Fixing Blame: Finding the Roots of the Credit Crisis

The origins of the credit crisis have been the most difficult research project I have attempted since I first got seriously interested in Global Warming five years ago, and largely for the same reason. Its status as a political lightning rod makes good information hard to come by and today’s publicly available interpretations utterly untrustworthy.

I went into this effort assuming the mess was probably caused by a lack of regulation on one hand and government interferance in markets on the other. Knowing that to be my personal bias it seemed important to challenge those assumptions, hence the substantial list of sources that will follow the article. I hope the reader will forgive this unusual departure from Watchblog's nominal style.

At its heart this crisis was caused by a trend that has existed since the 1950s. There had been a slow rise in the number of defaults (with an anomalous, huge spike in 1964-'67) that drove the percentage from less than 1/2% to slightly over 2% by 1995. The FDIC in that year put out a paper that studied the possible causes and concluded that the trend was probably being caused by more and more people using their homes as collateral for consumer loans. I remember being alarmed at that time by the pressure being applied to Texas lawmakers in the effort, eventually successful, to make such loans legal in Texas.

In 1995, under Andrew Cuomo, the Clinton Administration HUD changed a policy that had begun with the Community Redevelopment Act in 1977 designed to pressure lenders, especially larger ones that might be seeking mergers or expansions, to increase their lending to communities affected by so-called "redlining" in the mortgage market. The effect of this policy was to geometrically increase loans to marginal homebuyers.

Howard Husock, writing in 2000 for an article called "The Trillion-Dollar Shakedown that Bodes Ill for Cities" noted this-

"'The problem with CRA,' says an executive with a major national financial-services firm, 'is that banks will simply throw money at things because they want that CRA rating.' From the banks' point of view, CRA lending is simply a price of doing business—even if some of the mortgages must be written off."
All of this was not enough to start the wheels of a housing bubble churning, though.

Starting in 19771997, Freddie Mac and Fannie Mae made the CRA policy seem more palatable by providing a secondary market where these seemingly marginal mortgages could be bought from commercial lenders to be bundled with higher quality mortgages and re-marketed as securities in a secondary market called "Mortgage-Backed Securities" or MBSs. These dubious instruments, because they were backed with the implicit promise that the Treasury stood behind them, carried a deeply misleading AAA rating- the highest quality investment-grade securities. One can still find websites exclaiming over the "safety" of these securities which had interest rates about 2% above comparable investments.

An example, from the website cited above is the following-

"Generally, MBSs are traded actively, much like bonds are, so there is very little liquidity risk. Furthermore, they are considered an extremely safe investment, often said to have the same credit worthiness as treasuries but with a return that is 1-2% greater. Monthly income from MBSs can vary as interest rates change because mortgages can be prepaid, and when interest rates are falling, prepayments tend to rise. Prepayments only shorten the life of the MBS and are passed directly to the investors."
"However, Tony Crescenzi, chief fixed-income market analyst at Miller Tabak, questioned whether there is "excessive hype over sub-primes."
With this implicit backing and a resale market to drive profits on the back end at least three simultaneous trends exploded at once.
The first was people who were poor candidates for mortgages of any kind were getting mortgages out of the intense pressure to increase service to poor communities. In spite of assertions of race-related discrimination accounting this research study effectively refuting the original arguments about redlining, with good controls to handle assertions of race-based discrimination, showed what the troubles of these "underserved" communities really were; people who are poor credit risks generally remain poor risks even when they are paying for their own house.

The second trend was that the artificially easy credit made possible by the secondary markets encouraged by Fannie and Freddie's hyped promises of security and artificially lower-than-market operating expenses created a booming market in precisely the kind of consumer credit that had been steadily driving default rates up since the 1950s. People drove themselves deeper into debt on excessive purchasing founded in peril to their homes.

The third trend was also made possible by the promise of easy credit and the steady, artificial, rise in housing values which can be traced on several reliable market guages to 1997. It was the proliferation of genuinely predatory commercial loans such as one-year readjustable ARMs with no points limits and interest-only loans pegged to the value of the home. As long as a buyer or refinancing owner had the benefit of rising values to help in obtaining new financing later on more stable terms, or buyers flocking to take an excessively expensive home off their hands, they could confidently buy more home than they could afford. Sellers hawked houses to people as investments on which they would make a killing.

When the market faltered, though, people with too much house were stuck, often with loan payments that could balloon to more than three times what they had purchased their homes expecting to pay. This burden had been exacerbated by lax financing standards on the part of FEDERAL programs that permitted loans to originate with payments exceeding 60% of GROSS income and loan values at the full value of the property. It is no wonder defaults exploded on supposedly "safe" mortgages. Payments were often cascading to double a homebuyer's gross pay!

People who blame 'capitalism' for this mess are dead wrong. The crisis in credit markets has fallen from a combination of factors. One was a perverse abuse of the home as a store of value for the family. Another was the intrusion of Government Sponsored Enterprises (GSEs) into markets to which they were only marginally exposed themselves and were thus not fully sensitive to the increasing possibility of catastrophic failure. This factor can be seen in the response of Democrats to investigations into blatantly illegal activities by Franklin Raines in an effort to secure bonuses equal to several times his annual salary, activities for which he has since been fined millions of dollars. And, of course there has been greed in capital markets themselves as well. What a surprise. All of this worked together to bring the economy to its knees.

For the sake of brevity I have not mentioned the complicity of the Federal Reserve, which extended the reach of the housing bubble by monetary manipulations. But historically low interest rates have also fed this issue. I add here a couple of additional articles to look at for perspective's sake. Note especially the effect of below zero real inflation-adjusted interest rates starting in 2002.

What of those who say the Gramm/Leach/Bliley Act really started the cascade of de-regulation that caused this mess? No one who was seriously involved with the passage of that act takes such claims seriously.

Additionally there has been a persistent myth that Republicans did nothing to raise warning flags or seek additional regulation. This has now been widely debunked. That there was a lax effort to rein in the abusive instruments proliferating in the marketplace, such as the ARMs and Interest-only monsters listed above is apparent, but the frenzy to get them was made possible by low rates and excessive liquidity resulting from the availability of Mortgage Backed Securities. People knew these were dangerous loans from the standpoint that monthly payments could increase if they were unexpectedly stuck with the loans long-term. They just thought the monster wouldn't really have the chance to bite them.

Sources and Comments
http://news.yahoo.com/s/time/thebailoutdefeatapoliticalcredibilitycrisis;_ylt=AhKygSWHqRMm7ramLASS2Pys0NUE (failure of House bill to rescue markets)
http://www.census.gov/hhes/www/housing/census/historic/owner.html
http://www.fdic.gov/bank/analytical/working/98-2.pdf (historical foreclosure rate analysis)
http://housingbubble.jparsons.net (charting inflation adjusted housing values)
http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html (major source for above)
http://piggington.com/foreclosure_chart_extravaganza_january_2008 (San Diego-local burden of excess housing inventory)
http://bubblemeter.blogspot.com/ (five year bubble)
http://thehousingbubbleblog.com/?p=4973 (built on a fallacy)
http://investmenttools.com/median_and_average_sales_prices_of_houses_sold_in_the_us_m.htm#re_div_gold (housing prices in Gold)
http://money.cnn.com/2008/05/06/real_estate/100_forecast.moneymag/index.htm?postversion=2008050817 (prospective regional home prices one year)
http://www.fidelitypacificrealestate.com/AffordabilitySales_Chart/page_2066525.html (interesting historical chart with "funny loans" note)
http://www.marketoracle.co.uk/Article3931.html (Chart and article from UK on real interest rates and dollar value)
http://www2.standardandpoors.com/spf/pdf/index/csnational_release_082857.pdf (Case-Schiller chart 2007)
http://alphaville.ftdata.co.uk/lib/inc/getfile/1312.jpg (Case-Schiller chart 2008)
http://www.investopedia.com/terms/m/marktomarket.asp (mark to market accounting- magnifier of market panic)
http://www.federalreserve.gov/pubs/arms/arms_english.htm (ARMs)
http://seekingalpha.com/article/96618-the-insanity-of-adjustable-rate-mortgages-endures (bad arms)
http://www.boston.com/realestate/news/articles/2008/03/16/whats_so_bad_about_adjustable_rate_mortgages/ (not so bad)
http://www.nytimes.com/2007/08/01/business/01leonhardt.html (Arms in trouble)
http://www.mtgprofessor.com/A%20-%20Interest%20Only/misperceptions_about_interest-only_loans.htm
http://www.mtgprofessor.com/tutorials2/interest_only.htm
http://www.federalreserve.gov/pubs/HomeLine/ (home equity line of credit)
http://www.ncsecu.org/Loans/HomeEquity.html (north carolina credit union)
https://secure2.texaslending.com/seo_home_equitytest.asp?gclid=CLLr-qqE-pUCFQO2FQodHzLzFQ (promises of lender)
http://www.mortgagefit.com/second-mortgage.html (second mortgage seller)
https://loans.countrywide.com/FTLP/WHCOffrm/default.aspx (countrywide still in mix)
http://www.sec.gov/answers/mortgagesecurities.htm (mortgage backed Securities)
http://www.investopedia.com/university/20_investments/11.asp (mild hawking of MBS)
Crescenzi cited Federal Deposit Insurance Company statistics from September, 2006 showing that "banks were very well capitalized and that non-current loans measured just 0.70% of total loans, the lowest such ratio in the 22 years these data have been collected." (above seems ironic in hindsight)
http://www.realestateabc.com/loanguide/mortgage1.htm (more explanation)
http://en.wikipedia.org/wiki/Predatory_lending
http://www.hud.gov/offices/hsg/sfh/pred/predlend.cfm
http://www.responsiblelending.org/issues/mortgage/sevensigns.html (predatory lending)
http://www.predatorylendinglaw.org/

Government figures
http://www.federalreserve.gov/releases/g19/
http://www.federalreserve.gov/releases/g19/hist/
http://www.federalreserve.gov/releases/g19/hist/cc_hist_p.txt

http://article.nationalreview.com/?q=ZTQyNjk1MmZhNDYyZjQ0OGNlMDIzOGMzZDQwMjk3NTY= (Tony Rezko and defaults and Obama)
http://article.nationalreview.com/?q=MDM3NGE0ZjAyYjk4ODIzMDQyODNkYzg5NDU1MTNkOGQ= (false claims of Phil Gramm's fault)
http://gatewaypundit.blogspot.com/2008/09/bush-called-for-reform-of-fannie-mae.html (Details administration warnings on banking giants)
http://www.politicalmachine.com/article/325306/Bush_Tried_to_Overhaul_Housing_Finance_Industry (Bush efforts to overhaul banking)
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63 (article cited above)New Agency Proposed to Oversee Freddie Mac and Fannie Mae

http://www.youtube.com/watch?v=H5tZc8oH--o (compendium of meltdown causes--pulled by Warner Music)
http://www.youtube.com/watch?v=nRmB93McZeI (reposting of above entitled "Burning Down the House") sources below
*** http://usmc9971.blogspot.com/2008/09/economic-crisis-video.html (collected sources for video above)
* http://www.consumeraffairs.com/news04/2007/01/mln_subprime.html
http://www.consumeraffairs.com/news04/2007/01/mln_subprime.html (article refuting CRA influence)
* http://en.wikipedia.org/wiki/Community_Reinvestment_Act
http://mises.org/story/2963 (Article claiming CRA influence [PhD economist])
* http://www.city-journal.org/html/10_1_the_trillion_dollar.html (Howard Husock article City Magazine)
* http://www.policylink.org/EDTK/CRA/
* http://freerepublic.com/focus/f-news/2090118/posts (originates 1997-Bear Stearns [and present-day Wachovia] offer securities based on "affordable mortgages")
* http://www.csrwire.com/PressRelease.php?id=482 (Fannie Mae Announces Pilot to Purchase $2 Billion of "MyCommunityMortgage")
* http://www.washingtonpost.com/wp-dyn/content/article/2008/08/18/AR2008081802111.html

http://www.youtube.com/watch?v=_MGT_cSi7Rs (Democrats defend fannie illegalities)
http://www.ratical.org/corporations/DErulesUD.html New York Times article 11/13/99 (also)
http://query.nytimes.com/gst/fullpage.html?res=9A03E6DF143DF930A25752C1A96F958260 Clinton signs Gramm-Leach-Bliley ("We have done right by the American People" article copied below.)
http://sweetness-light.com/archive/biden-bill-to-blame-for-foreclosure-crisis (Biden bill pushes crisis?)

