Fannie and Freddie, and Why the Accounting Gimmicks Continued
Accounting gimmicks first came to light at Fannie and Freddie in 2003, at which time Fannie's and Freddie's former CEOs were sacked. Why, then, did they continue for another five years, even under new CEOs, even after policymakers first learned of them? Three reasons: (1) Top executives and shareholders continued to profit from them so there was no incentive to stop them, (2) everyone involved kept expecting home values to continue to rise -- or, when they fell, rise again soon enough -- to make up for the accounting shortfalls, and (3) Fannie and Freddie continued to be in bed with Congress and the administration. Democrats and Republicans alike have been complicit in this outrage.
posted by Robert Reich | 3:32 PM
103 Comments:
rein
Maybe it's not outrageous. Maybe it's to be expected when they, who stand to gain the most in this economic game, are the ones making the rules.
Support for the status quo has lead us here to this place where change is inevitable, but not by legislation, not by revolution, but unfortunately, by economic depression.
Now that's leadership!
Given the best paying jobs are sent offshore, there is no need for banks, or mortgage companies; therefore, there is no need for GSE like Freddie and Fannie in any form. Take the absolute worst unemployment percentage you can think of then put it at double.
What will be needed is a lending facility for I Need To Retrain In Health Sciences, Inc. Then after US middle class is forced to retrain, they will most likely be in debt and unable to buy a home.
The mortgage resets to come are out in 2010 and 2011, from what I remember.
Ironically, I wrote a paper on this very topic nearly 18 months ago, when the implication of financial crisis was considered even more wildly speculative than the price of housing. Unfortunately, to a point, Paulson is right. There is a considerably larger risk in not taking over Fannie & Freddie. That's not an excuse for doing it, merely a fact of where we are now. There is no going back on the sins of the past. Part of the solution-not the entire solution, mind you-out of the current financial crisis is to ensure that the entire banking system does not go under. There are 3 other pieces to this puzzle that need to be fixed. First, banks need to begin passing along the savings they have gotten from the 325 points in rate cuts they have received in the last year. It is in their best long-term interest to do so, but unfortunately with the banks' crunch on short-term capital, not possible. So far, 30 year fixed mortgage rates have gone up AND it is considerably harder to borrow, particularly if you have less than stellar credit. Doing so will cause the second piece ofthe solution: price stabilization. As more buyers are able to come into the market, housing prices will stabilize and slow the rate of foreclosures. Fewer foreclosures result in less losses for banks and more ability for banks to lend. Finally, more needs to be done to help stop foreclosures directly. Those who are currently underwater with their homes need considerably more relief than they've gotten so far. 4 million homes are now at least 30 days late on their mortgage. This can't simply be because people bought more house than they could afford. Many of these people were taken advantage of by the very banks that have either been taken over by the government or sold their bad mortgages to them. Does that mean that only large banks are worth saving?
Sounds like the FIRE portion is coming unbolted from the economy, and so what? It was bolted on anyway. The comedy is the hedge fund managers who go belly up a coupla months before Barack Obama can raise their taxes. The economy functioned before FIRE was bolted on; the economy will function again.
Look for nursing home beds and hospital beds to be fitted with meters, sort of like taxis.
@kayxyz
Health Sciences is the next big bubble. Its growth is simply unsustainable and if there comes a day when Universal Health is a reality, Health Sciences Inc will simply disappear.
The best training Americans can do is simply to become a lawyer. There will always be disputes.
Sonsart2, I agree with you, that after blowing a series of bubbles, the Fed and the banks have created a disaster in the making.
Not bailing out the banks will ruin our financial system.
But bailing out our financial will destroy the dollar.
Henry Paulson intends to blow a new bubble. He said so. He told us previously that he is working to keep wages low and spur the economy by increasing debt.
Without a rise in wages, people won't be able to repay the new loans that will be dispensed in the next bubble, funded by taxpayers.
And the next bubble has to be bigger than the last, or there won't be a temporary recovery.
Our debt is at $54 trillion. It is growing at 7.25% This means that it doubles faster than every ten years, if we do nothing but maintain it.
Now that means that the interest on the debt also doubles in less than ten years.
To keep up, wages must double in less than ten years, so that tax revenue can double in less than ten years.
If this doesn't happen, then the dollar devalues by half every ten years if nothing else changes. But with us on the Peak Oil Plateau, the dollar will devalue much faster, as the price of oil goes up due to demand and a flood of infinite dollars.
Now the US Government is going to grow the debt significantly faster. the US Government is going to finance the biggest bubble yet, on low interest loans, back by the US taxpayer.
We may well see the dollar lose half of it's value every three years.
This will kill jobs. It will kill wages. It will drive the price of real estate back into the stratosphere and bring it crashing down again.
And don't get fooled into thinking this is to save the homeowners. The Chinese and Arabs bought these mortgage packages, and they are now holding on to worthless paper. The US Government will buy these back at face value, thus making sure that they don;t lose any money in the deal, and let the US taxpayer eat the losses.
When this is done, no bank will be able to compete with the US Gov on mortgages. They'll still offer them, but they'll be reselling government loans.
The Finance industry will no longer be a capitalistic entity but a fully socialist one. The government will have complete control over who can borrow, and for what they can borrow.
The Government is going to strike a blow deep into the heart of our economy with this move. It will kill jobs. It will drive wages lower. It will create a system whereby people must borrow to live. And the government will decide what you are worth.
As a tax payer helping bail out another dimension of the republi-bunkin greed machine, I want all current Freddy/Fanny management FIRED and sued for mismanagement and dereliction of duty.
I should not have to be forced to accept this risk and divert tax monies without accountability being disbursed.
The good-old-boys network is protecting both the entities and their friends in management. Private enterprise would not allow management teams to get away with this. Bush and Cheney are off fighting windmills while the US economy is being destroyed.
Paulson needs to build in both check-n-balances and governance structures to protect my new stock ownership in these entities.
What no one in Washington (or Alaska) seems to be talking about is our solvency crisis. Sure, there is a lot of hot air being blown about debt but we are on a tragic road to the greatest financial bubble of all time. Once the good faith of the dollar is blown, ALL of the dollar-based economies of the world will fall like dominoes.
Will this be the legacy of our place in history? I only hope that the next administration will have the courage tell it like it is and start to turn the ship of state around before it is too late.
We've faced down long odds before and we can do it again.
Now that America is based upon socialized capitalism system, we should use this model to solve our energy and oil dependence.
The Ford motor company has a 65 MPG car being sold in Europe. Ford claims that can't sell it for a profit in the US because it is a diesel engine and the US is reluctant to expand diesel stations.
http://www.businessweek.com/magazine/content/08_37/b4099060491065.htm?chan=top+news_top+news+index+-+temp_dialogue+with+readers
This is were the concept of LEADERSHIP is suppose to come into play and help define a strategy to help private enterprise solve a NATIONAL CRISIS.
The US should subsidize (through tax breaks and incentives) Ford to encourage them to start manufacturing this new diesel auto in the US.
I would buy a Ford (although with skepticism), if I thought I could get 65MPG. Where is our leadership?????? Where is common sense????? Where is the republic-bunkins initiatives to help bailout Ford and the average US citizens??????
weaseldog:
...It will create a system whereby people must borrow to live....
Will create?
Where are we now?
