Democrats & Liberals Archives

From 'Mortgage Crisis' to 'Economic Meltdown'

It started with the so-called “mortgage meltdown.” It then expanded to the “credit crunch.’ Now we are facing a potential “economic meltdown.” What is left out of the seemingly ever-expanding economic collapse is that it is all part of the same thing - deregulated, free market capitalism on a rampage.

However, what is becoming clearer now than it was last spring is that we may be nearing the corporate end game.

From the 1980s forward we have seen merger mania. Where virtually all areas of economic activity have gotten increasingly concentrated in fewer and fewer hands. Along with the mergers, has been a growing wave of political support (both neo-conservative and neo-liberal) for unfettered capitalism has grown and (hopefully) crested. It is now clear that the unfettered capitalism is supported only to maximize the extraction of wealth (from people and nations) and that any losses will be "socialized" back onto those same victims.

Now the economic leviathan players are eating each other up, with an assist from that self-same "neo" government. JP Morgan gets an assist from the Fed (a private company backed by U.S. tax payers) to purchase Bear Stearns, The Fannie and Freddie are brought back under federal control. Then we have the sinking of Lehman, and Bank of America buying Merrill Lynch. Now American International Group (AIG) is receiving a massive bailout from the Treasury,

It is very interesting that the word "nationalize" (in the case of Freddie, Fannie, and AIG) is apparently prohibited. I guarantee you that if Chavez, Morales, or one of a hundred other presidents, took such moves they would be soundly decried by both the U.S. government and its lapdog media.

The question remains whose pockets Fannie, Freddie, and perhaps AIG, will ultimately end up in.

Meanwhile, those mega-financiers who remain standing when the economic tsunami has ultimately passed will definitely be even more concentrated than the current elites are. Of course, this means that it will be even more important to "protect their interests" in terms of profit-making, and ensure they will not fail (with common people's money). Now the plan is floating for the U.S. government to take over all of the "bad" debt. Thereby relieving the crooks of the burden of their actions.

People should be very glad that the Republicans were not able to privatize social security. As is clear from the collapse unfolding before our eyes, those savings would have gone up in smoke regardless of how savvy individual investors are. However, I would not be surprised to see the plan floated again as it would bring a massive cash infusion into Wall Street - a move that would light up the eyes of the financiers.

What we are seeing is the effects of unfettered capitalism. The mantra of the neo-conservatives and Friedmanites is to let "markets" run unchecked by oversight and limitations. The results of that is the unfettered expropriation of wealth and resources. When money and profit are the only consideration, then life (individual's and the planet's) is not even on the radar screen. This was indirectly reinforced by McCain's recent repetition of "the fundamental of the economy are strong." When he tried to elaborate on that, he said that the "fundamentals" he was referring to were the hard work and ingenuity of the U.S. workforce. What that translates into is that the workforce is still there for exploitation.

Posted by Rowan Wolf at September 19, 2008 7:48 PM
Comments
Comment #263583

Rowan,
Well said, especially the last line. I posted this quote in the previous thread, but it bears repeating:

“Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.”
John McCain, Sep/Oct 2008, “Contingencies”

Recently McCain said “the fundamentals of the society are strong” 22 times recently. He tried to backpack by sugggesting that when he said ‘fundamentals’ he was referring to ‘productive workers.’ What a hoot. Palin even echoed the lame line; as if anyone in the world uses ‘fundamentals’ and ‘productive workers’ interchangeably.

Meanwhile, events are moving fast. It’s hard to say whether a recession or even a depression has been avoided, but at least Paulsen and Bernancke are trying. I don’t think this is a ‘shock doctrine’ deal, at least I hope not.

Anyway, if a version of an RTC organization is revealed to eat all the bad debt, there is not enough money to pay for it. If the US government attempts to inflate its way out of debt, foreign governments will refuse to loan the US money. But higher interest rates will certainly drive the economy of the US underwater.

Anyone who thinks the US economy is fundamentally sound right now is drop dead stupid.

Posted by: phx8 at September 20, 2008 12:31 AM
Comment #263586

We’re so screwed.
And McCain and Palin, and the vast majority of the GOP is such a pack of irresponsible and dishonest bullsh*tters.

Posted by: Veritas Vincit at September 20, 2008 12:43 AM
Comment #263588

Deregulated, free market capitalism? Hello? Is that what you see here?

If you look at the legal and financial framework behind mortgage lending—even on the smallest scale where a person applies for a loan—and then look at the series of events that unfolded here and see “unchecked markets” that are “free of regulation,” then you’re looking at a mirage.

If the markets were “unchecked” and “unregulated” we wouldn’t have anything resembling Fannie and Freddie in the first place, these quasi-governmental “companies” run by the political cronies of the powerful, which actually insulate lenders and to some extent borrowers from the consequences of their actions.

We have a situation here where the powerful and the connected are utterly divorced from the consequences of their actions in the markets. In fact, they have literally made millions for THEMSELVES and their cronies, while TAXPAYERS get stuck with the bill. Including taxpayers who had no role in making bad decisions themselves in incurring or giving bad loans in an artificially inflated housing market.

This has nothing to do with free markets whatsoever. Nothing. It has everything to do with a huge cluster**** of an arcane, bizarre, backward, and utterly corrupt financial and banking system. Graft, corruption, and double-dealing on a massive scale.

Does the GOP share responsibility for this? Yes. But so do the Democrats and lots of others besides who have aided and abetted this situation in a myriad of ways for decades now.

Posted by: Loyal Opposition at September 20, 2008 1:17 AM
Comment #263589

This blogpost perfectly articulated what I fear the most about the economic meltdown: The Final Distraction
I really think the American people could be looking at losing everything — and giving the Bilderberg Set what they’ve always wanted most.

Posted by: Veritas Vincit at September 20, 2008 1:27 AM
Comment #263592

Welcome to Communism 2.0! Lennin would be laughing his ass off. The same people that denounced health care reform as socialist and to expensive have brought forth a socialist program worth trillions. Das Vadonia Tavarish…

Posted by: Ted at September 20, 2008 1:55 AM
Comment #263595

Loyal O,
The current situation has a lot to do with the nature of free markets, and the consequences of deregulation. Read up on the Credit Default Swap market, CDS’s. It was virtually created by Phil Gramm in an act of deregulation, and the CDS market is what turned a bad downturn into a full blown catastrophe.

How will this end? None of us knows, and that is frightening. I have a lot of confidence in the Secretary of the Treasury, Paulsen. Bernancke is doing a good job too. We’re fortunate to have two extremely smart, competent people at the heart of things during a crisis. There have been times in the recent past when that was not true.

You and I disagree about most things, but I’m positive you and I agree about this: what has happened is totally unacceptable. It is infuriating. There is no political side of the spectrum that can look at this with approval.

The other day, I suggested that the situation would be leave us with no choices. We would have to act in certain ways, whether we wanted to or not. Well, here we are. The idea of the federal government being involved with an AIG bailout, or forming a version of the RTC to bail out crappy investment instruments to the tune of potential trillions, is anathema to everyone- conservative, liberal, libertarian, statist, centrist, moderate, you name it. But we have no choice because the alternative is the collapse of the financial system, and a 2008 version of the Great Depression, and that is unacceptable. And so, we have no choice but to act in our own self-interest, and bail out Wall Street and the CDS market, not because we feel sorry for those bastards, but because that is what is best for the rest of us.

I just hope it works. Please note, I’m pulling with all my heart for Paulsen, a conservative Republican, to succeed.