compendium- http://www.sapscene.com/gramm/ (many articles on glb)
* http://www.marginalrevolution.com/marginalrevolution/2008/09/did-the-gramm-l.html
* http://delong.typepad.com/sdj/2008/09/toward-universa.html
*http://meganmcardle.theatlantic.com/archives/2008/09/hindsight_regulation.php (go down to the myths)
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_hassett&sid=aSKSoiNbnQY0 (emergence of crisis)How the Democrats Created the Financial Crisis: Kevin Hassett
http://www.americanthinker.com/2008/09/mistress_of_disaster_jamie_gor.html (Jamie Gorelick and trail of disaster)

(Other archives of old stuff) http://sweetness-light.com/archive/archives-on-franklin-raines-and-fannie-mae
*http://www.washingtonpost.com/wp-dyn/articles/A30436-2004Dec27.html
*http://www.washingtonpost.com/wp-dyn/content/article/2005/04/06/AR2005040601941.html (false signatures at fannie)
*http://www.nytimes.com/2008/04/19/business/19fannie.html?_r=2&adxnnl=1&oref=slogin&adxnnlx=1213218218-+MjcDtak7TCPIvZdGa5Eg&oref=slogin (cost to Raines)
http://www.ibdeditorials.com/IBDArticles.aspx?id=306716270814143 (Investors business daily on Obama dumb solutions)
http://ideas.repec.org/a/jre/issued/v18n21999p279-290.html (Mortgage Default Rates and Borrower Race) article posted at- http://findarticles.com/p/articles/mi_qa3750/is_199909/ai_n8869517/pg_1?tag=artBody;col1 (also)
http://findarticles.com/p/articles/mi_qa3750/is_199909/ai_n8869517 (Research article fails to support claims of race-related redlining)
http://newsbusters.org/blogs/noel-sheppard/2008/09/20/ibd-carter-more-blame-financial-crisis-bush-or-mccain (banker on pressure to loan to poor)
http://www.ibdeditorials.com/IBDArticles.aspx?id=306632135350949 (Congress lies low- editorial cited in newsbusters above)
http://www.federalreserve.gov/newsevents/testimony/braunstein20080213a.htm (background on history of anti-redlining requirements)
*

"Examination Approaches
Since 1995, the agencies' CRA regulations have tailored the examination approach to the institution's size or its business operations. Currently, for depository institutions with assets greater than $1.061 billion1 CRA performance is evaluated based on a lending test, an investment test, and a service test. Under the lending test, an institution's lending performance is evaluated on both quantitative and qualitative factors, and the outcome is generally weighted to count for 50 percent of the institution's overall CRA rating. An institution with a Needs to Improve or Substantial Noncompliance rating on the lending test cannot be assigned an overall passing grade for CRA."
(also see-
http://virginiavirtucon.wordpress.com/2008/09/15/anatomy-of-a-financial-crisis-the-cra-and-acorn/
* (originally from ACORN website)
"The 1990 ACORN convention in Chicago focused on the fast-breaking housing campaign. It featured a squatting demonstration at an RTC house. Later, ACORN members demanded cooperation from banks about providing loan data on low- and moderate-income communities and compliance with the 1977 Community Reinvestment Act (CRA).
ACORN fought weakening of the CRA in 1991, staging a two-day takeover of the House Banking Committee hearing room. It also established ACORN Housing Corporation to service people moving into homes under the housing campaign, rehabilitated hundreds of houses addressed by CRA.
The ACORN convention in New York in 1992, called the “ACORN-Bank Summit”, was organized to make deals with giant banks. When Citibank, the nation’s largest bank, did not participate conventioneers protested at its downtown Manhattan headquarters, and won a meeting to negotiate for similar programs."

http://sweetness-light.com/archive/acorn-housing-mortgage-program (more on Acorn)
http://www.villagevoice.com/2008-08-05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac/1
Crisis Hits Main Street
http://www.newsobserver.com/news/story/1231484.html (no bidders on bonds- sidebar article includes following-
"The credit shortage also is affecting the state's borrowing. The variable interest rates on about $855 million in state debt rose this week, said Sara Lang, spokeswoman for the State Treasurer's Office.
Those rates are now almost fivefold what they were two weeks ago, rising from 1.68 percent to 7.58 percent on almost $500 million of the variable-rate debt. Lang said the difference in the monthly debt payment will be about $1.4 million more than it would have been if the rate had stayed the same.")

http://www.newsobserver.com/business/story/1233050.html (WaMu failure)
CAN DEMS DO BETTER?
http://www.spectator.org/dsp_article.asp?art_id=13920 (Dems hiding)
http://www.acorn.org/index.php?id=12443 ( Acorn's website)
http://online.wsj.com/article/SB122178554189155003.html (Rush Limbaugh on Obama stoking racism)

The Financial Services Modernization Act is also called the Gramm-Leach-Bliley Act and was known in the 106th Congress as Bill Number S.900. On 12 November 1999 it became Public Law No: 106-102.

Posted by Lee Emmerich Jamison at September 30, 2008 11:28 PM
Comments
Comment #265323

Lee Emmerich Jamison

Thank you so much, an excellent post with references. You have systematically proven your point.

What can be done to correct the problem? I do not believe taxpayer money will solve this problem. We have spent about 300 billion on bailouts so far and another 700 will not make an end of the problem.

I posted a possible answer at http://www.daveramsey.com/, how do you feel about this?

Posted by: Oldguy at October 1, 2008 12:32 AM
Comment #265325

Lee said: “What of those who say the Gramm/Leach/Bliley Act really started the cascade of de-regulation that caused this mess? No one who was seriously involved with the passage of that act takes such claims seriously.”

The reason is that this is NOT the claim being made, Lee. You have created a Straw Man to discount its relevance. The claim, and fully justified, and which undermines a lot of your thesis, is that Gramm-Leach-Bliley opened the door to the growth of financial behemoths with combined lines of business so large, as to threaten the national economy if just one of them failed under the right circumstances, (Bear Stearns early this year).

Prior to the passage of this act fostered by John McCain’s current advisor, insurance companies could not be banks, investment banks could not be depository banks, etc. The Glass Steagal Act created those divisions and prevented financial entities from becoming threateningly large to the economy through mergers and acquisitions, and prevented incestuous breeding of financial instruments between lines of business that could unfairly disadvantage consumers.

Your entire article is invalidated by this oversight whether intentional or inadvertent. All the other conditions you raise in your article COULD NOT have threatened the entire financial structure of the United States and international banking systems IF it were not for the Gramm-Leach-Bliley Act.

Nice try. Sorry you went to so much work for so little. I appreciate very much however, your sources and links which are largely accurate or at least not glaringly wrong in their postulation. But, the G-L-B Act was pivotal to creating the threat that now faces our system.

Smaller banks and insurance and investment brokerages and commercial lending institutions each prohibited from engaging in the business of other financial lines of business, prevented the growth and mergers of gargantuan financial institutions we have witnessed since its passage.

Had it not passed, many banks could have failed in a relatively short period of time, but never posed this kind of threat to tax payers or the nation’s financial system. If you recognize this, then your oversight was obviously not intentional. If you argue against this rock solid logic and empirical history, then your straw man is exposed and your article invalidated as spin for the home partisan team.

Oh, and thank you for the laughter. When you said no one associated with the passage of the G-L-B Act takes such claims seriously, I just had to laugh. Its like saying no one who passed the slavery act in America takes claims of crimes against humanity seriously. Appreciate the levity so early in the morning. Al Capone denying any criminal acts came immediately to mind as well.

I would be curious what Bill Clinton would say about the G-L-B Act, since he was the president that signed it into law, now witnessing its threatening effect. He would probably say it was up to Congress to pass the necessary oversight and regulations to prevent such threat to our economy and tax payers. (See, his hands are clean too! NOT !!!)

Posted by: David R. Remer at October 1, 2008 1:15 AM
Comment #265326

Something doesn’t add up. The total value of the mortgage market is @ $7 trillion. About 2.7% of mortgages have been foreclosed, so that represents somewhere around $200 billion. Fannie and Freddie have already failed and been bailed out.

So why is Paulson asking for $700 billion? Why is there a crisis? Housing downturns have happened before without threatening all of us with economic catastrophe. So what changed? What is different? Why $700 billion, an amount far exceeding the bailouts of Fannie, Freddie, and foreclosed mortgages?

As you know, this is caused by the problem with the credit default swap market. That is the immediate crisis that threatens to swamp the system.

Posted by: phx8 at October 1, 2008 1:24 AM
Comment #265327

phx8, the other 500 billion is for the mortgages that are difficult to value based on their high loan to dropping property valuation rate today and in the near future. This makes it impossible for bank A to look at bank B’s balance sheet and determine whether making a loan to Bank B is a safe risk or not.

If the government buys these indeterminate assets (their values not being readily determinable at this point in time) these financial institutions clear their balance sheets of these huge Question Marks as to valuation, and can begin to safely and predictably transact credit with each other again; which in turn frees up money available for everything from college and car loans to new home buying by consumers.

Great question!

Posted by: David R. Remer at October 1, 2008 1:36 AM
Comment #265344

Long ago did not read such interesting article , thank you Author and in good luck of your work

Posted by: articles at October 1, 2008 5:25 AM
Comment #265345

Lee,
A good accounting of the events that nake up the opportunity for many Americans to own homes; however, I do believe that the so-called crisis can be solved as simple as it was created by over zealous Corporate Lawyers trying to protect the Owner and Stockholders from the over zealous Consumer. For why I couldn’t tell you how the lack of Equity in a Home effects Americas’ Credit. Knowing that it was shortly after President Bush split a piece of gold in half to pay for the Wae in Iraq and Kartina that Americas’ Financial System got hit. I do believe that the Government Regultors should be given the power to take any and all Poison Terms out of the Contracts that hurt the Lender and Lendee investment into the Nortgage Bundles.

Because if my mortgage is in the bundle and the whole bundle goes into defualt, doesn’t that mean that the Federal Reserve can order All Property Siezed. So why Congress must do something to balance the Market and establish confidence among the Investors. The cost of $700 Billion to settle a 1.5 Trillion Dollar Screw Up should make most Citizens happy that they do not see the Wealth of their Home drop by 50%.

Posted by: Henry Schlatman at October 1, 2008 5:26 AM
Comment #265354

The problem really began with Guttenberg and his damn printing press. Let’s dig him up and hang him.

Sorry Lee, good job for making connections to long ago and far away, it’s just a bit of a stretch.

Posted by: googlumpugus at October 1, 2008 7:47 AM
Comment #265355

Nice article.
But with so much worldwide money wanting to invest in mortgage backed securities - and wall street getting rich in the process - it was inevitable that institutions would find a way to escalate the available supply of new loans to make these bundles BECAUSE THERE WERE NO RULES!

Posted by: Schwamp at October 1, 2008 7:51 AM
Comment #265360

David,

First, your answer to phx8 is very close to what I would have said myself. The loans were made on housing the value of which was pure fantasy. One thing I noted in many of the charts I saw in the research was that, except for periods of boom and excessive liquidity on the one hand, and that period after the establishment of the Fed when monetary policy was perversely deflationary on the other, average house values remained within a fairly narrow range when adjusted for inflation.

There is a clear departure from this running average starting in 1997. What is telling about this period, and I may not have the charts on this posted, is that the median and average prices for homes begin to diverge, with average prices rising dramatically. This reflects a flood of capital founded in MBSs being used to finance luxury housing, the fabled McMansions. As I told a friend yesterday we were building the top of the mortgage market on feet of paper.

To your other point, though, Gramm/Leach/Bliley was simply a modernization of the Banking industry to keep up with the European market. In fact, the buyouts which have occurred in the last month, and which have substantially reduced the size of any necessary bailout, were illegal before the passage of this act. President Clinton, Robert Reich, and their entire team of financial advisers from the Clinton administration, still strongly support the act. Joe Biden enthusiastically voted for it.

Were there deregulations that should not have happened? Absolutely! Allowing poor families to place their homes at risk as collateral for consumer loans they could not have gotten without that collateral is, as far as I’m concerned, criminal. So, however, is establishing government guidelines encouraging ARM mortgages for 100% of property values with down payments of as little as ZERO and initial monthly payments in excess of half of a buyer’s gross income.

In the Howard Husock article the figures on delinquencies from 1999, some communities ran as high as 20%, along with default rates often topping 7%, were mind-boggling in a relatively booming market. This is such an issue because this paper was the foundation of the financing of the boom. When that foundation went bust, as it had to because it could never be anywhere close to the quality claimed for it regardless of the implicit treasury backing, there was no way to sustain a non-inflationary money supply sufficient to keep all the credit on which the bubble rested liquid.

The bad instruments and greed should have been controlled, to be sure, but the confabulation that made it possible for the market to imagine the valuations were real happened in government programs and GSEs.