Dear Dr. Reich (and others on the board!):
I have enjoyed listening to your thoughts and perspectives over the years and was hoping to find a comment about the proposals for assistance to the Detroit Big 3 in your blog. Perhaps one is forthcoming? Are you familiar with the proposals? If so, what is your take on them?
At one time, if I recall correctly, the future of our native auto industry was also discussed in relationship to health care reform. I have a suspicion that my thoughts about tying in health care reform to assistance to the Big Three confounds the situation. However, I was also wondering about your thoughts with respect to addressing the deteriorating financial situation of the auto industry in part through addressing the rising costs of health care.
The recent opinion article by Paul Ingrassia of the WSF doesn't ring true to me (http://online.wsj.com/article/SB122083202593108477.html).
thanks in advance.
We have a completely worthless k-12 system of education. Most people have no idea what has just happened. They have NO idea how weak the nation is by every meaningful standard one might use to judge strength. All they know is the lights come on when they hit the switch and they can still find gas to fill up the car. They have no idea of where we've been or where we're headed.
Our nation is adrift, without leadership that speaks to the best values found in the short history of our republic.
The leadership collapse has happened at all levels and in every sphere of our society. It's as if the leadership in America has given up on the American project. Our so called leaders no longer believe in what this country is suppose to represent.
The worst impulses in America, which have always been here, are now the ruling impulses for our nation's leaders. They are taking us to a place none of us like.
We have become a South American style country. We will be the first one to have a massive nuclear arsenal. We will scare the hell of other countries, and they will react of us like the monsters we have become.
Art a Layman...
Just a picky point.
People can 'CHOOSE' to live by borrowing. It's hard not to do this, but it can be done.
In that quote I used the word, 'MUST'.
I am reminded of the scenece from the movie "Little Big Man" starring Dustin Hoffman, where General Custer concludes that he should do the opposite of whatever his captive suggests. I think we should do the opposite of whatever George Bush suggests.
I am not an economist. But having participated in real estate closings involving Fannie Mae (FMA) I can tell you that they are the most highly scrutinized real estate transactions. As I understand it, please correct me if I'm wrong, FMA did not dabble in the sub-prime mortgage market because they were not permitted to by law. The people who got sub-prime mortgages (who include most everyone who were convinced they needed one)were those who did not qualify for FMA or Freddie Mac (FMC).
Which brings me to my next point which is that the Republicans, at the behest of traditional banks that do/did not like the competition, have been gunning for FMA and FMC for some time now. They threw Frank Raines out for using the same accounting methods every other CEO was using.
This is a sham being perpetrated on the American public and our children will pay the bill.
Robert said….
“It's another case of socialized capitalism, folks. The largest, yet. Along with making lots of money for investors and their executives, Fannie and Freddie corrupted our political process.”
So this is what they really meant when touting their “ownership society” agenda. Can you imagine what could happen if they got their greedy little mitts on social security money?
Wease, you have no idea how right you are, and even those at the other end of the political spectrum agree with you on this.
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weaseldog:
Picky indeed!
In the real world there is a very fine line separating "CHOOSE" from "MUST".
It is often less the choice of "choosing" debt to satisfy wants and needs than "must" "choose" debt in order to live to fight another day.
Keep in mind, the only thing we "MUST" do is die.
Dr. Reich,
This predictable development with Fannie/Freddie in combination with the severe Subprime housing crisis is a more serious replication in another form of the Savings and Loan crisis in 1990. The latter disaster also involved a similar real estate out-of-control speculation fever. Both financial collapses illustrate that we Americans have a governmental system that only responds "When Things Get Real Bad!"
We must have a human and financially thrashing, severely threatening crisis first. Then, suddenly, the central government springs to the rescue at a tremendous cost to taxpayers and American society in general ... which is ready to pay any price to get out of the problems that have obviously been brewing for some time ... but for which nobody took any pro-active leading responsibility for because it was politically impossible with the Left vs. Right sinister dichotomy.
Now, here we are romantisizing an unqualified candidate for VP as the working and hunting man's savior-ideal and legitimate backup for possibly being President of the US ... all to divorce ourselves from the Reality of what we are doing because we must have a Winner at any cost! To hell with the nation as a whole. Anything to Win, that's the motto. Women's lib, man's mancho moose instincts, small town politics, Governor Pitbull Lipsticks, anything goes --- to Win. How stupid can we get?
No thanks. I'm going to vote for Brains and Experience in this one of the most dangerous of times in our nation's development... from many perspectives.
Laughably Ignorant
Just more evidence. Over the weekend Gov. Palin said that Fannie Mae and Freddie Mac had "gotten too big and too expensive to the taxpayers."
Only they're not even taxpayer funded. It's only the government takeover, which Sen. McCain supports, that could change that.
I understand that the TV networks and the big papers feel like they're not allowed to criticize Gov. Palin. But we're in the middle of a housing and credit crisis and she doesn't even know what Fannie and Freddie are. It's an embarrassing level of ignorance that would sink a candidate for house or senate.
--Josh Marshall
Josh, give Palin a break. She's still studying for her exam on Vice Presidential Duties.
She'll cram on economics later.
Consider how long it's going to take her to get the hang of Dick Cheney's Zen interpretation, where the office is a part of the Congress or a part of the Executive Branch without actually being a part of either.
It's a quantum metaphysical puzzle, like Schrodinger's Lawyer.
It was easier in the olden days when VPs just went to funerals. At least she's already an avid sports lady. She can one up Cheney, and shoot lawyers from a helicopter.
The irony!
This bailout emanates from the "free market" folks. Those who assure us that the "free market" solves all our ills.
Further, Mr. Paulson tells us that it was necessary to gain control over the housing market dilemma which is what is holding our economy back. We can't find a cheaper way to jump start the economy?
Wonder if it could have anything to do with bonus time for financial execs coming around the corner and the poor souls took such a beating last year? Two years in a row would be unthinkable.
Note to the ignorant Josh:
The government takeover is a done deal. Tax payers are officially on the hook. Your Democratic Congress made that happen.
It is hilarious to watch desperate Dems smear Palin on her level of experience when the TOP of THEIR ticket has FAR LESS experience!
ROTFLMAO!!!
Meantime…
Olbermann, the hate monger, gets yanked off the most sparsely viewed stage with a hook.
The ticket of McCain/Palin is kicking butt.
So-called Liberals are losing the opening rounds of the decisive battle in the Culture War.
Poor Lefties! They’re running scared! They KNOW they are about to take their richly deserved place on the ash heap of history!
ADIOS MUCHACHOS! Your “movement” is getting flushed down the toilet! It’s time for you to move to whatever Euro-Socialist “paradise” you prefer!
This post has been removed by the author.
Children,
Remember, Congress writes the checks.
This is the federal deficit trajectory which the Republican Congress was on.
This is the same chart with the record of the Democratic Congress appended (2007 to present).
It didn’t take the Dems long to DRAMATICALLY reverse the trend.
Both parties lack fiscal discipline (because the idiotic voters actually believe in a free lunch). But, one is FAR more lacking in fiscal discipline than the other!
SBvor, that's good cherry picking.
Good thing that you don't link the graphs going back several administrations.
If I ever need anyone to pick corn out of something stinky, you'll be the first person I contact.
The lobbyist won't allow legislation for oversight or accountability in the investment and financial industry. Greed rules.