Posted by: phx8 at September 20, 2008 2:28 AM
Comment #263596

By the way, there are two crucial pieces of deregulation which led to the current situation. In 1998, a Republican Congress repealed the Glass Steagall Act. Republicvans voted overwhelmingly in favor of it, and Democrats opposed it. Clinton signed the bill. The repeal removed the firewalls between commercial and investment banks, among other things; it removed the firewalls between various parts of the financial sector.

Perhaps just as crucial was the Commodity Futures Modernization Act of 2000. The CFMA was the work of Phil Gramm. It was a 262 page act inserted into a must-pass 11,000 page budget bill, that went through just before Christmans. The CFMA removed ALL regulatory oversight- federal, state, local, and so on- from the Credit Defaul Swap market. So THIS was a crucial piece of the puzzle…

Posted by: phx8 at September 20, 2008 3:09 AM
Comment #263601

Having listened to the Left and Right bash each other over the cause of Wall St. going bust, I am shocked that the so-called experts are wanting to blame the programs that the special interest groups asked our elected officials to enact. For why the programs were not designed with gas at $4.00/ gallon, I do believe that it was not until President Bush split a piece of gold in half and interest rates rose to 5% to pay for the two wars that the Market was found to be in trouble.

In fact, the current rate of 2% and the National Debt nearly doubling in the last three years has more to do with the meltdown than who took advantage of the wealth built up in the 90’s. For why the Democratic and Republican Congress did not force President Bush to increase taxes, I can also say that My Community Elders and Peers did nothing to encourage the Consumer to start saving and buying T Bills.

So, why America can feel good that that the Dow has only fell from 14000 to 10600 over the last year. I have to wonder what would happen if the Market was allowed to go bust after President Bush had left office.

Posted by: Henry Schlatman at September 20, 2008 7:42 AM
Comment #263605

phx8, vv

I heard last night that the Japanese used this same approach when addressing their economic meltdown back in the nineties. The financial person stated that it did not work because it failed to address the underlying causes of the problem. The result was that it took them a decade to recover. I think we have a similar situation here. This is not only about bad mortgage debt. It is about years of playing with interest rates in an attempt to sustain as near a perfect economy as possible. It is about our nations debt,individual debt, lack of regulation and oversight, loss of jobs, stagnate wages, rising energy costs and resultant inflation. As I see it these things are all cumulative and all affect the other. I am sure that not being a money minded person I am leaving out many other factors. But I think you can get the picture. This will not create jobs or pay down individual or national debt. It is a short term fix which in my estimation, in the long run, will only compound the real issues at hand. I wrote a few articles down that imo our financial leaders are in a learning process with regard to the size and scope of global markets in what is now a vastly huge global economy which we no longer are the only main player. I hate to be the pessimist, but pessimism and politics seem to go hand in hand with the nature of my being.

Posted by: RickIL at September 20, 2008 9:31 AM
Comment #263609

Rowan, all I can say is AMEN!!! and the thing that scares me the most is that this might not be the tip of the iceberg-we may still have more problems to come.

Posted by: Carolina at September 20, 2008 10:23 AM
Comment #263611

The absence of discussion of the incestuous relationship between legislators, the White House, and corporations is a glaring omission in this article.

There has been collusion at play here, and Sen. Phil Gramm, McCain’s economic advisor, who started this calamity’s ball rolling back in 1999 with the Gramm-Leach-Bliley Act.

Posted by: David R. Remer at September 20, 2008 10:41 AM
Comment #263612

I agree with phx8, you can’t blame Paulsen and Bernancke. Or Greenspan for that matter.The politicians that deregulated the markets were pushing the Fed to leave them alone. (Campaign financing)

Bill Moyers had some eye opening stuff on last night.

“During the last five years of his tenure as CEO of Lehman Brothers, Richard Fuld’s total take was $354 million. The current chairman of Merrill Lynch, who’s been on the job just nine months, pocketed a $15 million signing bonus. His predecessor, Stan O’Neal, retired with a package valued at $161 million after the company reported an 8 billion dollar loss in a single quarter. And remember Bear Stearns chairman James Cayne? After the company collapsed and was up for sale at bargain prices, he sold his stake for more than $60 million. And the former heads of Fannie Mae and Freddie Mac, the gods who failed, are fighting to keep severance packages of close to $24 million combined on top of the millions in salary each earned last year.”
http://www.pbs.org/moyers/journal/09192008/transcript4.html

Wow, That’s a lot of money!

Posted by: Mike the Cynic at September 20, 2008 10:42 AM
Comment #263613

Carolina, your intuition is dead on the mark.

This rescue does not change the fundamentals underpinning future economic crises to come. Our debt has never, ever been more important or central to the dangerous economic future we face, despite Bush/Cheney’s and other Republican’s declarations that debt doesn’t matter.

Posted by: David R. Remer at September 20, 2008 10:44 AM
Comment #263620

I think it’s VERY unfortunate for the American people, actually, that an economic problem of this magnitude is happening a couple of months before a presidential election.

Instead of careful leadership, measured responses and a genuine examination of the factors that led to this situation, what we get instead is demagoguery, empty posturing, and attempts to spin a problem into political advantage for one side while laying it all at the feet of someone else.

The goal motivating our leaders and candidates, I fear, is NOT to solve the problem for the country over the long term but to say or do whatever is necessary to kick the problem down the road for TWO MONTHS.

So what we’re getting are “plans” and accusations that offer short term political advantage for politicians and the long term health of the economy be damned.

Nobody will hesitate to make any irresponsible claim whatsoever or offer any irresponsible solution that comes to mind if there’s short term political advantage in it for THEM. It’s disgusting and potentially disasterous, and I don’t exempt Obama, McCain, or most of their supporters from this.

Frankly, I’m seeing a lot of people who I strongly suspect wouldn’t know a treasury bond from a prize in a box of Cracker Jacks blaming the Gramm-Leach-Bliley Act, as if it’s ever so obvious that past mergers of commercial banks are somehow clearly to blame for sub-prime mortgages backed by quasi-governmental financial institutions and a dangerous lack of liquidity in the financial markets.

How, precisely, does this follow? How is this an example of deregulation run amock? People don’t even bother to say—if they have any idea what they’re talking about in the first place beyond what they’ve picked up as a talking point on some left-wing blog.

The only thing that surprises me is that people haven’t started blaming global warming, trans-fats, and the lack of the Fairness Doctrine in radio broadcasting for the financial crisis. But I’m sure that will occur to them in due time. It’s Wal-Mart and Rush Limbaugh’s fault! Maybe legalizing gay-marriage would solve the problem! Yeah, that’s the ticket.

Posted by: Loyal Opposition at September 20, 2008 11:57 AM
Comment #263623

Loyal O,
Please note that Obama, when being asked for his solution, is staying out of the picture. He is being prudent and cautious, and he is trying not to undermine the administration as Paulsen and Bernancke scramble for a solution.

RickIL,
The Japanese solution did not work. Hopefully we can learn something useful from the terrible situation they experienced in the 90’s. I don’t believe anyone thinks this is going to work out well. However, it’s the best approach anyone can come up with.
This whole situation requires pessimism. It is an absolute disgrace. I just hope the proposed solution works well enough to stabilize the situation. I don’t want to live in a van down by the river, eating government cheese.

Posted by: phx8 at September 20, 2008 12:23 PM
Comment #263628

phx8

I don’t want to live in a van down by the river, eating government cheese.

None of us do. At this point in time I could not imagine anything worse for me than losing my pension. I do have a couple of tents but they get damned cold next to that frozen river in the wintertime. Although I am pessimistic, I also have hope. Besides, I really don’t have any choice in the matter other than to vote for a person who see’s the need to approach new avenues of direction.