Posted by: Lee Jamison at October 1, 2008 9:20 AM
Comment #265366

Schwamp,

I would answer that there were no rules precisely because those who stood to benefit the most were those using the GSEs for political purposes. In the youtube video showing hearings on Franklin Raines’s abuses of Fannie Mae’s books just listen specifically to what Maxine Waters has to say about what qualifies as success in her eyes. She is totally oblivious to any peril to the GSE, to the marketplace, to confidence in mortgage-Backed Securities, indeed, to any other measure of success than the loans going to put poor people in their own houses. There is no ethic but that. There is no morality but that. There is no marketplace but that.

To Maxine Waters and her fellow Democrats the evolutionary rationale of the marketplace is simply not a factor to be seriously considered.

That is the logic of a drug addict. The drug makes me feel good. It may kill me but it makes me feel good. I’m not dead yet and the drug still makes me feel good.

Get me that drug!

Posted by: Lee Jamison at October 1, 2008 9:45 AM
Comment #265371

Oldguy,

Could you re-post your link? It didn’t go to a specific post, probably because there was a comma in the link after the forward slash.

As to my take on solutions, I consider this an extention of the theme of “Trust Economy”. Two things have to happen. People we want to extend trust in the form of loans must be reasonably sure they will not lose their money, and will even profit. Secondly there must be a “this and no more” moment. Wise sellers only haggle till there is no money left on the table, then they sell. The credit markets will remain frozen as long as they think there is a better deal waiting out there to be had.

Do the deal and then be firm. Period.

Posted by: Lee Jamison at October 1, 2008 10:01 AM
Comment #265373

“There is a clear departure from this running average starting in 1997. What is telling about this period, and I may not have the charts on this posted, is that the median and average prices for homes begin to diverge, with average prices rising dramatically. This reflects a flood of capital founded in MBSs being used to finance luxury housing, the fabled McMansions. As I told a friend yesterday we were building the top of the mortgage market on feet of paper.”

Lee Were these mcmansions funded through FDIC banks and backed by freddie or fannie? I think they were by and large outside of the conforming loan limits of the time. Also many of these loans were through mortgage lenders who were not held to the requirements of the CRA which is what half the loan market or more? As you know the CRA was only required at banks that wanted to use the FDIC program to attract customers, which didnt include mortgage lenders and others who used these unregulated securties as cash cows.

Seems these banks determined the cost was worth the extra business brought in yet the righties seem hell bent to blame the poor amd minorties as well as government and regulations for the problem. I mean if wages had kept up with housing costs we wouldnt be in this mess would we? Whether you buy or rent, this run up on real estate caused both rent and mortgage payment to rise much faster than wages.

How do you explain the fact that only the large institutions that merged after Gramms deregulation and the European banks that they wanted to compete with are the very banks that are being nationalized in Europe and bailed out here yet Gramms deregulation isn’t to blame? Many smaller banks that didnt participate in this deregged frenzy are doing well tody and serving their communities. If we are to follow the Europeans why not nationalized banks and univeral health care if we really want to compete. This line of reasoning for the Gramm deregging is a very thin line or an excuse to deregulate.

I don’t know what I am missing Lee but when I add your version up it seems 1+1 =3. What am I missing, the kool aid? :)

Posted by: j2t2 at October 1, 2008 10:06 AM
Comment #265375

LJ

It seems like a never ending cry for more bailout money. When will it end?

http://www.daveramsey.com/etc/fed_bailout/3_steps_to_change_the_nations_future_10928.htmlc?ictid=sml

I find it interesting, the talking points of the Dems is now “let’s just pass this bailout, we can worry about who’s at fault later”.

Posted by: Oldguy at October 1, 2008 10:12 AM
Comment #265376

“I find it interesting, the talking points of the Dems is now “let’s just pass this bailout, we can worry about who’s at fault later”.”

Why Oldguy, after the house repubs publically whined so loud about Pelosi speech, would you find this “lets fix the problem not the blame” talking point of both parties so interesting? If you would bother to look at the repub leaders such as Mcconnel, McCain and so on this is exactly what they have said, why isnt that just as interesting?

Posted by: j2t2 at October 1, 2008 10:25 AM
Comment #265377

Nanci Pelosi needs to resign! She has broken laws, comitted felonies, failed to produce ANYTHING and now is a blatant partison aggitator who tries at every turn to disrupt the government if it can make the President look bad. She is un American in my book, and guilty of punishable offenses. Her little “gifts” to her husband for starters. She needs to go. Resignation for her and her little puppy Harry too! The country will be better off without those two worthless manipulators!

Posted by: Jeff at October 1, 2008 10:26 AM
Comment #265379

j2t2,

The specific loans of which you speak were not eligible for inclusion Fannie and Freddie programs. That’s not the point, though. Money, as any clever budget writer will tell you, is fungible. The Fannie and Freddie outlets opened up funds that would otherwise have tied up bank resources on their own books- limiting what they could then loan to what would appear to have been the most profitable customers.

In this New York Times chart, published before the crisis began, the Times makes no bones about identifying 1997 as the start of the housing bubble. It is clear that, at that point, there is a sharp break with the prevailing trend of the previous several years. That simply doesn’t fit with efforts to place the blame at the feet of a law passed in 1999.
It fits much more snugly with the announcement of the new securities based on GSE-backed instruments.

Posted by: Lee Jamison at October 1, 2008 10:44 AM
Comment #265382

Lee from your “market gauges” link “Notice that in the 25-year period from 1975 through 1999, real house prices stayed roughly within the range of $132,000 to $171,000. Only since the year 2000 have real house prices risen above the top of this range.”

While the boom may have started in ‘97 according to you , the fuel that fanned the speculative fires that got us where we are today was Gramms deregging frenzy of 2000. The CRA claim is not the root its just a branch. Unregulated securities and markets still appear to be the root.

Ask yourself this Lee, if Fannie and Freddie are getting 200$bil from a previous bailout and we still need $700bil to stabilize the big guys in order to avoid a depression era type collapse of world credit markets what if Gramm didn’t allow these banks to merge and get to big to allow to fail would we be bailing out the “fail out” today? Who was forced to buy these unregulated securities by the Fannie or Freddie? Was their a CRA requirement that forced speculators to buy this paper?

If the “big guys” that are failing today made billions in bonus money last year in unregulated securties and oil speculation why didnt the Feds see what was coming, was it do to lack of oversight or regulation or both? Gramm also deregged the commodities act, remember, which sent oil prices soaring for all of us much like Enron did for California.
Seems to me money is not the only thing that is fungible as blame and excuses seems to be fungible without regard for fact.

http://www.citizen.org/pressroom/release.cfm?ID=983

http://www.washingtonspectator.com/articles/20080415fyi.cfm

Posted by: j2t2 at October 1, 2008 11:30 AM
Comment #265393

>Nanci Pelosi needs to resign! She has broken laws, comitted felonies, failed to produce ANYTHING and now is a blatant partison aggitator who tries at every turn to disrupt the government…guilty of punishable offenses. Resignation for her and her little puppy Harry too! The country will be better off without those two worthless manipulators!
Posted by: Jeff at October 1, 2008 10:26 AM

Jeff,

If you did not call for the same thing from Cheney/Bush, you were just as derelict as you accuse Pelosi of being. Cheney/Bush has committed much worse crimes than she or her counterpart in the Senate.

Lee,

You went to a lot of trouble to research this all out, but perhaps your research began with a certain mindset? If you had started with the thought…perhaps these nice folks on the left are correct, would you have come to the same conclusions?

Posted by: Marysdude at October 1, 2008 1:01 PM
Comment #265397

A study indicates that banks that made CRA-type loans were not as likely to see foreclosure than those not covered by it.

Here’s the thing: According to this guy, fully 50% of the subprime mortgages were done by companies that weren’t regular banks, weren’t depository institutions, and therefore were not affected by CRA regulations. Another thirty percent were made by subsidiaries of CRA institutions that weren’t covered by the regulatiosn, but could count their mortgages towards the CRA numbers. In fact, the CRA actually increased responsible lending and extended the market for these loans in a sustainable way. Only after folks started loosening regulations, and moving the mortgage market to institutions that did not fall under the CRA, like investment banks, mortgage subsidiaries and non-bank Mortgage companies did things start to fly apart.

CRA is a Republican scapegoat, picked because it plays to all the right racist tropes about irresponsible minorities, and all the right conservative prejudices about government imposing itself on business.

The real cause should be obvious. It wasn’t the CRA, inapplicable in most cases, that made subprime mortgages a problem. It was greed. These people wrote more loans than they had money to back. They prevented investors from discovering this by selling the loans on a secondary securities market, and they further hedged by trading credit derivatives. Mainline CRA banks did not do all that, in no small part because banking regulations limit the amount of financial fancy-dancing that such banks are able to do.

This is a regulations problem, but not caused by their presence. Republicans have subscribed to a theory that profit motive intrinsically leads to healthy behavior. They tested this, whether they intended to or not, by deregulating all kinds of corporate behavior.

Result?

Whereever power deregulation has occurred, energy companies have engaged in inefficient rolling shutoffs of generators and such, to artificially raise prices. Enron’s behavior in California represents the worst incident, where actual power shut-offs were employed to put pressure on consumers.

Deregulation of banks, finance and accounting were almost promptly followed by huge scandals where companies were seen to engage in byzantine finance and accounting schemes. Further down the line, hedge funds, mutual funds, and other investments became unstable.

Deregulation of the energy market has lead to the most expensive energy prices of recent memory, with prices inflated by speculators who spike the price when Ahmedinejad sneezes.

A lax antitrust attitude in the oil industry has lead to the consolidation of the oil giants, which has lead to fewer refineries, and mysteriously enough higher prices (who would have thought removing competition would do that?)

Similar relaxations in the Telecom industries have lead to a flurry of consolidation, lowering the quality of program and the variety of voices. Additionally, such relaxed attitudes have let the telecoms basically drag their feet on the expansion of broadband, especially fiber-optic. In a discussion with a Hillary Clinton supporter who worked for the phone company, I was told that fiber optic installations and copper installations were essentially the same price.

A little pressure, and America could catch up to Europe and Japan.

Going easy on Business is not the same as making competing in the wider world easier. In many ways, our relaxed regulatory framework lets companies get soft, lose their focus on competing for the customer. Companies engaged in more an more behavior which essentially allows them to make profits they don’t truly earn. Long term, that reduces productivity.

The CRA made banks more productive. They weren’t called upon to make irresponsible loans, quite the opposite in fact. They ended racist, elitist practices which had banks excluding perfectly good neighborhoods from financing, with the result that the banks gained a new reliable source of revenue from responsible homeowners, and the neighborhoods experienced a rise in property values and investment.

The Republicans simply attack this because they assume, in rhetoric if not principle, that anything that sets out to level the playing field, especially in terms of race, is a distortion of the system. They are, however, mistaken on the facts.

Posted by: Stephen Daugherty at October 1, 2008 1:17 PM
Comment #265407

j2t2,

You wrote- “Ask yourself this Lee, if Fannie and Freddie are getting 200$bil from a previous bailout and we still need $700bil to stabilize the big guys in order to avoid a depression era type collapse of world credit markets what if Gramm didn’t allow these banks to merge and get to big to allow to fail would we be bailing out the “fail out” today?”

There is a really good discussion of one of the other issues by which this article could have threatened to become a book in the Wall Street Journal today. Holman Jenkins’ article is counterpointed by a second take on the same issue by Brian Wesbury. These two put together a very good discussion of the issue of Mark-to-Market accounting rules, which, interestingly enough, were imposed on business accountants after the Enron scandal.

Wesbury argues that carrying a stated present-day market value is killing banks that have positive cash flow. For example, Fannie and Freddie, while looking illiquid on the books, have not actually had any cash-flow problems. Mark-to-Market has depressed the apparent value of their portfolios, however, to the point their assets now appear to fail to meet capital requirements, though not a dime of their rescue packages has actually had to be spent. The same was true for all of the banks recently rescued or bought out.

My take on the issue is more like that of Jenkins, who believes MtM is simply an abstraction, a tool for visualizing that which is ultimately only conceptual. But it is also a REGULATION that has the unfortunate effect in a really very stiff regulation environment of turning the back side of a bubble into a procession of fire sales. The people who are left standing at the end of the process are going to make a killing because of this.

Go a little further into the Opinion pages at the WSJ today and you’ll find none other than Bill Clinton defending G/L/B. Clinton doesn’t back down when challenged on the issue, either.

Are there deregulational issues here? Yes. But the most tightly regulated parts of the financial markets have fared the worst in this crisis, hemmed in by regulations that broke them when they weren’t even broke, and the least regulated aspects were better able to survive the fall of asset valuations. From the article about Clinton above the editors note this-

“Meanwhile, commercial banks that had heavier capital requirements were struggling to compete with the Wall Street giants throughout the 1990s. Some of the deposit-taking banks that were allowed to diversify after 1999, such as J.P. Morgan and Bank of America, are now in a stronger position to withstand the current turmoil. They have been able to help stabilize the financial system through acquisitions of Bear Stearns, Washington Mutual, Merrill Lynch and Countrywide Financial.”