Rebubli-bunkins are in the pockets of the big finance boys.
They are sh--ing in their own nest... dumb birds.
Damn! I knew it was too good to be true. One can only guess that sbvor's brief respite was caused by the time it took to hook up his computer in his nursing home room.
I would have sworn that Treasury reported to Dumbya.
NEWSFLASH sbvor!
Palin has more executive experience than the top of her ticket as well.
Not to burst your bubble sbvor but the early rounds do not a ballgame make.
What a let down! I saw this: ADIOS MUCHACHOS, and thought sbvor was signing off for good. Damn!
weaseldog:
Don't be too hard on sbvor, he's great at grabbing charts, understanding them, not so much.
Artie,
I guess I gave you too much credit. I should have spelled it out for you.
I used “ADIOS MUCHACHOS” as a means of bidding farewell to your “movement” as it gets flushed down the proverbial toilet!
ROTFLMAO!!!
P.S.) Where the congressionally chartered Fannie & Freddie are concerned, Treasury can’t do JACK without the explicit approval of your Dems in Congress:
“Over the summer, Congress granted the Treasury Department authority to bulk up the congressionally-mandated agencies either through the purchase of stock or equity lending or by taking control of operations until the companies' finances were steady. Treasury will buy the companies' preferred stock and purchase its debt off the open market.”
It was a really stupid move all the way around. But, it is entirely consistent with our steady march towards a totalitarian Socialist government (with so-called “Liberals”) “leading” the way.
sbvor:
Don't flatter yourself, I was being facetious about the Adios post. Ditto the Treasury remark. Little did I know they would go over your head.
Hey, how's that Conference Board unemployment rate forecast goin for ya?
Gearin up to take down your whole post about the "recession that wasn't"? Haven't been to your site maybe that's why you were missing last week.
One would have thought you'd be brighter than to be taken in by the turn of a thigh, but then one would have been stupid to believe that.
Could it be that the brains of Sarah reside in the head of "first dude"?
Mr. Mudd has already taken home $12.4 million in cash compensation and stock option gains since becoming chief executive in 2004, Richard F. Syron has taken home $17.1 million in pay and stock option gains since becoming chief executive in 2003
Fannie Mae and Freddie Mac have enriched their top executives for years. Mr. Mudd’s predecessor at Fannie Mae, Franklin D. Raines, took home more than $52 million while he was chief executive from 1999 to 2004, according to Equilar data.
http://www.cnbc.com/id/26606781
We have some terrorists (financial) right here on shore. Maybe Bush, et al. can turn some of their weapons towards our shore.
As has been pointed out to me before, to get quality people as CEOs you have to pay a lot of money and offer huge rewards for failure.
These people want to know that when they flush your corporation down the bowl, they'll be richly rewarded.
If you can't promise that, then failure isn't guaranteed.
Who'd want to ruin your business if there's no percentage in doing poorly?
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Art,
The Conference Board prediction for Q3 unemployment is 5.6%. Given the data for July & August, to hit that would require September to come in at 5.0% (where we were just 4 months ago). It’s quite possible. Or, they might have missed that one. We’ll know in a month.
On the flip side, they have been consistently low in their GDP estimates (as have most).
If you check my recession post, you’ll see that the unemployment rate still does not meet the historical standards for a recession.
For additional insight, you should examine this abstract from Dr. Leamer.
Have look at this YouTube video on how to behave on an internet forum:
http://www.youtube.com/watch?v=QwqqRP3Csd4
Never feed a troll
For those who say more and more routinely "that it is our children and grandchildren who will have to pay the bills", exactly where will they get jobs to earn real money to pay these real bills?
The current mantra is "get into a health care career" as if that is somehow the pot o'gold.
I don't believe anyone has a bloody clue where we are nor where we are headed saddled with the debt we own as a nation. The only thing that ultimately will happen is to repudiate the debt (bankruptcy) and start the nightmare again.
The ship is headed down. The band is playing and there are not enough lifeboats people.
"Never feed a troll"
I assume you're referring to Art?
cool post!
http://buyrxpillsonline.com/
sbvor - can you please explain to me how anyone can run for president, be senator, claim to be a genius as foreign affairs... while not knowing how to use email and a computer? or is that question so complicated that EVEN YOU, mr. hyperlink, doesn't have an answer to?
hypothetical reporter with balls: "Mr. McCain, it is said that you can't use a computer. Do you think it sane for someone to run for the highest office, claim they are in touch with the real world, and not know to employ skills that my three year old can?"
mCcain: "you can't imagine the cruelty that i faced as a pow in vietnam. it made me fall in love with america, while revealing the evil that lurks on this planet"
aly k
Anonymous said….
“Now, here we are romantisizing an unqualified candidate for VP as the working and hunting man's savior-ideal and legitimate backup for possibly being President of the US ... all to divorce ourselves from the Reality of what we are doing because we must have a Winner at any cost! To hell with the nation as a whole. Anything to Win, that's the motto. Women's lib, man's mancho moose instincts, small town politics, Governor Pitbull Lipsticks, anything goes --- to Win. How stupid can we get?”
Maybe stupid enough to lose an election that should be a cakewalk for democrats. This election will be decided by those very people that so many snooty elitists belittle and scorn. The Reagan democrats and working class voters in small towns located in critical swing states will be decisive in this election. They don’t care about Obama’s sterling academic credentials or his great skill in delivering a speech. They appear to be bonding with McCain and Palin because they seem more like regular folks and more likely to believe in the things they do. Eight weeks is an eternity in politics but the way things look at this point: McCain will narrowly win, dems pick up 10-15 seats in the House and will control the Senate by 55-45. In the final analysis, voters will reject the perfect candidate and instead choose the one they can identify with and the gop outsmarts the dems again.
Wow! Good thing I've only got a few more years to live...good luck 'Future" so long and thanks for the fish!
Well, at least it's not a "bailout," right?
I saw this on the blog of Craig’s List founder, Craig Newmark, yesterday and thought it was a great concept and worth passing along:
"Hey, this is a good example of genuine grassroots democracy:
ObamaTravel.org is a platform that connects volunteers who want to travel to a swing state with financial sponsors and swing state host families. It’s sort of a political hybrid of craigslist and Team-in-Training - volunteers post profiles and solicit sponsorship from their family and friends. Sponsors can see their donations in action by following the activities of their volunteers.
... and let's remember that "community organizing" is pure grassroots democracy."
Notsovast said,
"This election will be decided by those very people(Reagan Democrats and working class voters in small towns in swing states) that so many snooty elitists belittle and scorn."
Oh, I get it, there are many snooty and elitist Democrats who scorn their own Democratic brothers. And the latter prefer the non-snooty, non-elitist but ultra-rich, conservative government and business leaders who just love to offer them stagnant wages, plant closings and outsourcing with not even a handshake, no Federal enforced regulations of lending practices, no health care for everyone -- all to maximize shareholder returns. Yes, those non-snooty Republicans are overcomed with concern for the working class. The problem here is knowing who your friends really are. That applies particularly to the suffering working middle class. Their sympathetic Republican friends come with smiles bearing false gifts for the working class vote. Republicans know the decent, hard-working, lower-income folks (about 60% of households) can be suckers for a carefully packaged appeal to their vulnerabilities -- to having it tough.