Posted by: RickIL at September 20, 2008 1:01 PM
Comment #263629

Loyal O,

There were regulations on who they could loan money to, what interest rate they could charge, on and on. But I don’t think deregulation as bad as it became is the major part of the problem. It seems in the corporate world there was (is) very little oversight. The board kissed up to the CEO’s instead of watching very close to their business, as is their job. Otherwise I couldn’t agree with you more! We need a long term detailed plan, and I don’t see any chance of that happening at all.

Posted by: Mike the Cynic at September 20, 2008 1:01 PM
Comment #263630

phx8:

This whole situation requires pessimism. It is an absolute disgrace. I just hope the proposed solution works well enough to stabilize the situation. I don’t want to live in a van down by the river, eating government cheese.

I agree. But to repeat what I wrote in the ‘Having A Hard Time’ thread below, why aren’t we hearing it discussed how certain people who are responsible for this crisis should certainly land in jail for bringing on the distruction of our economy? And what about seizing their liquid assets?

Posted by: Veritas Vincit at September 20, 2008 1:06 PM
Comment #263634

Balancing my bank statement overwhelms me, and believe me, it isn’t because of what’s in there. So this has my head spinning.
Being ever the conspiracy theorist I just have to wonder and ask, “what if?”????
I read this in another blogsite that I check occasionally and it would seem that I’m not alone.
So, am I paranoid in this idea….well..along with this editor…



This Shock Doctrine Bailout Is Pure Fear, NOT a Response
— by Dave Johnson

It occurs to me that this sudden bailout demand - on a Friday - that the Congress hand over $1 TRILLION dollars NEXT WEEK is based purely on fear.

It is not a RESPONSE to an existing problem, where we could see what was going on and see the affected businesses and workers and regions and gauge the seriousness and allocate according to demonstrated need. This is based entirely on a fear story — of we DON’T do this, then TERRIBLE things will happen.

Where just a few days ago all the people at the top were saying “the fundamentals are sound,” suddenly they are all saying in unison that the sky is FALLING, and they have this PLAN, where the taxpayers have to hand them a $TRILLION dollars, IMMEDIATELY, or the most TERRIBLE things that you can’t even imagine will certainly happen to you. And we have to do it next week, before you all head home to campaign. And all the Republicans are saying in unison we can’t be partisan with something this important, just take our plan and pass it now.

The timing is just too convenient. Just before an election. Just before the Congress heads home to campaign. The amount is just too large. The need is just not demonstrated — this is not a RESPONSE it is anticipation and fear. (In fact, the stock market is UP about 800 points in just two days.)

We all need to take a breather, wait a while, and be sure this bailout is needed. A couple of weeks, a month, to see if this is for real or not.

It really looks to me like this is a pure shock doctrine fear play.

Posted by: janedoe at September 20, 2008 1:16 PM
Comment #263673

Balancing my bank statement overwhelms me, and believe me, it isn’t because of what’s in there. So this has my head spinning.
Being ever the conspiracy theorist I just have to wonder and ask, “what if?”????
I read this in another blogsite that I check occasionally and it would seem that I’m not alone.
So, am I paranoid in this idea….well..along with this editor…



This Shock Doctrine Bailout Is Pure Fear, NOT a Response
— by Dave Johnson

It occurs to me that this sudden bailout demand - on a Friday - that the Congress hand over $1 TRILLION dollars NEXT WEEK is based purely on fear.

It is not a RESPONSE to an existing problem, where we could see what was going on and see the affected businesses and workers and regions and gauge the seriousness and allocate according to demonstrated need. This is based entirely on a fear story — of we DON’T do this, then TERRIBLE things will happen.

Where just a few days ago all the people at the top were saying “the fundamentals are sound,” suddenly they are all saying in unison that the sky is FALLING, and they have this PLAN, where the taxpayers have to hand them a $TRILLION dollars, IMMEDIATELY, or the most TERRIBLE things that you can’t even imagine will certainly happen to you. And we have to do it next week, before you all head home to campaign. And all the Republicans are saying in unison we can’t be partisan with something this important, just take our plan and pass it now.

The timing is just too convenient. Just before an election. Just before the Congress heads home to campaign. The amount is just too large. The need is just not demonstrated — this is not a RESPONSE it is anticipation and fear. (In fact, the stock market is UP about 800 points in just two days.)

We all need to take a breather, wait a while, and be sure this bailout is needed. A couple of weeks, a month, to see if this is for real or not.

It really looks to me like this is a pure shock doctrine fear play.

Posted by: janedoe at September 20, 2008 1:24 PM
Comment #263679

It looks like Bush is asking for 700 billion dollars to buy “toxic mortgages” - yikes that’s a lot of money.

I can’t say that I fully understand this whole financial meltdown that we are experiencing but the idea of having to spend all of our money to bailout these mortgage companies and not really doing anything for the people who have been lied to by unscrupulous mortgage brokers doesn’t seem right. What really doesn’t seem right is that Bush and now PALIN/mccain are seeking billions on tax cuts for the richest people in the country. How in the world are we supposed to pay for all of this? Sarah Palin seems to think we can find “efficiencies” to save money. Cutting out the 18 billion or so in earmarks isn’t going to make a dent. In fact, I don’t think they have given a single specific about any spending cuts they plan to make. Our debt is going to go over 11 trillion dollars with this bailout and I don’t see that PALIN/mccain have shown an ounce of concern about this debt no do they seem to have a plan to not make it get worse and worse.

Posted by: tcsned at September 20, 2008 1:54 PM
Comment #263680

VV

And what about seizing their liquid assets?

Not very practical since those folks just gave themselves somewhere between one and two trillion of our dollars. ;)

Posted by: RickIL at September 20, 2008 1:58 PM
Comment #263683

janedoe

not to get off topic, but just how many times did you hit that post button ;.)

Posted by: dbs at September 20, 2008 2:09 PM
Comment #263684

janedoe

It really looks to me like this is a pure shock doctrine fear play.

Damn jane did you fall asleep with your finger on the post button? It took me forever to scroll down to the bottom of the page. Lucky for you I have a sense of humor. LOL! Time for another blood pressure pill? ;)

Like you this all makes me dizzy. Too many abbreviations and off shoot abbreviations tend to lose me in the hunt for specifics. My pessimism also led me to the conspiracy thing for a moment. But just for a moment. It think it is clear that this is the result of irresponsible handling of our nations financial institutions. It is the breaking point leading to the end result of a reckoning that has been a long time in coming. David Remer posted an excellent and very understandable article on this over in the indie column. Our leaders have seen fit to once again apply a band aid over a hemorrhaging wound. It will hold for awhile, but I think no matter who gets elected very hard times are in order before we will see sustained good times. Scary stuff.

Posted by: RickIL at September 20, 2008 2:11 PM
Comment #263686

tcsned

What really doesn’t seem right is that Bush and now PALIN/mccain are seeking billions on tax cuts for the richest people in the country. How in the world are we supposed to pay for all of this?

Easy, we will just give them a couple more trillion of our tax money. I believe I saw yesterday that every man woman and child in this country is currently responsible for 4,500 and some odd dollars to cover our nations debt. And that number is increasing by the day. Why should the wealthy use their money to pay for their inadequacies when they have us to lean on?

Posted by: RickIL at September 20, 2008 2:20 PM
Comment #263689

janedoe, an easy to understand explanation of what has transpired can be found in the Center Column article, Economic Melt Down Delayed, Temporarily!

Posted by: David R. Remer at September 20, 2008 2:38 PM
Comment #263695

Apparently, the economic situation is more international than local. Alitalia airlines, subisting on government loans to buy fuel for a long time, is supposed to be going under in a few days. Alitalia was basically a joint venture between the Italian government and an investment group that went out of business years ago.