Regulation is certainly not innocent of all blame in this crisis, and it looks a lot like the root of the crisis to me. That is not just for the issue in this answer, but also for a whole murky swamp of answers that are slowly revealed as one delves into the articles being written as this situation developed.

The bubble is the most visible feature of the problem so on MtM I see the method as an amplifier, not a problem in and of itself, but it is just one of a maze of regulations that have made the business playing field a minefield full of unintended consequences.

Posted by: Lee Jamison at October 1, 2008 1:44 PM
Comment #265419

Stephen,
From a Catholic Blog I have this observation that seems germain-

Traiger and Hinckley LLP, by the way, has made a name for itself by its focus on CRA law and helping banks implement it. Their study is the most commonly referenced proof that the CRA has had nothing to do with the subprime mortgage crisis, but surely a stronger argument could be made based off of reports that did not originate from law firms making their money from the very legislation being studied.

Indeed, why should we consider a company whose business is making money from banks on CRA compliance law an “independent” observer when they curry favor with banks and regulators who deal with CRA compliance by saying good things about them?

Far more of my income, over the years, has come from Democrats. I at least speak my mind. Don’t I have a better claim to “independence”?

Posted by: Lee Jamison at October 1, 2008 2:14 PM
Comment #265420


“People who blame ‘capitalism’ for this are dead wrong.” I agree, blaiming capitalism for what has happened is the equivalent of blaming socialism for the collapse of the Soviet Union. People are to blame, always. Greed is a very powerful motivator. Another is good intentions which often go awry,especially if greed can get a foot in the door.

One factor that is seldom mentioned, IMO, because people don’t want to believe in the possibility, is the effect that advertising has on the human psyche.

Posted by: jlw at October 1, 2008 2:23 PM
Comment #265423

jlw,

No economic problem is ever a smooth, easily removable tumor, but this one would get very feathery at the edges if we started trying to assess the effect of every somewhat related human activity.

Posted by: lee Jamison at October 1, 2008 2:34 PM
Comment #265451

Lee Jamison-
The kind of mortgage lenders that fell under CRA’s authority were not lenders like CountryWide or Ameriquest, the kind whose failure began this mess. The regulations in CRA were concerned with depository banks, the kind we think of as actual banks.

The banks who are crashing and burning, and whose bad mortgages are freezing up the market were mainly outside of the CRA’s authority.

Additionally, those who know something about the origins of the crisis will tell you that it wasn’t the subprime loans that made things so bad, it was the securitization of it. Even Alan Greenspan was saying it was the mortgage securities that were the problem.

It’s the collapse of the financial derivatives market that’s making this so bad on the rest of the economy.

Banks that primarily depended on deposits, and who financed mortgages in-house, rather than through separate non-bank subsidiaries, have gotten through this relatively well, and those, by the way, are also the main banks that funded the CRA mortgages.

Or as one guy puts it:

Center for American Progress fellow Robert Gordon[21] noted that approximately half of the subprime loans were made by independent mortgage companies that were not regulated by the CRA. Twenty-five to thirty percent came from only partially CRA regulated bank subsidiaries and affiliates. He states that institutions fully regulated by CRA made “perhaps” one in four sub-prime loans. Finally he notes that independent mortgage companies made “high-priced loans” at more than twice the rate of the banks and thrifts. Gordon also makes the argument that the weakening of the CRA in 2004 was followed by intensified subprime lending.

So here are the numbers:

1)CRA functioned for three decades without causing any housing bubble. Most mortgages made turned out to be good investments.

2)Fully regulated banks under this law accounted for only a fifth or a quarter of the subprime loans

3)Half of the loans were made by institutions that CRA had no authority over, and these include the worst offenders in this crisis.

4)Another twenty-five to thirty percent were made by banks that were only weakly regulated by CRA

The argument that you employ, Lee, is an old one: that helping the poor and righting the wrongs of racism have upset the order of the heavens and our economic troubles can be blamed on the meddling Democrats who pushed them on Americans.

But the arguments, while compelling in form, are false in fact. There’s just not enough CRA involvement in the actual problem institutions for it to be to blame. CRA banks, as a matter of fact, tended to avoid that kind of lending, and practice more conservative standards.

Posted by: Stephen Daugherty at October 1, 2008 4:27 PM
Comment #265461

Lee J, “a perverse abuse of the home as a store of value for the family”, I hope you only mean people taking second mortgages on their property. There was a housing bubble, and it is bursting. I don’t understand why people on the right keep trying to blame this on low income people, or minorities. They must all live in very poor areas. In more prosperous areas, there has been just as much, or more speculation. I’m looking out the window at ten 6 and 7 story condominium buildings, 2 still under construction. The larger is supposed to contain 144 units on a property where 7 individual homes were formerly located. This is happening in every suburb in my area. The municipalities encourage it because they want to increase their tax base.

Before 2008,the largest bank failure in US history was the Continental Bank in Chicago. Here is some history and lessons on that:

http://www.erisk.com/Learning/CaseStudies/ContinentalIllinois.asp

A local bank here, in Elmhurst, is complaining that the media is making it sound like all banks are having problems, and it is adversely affecting business. Yesterday, I was trying to decide what to do with about my own bank accounts, even considering cashing out.

Posted by: ohrealy at October 1, 2008 4:49 PM
Comment #265463

Lee -

So who’s right? You? Or the attorneys general AND the banking superintendents of ALL FIFTY STATES? (that’s Dems AND Republicans, mind you!)

I’ll get to that - but first:

In your post, you did your best to lay the blame on the government and on individuals, and you appear to not understand the purpose for the prohibitions against ‘redlining’, which practice is strictly illegal. Before, it was next to impossible for those in the inner city to get mortgages…which meant that minorities had no way to take advantage of the advantages of home ownership.

Moreover, you imply that ‘when the market faltered, more homeowners were stuck’…but you do NOT acknowledge that it was the sub-prime and predatory practices (along with a little war in Iraq) that CAUSED the market to falter!

How do we know this? I’ll get to that. One more quote from you before I do:

“there has been a persistent myth that Republicans did nothing to raise warning flags or seek additional regulation. This has now been widely debunked.”

Yes…and NO. There WERE Republicans who JOINED with the Democrats in ‘raising the red flag’…but who was it that ignored their warning? BUSH - who as President PERSONALLY represents the Republican party.

If your view was accurate, that all that was needed was a ‘faltering market’ to ‘cause’ the meltdown of the mortgage and credit industries, then such would have happened after the double-whammy of the dot-com bust AND 9/11.

But it didn’t, did it? The market survived. There was certainly a bigger problem brewing, however, and the attorneys general and the banking superintendents of ALL FIFTY STATES saw it. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many sub-prime lenders that were engaged in predatory lending practices. Several state legislatures enacted laws aimed at curbing such practices.

In 2003, the attorneys general of ALL FIFTY STATES sent a letter to Bush warning him of the impending sub-prime mortgage crisis…and did Bush do something about it? He certainly DID! He not only ignored their warning, but enacted a Civil War-era law and issued formal opinions preempting all state predatory lending laws, thereby rendering them inoperative…[and] also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks.

The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

Read all about it here.

Lee, the proof is clear for those with courage enough to admit it - there was INSUFFICIENT regulation, a REFUSAL to enforce the federal regulations in place, and a NULLIFICATION of all existing state regulations.

If YOU are right…then the attorneys general and banking superintendents of ALL FIFTY STATES were wrong. Bear in mind that those attorneys general and banking superintendents were doing so during the time when the Republican party was the strongest it had ever been.

Yes, we CAN and DO lay the blame squarely on the Republican administration and the Republican maxim of deregulation for all and equality for none.

Posted by: Glenn Contrarian at October 1, 2008 4:56 PM
Comment #265469

Stephen,

I’m not blaming CRA for the credit crisis. I’m blaming 1. loans for consumer purposes collateralized with home equity, 2. a perverse regulatory environment of which CRA abuses are a component, 3., manipulation of the regulatory environment for political, not safety, purposes, 4. greed (enough to go all around), and 5. GSEs that chose to utilize mortgages of poor quality as components in Mortgage-Backed Securities, thus tainting an entire investment class which was being used by many brokers at many actual quality levels to liquidate mortgage inventory at all kinds of institutions- even those not able to access the GSEs.

That brings to mind something I didn’t address in the article, but was also a component of the failure- the investment grading structure. MBSs from Fannie and Freddie bore the AAA rating, BEST YOU CAN GET, so they said. Other classes of MBSs with much more secure foundations didn’t necessarily get this good rating though they may have deserved it more. When these ‘unassailable’ instruments faltered all MBSs suffered.
That, too, because the rating services fall under the ageis of the SEC, (as I recall) comes down to oversight either failing or functioning inappropriately.

All of these factors and several others worked together in a sort of ‘Danse Macabre’ to produce the failure. They were able to do it because people in high places took the mechanics of the economy for granted and attempted to socially engineer society to their liking.

Posted by: Lee Jamison at October 1, 2008 5:13 PM
Comment #265490

Glenn,

Your point about the role of the federal OCC in gutting a number of state predatory lending statutes and preventing the states from taking other regulatory actions is well taken. It is ironic that the party in power, which had for so long trumpeted state rights, used the power of the federal government to prevent states from protecting their citizens from abuses of the subprime lending industry.

Posted by: Rich at October 1, 2008 6:58 PM
Comment #265505

Lee Jamison-
You haven’t really proved that the CRA abuses are a substantial, much less a critical component of the mess.

As far as the Mortgage backed security goes, it wasn’t the GSE’s loans that started this off. It went from the Private Mortgage market’s dubious securities to the GSE’s separate market.

As for this charge of social engineering? I don’t want to hear it from the party of the culture war. I don’t want to hear it from the folks who have consistently worked to shape society to their ends, from infrastructure, to race, to economics. You guys have been competing for control, not fighting for liberation. Or maybe you don’t see it that way? But let’s be honest: we are competing for control.

The question is why. I remember Republicans who were far more responsible about the end to which they employed their power. Part of my expectations of a functional Bush Administration came from the previous Administrations I had lived through. I knew Republicans could run a government. I was shocked to see just how short Bush fell on the subject. And believe me, I remember how corrupt many of the old Democrats were, and when the Republicans came along and barely missed a beat, there was no love lost there. The Government Shutdown struck me particularly as irresponsible.

I have lived through the mistakes of deregulation, and the patterns seems to be the same pattern of boom, bubble, and bust. That’s why I take a very dim view of deregulation. I’ve seen the arc of this trajectory. While I understand the need to simplify and clarify the law, I’m also aware of the way some can exploit the letter of the law.

I think the worst thing about the way the Republicans have gone about dealing with regulation has been the way they’ve internalized the hatred of these rules. This disrespect is part of what inspires complication in return, as lawmakers try to plug up loopholes. You’ve helped enable a culture of quibblers and sneaks, of stonewalling and deception. That’s what’s corrupted the system.

Posted by: Stephen Daugherty at October 1, 2008 9:47 PM
Comment #265515

Stephen,
“But let’s be honest: we are competing for control.”

Yep. That’s honest. We are.
We both see things the other side wants to do that scare us to death. We both don’t see why the other side sees it that way.

The truth is the reasons lie in the assumptions not stated in these posts, stuff we can’t see in ourselves. For example, I have a reasonably good idea what my prejudices are. I try to state them for you when I write. My BIGOTRIES, whatever they may be, are invisible to me, though.

If you can teach me to see them you have done me a great service, though I know the process of seeing them would be deeply painful to me.

I don’t think you could do that unless you could make as painful a committment to see your own.

Unfortunately politics today, especially, thrives on bigotry. Not prejudice. Bigotry. If we as a people can’t find a way to break our leaders of casting some portion of the American people in monstrosity for the consumption of their constituencies we, ultimately, are doomed.

Glenn,

Good post. I wrote an answer for an hour and a half and lost it to the computer freezing up.

I’m about ready for Linux.

Posted by: Lee Jamison at October 1, 2008 10:52 PM
Comment #265518

Just a simple note to Democrats in general. Evolution (and yes, I, even as a Christian, believe in evolution) is a pure marketplace. Millions of extinctions prove it fails a lot. The brain with which you think proves it designs things no combination of brilliant people have ever approached, and when we begin to cast a glimmerof “intelligent design” its way the process we use is evolutionary.

Real, transparent, marketplaces are the playing fields of evolutionary forces that can use stupid people to design extraordinary things. (Remember, the decision makers in pure evolution are electrons. Even people are smarter than electrons.)

Stephen, I have lived through the depredations brought on by stupid people who thought they were smarter than God designing regulations. A passel of them worked for Jimmy Carter.