But, as Republicans say, their hearts are in the right place. Their non-elitist endeavors in concentrating the nation's wealth in the hands of the top 10%is for the benefit of all us struggling working middle classers, the bottom 80%. It's called Trickle Down economics. Nothing elitist about that -- it's that old God damn all-American benevolence and non-elitism at its best.
Anonymous said...
"Oh, I get it, there are many snooty and elitist Democrats who scorn their own Democratic brothers."
I think you missed the point; to the extent snooty elitists like you are mirrored or passed through various media and then associated with Obama, dems lose key swing votes. These are independent voters not hard-core dems.
Notsovast,
You're beginning to sound more like one of those snooty Republicans who enjoys phoney namecalling to conceal their own elitism. We are in a democracy, if you didn't know it and it's not improved by your elitist cockiness that you're a superior Democrat. We rise or fall on being unified for the right human societal goals no matter what the political affiliation.
The government had no choice but rescue Fannie and Freddie.
The debt it has in bounds is larger than a lot of small countries.
To name two, Japan and Great Britain.
Do people really understand what would have happened if these two financial companies failed?
Every major bank in the world would stop issuing credit for EVERYTHING.
The entire world economy would stop. In short it would make the Grat Depression of the 30's look like a nice walk in the park on a pleasant Sunday afternoon.
“Now, here we are romantisizing an unqualified candidate for VP as the working and hunting man's savior-ideal and legitimate backup for possibly being President of the US”
Spoken like a true commoner. lol
Notsovast,
Don't take your frustrational love for Sarah Palin out on someone who happens to think she's not qualified to be President if something (noone wants) should happen to Sen. McCain. Did you take note you're hiding your poor judgment on this valid point behind snooty namecalling again?
"Did you take note you're hiding your poor judgment on this valid point behind snooty namecalling again?"
What snooty name did I call you?
Notosovast,
I assumed, (perhaps too quickly) the word "commoner" was a bit of irony for "elitist" rather than working man. And the disparaging "lol" word doesn't exist in my vocabulary.
boring gibberish ....
You two need to sign off for awhile...
You are degrading the blog.
Anonymous,
I fully agree. Thanks
Maybe it's kind of like "irony is wasted on the stupid". lol
McCain/Palin will win this election, I have little doubt in the enlightenment of Americans. 8 years of Republican rule have taken you this far, another 4 years will finish off the job. America, you desperately deserves everything you have coming your way!
Enjoy the journey!
I sincerely doubt that John McCain is polling "neck in neck" with Barack Obama, not with George W Bush's approval ratings barely 20%. But what I really wanted to say is no banks, no mortages, no need for Freddie and Fannie. Given Carl Levin (D-Mich) hauled CEOs from banks with obnoxious credit cards in front on Congress to testify, maybe now it's time for Carl to haul in CEOs, whose salaries are 400% of worker salaries.
Maybe the CEOs can finally be held accountable for funding re-training for those whose jobs are offshored. Maybe the CEOs can each by 400,000 each and thus prop up the real estate FIRE economy. I like the first one; after all, a Republican, George Romeny, Mitt's father stated he thought CEO salaries should be 250K max.
Wall Street is nothing more than a high stakes poker game, with parting gifts for those who lose. Personally, I would like to see Wall Street crumble and diversify the financial sector amongst the states. You might get an honest analyst out of the deal. How the hell does some asshole living in a NYC high rise know everything about every job in this country? They don't, but they sure want you to believe they do.
kayxyz said...
“I sincerely doubt that John McCain is polling "neck in neck" with Barack Obama,”
I think dems should take very seriously the tightness in the polling. If anything, it’s likely that the polling results overstate Obama’s support. We saw this consistently during the primaries in states without a significant black vote and/or in states with a heavy concentration of lesser educated white working class voters; in other words exactly those states that will decide the election. This appears to be some variant of the “Bradley” effect. For those unfamiliar with this it can be summed up as: white voters telling pollsters that they’re undecided or leaning toward the black candidate when in fact they have no such intention and end up voting for the white candidate. Why they do this is unclear but probably has much to do with some underlying race “issues” with the intent not to appear racist or racially motivated.
Jeff_f, I understand the rationale given for rewarding Fannie and Freddie's abysmal behavior.
The bailout is intended also as a vehicle for blowing a bigger bubble.
This will drive prices of gasoline and food higher, while depressing wages and destroying more jobs.
Then when this bubble bursts, we'll rinse and repeat.
I understand the rationale behind destroying the US economy to save the banks, but I'm not sure I believe in it.
Who will they loan to?
Who decided that our economy should be based on borrowing and not producing tangible products?
Why is shedding jobs and increasing debt the right choice again?
Is it because like a gambler addicted to the lure of a big win, we keep cashing out our assets, to spin the wheel again?
Follow the money and all political decisions can be explained.
Politicians are only looking at a 4 year term and they have little time to figure out how to get rich.
Very few politicians are making decisions for the better of our society and living standard.
The problem lies with clandestine incentives and lobby favors.
We need to raise salaries for politicians. They influence a$30 trillion economy. They each should get $5 million per term and the lobby system thrown out (as far as money transactions).
Both campaign and lobby reform is needed as an incentive for politicians to make strategic decisions for this country.
It is not a partisan issue.. it is a misaligned political system issue.
"It's the money... stupid"
Neither candidate is speaking about this level of reform to change our system.
We have another Morton’s Fork this election year.
notsofast:
There are no Reagan democrats left. Any democrat who voted for Reagan and is still voting Republican is either a full-fledged conservative by now or is a complete moron.
Your analysis is not all that faulty although you do rely on conventional wisdom that assumed that this election would be a cakewalk for Dems. The ability of conservatives to run political campaigns never finds them out of the game. They often have a better idea of the public's hot buttons than do Dems. Alas, those hot buttons reside nowhere near their brains.
Am always confounded by this elitist thing. Do we Americans not realize that the most outstanding of our founders were essentially elites? That most of our successful presidents came from elite backgrounds? McCain's hero, Teddy Roosevelt was an elite.
It is not their backgrounds or the haughtiness of their dialogues that is important. It's their ideas and what they stand for, exhibited in both their words and deeds. I have known many common folks in my many, many years on this planet. Some were wealthy, some were successful businessmen, owners and executives, and some were factory floor workers. Most all of them down to earth common folks. I don't recall one of them that I would support for President of the US.
Keep in mind too, that Obama's success in the primaries, no mean feat, was greatly due to feet on the ground organization. My understanding is that they are continuing that in the general. Historically that has been the real reason for conservative successes.
Conservatives fair well in advertising and thus polling. They usually lose or breakeven in debates. But their ground game has been far superior in the past. If Obama's team is continuing their primary success there and they get some help from the Clinton's, he may very well run away with this thing when it's over.
As it is the general polling is deadeven but the analysis of state by state probabilities shows McCain with a tough hurdle.
Two interesting factoids. We know that there are many folks out there who will not vote for a black man. There are also many, mostly men, who won't vote for a candidate with a woman on the ticket. Chances are the former outnumber the latter but it is an offset.
Curiously, should McCain win and then circumstances place Palin in the top seat and she fails miserably, both reasonable possibilities, she will likely have set back the chances of a woman candidate for President by a few decades at the least.
I hope Paulson (at tax payer expense) doesn't bail our Detroit, next. These big auto companies need to fail since it is their own mismanagement that caused their dismal situation.
