances, Franklin D. Raines, Fannie Mae's chief executive, endorsed the shift of regulatory oversight to the Treasury Department, as well as other elements of the plan.
''We welcome the administration's approach outlined today,'' Mr. Raines said. The company opposes some smaller elements of the package, like one that eliminates the authority of the president to appoint 5 of the company's 18 board members.
Company executives said that the company preferred having the president select some directors. The company is also likely to lobby against the efforts that give regulators too much authority to approve its products.
Freddie Mac, whose accounting is under investigation by the Securities and Exchange Commission and a United States attorney in Virginia, issued a statement calling the administration plan a ''responsible proposal.''
The stocks of Freddie Mac and Fannie Mae fell while the prices of their bonds generally rose. Shares of Freddie Mac fell $2.04, or 3.7 percent, to $53.40, while Fannie Mae was down $1.62, or 2.4 percent, to $66.74. The price of a Fannie Mae bond due in March 2013 rose to 97.337 from 96.525.Its yield fell to 4.726 percent from 4.835 percent on Tuesday.
Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.
''The regulator has not only been outmanned, it has been outlobbied,'' said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ''Being underfunded does not explain how a glowing report of Freddie's operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.''
Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.
Seems like the guys who said we faced no problems five years ago are the same ones saying that a lack of oversight, private greed, and failed policies are the cause of today's problems.
Anonymous matt
Matt,
Yes, Matt, your conclusion is right because all those seemingly genuine but in reality PHONEY FACADES of financial system regulation efforts you site were simply Neither virtually implemented Nor enforced.
Matt:
Hopscotching? Last week it was the Clinton administrations fault and now it's the House Democrats fault?
Don't know all the details, nor do I sense that you do, but I would be inclined to look any effort askance that was suggested by the Bush administration, especially if it involved turning over oversight responsibility to Treasury while Snow was Secretary.
Wasn't it Dumbya who was extolling the virtues of the ownership society?
You seem to imply that Democrats knowing these unethical, often illegal, loaning activities were going on, chose to ignore them to continue pushing home ownership for minorities. It's questionable that Freddie/Fannie were directly involved in these bad loans due to their charter limitations. Buying them to securitize would get them involved but like the rest of Wall Street they may not have known how bad the loans were. Buying for resale seldom carries the same scrutiny as buying for your own consumption.
It's easy to assume that Treasury would have righted the ship but the history of Dumbya's performance and Snow's, while at Treasury, even after, would not a good bet make.
Before accepting your conclusion I would like more knowledge of the expected oversight benefits from Treasury versus The Office of Federal Housing Enterprise Oversight. Is it possible that HUD suffered similar budget cuts, inept management and White House restrictions that pervaded other agencies?
One might ask the question why did it fail? Republicans controlled the White House, The House and the Senate in 2003. Are Democrats so powerful a minority that they can defeat a triumvirate?
One newspaper article does not suffice for concluding a whole lot.
Art:
I'm not concluding anything. I'm just trying to point out the hypocrisy of politicians and their complete lack of accountability.
I'm honestly fed up with the whole thing, especially the blame game. When a house is on fire, you don't spend time arguing if it was caused by an electrical spark or a kid in the closet with matches. You put out the fire and figure the rest out later.
Anonymous Matt
P.S. Art,
If I was doing the blame thing, my logic go something like this...
Carter institues the CRA, which has the noble goal of eliminating discrimination so that an otherwise qualified minority would get a loan. I fully support this idea.
Clinton augments the CRA and begins twisting arms, practically forcing banks to lower underwriting standards.
The Bush administration sees Fannie/Freddie getting too big and worries about the risk underlying the portfolios. Specifically, it worries about capital reserves and proposes an agency that will govern this.
Democrats say no.
Financial implosion occurs.
Democrats blame Wall Street and "eight years of failed economic policy."
Personally, I think that these issues are far more complicated than laid out above. However, I do believe it is fair to remind those most loudly casting the blame of facts they are conveniently forgetting.
AM
Matt:
Totally agree with your last statement. As to your first paragraph, are you familiar with Casablanca and the infamous gambling line uttered by Claude Rains?