Posted by: Lee Jamison at October 1, 2008 11:08 PM
Comment #265536

Lee Jamison-
Evolution doesn’t work the way most people think it does. To cast society in its image is to forget the gifts that evolution itself gave us. There are selective forces in society that resemble evolution, but unlike evolution, cultures and societies are capable of processing information in more than just a deterministic plodding to a final outcome.

We have the capacity to learn without having to retake the lesson every time. Laws and regulations serve, in a way, a sort of memory function, allowing the preservation of wise prohibitions.

Every so often, folks have gotten greedy, and taken advantage of the weakness in our economic structure to make money at other’s expense. We used to have longstanding laws preventing many of these practices. Sometimes, it’s a good idea to leave the monster in the tomb, but Republicans have time and again made the assumption that prohibiting such practices interfere with the market in an unhealthy way.

We don’t have to run the same mazes in the same way, like some rats feel compelled to. If a problem comes along, we can, if necessary, skip to the part where we assume something’s a bad, pernicious idea and just not allow people to do it again. We don’t have to wait for the next great firestorm to overtake our cities, we can, individually and apart work for fire-codes that keep fires limited and contained.

I do a lot of research into the phenomena of complexity, and I think the mistake you make is not realizing that the political shift that has gone on in this country is part of the complex feedback of having let the market run amok. Societies will act to preserve their integrity, sooner or later, when confronted by such sustained disturbances and disruption as have been caused by the Bush administration and the Republican Congress. And, having asked for and having gotten the patience of the country for years to let deregulation and other such reforms work for the country, I would say you’ve burnt people out on the marvels of deregulation.

As far as intelligent design goes, I think people are simply too limited as creatures to truly work out and understand the nature of God’s design much less his intentions. It’s hubris to say that you can distinguish the designed from the the evolved, when you can’t understand God’s conception or approach to design itself.

Posted by: Stephen Daugherty at October 2, 2008 1:45 AM
Comment #265569

Stephen,
Having read what you just said a couple of times it seems appropiate to ask if you think I get my knowldge of the sciences from the backs of cereal boxes.

The feedback loops of which you speak, when operative in something like fractal mathematics, produce remarkably orderly patterns. In the case of such patterns what rules the system, and allows the patterns to develop and reinforce themselves, is the consistency of the range of variation from one input/feedback to the next. Randomness is what the system looks like on very narrow close examination but, because the randomness acts within a consistent range (there are rules applied the same way all the time) a pattern develops.

If you want to muddle such a fractal system one of the best ways to do it is to try to manage the pattern in advance by mucking about with the rules. Unintended patterns will always be the result of such ‘hubris’.

The intellectual problem I have with Democrats is that they want to manage the patterns growing out of the complexity of the economic system in advance. The inevitable result of that micromanagement of the system is that tremendous volumes of human effort are squandered just to administer and comply with rules. Additionally, the rules themselves are often, like the Mark-to-Market accounting rules, the inadvertent precipitators of doom to important parts of the economy.

In this article I have, to the deaf ears of liberal commentors, several times noted how loathesome certain loan instruments are. My answer to these evil devices? OUTLAW the damn things with a real, honest-to-God law. No one year ARMS. No ARMs of any kind without caps. No consumer loans or lines of credit to families in the lower two quintiles default on which could cause them to lose their primary residence.

I am not against rules. I am against muddle, inconsistency, and the kind of ‘intelligent’ nincompoops who try to prove they can micromanage a system in which Democrat constituencies can be made happy and Republican constituencies can be forced to feel their pain.

Liberals in these comments act as though the American economy was some kind of free-for-all. Ask former U.S. senator George Mitchell about how deregulated we are. He tried to run a bed and breakfast after retiring from the Senate and failed, much to his surprise, because of the difficulty of dealing with the burden of government.

Let there be rules, but let them be simple, clear, and as easy as possible to follow. Do not use the rules to create bogus industries. The vast majority of the accounting industry in America is totally unnecessary- made imperative only out of fear of government. The same is true of most of the legal industry in the country. The people who perform these defensive functions do not add to the productivity of the economy. That makes them, and the people from whom they defend us, superfluous to those functions of the economy that put food on the tables of the poor and roofs over their heads.

Why, Stephen, Glenn, j2t2, and others, do you not see this as a problem? Complexity is a duly facinating subject. That is no excuse for seeming to make it our goal in life.

Want a better kind of complexity? Let us work together to devise an economy that depends less on huge, impersonal, unresponsive organizations. Bias the economy toward small business. Make a country in which there are no organizations we can’t afford to allow to fail. Doing so really distributes both economic and political power to a wider spectrum of people.

However, (Ok, here’s another admission of my bias…) I don’t think Democrats can really stomach such a solution to unfairness and corruption. A loss of the inherent concentration of power in huge governments and corporations means the elitists (and this really applies to both Democrats and Bush/Nixon Republicans) lose control of the course of society. Their ivy-draped elites at the head of government can no longer kibbutz with the ivy-draped elites at the top of industry to turn the rudder on the ship of society.

These days it seems the purpose of the whole ship is to honor the rudder.

Posted by: Lee Jamison at October 2, 2008 10:18 AM
Comment #265596

Lee Jamison-
It’s one thing to say that something seems fractal in structure, it’s quite another thing to make predictions about what that entails.

I’m quite familiar with fractals. They are one part of complexity theory, and not the only part. I have long advocated, if you go back through my archives on this site, an approach to regulation and governance that allows for the consequences of complexity, while working towards the needs of the American people.

I was also arguing, long before the 2006 election vindicated me, that there was a critical phase change on the way in politics.

Complexity, as its expressed in politics, has long interested me, but I’ve always been careful about how I apply it.

In my view, there’s a difference between being able to describe something, and being able to predict something. Having castigated me over hubris, you then proceed to demonstrate some of your own.

Shutting down mark to market might ease some financial woes, but there’s an argument as to whether such an approach just pushes economic problems until later, allowing companies to blithely forget to estimate losses now, only to have them realized later.

Similarly, you fail to consider what denying lines of credit or consumer loans to the lower quintiles unilaterally would do to both their ability to buy houses and their ability to live in a system where business has systematically pushed the average American into reliance on credit, in lieu of savings and higher wages.

You can trash-talk Democrats as power-hungry villains, but it doesn’t change the fact that the Republican practices of ensuring the greater prosperity of the economy by denying more and more to the average American has backfired, and created a system where people literally don’t have the money to support the consumer markets our economic strength is based on.

In my opinion, the way you deal with complexity, the only way you really can, is to educate yourself conscientiously about the way things work in the real world, and when you act, keep an eye on how things turn out and do your best to adjust. The world’s too complex to reduce to one set of principles, but that doesn’t mean we can’t make an effort to better understand the way the world tends to work, and act accordingly.

Posted by: Stephen Daugherty at October 2, 2008 2:24 PM
Comment #265604

marysdude

“If you did not call for the same thing from Cheney/Bush, you were just as derelict as you accuse Pelosi of being. Cheney/Bush has committed much worse crimes than she or her counterpart in the Senate.”

so does that mean you agree, and pelosi, and reid should also resign ?

Posted by: dbs at October 2, 2008 3:10 PM
Comment #265608


Congress ..What Were You Thinking?


You destroyed our country. You cannot repair the damage now! It is Too, Too, Too late.

If you gave the people on wall street, who are licking their lips on the anticipation of filling their pockets, 50 trillion dollars, it won’t help. I personally hope none of you can sleep at night, knowing what you have done. Especially all the old-old-old ones that have been they’re over 20 years.

DEREGULATION - DEREGULATION – DEREGULATION

When you deregulated Mergers – You told the lobbyist and American business community, move overseas, move your tax base there, keep the foreign cheap labor, Get rid of your American labor and break the unions. You should also merge enough so you are too big to fail. That way you can always count on a government bail out as a last resort. Your plan worked perfectly. We hope you are proud!

We lost
Our good paying jobs.
Our pensions.
Our 401 contributions.
Our middle class.
Our Insurance.
Our homes.
Our freedom and security
Our hope.
Our tax base – except government and wall street workers. They still make good money.

We just can’t find the words to tell you how grateful we are.

CONGRESS, we will touch bases with you again in about 6 months, as soon as the bail out money is gone.

We are GOING DOWN no matter you do.

Welcome to the Americans people world. Now you can suffer with us!

THANK YOU CONGRESS!!!!!!!!!!!

PS. After you all vote on the Bail Out, could you please post on the web, how each one of you voted This way we can see who we need to give an attitude adjustment in the coming ELECTION


Posted by: Joe Bill Jones at October 2, 2008 3:38 PM
Comment #265614

Well, Stephen, I hate getting correctly called on the incorrect use of terminology, as you did on fractals. I have read papers on Chaos theory which addressed chaotic systems which, in their development, RESEMBLE fractal systems. That, of course, is what I described. One of those papers, by the way, was on phenomena like the daily functioning of the stock market. The cover of the Scientific American magazine it was in described this as a fractal phenomenon, and my visual memory latched on to that.

While you’re being facinated by complexity in politics, though, don’t be lulled into thinking it is not a burden on productive effort. The only place, for example, where I will do any work requiring government grants is my hometown of Huntsville, Texas. They are simply too burdened with compliance issues.

It is not reasonable to assume government will stop growing, but it is also not unreasonable to believe government, as a percentage of the sum of a society’s human effort, could become a smaller burden on the productive parts of the society. We could also ask as much of the financial industry and the insurance industry. Modernizing a society need not burden it with more people who don’t really accomplish anything.

My call against home equity loans was not a prohibition of either consumer loans or mortgages. People should not be forced by the lending industry into emperiling their homes for the credit you describe. Besides, why, to extend the logic of your complaint, should renters not get credit?

Posted by: Lee Jamison at October 2, 2008 4:16 PM
Comment #265616

“These days it seems the purpose of the whole ship is to honor the rudder.” Posted by: Lee Jamison at October 2, 2008 10:18 AM

Lee, that was profound and I thank you for such simple elegance. Only one other time have I considered a simple statement as profound. “Happiness is an inside job”.

Posted by: Jim M at October 2, 2008 4:42 PM
Comment #265618

Stephen,
I also wanted to touch on your comments on Mark-to-Market. The problem within the industry is with valuations being too responsive to the daily fluctuations of the marketplace rather than to the weekly or monthly trends. If there is an unwarranted panic in a particular area (and, to be frank, since Fannie and Freddie are still solvent one could argue that even the MBSs have been too much maligned in the current crisis) this hypersensitivity places the solvency of banks or other financials in peril in a way that works against the overall reliabilty of the system.

That kind of reactionary accounting creates too many opportunities for the super-rich to just hang around waiting for some otherwise solvent bank like Wachovia to run afoul of an unfavorable market turning into a panic. Then the rich guy can snap up assets he knows will continue to perform relatively well for their class, but spectacularly for the fire-sale price he paid.

Lo and behold! The rich get richer!

Get an accounting system that follows the thirty or sixty-day running average and reports the trend for the week, or something like that.

Posted by: Lee Jamison at October 2, 2008 4:53 PM
Comment #265627

I have been trying to email my senators and congressman and the servers are showing they are shut down. Has anyone else had this problem. They must be getting a lot of email.

It’s a shame the american people haven’t this much interest over the past 20 years. I hope this is a turning point and people begin to take more interest in their representatives and how they vote.

Posted by: Oldguy at October 2, 2008 5:35 PM
Comment #265631

It’s embarrassing to have even the Brits laughing at our pork-minded legislators. PORK IS KING…TO HELL WITH THE TAXPAYERS.

Crisis…what crisis? Obviously there is none if our “honorable” legislators hold our nation hostage for just a little more oinkage.

For the full story; http://www.timesonline.co.uk/tol/news/world/us_and_americas/article4870770.ece?Submitted=true

Posted by: Jim M at October 2, 2008 6:36 PM
Comment #265636

NEWT GINGRICH CALLS PRESIDENT BUSH’S HANDLING OF THE FINANCIAL CRISIS IRRESPONSIBLE. That headline should please every liberal and some others on this site. And, as a conservative like Newt…I agree. Strangely enough, we have liberals on this site agreeing with the administrations plan…revised by the senate now to include $150B in pork. I don’t know how much is left for ACORN, but they need not worry, an Obama presidency will send more billions of taxpayer dollars down that rathole to ensure loyalty at the voting booth. Gee, just when I though it couldn’t get any better along came the porkers and proved me wrong.

Slop a few more pigs and our crisis is solved.

http://newt.org/tabid/102/articleType/ArticleView/articleId/3768/Default.aspx

Posted by: Jim M at October 2, 2008 7:00 PM
Comment #265645

“Bias the economy toward small business. Make a country in which there are no organizations we can’t afford to allow to fail. Doing so really distributes both economic and political power to a wider spectrum of people.”