Their demise will not threaten our global financial system. These big failures should sell preferred stock to finance their retooling and not ask tax payers to take on risk and print money for them for loans.
I have purchased and driven 5 Toyotas since 1984 because Detroit had their head up their a__.
Dr. Reich,
Some Facts related to local and internet purveyed hearsay surrounding Sarah Palin's Town of Wassila mayorship style are:
1. She did not ask Wasilla school system to teach creationism only but to compare it to traditional religious beliefs.
2. She did not remove books she didn't like from the Wasilla library. It's not clear what her involvement,if any, her motives and success were to remove the Town Librarian.
It's simple basic morality to clean up such small town stories before they become irrevocable truths about anyone's character -- irrespective of earthshaking or non-earthshaking nature of the hearsay itself.
The truth check process, applied conscientiously and fairly to both sides, insures focus on competence, risks, and substance on issues by each parties' representative candidates for the Oval Office.
Anonymous, GMAC is heavy into financing. They are as much a banking corporation as an auto maker.
They own DiTech.
http://www.ditech.com/
This situation is more complicated than it might first appear.
weaseldog:
It's my understanding that GMAC is completely a banking corporation that has nothing to do with auto manufacturing other than financing the sale of autos and to your point mortgages through DiTech.
Art A Layman, I agree with you about GMAC, but I don't know what point you might be making, as they are owned by General Motors.
I understand that DiTech is having problems also.
A rationale could be made that if Di-Tech is getting help, why not the parent corporation and other auto manufacturers?
This isn't a logical argument. If I were trying to make one, I wouldn't be discussing politics and money.
Paulson's job appears to be, to throw away massive quantities of money of ever increasing size.
He told us that it is his intention to blow another big bubble. To make this work, it has to be bigger than the housing bubble, so it can erase the pain of the last one.
Now he's going to do this through lending. But the common man can't borrow more than what was borrowed during the housing bubble. But corporations can.
The auto makers can borrow and spend on a massive scale. So they would make a good target for lending in this bubble. Then later, the government can just forgive their loans.
The airlines can probably use another bailout too.
You and I agree that this is horrible direction to take, but our opinion doesn't matter.
So, who will Paulson loan this massive outlay of taxpayer guaranteed funds to?
Frank:
Would gather you have read it but here's the original ,email, by Anne Kilkenney printed in The Anchorage Daily News, along with a follow up letter clarifying some of her first statements.
The email adds somewhat to your latest post.
Weaseldog I don't want to sound like I am being rude, but I don't think you understand.
The Fed had no choice, if Fannie and Freddie failed, the entire banking community all over the world would have been effected. This would have caused a major world wide depression.
You and me paying a $1.50 to $2.00 more a gallon at the pump is nothing compared to amount of hurt we would be feeling if this happened. The combined debt in bonds of both is larger than that of Japan, and Great Britain.
Think Argentina financial crisis, then take a deep breath and start saving your pennies.
Apparently screwed up the link;
http://community.adn.com/adn/node/130537.
weaseldog:
Aid to GMAC or DiTech but not General Motors could be effected very simply depending on the corporate structures. I believe both of them a wholly owned subsidiaries and as such General Motors is merely the majority or sole stockholder. If some sort of bailout were needed for the finance companies GM might suffer the same fate as the Freddie/Fannie stockholders.
I understand there has been some speculation floating around about bailing out GM itself but I doubt it would be necessary. Though the price might reach fire sale proportions likely they would be bought up by someone, maybe even a Private Equity Firm similar to the Chrysler deal. Course they ain't setting any records and they hired a failed CEO right off the bat.
Like you and most I'm not wild about the Freddie/Fannie bailout but gather it really was necessary due to the amount of debt held by foreign countries. Letting that debt fail would conceivably have closed our foreign bankers to future loans to the US.
Haven't followed it all that closely but my biggest concern was something I heard about Paulson's willingness to buy up a lot of the bad mortgage backed paper floating around. Apparently much of this paper is of unknown value and Paulson's theory is in buyng it a value will be established and the whole fiasco can begin to unwind and settle. My problem is that if we truly don't know the values then the government will get screwed in the transactions.
There is huge risk exposure from future defaults but the worldwide consequences probably did take precedence over good sense.
Besides we had to get them out of the way to make room for all the others coming up. ;)
Art,
I had read Anne Kilkenny's original email but had not seen her followup corrections and and credible, eloquent words. A most interesting character portrait of Sarah Palin that makes me sad for our country's disturbing ambivalence about the quality of McCain's vetting process and his erratic judgemental capacities. God help us!
Jeff, I do understand.
Paying a $1.50 or 2.00 more isn't where I think this is heading. Maybe $4.00-$8.00 more, in just a couple of years.
I believe I do understand that paying for the folly of our government and our banking institutions is necessary, to save the foreign banks and foreign investors.
We have to sacrifice America, to save the world.
I think Art, that we haven't seen the full extent of our newly acquired liabilities.
Yes, Paulson is attempting to put a value on these leveraged debt instruments, so that they do not become worthless. By buying them up at book value, he saves the bacon for foreign investors while devaluing the dollar, harming our economy and further devaluing the paper we are buying.
As the defaults continue, the pressure for the US Gov to buy this devaluing paper at face value will increase. Eventually, the US Gov is likely going to have to buy it all.
And it's not just Freddie and Fannie. The international banking system has invested in all of the mortgages and other loans held by all of the US Financial entities. Paulson will likely have to buy these up also.
I don't see how he can draw a line somewhere and say, this is where we stop. If he does, then he risks bringing it all down.
But as he borrows in our name, and spends these newly created dollars, he undermines our economy and the value of the dollar.
I don't see how the paradox can be unraveled without a lot of wealth destruction.
The papers say this is going to cost $billions, but the liability on the notes, plus the derivatives could turn this into many $trillions.
I know Mr. Reich posted previously that our debt is growing at 7.1%, but it's actually accelerating. It's passing 7.25% now. Using the rule of 70, we can see that it will double in 9.66 years.
This bailout is going to shorten that span. The new war, that I firmly believe is coming, will shorten this again.
In three years, I believe that we could be in the neighborhood of 15% growth on our debt. This would shorten the doubling period to 4.66 years.
As I wrote before. Because a doubling of the debt requires a doubling of interest payments (rate dependant...), government income must double, or the government borrows to cover interest. So tax revenue needs to double.
We know that wages won't double in the same period that the debt doubles, so we're looking at a massive devaluation of the dollar.
Even if the debt continues to grow at 7.25%, it's still a runaway train, as revenue cannot slow it's growth, even if the budget is balanced. Whatever that actually means.
Now the USA has seen periods in the past where the debt grew faster than 7.25%, but the government's revenue more than covered the interest on the debt. Now Government revenue can no longer do this. We have passed a change in state, and the rules are altered quite a bit.
Keep in mind also, that even though you and I are now investing in F&F and buying out investors at a huge loss, nothing is being done to correct the errors. Paulson made it clear that he fully intends to blow another bubble and do it again. Nothing at all has been fixed.
Art,
Please go to Marty Kaplan's Sept.2 article entitled: "How Will the Right Try to Destroy Dr. Philip Butler."
Dr. Butler was McCain's classmate at the Naval Academy and was with him in the Hanoi prison for 6 years. Actually, Butler was in that prison for 8 years.