“down by the river, eating government cheese.” LOL
Not even if it was brie? Maybe we can gen foodstamps from France.

Posted by: ohrealy at September 20, 2008 3:21 PM
Comment #263700

If you look at the underlying fundamentals of the economy they are indeed strong.

According to Bureau of Labor Statistic numbers 8 years of Clinton comapred to 7 years / 8 months of Bush;

The average unemployment rate
Clinton = 5.2%
Bush = 5.2%

The Monthly average Consumer Price Index of Inflation
Clinton = 0.424%
Bush = 0.498%

Average Annual Interest Rates (Federal Reserve)
Clinton = 5.048%
Bush = 3.136%

Average Annual Home Ownership (Census Bureau)
Clinton = 65.538%
Bush = 68.363%

Average Annual GDP Growth in Billions of constant 2000 year dollars (Bureau of Economic Analysis)
Clinton = $1,227.1
Bush = $1,646.3

So, yes the underlying fundamentals are strong. That does not an any way diminish the problems we are seeing in the financial markets. There is more than enough blame to go around from Democrats, Republicans, Media, Mortgage Lenders, Bankers and Consumers.

Mortgage Brokers and Consumers are equally culpable in the housing and mortgage debacle. If your lender has to go through multiple gyrations to get you qualified for a loan maybe you need to reconsider and buy a smaller house or not buy at all. At the same time if you are a mortgage broker and you are going through those gyrations you need to stop and think is this buyer a good risk?

The Media is also somewhat to blame in that they continued to run stories sounding the death nell of the economy while ignoring the positive that were and are shoring it up. This constat barrage of doom and gloom become a self fulfilling prophecy after a while.

Politicians both Democrats and Republicans alike in that they let quasi government agencies Fannie and Freddie put the government in a position to back loans for people / lenders who did not do due dilligence in establishing loans.

In a perfect world, I would tell the buyers and mortgage brokers “Too damn bad, you should have known better and now you are going to suffer the consequences of your actions.” That is the only way most will ever learn the lesson. Again that is in a perfect world and we don’t live there. So, we must bail these people out to prevent a much larger hit to the market which could impact the sound fundamentals that we currently have.

This unfortunately is a burden we will all have to bear.


Posted by: Kirk at September 20, 2008 4:15 PM
Comment #263712

Kirk, you left out doubling the national debt from 5.65 Trillion to the now well over 10 Trillion in just 8 short years under Bush and Republican rule.

And the little matter of the U.S. having triggered a near global financial meltdown for lack of regulation and oversight which began with McCain’s economic adviser, former Sen. Phil Gramm’s bill which passed in 1999 allowed mergers of financial institutions and lines of business without, commensurate oversight and accounting measures for the new entities and activities of the entities which this bill would create.

Pres. Bill Clinton signed this Bill into law. And most Democrats agreed to support the bill only after Republicans agreed to strengthen provisions of the Community Reinvestment Act and address certain privacy concerns.

There was plenty of short-sightedness and lack of economics psychology to go around. But, the thing to remember is this, the financial industry had been pushing for this since the 1980’s, and it was two Republicans, Phil Gramm (R), and Jim Leach (R) who put this bill together which would cause consolidation of financial institutions on such a colossal scale as to threaten the global economy if just a handful of these giants failed. And they just did.

And they failed due to the lack of appropriate regulation and oversight which, Republicans have fought tooth and nail since their 1994 election victory in the House of Representatives.

Posted by: David R. Remer at September 20, 2008 6:02 PM
Comment #263720

David, can you support any of your arguments?

Before that 1999 act was enacted (the Gramm-Leach-Bliley Act) WHAT law or regulation was in place that would have stopped financial institutions from buying tons of mortgage-backed securities—and often borrowing heaps of money to do so? What do mergers and diversication have to do with any of it?

In truth is actually the exact opposite of what your say. The fact that these mergers are now allowed is serving as a crucial buffer against a complete meltdown in which the Fed is the only one left holding the bag. Gramm’s bill is a MAJOR part of the solution to this problem.

Bear Stearns, you may remember, was bought out by JP Morgan. Wachovia is about to merge with Morgan Stanley. Bank of America is going to buy and merge with Merrill Lynch. These are GOOD things—especially to the extent that private companies are now taking over the liability for debt instead of throwing it all back on the Fed.

And how does any of what you say have to do with the fact that companies buying these mortgage-backed securities, themselves backed up by a quasi-governmental financial companies, ended up with stacks of worthless paper and non-existent liquidity when the housing bubble burst?

The problem, with all due respect, is that you simply don’t seem to understand what the problem here is—much less what caused it.

Sure, there is a problem with insufficient oversight here—I agree 100%.

But we can’t just go back to 1999, find a bill that passed having to do with completely different issues, and then claim that’s what caused the whole mess. The only reason some are trying to do so is that the bill was proposed by Republicans and it has to with deregulation. But it does NOT have to do with the regulatory regime that’s behind the 2008 financial meltdown. Not even close.

The situation we’re in is partially a regulatory problem, but it’s also a failure on the part of a lot of the supposedly best economic minds—including those in government—to see the writing on the wall. They simply failed to consider the consequences of building so much of the economy on faulty mortgages which became nothing but heaps of worthless paper when the housing bubble burst.

Considering the extent to which government was chin-deep in these practices themselves, what makes us wish that they were regulating the entire system from top-to-bottom? There are a few key areas that NEED to be regulated more, and nobody disputes it.

But these will be brand new regulations—not simply a restoration of how things were before Phil Gramm. The problems here are really pretty specific ones having to with what constitutes credit—all this insane borrowing and lending of mountains of worthless paper.

Posted by: Loyal Opposition at September 20, 2008 9:41 PM
Comment #263723

Kirk,
You write: “Mortgage Brokers and Consumers are equally culpable in the housing and mortgage debacle.”

No. That’s not even who is being bailed out. The hundreds of billions of dollars will go to large financial corporations which lost money in the CDS market.

Loyal O,
I know about Glass Steagall because I was a broker. It was a critical piece of legislation passed after the Great Depression, which created walls to separate the various financial sectors, especially commercial and investment banks. Part of the point of separating the sectors was to prevent an economic downturn from wiping everyone out. The Glass Steagall Act was required knowledge for anyone taking the Series 7 exam.

Kirk,
What tricky statistics! Lots of “average” numbers. Uh huh. I’m too lazy to bother, but I’d bet if you take the same statistics from the beginning and the end of the Clinton adminsitration, there will be marked improvement, and if you take the Bush administration, there will be a marked decline. In other words, the trend for Clinton was up, and the trend for Bush has been down.

For example, when Clinton took office, the unemployment rate was 7.3% and when he left office it was 3.9%. The current rate is 6.1% and rising.

More importantly, under Clinton, @ 23 million non-farm payroll jobs were created. After 7.5 years of Bush, @ 5 million have been created, and the economy has LOST jobs every month of 2008.

Worse yet, during the past week, Paulsen and Bernancke have had to hold emergency meetings due to the failure of the largest insurer in the country, the selling of Merrill Lynch, and so on.

So, no, the economy is not sound. I seriously doubt any of the Bush numbers will look the same after the passing of these next six months.

I don’t know if you created your own averages to reach such a silly conclusion, or if someone else mislead you. If it was someone else, then they are not very nice people, and I would not listent to them or give credence to their politics.

Posted by: phx8 at September 20, 2008 10:51 PM
Comment #263724

LO
The Glass - Steagall Act (as mentioned by phx8 above) is the major piece of legislation removed. Also law changes which have allowed broad intermingling of all kinds of finance - from mortgages to investment to insurance.