Lee I am impressed that a conservative republican would dare to say such a thing. In fact I believe you have finally came upon the root cause of the credit crisis and many other problems facing this country. Yes a free enterprise system favoring small business is exactly what we need. This is exactly what is needed after the last quarter century of conservative big corporation republican rule in this country.

Your timing is remarkable as we seem to have started drifting from a consumer based economy to a global exporting economy.

Posted by: j2t2 at October 2, 2008 8:43 PM
Comment #265685

One thing I have yet to see mentioned in this thread (or at least if it’s there, I missed it) is whether or not the Bush administration’s choice of using the housing bubble to prop up the economy in the wake of 9/11 partially created the mess we are now in. I personally think it did, but I hate that little monkey sitting in the Oval Office, so I am deeply biased :-). Seems to me that propping anything against a bubble is never a good idea.

Lee,

While your initial post is reasoned and extensively bookmarked, it suffers from one fatal flaw. The underlying theme is blame blame blame blame blame. Pare away all the hyperlinks and your entire article comes down to “it’s not the Republican’s fault. It’s the Democrat’s fault”. The problem is that fault is completely irrelevant right now. What matters is doing the right thing to lessen it. In that your article falls short.

L

Posted by: leatherankh at October 3, 2008 9:12 AM
Comment #265688

Oldguy,

I heard a report on the radio on Tuesday stating that the office which administers the e-mail system on Capitol Hill is limiting e-mail traffic at peak hours (whatever that is) to allow communications among the offices. Your assessment is correct.

j2t2,
Don’t be surprised that a conservative would think such things. What conservatives really despise, when one cuts through all the misconceptions and prejudices, is such concentrations of power that the few leaders at the top of dominant large organizations can dictate to, and control the lives of, the many. It makes no difference whether the dominant organization is a for-profit corporation or a non-profit or a government. The danger lies in too few people having too much power.

Republicans too often err in thinking their enemy is government while Democrats err thinking theirs is corporations. Both sorts of entity, regardless of how they spin the labelling of their acquisition of resources, are really the same thing. They are both forms of corporation. Their various political maneuverings are just obfuscations devised to divide and conquer us for their purposes.

Small companies innovate more, grow more, hire more, inspire more change, and are more responsive to the needs of their customers than large corporations. They are also less likely to be successful at rigging the system by being able to climb into bed with politicians from both parties.

Real liberals and real conservatives share far more values than it is convenient to the political class to permit us to believe.

Posted by: Lee Jamison at October 3, 2008 9:15 AM
Comment #265691

In an e-mail from one of my friends far to the right of me I received a link for an article about economist Anna Swartz, who shared a Nobel Prize with Milton Friedman. She blames the FED for the crisis. Having read the article and comparing its conclusions to the chart I noted above in my notes on the FED I can see a point at work there, but the housing bubble preexisted Greenspan’s errors on interest rates in the midst of the scare after 9/11. Monetary policy alone is not to blame for the situation today.

Posted by: Lee Jamison at October 3, 2008 9:33 AM
Comment #265699

leatherankh,
Given that, as early as 2000, there were murmurings of a housing bubble, added to such articles as the one noted in my post just above, we would have to agree that you have a good point. Let me say that in a piece such as this one one point is to have a cause for discussion. I want people to call me on a point they find wrong.

Glenn Contrarian, for instance, had a good point on regulation and how Bush stood in the way of state regulation of credit instruments I frankly find immoral.

As to blame-blame, though, politicians are going to cloud this issue all they can, and the now badly polarized American media will not clear things up. I told you up front I was biased so you could factor that into your assessment of my article and the following discussion. If, from that point I have been shrill or unreasonable in taking up the issues raised by others with a different point of view feel free to call me on it. The idea is to educate, not indoctrinate.

Read through this string and you get a surprisingly well considered discussion of the crisis from well-meaning people on both sides of the issue.

A Summary So Far

I could have been clearer about this, but I would summarize the article by saying the crisis was precipitated out of a longstanding preexisting trend for people at greater and greater risk to use homes as collateral for common consumer lending. That was combined with a bipartizan political push to put more and more people in their own homes that precipitated, in commercial markets, a spate of dubious mortgage instruments and, in GSEs and government regulation, policies placing many people in homes they could ill afford. Combine these trends with ‘innovations’ in securities making these questionable loans virtually the foundation of a rush of liquidity in housing markets and we were given a housing (and equity lending) bubble.

There were demands by the political parties each to regulate the financial constituencies of the other. Each blocked the other’s initiatives. When the markets began to falter the inherent weakness in the securities founded in the suspect morgages caused those securities to fall in value creating capital crises in lending institutions, starting with mortgage specialty houses, then spreading to the regular banking industry, in 1997. Numerous ancillary actions have amplified the crisis, including, but not limited to, FED actions in 1992 to loosen credit and changes in accounting regulations in the wake of the Enron scandal.

Posted by: Lee Jamison at October 3, 2008 10:16 AM
Comment #265717


It appears to me that what we are really doing is providing banks with the resources to buy other banks and consolidate the industry even. Banking is the most profitable industry and these megga banks are useing us to put as much of that profit in their coffers as they can. Consolidation will lead to less and less competition.

We would be far better off if we did away with the Fed and reestablished the national bank with a branch in every city, town and village in America.

Posted by: jlw at October 3, 2008 12:38 PM
Comment #265767

I’m tired of the bickering and stalemating government. If you’re an encumbent (rep, dem, or something else) you’ve lost my vote. At this point, a complete and frequent change-out of the government elite is the only option.

Posted by: troy at October 3, 2008 8:15 PM
Comment #265770

Well Lee we can beat around the tree so to speak but the root cause of this crisis is the almost complete corporate control of our government. The overwhelming interaction of corporate controlled lobbyist with our representatives and senators keeps our representative democracy from working correctly. All other things mentioned previously in this thread are just branches on the tree of a corporate controlled government.

We can go on about fixing blame but until we establish the root cause of the problem applying blame only serves to keep the root cause hidden. Fixing the branch is nothing more than a band-aid on a severed carotid artery.

Of course I don’t talk for liberals other than myself but IMHO as long as corporations continue to grow in this country me must have a large and growing government to at least allow us to feel their is a chance to contain the corporations. The idea that corporations are entitled to human rights is wrong and has caused more damage to this country than all outside sources combined.

Posted by: j2t2 at October 3, 2008 8:48 PM
Comment #265771

troy,

There a lot of people who will agree with you. At present the call volume in two Texan’s congressional offices (Culbertson and McCaul) has been 100/1 against the bill passed today. McCaul joked today that the one was a bank lobbyist. I think my congressman, Kevin Brady, voted for it. That may finish him.

The House of Representatives was never meant to be a lifelong career anyway.

Posted by: Lee Jamison at October 3, 2008 8:51 PM
Comment #265773

j2t2,
Of course I don’t talk for liberals other than myself but IMHO as long as corporations continue to grow in this country me must have a large and growing government to at least allow us to feel their is a chance to contain the corporations.

What you’ve just described is a rewriting of the plot for “Star Trek: The Undiscovered Country”, where the generals on both sides ally with each other to continue the war that gives them both meaning.

The Enterprise is not going to come down from the sky to save us, j2t2, if we continue a suicide pact where the meaning of two sides you’ve just admitted are in bed with each other is defined by their capacity to remain in conflict. At some point it is a good idea to suspend the suspension of disbelief in this theater of the absurd.

They grow because we let them play each other against US. We don’t need the garganuans on either side. They are just substitutes for superheroes for adults still psychologically dependent on superheroes.

Posted by: Lee Jamison at October 3, 2008 9:06 PM
Comment #265792

Lee, as a father I have had to make decisions on my daughter’s and her friend’s behalf which didn’t make me very popular for awhile. But, they are all alive and safe and growing into fine adults. Sometimes leadership requires doing the unpopular and the patience for those opposed to come around and see the wisdom of it later.

That is why our founders created a Republic instead of a direct democracy after all. They understood this about leadership and the citizenry who simply don’t have all the relevant education, experience, and data to understand leadership’s decision right away.

In coming months the public will realize how very dire our circumstances are. And they will look back and recognize how much worse it could have been had Congress and the White House not acted with dispatch.

September’s unemployment rise was a real shock to Wall Street today. There are more such shocks coming. But, illiquidity of the credit markets will not be the major contributor to our ills it would have been, had this Stabilization effort not passed.

Posted by: David R. Remer at October 3, 2008 11:36 PM
Comment #265802

Sad but not very surprising that once again blame is being directed once again at “darkies and librals” from the red side.
The real causes is more directly related to the absurd run up in houseing cost. It became the national pyrimid scheme. The sub-prime market colaspe was the fuse, not the bomb. People are and will continue to walk away from homes that are worth less now then when they bought them.
The houseing market was distorted by the huge infusion of capital fleeing the dotcom bubble bursting. Real estate was the only place available that was making money. Had we had wise leadership and the government moved foward to encourage investment in alternate fuel developement we not only would not be in this mess but would be a lot farthur on the way to oil independace. Instead we got token speeches and little action on this potential and needed investment arena from an administration part and parcel of the oil oligarchy. One more shame to add to the long list of Bush failures.

Posted by: bills at October 4, 2008 7:28 AM
Comment #265804

Roots of the problem: nation-wide fiscal and moral bankruptcy, and decades of abuses, which most voters not only tolerate, but repeatedly reward a plutocratic, kleptocratic Congress, in-league with greedy banks and corporations who led the way, with perpetual re-election. Voters not only blindly followed, but invited THEIR politicians to crap on the voters, repeatedly rewarding THEIR incumbent politicians with 85%-to-90% re-eleciton rates. Cha Ching!

At any rate, the voters have the government that they elect, and re-elect, and re-elect, and re-elect, until that finally becomes too painful.

Posted by: d.a.n at October 4, 2008 9:40 AM
Comment #265806

The Root of the Problem - The Subprime Primer:
(01.01) Mr. Jack wants a loan and he goes to see a mortgage broker. Mr. Jack says, I have no money for a down payment and I can’t afford the monthly payment if the interest rate goes up. Can you help me?
(01.02) Mortgage Broker: Sure. Since the value of your house will always go up, we don’t need a down payment anymore.
(02.01) Mortgage Broker: Can we give you a low interest rate for a few years? Later, we will raise it.
(02.02) Mr. Jack: Sure, no problem. One problem though. My employer is a jerk and he may not verify my employment. Is that a problem?
(02.03) Mortgage Broker: Nope. We can get a “Liar’s Loan” and you can verify your own income and employment.
(03.01) Mr. Jack: You guys are awesome.
(03.02) Mortgage Broker: Well, we don’t actually lend you money. A bank will do that, so we don’t care if you repay the loan. We still get our commission.
(03.03) Mr. Jack: Cool !
(04.01) Mr. Banker: Wow, what a bunch of crappy loans. I’d better get rid of these. The really smart guys on Wall Street will buy them and do their magic.
(04.02) Mr. Wall Street Investment Banker: Phew! What a bunch of crappy loans. We’d better get rid of these. We will create a new security called a CDO (or CMO), sell it to investors. We will pool the crappy loans with some good loans with good ratings, and sell them all over the world. And since home prices always go up, we’ll be fine. The SEC won’t let us sell this crap to widows and orphans, so we will sell it to insurance companies like AIG, banks, small towns in Norway, school boards in Kansas, and anyone looking for an investment. Then we will set up a shell company in the Cayman Islands to take ownership of some of the crappiest loans via a “Specail Purpose Vehicle”, and put the crap on their balance sheet instead of ours. Then we will get Congress to go along by telling them that it is vitally important to the health of the U.S. financial systems that investors not have the transparancey to know about these complex transactions.
(05.01) Mr. John Q. Public: Mr. Congressman, as a concerned citizen and investor, I demand our financial institutions show greater transparency.
(05.02) Mr. Congressman: No. Get lost. How dare you or any voter demand transparency and accountability! ? !
(06.01) Mr. Norweigan Town Pension Fund Administrator: Hey, Mr. Banker, what’s up? We’re not receiving our payments?
(06.02) Mr. Wall Street Investment Banker: Yeah, I meant to call you about that. The people who took out the mortgages can’t pay their mortgages.
(06.03) Mr. Norweigan Town Pension Fund Administrator: Wait a minute, I thought we bought AAA CDO’s. You know - safe investments.
(06.04) Mr. Wall Street Investment Banker: Well, unfortunately, the loans are crappier than we originally thought. We are as unhappy as you about it, Mr. Norweigan Town Pension Fund Administrator.
(06.05) Mr. Norweigan Town Pension Fund Administrator: But you told me home prices always go up, and borrowers can always refinance.
(06.06) Mr. Wall Street Investment Banker: Yeah, that was a bad assumption. We screwed up. Sorry, Mr. Norweigan Town Pension Fund Administrator.
(06.07) Mr. Norweigan Town Pension Fund Administrator: Bad assumption my frigid Norweigan ass! What about the AAA rating?
(06.08) Mr. Wall Street Investment Banker: They screwed up too, Mr. Norweigan Town Pension Fund Administrator.
(06.09) Mr. Norweigan Town Pension Fund Administrator: But these securities were insured. What about the insurers?
(06.10) Mr. Wall Street Investment Banker: They’re broke. They screwed up too, Mr. Norweigan Town Pension Fund Administrator.
(06.11) Mr. Norweigan Town Pension Fund Administrator: Well, that’s just great. What am I supposed to tell my village pensioners?
(06.12) Mr. Wall Street Investment Banker: Tell them you screwed up, Mr. Norweigan Town Pension Fund Administrator.
(06.13) Mr. Norweigan Town Pension Fund Administrator: Screw you.
(06.14) Mr. Wall Street Investment Banker: Screw you Mr. Norweigan Town Pension Fund Administrator
(07.01) Mr. Wall Street Investment Banker: Mr. Congressman, We need a bail-out.
(07.02) Mr. Congressman: Sure, no problem. We’ll dump it on the tax payers and tell the voters that they will make a profit from all of that toxic debt. The voters are like Mikey (ya know, on the Life cereal commercial). The voters will eat anything. Even a crap sandwich. Besides, we’ve already been doing it for decades, and the voters continue to re-elect incumbent politicians, despite 9% approval ratings. The voters’ whiny rhetoric doesn’t match their voting habits. Most voters care more about THEIR party than their country. And as an incumbent politician, we are experts at tricking voters into pulling the party-lever and wallowing in the distracting, divisive partisan-warfare.
(07.03) Mr. Wall Street Investment Banker: Great. I knew you would come through Mr. Congressman. After all, we keep your campaign war chest full, so that you can enjoy perpetual re-election, since voters elect the candidate that spends the most money 90% of the time. Cha Ching!
(08.01) Mr. Voter: What the hell happened? I don’t get it. I keep pulling the party-lever, and continue to reward MY incumbent politicians with perpetual re-elecion rates of 85%-to-90%, but nothing ever changes. What am I doing wrong?
(09.01) The END. : (