This information from Butler, particularly, was definitive for me about McCain's unappealing qualifications to be President of the US, as honorable and decent a person he truly is.
As Mrs. Anne Kilkenney said so well, "we can agree to disagree" as opposed to "we can disagree and dislike each other."
Weaseldog,
The Deficit forecast by Bush for 2009 is already +-$500 BEFORE any funding for writeoffs for Fannie and Freddie which Dr. Reich optimistically estimates to be $25 Billion. Actual writoffs on $6.0 Trillion of mortgages and other financial instruments could well be 2% to 5%, or $200 Billion to $500 Billion added to 2009 expected Deficit of +- %500 Billion.
So your 15% Debt growth assumption, which is already high, could be much higher. This possibility and your excellent thoughts about the added Interest cost escalation and its resultant increased pressure on need to raise taxes are very uncomforting financial scenarios.
Bush Sr. had to raise taxes due to Reagan's 8 years of massive Deficits; Clinton had to raise taxes because of Bush Sr. massive Deficits; and I'm afraid, as you're suggesting, the next President will have to raise taxes because of Bush Jr.'s massive Deficits.
This is all why we need the best brains AND experience to tackle the complex financial Mess we are in... right at a time heavy Investments are needed in our economy for all the priority Stimulus programs we all know quite about by now.
Here is another example of the Bush administrations failure at government oversight:
"Sex, drugs, gifts uncovered in government oil probe" Interior Dept
http://www.cnn.com/2008/POLITICS/09/10/oiil.scandal/index.html
Yes, the department that is responsible for regulating energy in this country is in bed with the oil companies (literally).
No financial oversight, no energy oversight, only a protracted war aimed at the wrong guys. Insurgents are not terrorists; they are loyalists that want the US out of their country. Bush already lost the war against terrorists, but the Iraq situation has been a big distraction from many to see the distinction.
I suspect McBush will go on fighting the wrong enemies also. He is such a gun toting war hawk.
What John McBush doesn't realize is that we are all just as patriotic as he is, we are just not as unlucky as he was at getting shot down. Get shot down is dumb, not heroic.
He is an elitist hiding under his self-proclaimed patriotism.
Now Bush has a secret killing program in Iraq. I wonder what unlawful program that is. … Maybe he will end up getting charged with war crimes.
Frank Thomas, as I read your response, I hoped at first that you were going to disagree with me and provide good reasons why I am wrong.
You disappoint me. Dang it.
What I fear differentiates this time from past instances is that because interest on the debt exceeds tax revenue, it will be impossible to raise taxes high enough to get this under control.
Only a massive and dramatic cut in government spending, coupled with higher taxes and higher wags can hope to put this destructive genie back into the bottle.
Or in other words, we're going to ride this train until it runs out of track.
Frank:
Agree with your Anne Kilkenny comments, an interesting, fair, well done picture of Sarah Palin.
In my mind Palin is more opportunist than reforming politician. Her rampant firings of personnel, with retractions here and there, paints a picture of one more interested in exerting power, of establishing who is in control, than one interested developing consensus to solve problems.
Her increasing taxes on big oil is curious on two fronts. First it is consistent with Obama's ideas and thus is downplayed on the campaign circuit. To say nothing of its anti-conservative nature. Second, the state of Alaska had a $1.2 billion budget surplus when she managed to get the bill passed. The way the tax bill is structured it is in essence a windfall profits tax.
Her natural gas pipeline efforts appear to be more genuine but one wonders what benefits might inure to she and "first dude" once the construction begins. Of course, the pipeline was God's will.
"First dude" is especially troubling to me. His travels at state expense, some apparently for activity assignments by the Gov, causes one to desire more details about what particular expertise he is offering the state of Alaska. More telling is his involvement in Troopergate. We all know that it is not uncommon for "first spouses" to get a few extras based on their marital connections but I don't recall an instance where they lobbied or attempted to influence state officials for an action, especially with personal overtones. In a McCain administration will he get a Cabinet post or some other high ranking staff position? Worse, will he become a defacto administration official?
Read the specifics on the sports complex in Wasilla. I don't remember the website but the city, maybe not all the Mayor's fault, but where does the buck stop, negotiated to buy the land parcel but never signed a contract with the owner so the owner shopped around and found another buyer and completed a sale. The original deal was the city would pay, I believe, $126,000 for the land but the failure to get a written contract and the ensuing legislation resulted in the city being stuck for over $1 million to buy the land and lesser acreage at that. A little Business Law 101 could have avoided that fiasco.
There is executive experience and then there are executive experiences. At the city and state levels mistakes can be troublesome and expensive; at the national level they can have irreversible worldwide impacts.
Should McCain be successful, she will have served her purpose and be sent back to the old job description of VP, essentially doing nothing. This will not set well with her or with "first dude" and could lead to interesting scenarios. I doubt that when she is sent to the Netherlands to attend a state funeral that it will be acceptable to make it a family trip.
The real irony, if not stupidity, in this two reformers campaigning slogan, is exactly what role or power does the VP have in reforming government? I don't see McCain delegating a lot of authority, perhaps even to his Cabinet members, so I seriously doubt he is going to assign Palin any significant tasks.
Even if nothing happens to McCain, a McCain/Palin administration bodes ill for America's prospects. Both these individuals exhibit hair trigger management styles and actions from the White House have a very slim margin for error.
Sometimes being on the down elevator of age is not such a bad thing for those of us in the trenches.
weaseldog:
You fail to understand the strategy. We continue to sell off all the assets of America to foreigners and then we nationalize everything. There are still a few details to be worked out.
If we fail to elect another conservative to the presidency it blows the whole plan out of the water and we are in deep doo-doo.
Save your Confederate money!
;)
Frank:
An analyst I am, a proof reader, not so much:
The original deal was the city would pay, I believe, $126,000 for the land but the failure to get a written contract and the ensuing legislation (should be litigation) resulted in the city being stuck for over $1 million to buy the land and lesser acreage at that.
Art A Layman, Do I fail to grasp it? :)
It occurred to me years ago that America was being dismantled and sold for parts, according to the same paradigm that we see in corporate takeovers.
It doesn't matter who is selected to be the next President. The two major candidates have already been approved and vetted by our owners. If they weren't, they wouldn't be competing for the media's affection right now, they'd be on the sidelines, giving speeches in off beltway productions.
I believe that McCain is going to be selected to win the election. He'll manage over the next few wars, just as Bush has. He'll continue the policies of cracking down on the many millions of American dissidents.
He'll bring back the draft. After all, he's on record saying that the draft is a good idea. We should bring it back and that we're going to need it.
And I believe him. We are going to need the draft, to continue Bush's policies in the future.
Don't worry though. The televisions will continue to function.
After China's investment in publically guaranteed risk mortgage packages is bought out, they can take the cash, and use it buy back the same properties in foreclosure, for pennies on the dollar.
Then when Paulson get's the new bubble blown up again, they can sell again at a profit.
Or if their purchases are ruined by vandals and lose value, the taxpayer can bail them out again, paying county appraisal values, rather than reimbursing for the purchase price.
To save foreign speculators that engage in risky investments, America has no choice but to shoot herself in the head.
Oh, and now Washington Mutual may need a bailout?
weaseldog:
TV's are important but the more important question: Will we still be able to blog?
I told you yesterday that Paulson had to get Freddie/Fannie out of the way to get ready for the others.