Posted by: rowan at September 20, 2008 10:54 PM
Comment #263725

Rowan,
I mentioned this earlier in the thread, but it is critical:
“Perhaps just as crucial was the Commodity Futures Modernization Act of 2000. The CFMA was the work of Phil Gramm. It was a 262 page act inserted into a must-pass 11,000 page budget bill, that went through just before Christmans. The CFMA removed ALL regulatory oversight- federal, state, local, and so on- from the Credit Defaul Swap market. So THIS was a crucial piece of the puzzle…”

I get the distinct feeling most people do not even realize who is getting bailed out, or what most of the money is going towards. My understanding is that it’s the CDS market that is being bailed out, not mortgages that were foreclosed.

As mentioned on DailyKos, Bernie Sanders throws out some righteous indignation, and suggests a fair course to pursue:
http://www.sanders.senate.gov/news/record.cfm?id=303313

Posted by: phx8 at September 20, 2008 11:08 PM
Comment #263726

Holy cow! I just saw the draft of the legislation for the bailout. Ok, that won’t fly. It gives Paulsen pretty much unlimited financial powers without any oversight. That will have to be changed.

Also, there needs to be an articulation of the goal. In other word, where do we go from here? What is the plan to achieve the goal? Presuming we can stabilize things, of course. What steps will be taken to implement the plan?

Posted by: phx8 at September 20, 2008 11:18 PM
Comment #263727

Phx8 and Rowan:

Yes, I know it was the Glass-Steagall Act that was superseded by the Gramm-Leach-Bliley Act.

But the question is this: what provision of the Glass-Steagall Act would have prevented the proliferation of all those mortgage-backed securities that rode the housing bubble into oblivion?

What I’m objecting to here is this habit of you guys on the left to trot out the mere fact that there was a regulatory change having to do with diversification and then blame it for a credit crisis. At the VERY least, explain what connection you’re making, because I don’t see you actually making any connection here yet. That is, except for your wish to blame Republicans and avoid any responsibility for Democrats.

If you have something in mind, I’d at least like to know what the shape of your argument is so I can respond to it. If you say something cogent, I’ll either agree or try to refute you. Merely that there was deregulation about SOMETHING doesn’t mean that that something pertains to this situation.

So why are you blaming Gramm-Leach-Bliley? Why not also blame the Magna Carta? Why not blame the fact that the Miami Dolphins won the Super Bowl in 1974? Just what argument are you making here?

Also, is it not true that Gramm-Leach-Bliley is actually HELPING us overcome this crisis? Was Bear Stearns not merged with JP Morgan? Isn’t Wachovia about to merge with Morgan Stanley? Isn’t Bank of America going to buy and merge with Merrill Lynch?

Would these measures, which are keeping taxpayers from having to incur these debts and liabilities, not have been ILLEGAL under your precious Glass- Steagall Act?

Posted by: Loyal Opposition at September 20, 2008 11:22 PM
Comment #263730

Loyal O,
The Wikipedia article gives a nice explanation:

“The argument for preserving Glass-Steagall (as written in 1987):

1. Conflicts of interest characterize the granting of credit – lending – and the use of credit – investing – by the same entity, which led to abuses that originally produced the Act

2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.

3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.

4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).”

The basic idea is to separate commercial banks from investment banks; to keep safe, guaranteed money separated from money that involves risk.

The repeal of Glass Steagall led to the CFMA legislation I mentioned earlier, the 262 page bill which Phil Gramm inserted into an 11,000 page omnibus bill in the year 2000, which permitted the formation of an unregulated commodity market in mortgage CDS’s. That is ultimately what took us down, and that is primarily what is being bailed out.

So, to answer your question, the CDS market would not have existed without the repeal of Glass Steagall.

Bernie Sanders makes a great point. If a company is considered “too big to fail,” it shouldn’t exist. If the combination of Bank of America, Countrywide, & Merrill survives, it would be far too large, and it will crush any competition.

The RTC approach had to be taken because the ability of private firms to take over competitors came to an end. No one would take over AIG. Many financial companies are too risky to take over, because the collapse of the CDS market means no one can price the contracts, and therefore cannot assess the risk. This destroys the confidence of markets, since the participants know they have a lot of worthless CDS contracts, and they do not trust the other firms with credit, since they might have the same problems with CDS contracts. Furthermore, the sheer volume of potential failures makes it impossible to rely upon this method of overcoming the subprime crisis.

I’m doing the best I can, Loyal Opposition, to understand this stuff and give a political take. If you or anyone else can enlighten me on this stuff, feel free. I’m learning a lot lately. I’m not happy about what I’m learning, either. Meanwhile, the situation is fluid and moving fast…

Posted by: phx8 at September 20, 2008 11:57 PM
Comment #263731
So, to answer your question, the CDS market would not have existed without the repeal of Glass Steagall.

Phx8, since the CDS market already existed before Glass-Steagall was repealed and was already a multi-billion dollar part of the financial industry before Gramm-Leach-Bliley came into effect, I really don’t know what you’re talking about anymore.

Posted by: Loyal Opposition at September 21, 2008 12:28 AM
Comment #263733

LO,
CDS market = Credit Default Swap market. You’re right, the CDS market existed prior to the CFMA passed by Gramm.

In 1998, Michael Greenberger directed the CFTC trading and markets division. The CFTC wanted regulatory oversight of all CDS markets (which were relatively small at the time. The lobbyists for various financial sectors disliked the threat of oversight, and went to- guess who- Phil Gramm.

He inserted the legislation in 2000, which did a lot of things. It is of interest today because the CFMA guaranteed there would be NO oversight or regulation of the CDS markets for subprime mortgages. The CDS market exploded in size.

That’s my understanding after reading several articles. To refine my statement, the unregulated CDS market for subprime mortgages would not have existed without the repeal of Glass Steagall. To give an example, organizations like Bank of America would not have been allowed to trade unregulated CDS contracts on subprime mortgages with organizations like Bear Stearns, without the original repeal of the Glass Steagal Act.

Posted by: phx8 at September 21, 2008 1:11 AM
Comment #263734

David wrote:

Kirk, you left out doubling the national debt from 5.65 Trillion to the now well over 10 Trillion in just 8 short years under Bush and Republican rule.

Yeah David and you left out any relevant perspective. Yes indeed in raw dollars the deficit is very high but if you put the deficit in perspective by looking at it as a percentage of GDP FY 2008 is estimated to finish at 2.9% of GDP. A little further perspective show that the estimated 2.9% of GDP for the 2008 deficit is a mere 0.77% greater than the average of the last 50 years.

Posted by: Kirk at September 21, 2008 1:23 AM
Comment #263736

phx8 wrote:

You write: “Mortgage Brokers and Consumers are equally culpable in the housing and mortgage debacle.”

No. That’s not even who is being bailed out. The hundreds of billions of dollars will go to large financial corporations which lost money in the CDS market.

phx8, I am exactly correct in that Mortgage Brokers and Consumers are at equally culpable. You see there has to be a default before the “large financial corporations” of which you speak lose money in the Credit Default Swap market.

Consumers buy homes and rack up debt they can not afford, based on loans from Mortgage Brokers who must jump through multiple hoops to get them “qualified”. These questionable loans are then bundled with other loans and “sold” into the CDS market.

The CDS is economically similar to credit insurance. The buyer of protection (Mortgage Broker/Bank) transfers the risk of default of a borrower (the consumer) to a protection seller who for a fee indemnifies the protection buyer against credit losses.