Posted by: d.a.n at October 4, 2008 10:37 AM
Comment #265807

Looking Over here and I missed Someone :)My Regards to A Titan on Watchblog Jack, among Watchblog David ,Jack, and Stephen,are Titans and i Respect all of the writers.Though Jack and I was in disagreement often I respected his Opinion and Honesty and Buckley type of wisdom and knowledge, he did his Homework and was a nice person good Luck Jack.

Posted by: Rodney Brown at October 4, 2008 10:53 AM
Comment #265809


Don’t worry investors, it shouldn’t take but two or three more stabalization acts to get those profits flowing again.

Don’t worry taxpayers, we don’t think it will cost you more than another two or three more trillions to satisfy investors.

Posted by: jlw at October 4, 2008 11:34 AM
Comment #265812

d.a.n excellent primer on the sub prime mortgage issue. Here is what I question.

1. Did Mr. Jack knowingly take out a loan that he knew he couldn’t pay back? Or did stagnant wages/inability to move up the job chain, job loss, medical problems and/or family problems contribute to the inability to pay the loans back. Ingrained into the American people is an optimism that they will grow and do better.For many people the ability to exercise this optimism is facing severe challenges today.
2. Did the fact that housing costs rising in value at a much faster rate than income play a significant role in the mortgage default problem?
3. The mortgage broker did his job. Every other entity at any step on the way could have performed due diligence and opted out. In fact mortgage broker is just another name for mortgage salesperson. Their job is to sell mortgages, their company has no legal obligation to tell the truth in advertising their product and usually don’t.
4. The government of this country is disabled not broken. The system as designed works fine. The system as it is now is in need of repair. We can blame the individual congressperson but when the system as a whole is geared to bribery and corruption its time to overhaul the system. Lets face it to be in DC as an elected representative of the people costs a lot of money and the money by and large comes from corporations. If you are there you are paid for by others, that is the system yet we blame the individual.

I would say nationwide fiscal and moral bankruptcy is either the cause of the corporate capitalism control of our democracy or a result of the corporate capitalism control of our republic. Different sides of the same coin. We need capitalism and we need democracy. We need them to be in much more of a balance than they are now. When you think about it are you addressed as a consumer or a citizen more often?

I am not proposing capitalism is all bad and should be abandoned, I am saying to much capitalism interferes with other aspects of our lives. The root cause of the problem is the control of the government by the corporation. The answer is the control of the corporation by the government.

Posted by: j2t2 at October 4, 2008 11:58 AM
Comment #265817

j2t2 Said,”“We need capitalism and we need democracy. We need them to be in much more of a balance than they are now. When you think about it are you addressed as a consumer or a citizen more often?”” Thanks.

Posted by: Rodney Brown at October 4, 2008 12:45 PM
Comment #265828

“Thanks.”

Thanks for…

Posted by: j2t2 at October 4, 2008 2:22 PM
Comment #265831
j2t2 wrote: d.a.n excellent primer on the sub prime mortgage issue.
Thanks!
j2t2 wrote: Here is what I question. 1. Did Mr. Jack knowingly take out a loan that he knew he couldn’t pay back? Or did stagnant wages/inability to move up the job chain, job loss, medical problems and/or family problems contribute to the inability to pay the loans back. Ingrained into the American people is an optimism that they will grow and do better.For many people the ability to exercise this optimism is facing severe challenges today.
Probably. Even if they didn’t, the mortgage broker should have. And if the mortgage broker didn’t, the bank and mortgage insurance companies should have suspected something by year 2005 when there were 846,000 foreclosures per year, which grew to 1.0 million by 2006, then 2.0 million by 2007, and now 2.0 million in the first 8 months of year 2008 (over 10,000 foreclosures per month!). People should have known that Adjustable Rate Mortgages (ARM) are risky. I made sure my son (who bought a house a few years ago) didn’t fall for that ARM nonsense.

Unemployment didn’t get bad until year 2008, which is now 6.1%. So, it can’t all be blamed on unemployment.
Yes, median household incomes have stagnated at the very least, and most likely declined in the past several decades, due these 10 abuses (e.g. regressive taxation, rampant illegal immigration, more workers per household, etc.).

j2t2 wrote: 2. Did the fact that housing costs rising in value at a much faster rate than income play a significant role in the mortgage default problem?
It was a factor, along with greed. People thought the bubble would keep growing. But it popped just like the 1998/1999 stock-market bubble popped.

Greed always clouds good judgement.

j2t2 wrote: 3. The mortgage broker did his job. Every other entity at any step on the way could have performed due diligence and opted out.
Many of the mortgage brokers are guilty of nothing less than fraud. They knew many of these borrowers were way in over their head, and would be in big trouble when the greedy bank jacked up the ARM interest rate, which in many cases, more than doubled the monthly mortgage payment.
j2t2 wrote: In fact mortgage broker is just another name for mortgage salesperson. Their job is to sell mortgages, their company has no legal obligation to tell the truth in advertising their product and usually don’t.
Right. That’s an obvious problem. They only care about getting a commission, whether the borrower is able to repay the loan or not.

There was some blatant fraud.
There was some innocent and/or negligent mistakes.
But mostly, there was rampant greed, and we are now seeing the many manifestations of that unchecked greed.

j2t2 wrote: 4. The government of this country is disabled not broken.
HMMMmmmm … I’m not too sure about that.

I think a lot of things in this country are broken.
We have a broken, dishonest, usurious, pyramid-scheme monetary system.
We have a corrupt, FOR-SALE, dysfunctional, incompetent, irresponsible Congress.
We have a plutocratic, kleptocratic federal government.
We have a massive debt that is so large, we have to borrow and print the money to merely pay the annual interest ($429 Billion in 2007).
We have broken borders.
We have a government that is asleep at the switch.
And we have an electorate that is also asleep at the switch … at least, until that becomes too painful.

So, yes, I would say it is broken.
But it can be fixed.
But it won’t be fixed until the electorate finally chooses to do its job too.
Government won’t become more responsible and accountable until the electorate does too.

j2t2 wrote: The system as designed works fine. The system as it is now is in need of repair.
Mostly, the original system was pretty good.

A large part of the system is actuall lawlessness and lawbreaking, among those previously mentioned abuses (one-simple-idea.com/DisparityTrend.htm), which include several constitutional violations. One of the most requested amendments was a BALANCED BUDGET amendment. There were 136 BALANCED BUDGET/General Aritcle V Convention requests by 38 states (only 34 required), but Congress has blatantly violated Article V of the U.S. Constitution for over 100 years.

j2t2 wrote: We can blame the individual congressperson but when the system as a whole is geared to bribery and corruption its time to overhaul the system. Lets face it to be in DC as an elected representative of the people costs a lot of money and the money by and large comes from corporations. If you are there you are paid for by others, that is the system yet we blame the individual.
True. But our Congress persons were never supposed to be FOR-SALE. But Congress has also refused any sort of campaign finance reforms, and any reforms to restrict the influence of government by people and corporations with vast wealth and power. There are many common-sense reforms that Congress refuses to address.

However, ultimately, the voters are responsible.
The voters are the only people left that can change it, and that ain’t never gonna happen by repeatedly rewarding corrupt incumbent politicians with perpetual re-election.

j2t2 wrote: I would say nationwide fiscal and moral bankruptcy is either the cause of the corporate capitalism control of our democracy or a result of the corporate capitalism control of our republic. Different sides of the same coin.
It is ALL of us.

It is EVERYONE.

People own those corporations.
Some (not all) corporations are merely fronts for people that abuse vast wealth and power to control and influence government.
But people are the problem (not merely corporations).

Wealth is Money.
Money is Power.
Power can lead to corruption.
And absolute power can lead to absolute corruption.
We have to be careful not to over-complicate things, or allow others to over-complicate things.
Over-complication is one of the tools of cheaters.
Over-complication makes things ripe for abuse, and/or paves the way for cheaters to use and abuse others.
A good example over-complication by design to use and abuse other is the overly-complex tax system, which is actually regressive and unfair, despite what some right-wing extremists think, and try to say the wealthy pay most of the taxes, but choose to ignore percentages (One-Simple-Idea.com/DisparityTrend.htm#Taxes).

Only the voters can change it.
By design, it was always up to the voters to change it.
And perhaps enough voters will finally do their duty, and finally stop repeatedly rewarding bad politicians with perpetual re-election when enough of the voters are hopelessly deep in debt , jobless , homeless , and hungry ?

j2t2 wrote: We need capitalism and we need democracy. We need them to be in much more of a balance than they are now. When you think about it are you addressed as a consumer or a citizen more often?
We need free markets, but not monopolies.

Yes - balance is required.

The real root of the problem is selfishness, greed, laziness, complacency, apathy, lust for power, etc. (look familiar? i.e. the 7 sins).

The real root of the solution is Education, Transparency, and Accountability.

  • Responsibility = Power + Virtue + Education + Transparency + Accountability
  • Corruption = Power - Virtue - Education - Transparency - Accountability
  • Education = an understanding of the importance of: Virtue, Education, Transparency, Accountability, Power, Responsibility, Corruption, and the fundamental human desire to seek security and prosperity with the least effort and pain, and that some will resort to dishonest, unethical, or illegal methods to obtain it;
  • Transparency = visibility and simplification of cleverly over-complicated processes to reveal and identify abusers, create outrage, reduce opportunities for abuse, and discourage abuse and dishonesty;
  • Accountability = consequences needed to encourage law enforcement, encourage ethical behavior, and discourage abuse and dishonesty;
  • Power = force required to enforce the laws, discontinue abuse, ensure consequences, punish abusers, and discourage abuse and dishonesty; but unchecked Power without sufficient Education, Transparency, and Accountability breeds Corruption.

Voters can not arrive at a solution, until enough voters understand the basic elements above, and how to account for the human factor at the root of the problem.
The voters must recognize that they themselves are the biggest part of the problem.
Things won’t get better until enough voters finally choose to do their duty and finally do the the common-sense, no-brainer, responsible thing they were always supposed to do, to peacefully force government to be Transparent, Responsible and Accountable too !

  • Stop Repeat Offenders.
  • Don’t Re-Elect Them !
  • If in Doubt , Vote Em Out !
j2t2 wrote: I am not proposing capitalism is all bad and should be abandoned, I am saying to much capitalism interferes with other aspects of our lives. The root cause of the problem is the control of the government by the corporation. The answer is the control of the corporation by the government.
Corporations are merely a front for their wealthy owners. Greed and corruption is still the root problem.