Does anyone find it disconcerting that these financial institutions were run by, supposedly, our best and brightest financial minds?
Art, all internet traffic in the USA goes through NSA controlled servers. This is no secret. It's been reported in mainstream papers.
The entire US internet can be shut down with a mouse click. Filters that detect anti-establishment phrases or phrases that might influence the markets can be turned on at any time.
We'll likely be able to blog for some time. But we may find that if we try to post specific kinds of content, that we;ll get nothing but errors.
There are over 5,000 corporations now doing content filtering for the NSA. They review internet and phone traffic. They listen calls and emails to business, attorneys, etc..., look at faxes, etc... Looking for suspicious activities. In many cases, a corporation may have access to it's competitor's phone calls and emails for review.
Some of these corporations monitor blogs and post counter information to try to steer the blog conversation to a fascist friendly mode.
Netvocates was one of the first to do this. But when it became commonly known that they were behind the trolling, they changed their name and have been more discreet about advertising. Now there are many corporations engaged in this activity for political and business purposes.
And you can bet that they are making lists.
For now, enjoy your freedoms.
Art asks, "Does anyone find it disconcerting that these financial institutions were run by, supposedly, our best and brightest financial minds?"
I've noted that some people have an uncanny ability to screw up and create disaster after disaster, and every time that they do, they reap profits.
When I've mentioned this out loud, I'm often told that this is a nutcase conspiracy theory. That people don't create destroy things for profit. That people don't conspire to commit crimes for money. So when we observe this behavior being repeated over and over, and the rewards being consistently won, it's just a coincidence.
Some might wonder, was this intentional bubble blown, because Greenspan and Bernanke understand economics well enough that they know exactly what they are doing? that this is intentional?
Or are they bumbling idiots that profit handsomely from a lifetime career in idiocy?
Paulson publically stated that he intends to use taxpayer provided funds to create another bubble. Can we assume that people will profit from this? Is Paulson completely clueless, with a brain made of soft clay, and he'll accidentally see him and his friend's profit from his random act of blowing a bubble on our dime?
Or has he and his friends decided in advance to blow a bubble, and they've already determined a strategy for profiting from it? And why doesn't Paulson make the details of this new bubble public? Is he keeping it a secret, to protect the profits of his friend;s and benefactors safe?
Perhaps sometimes, people do conspire to commit crimes for money? Perhaps there is such a thing as organized crime? Perhaps, sometimes people do sell out their country for cash?
Is this possible?
We have to sacrifice America, to save the world.
I hate to say this but this statement points to your misunderstanding the economics at play here. Correct me if I am wrong, but this is how I see this statement.
America is not saving the worlds banks. They are saving us.
Without the investment of these banks we would be bankrupt as a country.
Fannie and Freddie's debt and more to the point if they failed would have a huge impact on your life, my life, and every single person in this country would be affected.
The financial institutions from around the world bought bonds and invested in Freddie and Fannie. Now because of mismanagement this is what has come to pass.
We, the collective population are not bailing out the stock holders.
They lost what they invested.
The bond holdings are what is being bailed out here.
Weaseldog,
You're starting to miss the contradictions of the times in your last remarks.
Yes, we have to increase taxes to get control of run-away-debt (compounded by your observations of accelerated interest cost impact), and yes we have to eliminate all wasteful spending. But you go astray when you say we must Radically Reduce government spending. What's the contradiction here?
We have a dilapidated, decayed infrastructure with highway potholes everywhere, bridges that are dangerous, sewer/water systems of early 20th century vintage, a New Orleans Katrina and possible repeat still not fixed, a need for stimulus investments in Alternate Fuels and in Health Care, a pre-college Educational system that has dumbed down for the bottom 60% and in annual international high school exams in science and math comes in the bottom 10% of nations competing, a growing popullace that is finding college education unaffordable, etc.
This is THE dilemma. How to simultaneously regenerate the economy and job growth, control spending, keep Deficits from further exploding above +-$500 billion annually and dollar from sinking, offer tax incentives and tax cuts with tax decreases, and maybe float Invest in American Education Bonds to pay for direly needed higher teachers salaries for more qulaified teachers, etc.
In other words, we need to be more creative and effective in Revenue generation and Cost cutting to pay for all the Investments needed in our social-infrastructure.
Fiscal discipline, yes, but equal if not greater priorities are Human Capital investments, Reindustrialization for job growth in new Alternate Energy fields, and Energy independence, e.g.
So the ultimate solution is not just Radically cutting government spending but combining a number of financially pragmatic spending cuts with wise spend/incentive strategies that are mutually reinforcing and consistent in getting us in 8 years time to where we need to be.
And you know, as well as anyone who is thinking seriously, where we need to be in relation to the coterminous challenging Debt management and Investment dilemmas facing us. That's why I made my amateur stab at an Integrated 8 year Strategic Plan and Budget (on a post here 3-4 four weeks ago) that attempts to balance the Fund Inflows and Outflows to come eventually in next 8 years to government Surpluses, a stable dollar, and a return to our usually innovative, dynamic, job generating society of the 60's and 90's.
Impossible, possibly if we don't come together and stop the foolish soap opera phoney politics we're mesmerized where the good ideas just float by.
Weaseldog,
Corrrection; last paragraph; ..we're mesmerized by where ..
Jeff, I think we agree on a few points here.
Yes, it's foreign governments and banks that invested in the packaged debt instruments, based on bad mortgages.
The taxpayer will buy these packages at face value, to keep them propped up, even though they are collections of mortgages that are losing value in foreclosures.
This will ultimately run into many $trillions in new money created in various forms to had out to banks and governments, that will then spend this money back on the market, devaluing the dollar and driving the price of goods and services up, while depressing wages and killing jobs.
I fail to see how this new spate of massive debt growth and money creation will save the US Economy.
Perhaps you can explain how we can borrow our way to prosperity, while giving the money away to investors that knew that they were investing in risky debt, but probably knew also that the bailout was already guaranteed?
And how this new bubble that Paulson has promised to fund with our money, will burst and provide additional benefits ot our economy, when each bubble so far as flushed us deeper down the pipes?
Remember, we're not bailing out stockholders, except by propping up corporations to artificially drive their stock prices higher.
What we are doing is paying the penalties on many trillions of dollars worth of derivative contracts gone bad. And as we cover them, it will damage our economy further, causing more derivatives to come due and require us to bail them out.
Your position closely mirrors the pronouncements I hear form plastic bubble people on the television. Can you explain in more detail, exactly how this bailout improves the US Economy?
I see us going into a Great Depression if don't bail them out and I see us going into a Great Depression if we do bail them out. The difference is in the depth of the hole.
Our fearless leaders knew exactly what would come to pass if this industry became unregulated. And they are profiting handsomely from the debacle.
These decisions were not poorly made. They were made with full knowledge that the taxpayer would cover the losses. They made a very smart decision in raking in profits on the way up, then sending us the bill, to keep them profitable when their Ponzi Scheme fell apart.
I repeat, these weren't poor decisions that got us here. They made smart moves, for themselves.
And when Paulson's new bubble pops, we'll do this again. The industry knows we'll bail them out again and again.
I agree with you Frank.