When the borrowers find themselve unable to pay the loan that the Mortgage Broker devised, the Bank goes to the “large financial corporation” for repayment of the loan that should have never been entered into in the first place.

Posted by: Kirk at September 21, 2008 1:48 AM
Comment #263737

phx8 wrote:

Kirk, What tricky statistics! Lots of “average” numbers. Uh huh. I’m too lazy to bother, but I’d bet if you take the same statistics from the beginning and the end of the Clinton adminsitration, there will be marked improvement, and if you take the Bush administration, there will be a marked decline. In other words, the trend for Clinton was up, and the trend for Bush has been down.

phx8, you asked for it so here it is since in your word you are “too lazy to bother”.

Unemployment

First year monthly avg for Clinton 6.9% last year monthly avg 4.0%

Bush started with 4.0% and through July monthly avg 5.2%

Consumer Price Index

First year monthly avg for Clinton 0.2% last year monthly avg 0.3%

Bush started with 0.3% through July 0.5%

Inflation Rate

First year for Clinton annual rate 2.96% last year annual rate 3.38%

Bush started with 3.38% through July 4.43%

Average Hourly Earning Increase

First year for Clinton monthly avg $0.024 last year monthly average $0.048

Bush started with $0.048 through July $0.051

Interest Rate

First year for Clinton monthly avg 3.02% last year montlhy ave 6.24%

Bush started with 6.24% through July 2.54%

Home Ownership

First year for Clinton 64% last year 67.4%

Bush started with 67.4% through July 68%

GDP in Constant 2000 Dollars

First year for Clinton $7,336.6 last year $9,817.0

Bush started with $9,817.0 through July $11,523.9

So, even based on your prescribed method of comparrison there is not much difference. If the fundamentals of the economy were sound for the 8 years of Clinton then based on the numbers they are still sound today. Unfortunately for the country as a whole, most people are “too lazy to bother” looking for themselve and take what they are spoon fed by the main stream media.

Posted by: Kirk at September 21, 2008 2:16 AM
Comment #263738

Kirk,
This is not the first time real estate has suffered a downturn. There have been foreclosures, unscrupulous brokers, busted speculators, and so on, in previous declines. While it’s unfortunate, previous real estate slumps have never resulted in an economic catastrophe. They have never threatened us with the catastrophic failure of the financial system. So, what makes this downturn extraordinary? It is the involvement of nearly every financial sector in CDS markets for subprime loans. Insurers, investment banks, commercial banks, all have been caught investing in this unregulated market; and when a downturn occurred- and I’m sure you’ll agree, rises and falls in markets of any kind are normal occurrences- when a downturn occurred, the CDS’s on subprime mortgages magnified the downturn into a catastrophe.

CDS’s can be like insurance, that’s true. And like any commodity, one side of the transaction can be hedging to reduce risk, while the other side can be speculating. There is nothing inherently wrong with hedging or with speculating. However, There is everything wrong with doing so with the savings and annuities and homes of the public, especially when it occurs in an unregulated market lacking any oversight whatsoever.

“Equally culpable”? No. The problem with assigning equal culpability is that it dismisses the proportionality of the situation. The failures of all the foreclosed mortgages, Fannie Mae, and Freddie Mac added together pail in comparison with the amount of losses in the CDS markets.

But if you insist on the point of equal culpability, do you believe borrowers who defaulted should be bailed out and mortgage brokers should be bailed out, the same way large corporations are going to be bailed out? After all, what’s good for the goose is good for the culpable gander.

In your reply to David, you attempt to minimize the debt by making it a percentage of something smaller- in this case, the GDP. What does the GDP have to do with the price of tea in China?

Hint: anytime someone attempts to refute an argument by turning an inconvenient statistic into a percentage of some vastly larger number, it is almost certainly baloney.

Posted by: phx8 at September 21, 2008 2:41 AM
Comment #263739

Kirk,
I don’t understand the point of your comment on the economic statistics. They prove my point. Clinton turned in a positive performance. He improved on the situation he inherited, and the improvement is reflected by statistics. Bush turned in a negative performance. He took a good situation and made it bad.

I don’t know if you care, but economists consider the last GDP quarterly number a laugher. The Bush administration jiggered some statistics. No one believes them. And I mean no one.

The same is true for inflation. To be fair, the Clinton administration change the measurement, allowing substitutions of one item for another to discount inflation.

No one will buy securities tied to the official inflation rate because no one believes the official number. I don’t want to scare the children, but the actual inflation rate for most people is closer to 14%, not 4 or 5%.

Posted by: phx8 at September 21, 2008 3:00 AM
Comment #263747

Although some commenters have touched on it, the underlying cause has been the depression of wage gains for years. If the wges for workers had been allowed to increase in relationship to production as they historically do there would be no crises. There would have been no need for sub-prime morgages and people would not be having a hard time paying if there were. Wages were purposely kept down by the current regime. Labor unions, the only instition that attempts to increse wages, have been pushed down even furthur by union busting shills on the NLRB makeing absurd anti worker decisions or just plain foot dragging. There was no real attempts to stem the flow of immigrants to provide employers with cheap help, cheap help that without any legal status could not safely complain about conditions or join a union. Trade agreements were implimented that put workers last. Federal agencies that were supposed to protect workers have been used to remove overtime benefits from thousands and allow companies to disregard safety regulations leading to many deaths. There have been thousands of agency decision to keep wages repressed.Davis-Bacon laws have been ignored with impunity for example.McCain promises more of the same. We won’t get out of this mess until those hard working people Mac claims to have such faith in actually make some real wage increases.

Posted by: bills at September 21, 2008 7:54 AM
Comment #263753

Kirk -

IIRC, the rate of inflation NOW is calculated differently than before the Bush II administration. I heard on the radio - and I HATE to try to claim this as fact because I don’t have a good reference to back it up (yet) - that if the rate of inflation is calculated in the same manner as it was during the Carter administration, the rate of inflation is slightly above TEN percent.

What I would say is proof of this is the rise in gas prices and the subsequent rise in food, transportation, mailing, and commodities nationwide. I do admit that, considering how prices have risen sharply in the past year, I think we’re a bit above six percent inflation.

Posted by: Glenn Contrarian at September 21, 2008 10:38 AM
Comment #263754

phx8 wrote:

While it’s unfortunate, previous real estate slumps have never resulted in an economic catastrophe. They have never threatened us with the catastrophic failure of the financial system. So, what makes this downturn extraordinary?
But if you insist on the point of equal culpability, do you believe borrowers who defaulted should be bailed out and mortgage brokers should be bailed out, the same way large corporations are going to be bailed out? After all, what’s good for the goose is good for the culpable gander.

Subprime Mortgages, a type of loan granted to individuals with poor credit histories (often below 600), who, as a result of their deficient credit ratings, would not be able to qualify for conventional mortgages.

As I said before if your Mortgage Broker has to jump through mmultiple flaming hoops to get you qualified you need to take a hard look at your ability to afford the house you are trying to buy. On the broker’s side, if it takes that much work to find a loan your buyer can qualify for you need to walk away from that loan.

According to a speech by Federal Reserve Governor Randall S. Kroszner, at the start of the current decade, subprime originations only accounted for about 6 percent of total residential mortgage originations. By 2006, the subprime share of total mortgage originations had risen to about 25 percent.

In your reply to David, you attempt to minimize the debt by making it a percentage of something smaller- in this case, the GDP. What does the GDP have to do with the price of tea in China?

Hint: anytime someone attempts to refute an argument by turning an inconvenient statistic into a percentage of some vastly larger number, it is almost certainly baloney.

No, in my reply to David I place the debt in perspective not minimize it. The GDP has everything to do with the price of tea in China when you are talking about the debt.