Did look a little farther and legislation was introduced in the House in 2003 and eventually died on the vine. Essentially same legislation introduced and passed by the House in 2005 but died in the Senate, never taken up. Not clear whether poor Repub management or threats of Dem filibuster throughout 2006.
If the administration and Repubs believed this change was so vital would not a little more energy have been called for?
It is said, "there are no atheists in fox holes", neither are there any virgins in Congress or the White House.
Matt:
Interesting article here.
I'd be interested in your thoughts on James K. Galbraith's Washington Post article of Thursday, September 25, 2008, "A Bailout We Don't Need."
Good article, Art. Too bad it wasn't debated robustly and a good solution formed a few years ago.
AM
The problem with blaming poor people for this is that the biggest part of the financial meltdown isn't the loans themselves. It's that loans of poor quality were packaged and sercuritized, then leveraged and releveraged with little regard for the quality of the underlying asset. They were leveraged by very savvy financial institutions that created incredible webs of leverage. This melt down is very similar to the LTCM situation when every bank on Wall Street was leveraged to the hilt in assets with very suspect underlying quality. No poor person enabled that. No Carter era program enabled that.
It's a nice meme to start. Blame it on Carter. Blame it on Clinton. Blame it on minority home owners. Blame it on mark to market. Never mind that non-minority homeowners were getting bad loans too. Never mind also that loans were given to all sorts of people at the margins that could never pay them back. Never mind that the right has been dismantling regulatory structures for 20 years.
wow gold
wow gold
wow gold kaufen
world of warcraft gold
wow
wow gold
buy wow gold
cheap wow gold
wow gold
cheap wow gold
wow gold
cheap wow gold
cheapest wow gold
eve isk
mp3 players
sell wow gold
portable mp3 players
portable mp3 player
buying gold world of warcraft
4GB MP3 PLAYER
2GB MP3 PLAYER
wow gold
cell phones
phones cell
wow gold kaufen
cheap cell phones
ipod
wow
ipods
ipod nano
wow gold
ipod touch
apple ipod
wow leveling
ipod shuffle
digital cameras
wow powerleveling
digital camera
canon digital camera
wow gold
dvd player
portable dvd players
eve isk
mp3 player
zubehoer mp3 player
cheap world of warcraft gold
8GB MP3 PLAYER
mp3
world of warcraft buy gold
mp4
mp3 players
buy cheap wow gold
mp3 player
free online games
wow geld
play war games
free online war games
wow level service
online games
wow europe
wow gold verkaufen
mp3 player accessories
mp3 player accessory
gold wow
cell phone accessories
Bluetooth Headset
po wow
Bluetooth Headsets
dvd players
des po wow
portable dvd player
digital camcorder
gold wow
digital camcorders
mp3 mp4 player
wow leveling service
4GB MP3 PLAYER
mp3 player kaufen
wow lvl 60
lecteur mp3
mp3 mp4 player
cheap wow power leveling
mp3
mp4
wow powerlevel
mp3 mp4 player
mp3 mp4 player
power level
mp3 player kaufen
wow lvl
wow lvl 70
wow power leveling
wow leveling
wow powerleveling
power level
wow lvl
level wow
wow level
wow powerlevel
lord of rings online gold
lotro gold
lotro gold
HDRO gold
It looks like the tainted leadership in the House has been having its way w/the hold-outs these past few days. The Senate seems ready to cave, as well. That leaves it up to "Main Street", as in fill it up with protest.
Whether all these years of media indoctrination and general disempowerment means only the usual suspects will be protesting on Main Street remains to be seen. If that's the case, it's pretty much over for life as you've known it. It seems to me this moment is the last opportunity for a REAL popular uprising (hopefully non-violent) that could lead to an actual shift in priorities away from oligarchy and back to some real form of democracy. It will take more than talk and pounding on a keyboard.