Long term, investing in alternative energies will see diminishing returns, unless an unknown, exotic, convenient and simple energy source is discovered, that beats oil, pound for pound. (Don't hold your breath)
Ultimately, we have to live with a long term contraction in energy usage. This can't be done in a monetary system that requires infinite growth.
So we're in a pickle here.
I don't have the answers, but I do know that it's time to stop digging.
It's my experience that when we're faced with overwhelming and confusing problems, that they simplify when we start fixing the ones that we can identify, and implement solutions for.
Instead our path seems to have put us on a course that magnifies and increases our problems.
It's time to stop digging this hole.
Weaseldog,
One area where I have repeatedly (and probably unpopularly) said we need to Radically cut is in DEFENSE. Historically, aggressive military spending has bankrupted nations, Britain after WWI, for example. And us today.
Thsi is not an argument for weakness in Defense but an iron- fisted prudence in areas of Cost Duplication, useless need for Troops in Japan, Germany, and South Korea, achieving Real transparent cost cuts when we get out of Iraq in order of magnitude of +-$100 billion, and negotiating repayment by Iraq government of considerable sums of US taxpayer money invested in their infratstructure (that had nothing to do with our own destructive actions) as well as payment for our backup troop support costs.
China and India have little interest in exploding their Defense budgets (+- 1% of GDP) the next 10-12 years as they have massive problems in controlling their run-away social-economic growth. This is a Unique in History window of opportunity to get our Financial House in order by serious cost cutting in Defense expenditures to a Maximum level of 3.5% of GDP and preferably to 3% of GDP as soon as possible ... with focus on a very modern, high-tech move-in-and fast-out military complex and a careful campaign to encourage Europe and Asia to gradually increase their share of world military protection and enforcement investments.
Frank, Sun Tzu tells in the 'Art of War', that wars of occupation will always bankrupt the invading nation.
Anonymous yoski said...
“McCain/Palin will win this election”
Their odds seem to be getting better by the day. McCain put some lipstick on his ticket and has the dems in quite a tizzy. He transforms himself into an energized candidate and now it’s Obama/Biden that look like they could use some geritol and viagra. lol Sadly, Obama has been Dukakisized and is responding wimpily. Both gop candidates are projecting and selling an image of strength that the Reagan democrats/independents are eating up and we all know that they hold the key to victory.
Jeff, what do you think of this quote?
"When particular foreign governments got concerned about Fannie and Freddie paper, there was no choice but to act."
-- U.S. Senator Charles Schumer, on CNBC, 9/8/08
@sbvor
our country is broke and decaying. Just go to any other emerging market and see clean airports and decent infrastructure.
You just blast liberals vs conservatives. How damn dumb.
We have a major problem and you are ranting like you are trying to get ratings a la Bill O'Reilly.
Get with it man, we are fiscally irresponsible (both liberal and conservative) and have screwed the future of our children.
So keep babbling about nonsense. The real problem is when you look in the mirror and think badly of others.
Fiscal conservatism is not zealotry and can be on both sides of the spectrum unlike bought of leaders who call themselves democrats and republicans.
You are being bamboozled and that's exactly what the folks who care only about power while waving a flag want you to do.
Get with the program and stop being a stooge!
Art Layman,
C'est impossible vous contacter par em maintenant! Lirez Garrison Keillor's récent essai: "Forget The Past, It's Only History." Quelque chose agréable pour vous de ft.
anonymous:
Fantastic pièce! Je ne jouissent Keillor, aimerait voir plus de lui. Grande addition de Palin.
Art,
Recalling your words about the McCain/Palin duo: "Both these individuals exhibit hair trigger management styles, and actions from the White House have a very slim margin for error."
Your remark reminded me of a wise man's thoughts that these two characters come up short on:
" The brain tempers the heat
.....and seething of the heart.
Reason and passion are
.....inseparately linked."
By:......ARISTOTLE
Who Is Watching Bank of America?
With the recently announced take over of financially troubled Merrill Lynch, preceded by purchase of Country Wide Financial and all the bad mortgage debt that came with it and many other smaller acquisitions during the last few years, there is a clear danger that Bank of America will grow or already has grown to such a bloated size that it will be “too big to allow to fail” as Behr Stearns was said to be.
In fact it is not outside the realm of possibility that the same sort of high flyers and risk takers with other people’s money that have caused such mayhem to the economic health of the United States are banking (excuse the pun) on this very thought. It is clear that far too little oversight and regulation has occurred in the last decade, largely in response to Wall Street’s demands that the government keep its hands off and let the market work. That is until something goes seriously wrong, and then of course, the government (taxpayers) is expected to fix it.
Will it take an outright world wide depression before the brakes are applied and at least the rules that exist already are enforced? We know from past experience that it is seldom the rich that get badly hurt when the fan is put in the path of the sewage. The American taxpayer is already on the hook for billions of bucks that the government doesn’t have. The money has to come from loans from our “friends and trading partners” further imperiling our nation’s future security.
When will the SEC and other regulatory agencies begin to seriously question the amusement park atmosphere of the trading floor and the investment banking sector? When will they remember that they are there to protect ordinary Americans from the sort of Gilded Age chicanery that ultimately led to the last capital “D” Depression? It better be soon, we are out of money, out of time and can’t let another “too big to fail” fiasco pull us down.
anonymous:
I thought that BoA was merely setting itself up to be America's only financial services company. Their next acquisition target may very well be the Federal Reserve Bank.
Meanwhile the stock market being warned everday that this latest fiasco is far from over continues to ebb and flow; rising on good(?) news from the published statistical reports or some other such bright spot and then reeling on more bad news from the financial services industry. At some point they are supposed to have priced this in.
( Rent out your home ! that's the answer ) ! Home owners don't let the bank take your home or foreclosed on you, Bear sterns, AIG, Lehman brothers, Fannie may, Freddy Mac, Morgan Stanley, Merrill Lench all out of business or bankrupt and they want the tax payer, You to bail them out for as much as $ 3, trillion dollars in, 2009. Well we home owner's are tire and fed up with this mortgage debt. Rent out NOW and continue to keep your equity in your house, long term. If you have affordable home for rent from $ 500 to $ 1,800.00 month, than we have renters all over the U.S. of America, that want to see and rent your home, NOW ! on our site.
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Ineedmyhouserentednow.com
these republicans have now destroyed our entire economy
Rent out your home! that's the answer! Home owners don't let the bank take your home or foreclosed on you, Bear sterns, AIG, Lehman brothers, Fannie may, Freddy Mac, Morgan Stanley, Merrill Lench all out of business or bankrupt and they want the tax payer, You to bail them out for as much as $ 3, trillion dollars in, 2009. Home owner's if you're tired and fed up with this mortgage debt. Rent your house out NOW and continue to keep your equity in your house, long term. If you have affordable home for rent from $ 500 to $ 1,800.00 month, than we have renters all over the U.S. of America, that want to see and rent your home, NOW ! on our site.
To our Home Owners to list property for rent it's very simple, 2 steps:
1. Go to (Sign up page) complete it.
2. Go to ( Home listings / contact info ) scroll to the bottom of page and, E-mail us your (ad text),
example 1, bdr 2 bth, pool 2,300 square feet 3 levels in county like cobb, GA contact name, phone number, email address and send by ( browse) 2 pics of your house, your ad and photo should be up with in 72 hours or as soon as we receive your payment, thank you we look forward to posting your ad welcome
Ineedmyhouserentednow.com
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