You are obviously thinking like a Subprime Mortgage Broker, focusing on just the total cost of the debt regardless of income.

To look at the National Debt as a number only is absurd. The number tells you nothing of and by it self. If that were the national debt when the GDP were say at a 2000 level of $9.7 Trill. dollars we would have a lot more worries than we do with the 2008 estimated GDP of $14.3 Trill. dollars.

I must admit though after looking at my response to David I did pull the percentage of GDP from the wrong column as the number I posted was strictly the 2008 year deficit to 2008 year GDP. However, my argument still holds when looking at the total deficit as a percentage of GDP.

For example the following debt percentage of GDP at the end of the Fiscal Year.

1940 - 44.2%
1950 - 80.2%
1960 - 45.7%
1970 - 28.0%
1980 - 26.1%
1990 - 42.0%
2000 - 35.1%
2007 - 36.8%

Just as debt to income ratios should be looked at in underwriting loans, it must be looked at in reference to the national debt to get a realistic picture of that debt. To do otherwise is as you put it baloney.


Posted by: Kirk at September 21, 2008 10:53 AM
Comment #263755

phx8 wrote:

Kirk, I don’t understand the point of your comment on the economic statistics. They prove my point. Clinton turned in a positive performance. He improved on the situation he inherited, and the improvement is reflected by statistics. Bush turned in a negative performance. He took a good situation and made it bad.

Is it that you don’t really understand or that it doesn’t fit your arguement?

Yes the Clinton years were better is some of the catagories while the Bush years were better in others. A percent here a 1/10 of a percent there one way or the other, the underlying economic factors of the two administrations are very comparable. If you choose to ignore it that is your issue.

Posted by: Kirk at September 21, 2008 11:21 AM
Comment #263758

For a little more perspective let look at the economies of the Republican controlled Congress (Jan 95 to Dec 05) compared to the Democratic controlled Congress (Jan 06 to Present) since Congress controls the purse strings.

Unemployement

Rep: 5.6% to 4.7%
Dem: 4.7% to 5.7%

CPI

Rep: 0.3 to -0.1
Dem: 0.6 to 0.8

Inflation

Rep: 2.8% to 3.42%
Dem: 3.99% to 5.6%

Interest Rate

Rep: 5.83% to 3.22%
Dem: 4.97% to 3.54%

How Ownership

Rep: 64.7% to 68.8%
Dem: 68.8% to 68%

Posted by: Kirk at September 21, 2008 11:29 AM
Comment #263763

phx8:

Holy cow! I just saw the draft of the legislation for the bailout. Ok, that won’t fly. It gives Paulsen pretty much unlimited financial powers without any oversight.

Yeah. I went and looked at it too, and just as I suspected, it looks to be a hastily thrown together piece of shite.

That will have to be changed.

I’m hoping against hope that Congress doesn’t pull a lazy, irresponsible Patriot Act-style rush to pass this bailout without thinking anything through.

Also, there needs to be an articulation of the goal. In other word, where do we go from here? What is the plan to achieve the goal?

Yeah, these are all good questions. To me it seems as though this is like trying to stick a bandaid over a profusely bleeding wound.

Presuming we can stabilize things, of course. What steps will be taken to implement the plan?

Have you been reading what Krugman has been saying? Here’s a link: No Deal. Also, if you’re interested, scroll down and read his other recent posts.

Posted by: Veritas Vincit at September 21, 2008 12:25 PM
Comment #263766

Btw, here’s another good op-ed on this subject from Sebastian Mallaby: A Bad Bank Rescue

Posted by: Veritas Vincit at September 21, 2008 12:46 PM
Comment #263769

This is exactly what I want our president to sound like in a time of such economic uncertainty:

This is not a time for fear, or for panic. It’s a time for resolve. It’s a time for leadership.”

Video of Obama’s full statement. (Just over seven minutes long.)

Posted by: Veritas Vincit at September 21, 2008 1:54 PM
Comment #263770

Kirk, the percent of GDP is relevant only for certain measures. It utterly and completely fails to address the opportunity cost of interest on that debt. Next year’s deficit will be over 1/2 trillion dollars. At an average 3.5% interest rate (loose estimate), that’s 8 billion, 400 million dollars. Given that a majority of that interest goes to foreign investing governments, corporations, and individuals, America is literally piece mealing American wealth overseas. And it comes back to our economy as additional loans, and going forward, at inevitably higher interest rates.

Debt represents opportunity cost, as well. As any person with a mortgage, car payment, and several credit card payments knows, their options for consumption are severely limited by their current debt levels.

AIG went out in the international lending market and could not raise short term loans to save itself. This happens to governments as well, like the USSR and Brazil in the late 90’s.

Paulson and Bernanke are able to save this day because the borrowing window is still open. But, to presume that this window will remain open as debt and mandatory obligations exceed 53 Trillion dollars, is gullible at best.

McCain has said repeatedly that he will reduce government revenues by lowering taxes. Pork spending cuts only amounts to 18 billion a year. The deficit next year (beginning Oct. 1) will be $500,000,000,000.00, or 1/2 trillion dollars. This is no time to reducing government revenues.

McCain is an idiot when it comes to numbers and economics. CBO, GAO, Walker, Greenspan, and Bernanke have all now conceded that while tax cuts may spur economic growth, the increase in revenues from that growth DO NOT match the revenues lost from the tax cuts. I.E. McCain would make our deficits worse, not better.

One final note. The percent of debt to GDP was at its highest post WWII. But, America had enormous growth potential ahead of her with untapped educational, labor, and technological developments ahead, and very little competition from overseas. That has all changed. America can no longer grow her way out this kind of debt. That growth potential simply does not exist in a world where comparative and competitive advantages now lie before nations like China, India, Malaysia, and the UAE. Not the United States.

So, comparing today’s debt as a percent of GDP to the 1940’s debt to GDP, is apples and oranges when projecting capacity to survive such debt. Our growth potential cannot support the kind of debt to GDP ratio of post WWII. That would bury us as a bankrupt government.

Posted by: David R. Remer at September 21, 2008 1:55 PM
Comment #263771

bills, subprime mortgages were not consumer driven, but corporate greed driven. Even if wages had kept pace, the lenders would have simply sold them even more expensive homes they couldn’t hope to pay for, because the profits were in the commissions.

I saw one couple yesterday on TV, both making $10 per hour or less, who were sold a $400,000 home, and now are losing their home due to bankruptcy. The confessed to being ignorant of the terms and complexities of the phased increases of annual payments. So, again, even if their wages had kept pace with production, the lenders would still have taken advantage of their ignorance and sold them a $750,000 or $800,000 home instead with their income at $20 per hour.

Posted by: David R. Remer at September 21, 2008 2:00 PM
Comment #263805

David wrote:

bills, subprime mortgages were not consumer driven, but corporate greed driven. Even if wages had kept pace, the lenders would have simply sold them even more expensive homes they couldn’t hope to pay for, because the profits were in the commissions.

I saw one couple yesterday on TV, both making $10 per hour or less, who were sold a $400,000 home, and now are losing their home due to bankruptcy. The confessed to being ignorant of the terms and complexities of the phased increases of annual payments. So, again, even if their wages had kept pace with production, the lenders would still have taken advantage of their ignorance and sold them a $750,000 or $800,000 home instead with their income at $20 per hour.

David, I find it impossible to believe a couple making less that $20 per hour combined don’t know they can’t afford a $400,000.

I have to disagree with you on the relevance of the percentage of debt to GDP. The percentage of debt to GDP has been fairly stable since around 1990 despite the growth of the raw debt numbers. To say that a $500,000 obligation for me is the same as a $500,000 for Bill Gates is laughable. While the raw debt numbers are the same Bill’s GDP is just a wee bit larger than mine.