徵信, 徵信社, 感情挽回, 婚姻挽回, 挽回婚姻, 挽回感情, 徵信, 徵信社, 徵信, 捉姦, 徵信公司, 通姦, 通姦罪, 抓姦, 抓猴, 捉猴, 捉姦, 監聽, 調查跟蹤, 反跟蹤, 外遇問題, 徵信, 捉姦, 女人徵信, 外遇問題, 女子徵信, 外遇, 徵信公司, 徵信網, 徵信, 徵信社, 外遇蒐證, 抓姦, 抓猴, 捉猴, 調查跟蹤, 反跟蹤, 感情挽回, 挽回感情, 婚姻挽回, 挽回婚姻, 感情挽回, 外遇沖開, 徵信, 徵信, 徵信社, 抓姦, 徵信, 徵信社, 外遇蒐證, 外遇, 通姦, 通姦罪, 贍養費, 徵信, 徵信社, 徵信社, 抓姦, 徵信社, 徵信社, 徵信, 徵信, 徵信公司, 徵信社, 徵信, 徵信公司, 徵信社, 徵信社, 徵信社, 徵信社, 徵信社, 徵信公司, 徵信社, 徵信, 徵信, 徵信公司, 女人徵信, 外遇, 外遇, 外遇, 外遇
徵信, 徵信網, 徵信社, 徵信網, 徵信, 徵信社, 外遇, 徵信, 徵信, 徵信社, 抓姦, 徵信, 徵信社, 外遇, 徵信社, 抓姦, 徵信社, 徵信公司, 徵信, 徵信社, 徵信公司, 徵信, 徵信社, 徵信公司, 徵信社, 徵信社, 徵信社, 徵信社, 徵信, 徵信社, 徵信社, 徵信社, 徵信,
WoW shares many wow gold of its features with previously launched games. Essentially, you battle with wow gold cheap monsters and traverse the countryside, by yourself or as a buy cheap wow gold team, find challenging tasks, and go on to higher aoc gold levels as you gain skill and experience. In the course of your journey, you will be gaining new powers that are increased as your skill rating goes up. All the same, in terms of its features and quality, that is a ture stroy for this.WoW is far ahead of all other games of the genre the cheap warhammer gold game undoubtedly is in a league of its own and cheapest wow gold playing it is another experience altogether.
game4power.com
Even though WoW is a Cheap Wow Gold rather complicated game, the controls and interface are done in warhammer gold such a way that you don't feel the complexity. A good feature of the game is that it Cheapest Wow Gold does not put off people with lengthy manuals. The instructions cannot be simpler and the pop up tips can help you start playing the game World Of Warcraft Gold immediately. If on the other hand, you need a detailed manual, the instructions are there for you to access. Buy wow gold in this site,good for you, BUY WOW GOLD.
Weekends to peopleig2tmean that they can have a two-day wowgold4europe good rest. For example， people gameusdcan go out to enjoy themselves or get meinwowgoldtogether with relatives and friends to talk with each storeingameother or watch interesting video tapes with the speebiewhole family.
Everyone spends agamegoldweekends in his ownmmoflyway. Within two days,some people can relax themselves by listening to music， reading novels，or watchingogeworld films. Others perhaps are more active by playing basketball，wimming ormmorpgvipdancing. Different people have different gamesavorrelaxations.
I often spend weekends withoggsalemy family or my friends. Sometimes my parents take me on a visit to their old friends. Sometimesgamersell I go to the library to study or borrow some books tommovirtexgain much knowledge. I also go to see various exhibition to broadenrpg tradermy vision. An excursion to seashore or mountain resorts is my favorite way of spending weekends. Weekends are always enjoyable for me.
thanks
Greedy Wall Street Bastards! Petulant Predatory Lenders! Throw 'em all in Jail.
This is all their fault and we shouldn't bail out those fat cats! Can you believe how they took advantage of the poor unwashed masses while making tons of money in the process!
The Bush Administration was so concerned with the rich getting richer that it looked the other way while this happened! Oh, the humanity of it all. Woe are we!
Greedy Wall Street Bastards! Petulant Predatory Lenders! Throw 'em all in Jail.
This is all their fault and we shouldn't bail out those fat cats! Can you believe how they took advantage of the poor unwashed masses while making tons of money in the process!
The Bush Administration was so concerned with the rich getting richer that it looked the other way while this happened! Oh, the humanity of it all. Woe are we!
NOT SO FAST...Here is an article from the LA Times in 1996.
Greedy Wall Street Bastards! Petulant Predatory Lenders! Throw 'em all in Jail.
The Bush Administration was so concerned with the rich getting richer that it looked the other way while this happened! Oh, the humanity of it all. Woe are we!
Post a Comment
<< Home