Your assertion that a majority of the debt is held by foreigners is incorrect. As of September 2008 the total percentage of the US debt held by foreigners is 25%.

Posted by: Kirk at September 21, 2008 6:58 PM
Comment #264905

Let us not forget that it was the Democrats that passed the law forcing lending institutions to make accessible to poor, financially ignorant people loans they new they could not repay. For all the corruption of corporate america this meltdown was made possible by a Socialist Deomcratic Congress. First the Democrats tried to cover up there responsibilty by dumping all these bad loans on Freddie and Fannie to Democratic institutions whos second largest beneficary is Osama. Bill Clinton, Bush, Greenspan, Berneke, all of who i have great disdain for warned time and time again a Democratic Congress to real in Fannie and Freddie they were to big, but Liberalsim and Socialism, and this Utopian ideology attemtped to level the economic playing field by dumping billions of Corproate Americas dollars into the hands of impovershed and ignornat people thinking that they would act responsible with millions of dollars. This is the real truth of what has transpired and you will hear it nowhere. The only way to continue to fuel the housing market past its correction was to give poor people money, somthing they have no idea or capacity to manage, so of course it was all bound to collapse. Econ 101 is that unless we have a large pool of first time homebuyers entering the market, no one in the market can ascend the ladder of prospertiy. Why did we give money to ignorant people, Why did congress allow this, and how is to blame. All I can say is this, Socialism brought us here and it will destroy us if Obama continues his communist agenda.

Posted by: DAVID DUVALL at September 28, 2008 10:31 PM
Comment #265708

A look into Barack Obama’s past might shed some light on the crisis
Barack Obama joined Trinity United Church of Christ more than 20 years ago and considered the church pastor, Rev. Jeremiah Wright as his mentor. Rev. Wright married Obama and his wife Michelle, baptized their two daughters and is credited by Obama for the title of his book, “The Audacity of Hope.” In his sermons, Rev. Wright repeated denunciations of the U.S and blurted out statements like “The government gives them the drugs, builds bigger prisons, passes a three-strike law and then wants us to sing “God Bless America.” No, no, no, God damn America, that’s in the Bible for killing innocent people,” he said in a 2003 sermon. “God damn America for treating our citizens as less than human. God damn America for as long as she acts like she is God and she is supreme.”
Looking at Obama’s ties to Rev. Wright, and his connections to a terrorist bomber, William Ayers, both men who would like nothing more than to destroy this country causes many people to second guess Obama’s intentions for change. If you have not heard about William Ayers, you can read about him in the U.S. News, Michael Barone’s column-Obama Needs to Explain His Ties to William Ayers. “In my U.S. News column, I make a brief reference to the unrepentant Weather Underground terrorist bomber William Ayers and his connections to Barack Obama. They were closer than Obama implied when George Stephanopoulos asked him about Ayers in the April 16 debate—the last debate Obama allowed during the primary season. To get an idea of how close they were, check out Tom Maguire’s Just One Minute blog and Steve Diamond’s Global Labor and Politics. The Obama-Ayers relationship is also mentioned in David Freddoso’s The Case Against Barack Obama: The Unlikely Rise and Unexamined Agenda of the Media’s Favorite Candidate.”

Lets examine Obama’s connection with an accused political fixer Antoin “Tony” Rezko. The following is on explanation by Brian Ross and Rhonda Schwartz from ABC News. “In sharp contrast to his tough talk about ethics reform in government, Sen. Barack Obama, D-Ill., approached a well-known Illinois political fixer under active federal investigation, Antoin “Tony” Rezko, for “advice” as he sought to find a way to buy a house shortly after being elected to the United States Senate. Rezko had been widely reported to be under investigation by the U.S. attorney and the FBI at the time Obama contacted him and has since been indicted on corruption charges by a federal grand jury in a case that prosecutors say involves bribes, kickbacks and “efforts to illegally obtain millions of dollars.”
Because Barack Obama was a dependable ally of subsidized developers in the Legislature, his friend and fund-raiser Rezko depended on him to get things done such as cosponsoring a bill in 2001 allowing developers to pocket half of the proceeds from selling state tax credits to others. Obama admitted that his decision to involve Rezko was “a bone-headed mistake.” What he failed to mention is that he has a closet full of bone-headed mistakes such as Peter Wallsten pointed out in the Los Angeles Times on
January 24, 2008.
“Barack Obama angered fellow Democrats in the Illinois Senate when he voted to strip millions of dollars from a child welfare office on Chicago’s West Side. But Obama had a ready explanation: He goofed.

“I was not aware that I had voted no,” he said that day in June 2002, asking that the record be changed to reflect that he “intended to vote yes.”
That was not the only misfire for the former civil rights attorney first elected to the state Senate in 1996. During his eight years in state office, Obama cast more than 4,000 votes. Of those, according to transcripts of the proceedings in Springfield, he hit the wrong button at least six times.”

Now comes the big question, what exactly does a community organizer do?
One thing Barack Obama did as a community organizer was pressure banks to make bad loans. In Barack Obama’s youthful community organizing days he joined a group called ACORN. Using the Community Reinvestment Act which was designed to encourage banks to make loans to high-risk borrowers, ACORN started abusing the law by forcing banks to make hundreds of millions of dollars in ‘subprime’ loans to minorities with bad or no credit. Using charges of racism and threats to use CRA to block business expansions have enabled ACORN to extract hundreds of millions of dollars in loans and contributions from America’s financial institutions.
Other things that ACORN did as community organizers were agitate for higher minimum wages, attempt to thwart school reform, try to unionize welfare recipients who are obliged to work in exchange for benefits and organize voter registration drives. In 2006 for example, their voter registration drive in Washington produced 1,800 new voters of which 1,794 names submitted were fake. The secretary of state called it the “worst case of election fraud in our state’s history.”
If you like to know more, watch these two videos.
http://www.youtube.com/watch?v=nRmB93McZeI
http://www.youtube.com/watch?v=_MGT_cSi7Rs

Cybercorrespondent
http://cybercorrespondent.blogspot.com

Posted by: Cybercorrespondent at October 3, 2008 11:11 AM
Comment #266283

Thursday morning I turned on the news and heard that ACORN is under investigation for voter fraud in a number of states. Since I learned not to trust what the media tells us, I decided to have a look what the bloggers had to say. On a sight called A Look Into Barack Obama’s Past - Obamamania - Zimbio website I found the following comment that made me think.
A concerned citizen
Oct-6-08 7:48pm [Edit]
Those two videos paint a very clear picture. As the terrorists have promised, they will destroy this country from with in. …..

http://www.youtube.com/watch?v=puN9X1mVgRA ……..

http://www.youtube.com/watch?v=vjvBEKrGkDI …….

Back to my point. By allowing the voter fraud to go on, makes this great country look like a third world dictatorship. We are supposed to send an example to the rest of the world how honest elections are held and not allow the media to distort the facts. Please people, wake up and tell the media no more. Boycott all the products advertised on publications like the Newsweek, Time magazine and other propaganda machines like the New York Times. Also do the same with CNN and other communist propaganda news sources. Even the Fox News network is starting to sway the viewer decision. After Thursday’s presidential debate, watching Chris Wallace interview a communist from Saint Louis made me sick. Even bad journalists should realize that when you ask a communist or a skin head to give you their views, you can pretty much expect what they are going to say.
I certainly had enough of all of the $%#@Comunism.org
Cybercorrespondent

Posted by: Cybercorrespondent at October 9, 2008 12:17 PM
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