Government is FOR-SALE.
90% of all elections are won by the candidate that spends the most money.
99.7% of all 200 million eligible voters are vastly out-spent by a very tiny 0.3% of the wealthiest voters that make 83% of all federal campaign donations of $200 or more.
As long as government is FOR-SALE, and voters repeatedly reward FOR-SALE, bought-and-paid-for incumbent politicians with 85%-to-90% re-election rates, then the voters have the government that they elect and deserve.

So, while there is lots of blame to go around, the bottom line is this:

  • In a voting nation, only the voters can ensure that their elected officials represent the voters.

  • In a voting nation, an educated electorate is paramount.

  • Regardless, the voters are going to get their education.

  • Regardless, it is up to the voters as to how painful they want their education to be.

The only way to reduce crime is through Education, Transparency, and the Power to ensure Accountability.
Where we lack Virtue, Education can hopefully substitute.
After all, pain and misery can be an effective motivator and educator.

At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

Posted by: d.a.n at October 4, 2008 2:34 PM
Comment #265834

“People own those corporations.
Some (not all) corporations are merely fronts for people that abuse vast wealth and power to control and influence government.
But people are the problem (not merely corporations).”

People are people and we as individuals usually make for smaller more manageable problems. People make up corporations and when managed correctly are not evil nor necessarily bad in fact most are good.
The problem is corporations are people by convoluted law and a misinterpretation of the 14th amendment. When a large group of people have additional rights as a person we have found out that it is a huge problem. Then when corporations own other corporations it spirals out of control. In fact it compounds
“The real root of the problem is selfishness, greed, laziness, complacency, apathy, lust for power, etc. (look familiar? i.e. the 7 sins).”
to a level that has proven to be unmanageable. So I defer to your root causes and now think the corporation is the trunk that all the branches we have spoken about are part of. Fortunately within the roots of this tree are virtues along with the vices so the tree can grow and survive.

On a side note d. you recently had a post with an actual inflation figure using the pre80’s method. I cannot find that on one-simple-idea.com is it on the site?

Posted by: j2t2 at October 4, 2008 3:09 PM
Comment #265839

Regarding the inflation graphs: Here it is.

Regarding corporations, I think they are just another abused item.

That is, people find ways to abuse all sorts of things. But spoons don’t make people fat, pencilz dont mispel wordz, and corporations don’t make people break laws.

Yes, the laws have been perverted to allow corporations to do bad things. But other laws have been perverted to do bad things to, such as regressive tax laws, abused eminent domain laws and judgements, even executing innocent citizens.

The point is, people are the root problem, and the only solution is education, transparency, and accountability.

We will get our education the smart way or the painful way. Transparency and Accountability are always the first casualties of corruption, because there absence paves the way for cheaters who want to use and control others for their own self gain.

When does it end (if ever)?
Usually, when it finally becomes too painful.

Posted by: d.a.n at October 4, 2008 3:55 PM
Comment #265846

J2 you guys,thanks (thngks)
pl.n.
1. Grateful feelings or thoughts; gratitude: a heart full of thanks for our escape.
2. “”An expression of gratitude.”“

Posted by: Rodney Brown at October 4, 2008 4:40 PM
Comment #265852

Bills,
Sad but not very surprising that once again blame is being directed once again at “darkies and librals” from the red side.”

Who the hell has said any such thing?!? What makes you assume anyone thinks race has a damn thing to do with this crisis? There were a lot of decisions made for political reasons. People make political decisions for whatever reason suits them and, doggonnit, we conservative blame a lot of stuff on liberals. I’ve read the other columns here and they return the favor with regularity.

If you’re thinking of accusing me of racism you’d better be ready to chew whatever you bite off.

Posted by: Lee Jamison at October 4, 2008 5:43 PM
Comment #265855

d.a.n thanks for the link.

Posted by: j2t2 at October 4, 2008 6:00 PM
Comment #265863

D.A.N.,
Where do you get your information on the M3 money supply, since that has not been published by the FED in recent years? I also have questions about the inflation chart comparing methodology for ‘83, ‘93, and the present. Those should show some differences in profiles because the components taken out (like home prices) are themselves volatile.

It is clear that inflation has been greatly understated in recent years. But for the huge increase in imports from places like China and India that made durable goods so much cheaper, covering the increases in items produced at home, we would have seen much more harm from it. The problem now is that fuel prices have become one of the largest components of the costs of these imported goods, so we especially feel it. The volume of dollars in the world is also an issue (quietly on of our most severe problems with North Korea, where counterfeiting is considered fair game) as our efforts to maintain liquidity at home inevitably hemorrages into the international market, driving dollar values down.

I was hearing congressmen railing at Hank Paulson Friday, furious that he said he had been “watching” this storm develop over the course of a year. Personally I’m thinking “Don’t the Democrats have a Commerce Committee? Don’t they have people conducting oversight on the Treasury Department?. Are they unable to see the numbers?” Based on a discussion one column to the left one would think the liberals would have been savvy to this.

Paulson, by the way, is a Democrat. There you go again, Lee. Blame, Blame, Blame…

Posted by: Lee Jamison at October 4, 2008 7:26 PM
Comment #265882

It should come as no surprise that McCain-Palin are now relying on smear and fear in a last ditch effort to win this election with unsubstantiated lies, despite McCain’s two-faced promise to run a clean campaign. First, because John McCain has nothing to run on except a failed policy of deregulation. Second, because he is desperate and knows that lies and smears work. Herman Goering once said that “…people can always be brought to doing the bidding of leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to greater danger.” Fear is a powerful motivator. And the radical right has learned from experience that if they repeat their lies enough people will begin to believe them. Moreover, the more outrageous the lie, the more likely people are to believe it. I for one find it very disturbing that John McCain would openly and proudly embrace the philosophy of one of history’s most notorious and despicable monsters!!!

Posted by: Robert at October 4, 2008 11:04 PM
Comment #265889

Lee

“so called redlining” Redlineing is real. It was actually official government policy after WW2. The GI financing that most likely got your parents into a home would not loan money in Black nieghborhoods. There were no fair houseing laws.Black families simply were not allowed to move into White areas. Black veterans were caught in a classic catch 22. They were eligable for benefits but could not avail of them. The equity and stability provided by the GI bill did much to build the middle class and create the boom of the 50s. Red-lineing hurt the country deeply by leaving Black Vets out. Corrective measures like the CRA are beneficial.
Sorry for the first paragraph because you apparently did not read past it. There is one level on the right that will sieze on your specious theory as a justification for exactly what I said. You and I both know it.
The underlieing problem was the inflated home prices and to a degree flat wages. The first was created by the huge injection of capital looking for a return after the dot-com bubble. Real estate was the only thing making money. Had we had an administration capable of leadership in helping move that capital into alternative energy we would be in a much better position financially, geo-politically and enviromentally. Instead with have a Katrina economy.

Posted by: bills at October 4, 2008 11:36 PM
Comment #265908

“Regarding corporations, I think they are just another abused item.”

Yes I agree people abusing people. Yet in concept corporations are people according to the misinterpretation of the 14th amendment to the constitution.

“That is, people find ways to abuse all sorts of things. But spoons don’t make people fat, pencilz dont mispel wordz, and corporations don’t make people break laws.”

But corporations with the same rights as people do break laws. The blame then goes to other people and not the corporation. If you kill someone, are caught, tried,convicted and sentenced to death you cease to exist. If a corporations product kills somebody, is caught, tried,convicted, at most pays a fine and continues to exist.

“Yes, the laws have been perverted to allow corporations to do bad things. But other laws have been perverted to do bad things to, such as regressive tax laws, abused eminent domain laws and judgements, even executing innocent citizens.”

Worse yet because of the existing system the corporations have a large part in crafting new laws as well as modifying old laws to their benefit. Because they have resources much greater than an individual they are able to exert themselves into the political process and cause most of the perversions you mention.


“The point is, people are the root problem, and the only solution is education, transparency, and accountability. “

Yes people are the problem but business entities that are considered people wield much greater power than an individual. The positive thing is people being the root cause are not only the problem they are also the solution so yes the corporation is the trunk not the root, not the branch.

Posted by: j2t2 at October 5, 2008 12:41 PM
Comment #265928
Lee Jamison wrote: d.a.n, Where do you get your information on the M3 money supply, since that has not been published by the FED in recent years?
I know. That is why it stops at 2005.

The M3 Money Supply increased from 135 Billion in year 1950 to $10.15 Trillion in 2005 (an increase factor of 75.2).
The point is, inflation is high.

Lee Jamison wrote: I also have questions about the inflation chart comparing methodology for ‘83, ‘93, and the present. Those should show some differences in profiles because the components taken out (like home prices) are themselves volatile.
Yes. How convenient, eh?

The point is there is an attempt to keep making inflation look smaller.

Here’s where I got the info on the inflation methodologies.
Press Ctrl-F and search for “MEASURING INFLATION” about half way down the page.

Lee Jamison wrote: It is clear that inflation has been greatly understated in recent years.
Yes. We are in agreement.
Lee Jamison wrote: But for the huge increase in imports from places like China and India that made durable goods so much cheaper, covering the increases in items produced at home, we would have seen much more harm from it.
Agreed. We have borrowed a lot of money from other countries. They may not get their money back.
Lee Jamison wrote: The problem now is that fuel prices have become one of the largest components of the costs of these imported goods, so we especially feel it. The volume of dollars in the world is also an issue (quietly on of our most severe problems with North Korea, where counterfeiting is considered fair game) as our efforts to maintain liquidity at home inevitably hemorrages into the international market, driving dollar values down.
Inflation and the falling U.S. Dollar is also a contributing factor to high fuel prices too. Speculation and gouging is another part of the fuel prices. Also, deregulation of electricity in many regions is resulting in massive gouging and price differences. I’ve seen some people paying between 11 cents to 28 cents per kilowatt*hour in the Dallas metroplex. There’s no shortage of greed either. Now we have a massive bail-out to heap onto the tax payers and future generations.
Lee Jamison wrote: I was hearing congressmen railing at Hank Paulson Friday, furious that he said he had been “watching” this storm develop over the course of a year.
Nonsense. Henry Paulson, Ben Bernanke, Bush, McCain, and lots of Congress persons (both Democrat and Republican) have been asleep at the wheel BIG TIME.

David Walker was the only person in the federal government who was consistently sounding the alarm, and most everyone (if not everyone) in the federal government ignored David Walker.

Lee Jamison wrote: Personally I’m thinking “Don’t the Democrats have a Commerce Committee? Don’t they have people conducting oversight on the Treasury Department?. Are they unable to see the numbers?” Based on a discussion one column to the left one would think the liberals would have been savvy to this.
Incumbent politicians in BOTH parties are pathetic, and too many voters ain’t too bright for repeatedly rewarding irresponsible incumbent politicians with 85%-too-90% re-election rates.

Wallowing in the partisan-warfare and the circular, time-wasting, divisive blame-game nonsense won’t solve anything, and will simply make things worse.

We’re all culpable.

Lee Jamison wrote: Paulson, by the way, is a Democrat.
So what?

I don’t care if Henry Paulson is a Democrat, Republican, or a Martian.

Lee Jamison wrote: There you go again, Lee. Blame, Blame, Blame…
Precisely.

Wallowing in the circular, time-wasting, blam-game, divisive, petty, distracting partisan-warfare is for people who care more about THEIR party than their country.
They prefer to wallow in the partisan-warfare, because it is easier than admitting THEIR own party is no better to any degree that matters.
The blame game is easier than facing the truth.
The truth is, government is corrupt, and too many voters whine about it, but then repeatedly reward THEIR politicians for all of it with perpetual re-election.
Too many voters are blinded by misplaced partisan loyalties … at least, until that finally becomes too painful, and we’re gettin’ there.

Perhaps enough voters will be catch on to that and be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/DebtAndMoney.htm#53Trillion) , jobless (money.cnn.com/2008/06/06/news/economy/jobs_may/index.htm?section=money_topstories) , homeless (one-simple-idea.com/DisparityTrend.htm#Foreclosures) , and hungry (www.results.org/website/article.asp?id=350) as a result of the perpetuation of these 10 abuses (one-simple-idea.com/DisparityTrend.htm) and the consequences (one-simple-idea.com/NeverWorse.htm) ?

At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful (see why here)).

Posted by: d.a.n at October 5, 2008 2:18 PM
Comment #265942

Lee Jamison-
I’m of a mind that there’s too much short-term, superficial thinking in politics and economics. If you’re reacting everyday to small stuff, then your reactions themselves turn the system volatile, and that introduces all kinds of chaos into the situation. Literally, chaos, as scientists describe it: sensitive dependence on initial conditions.

A certain amount of chaos is to be expected. We’d love for the market to be relatively simple, but given the populations and sums of money, the variety of needs and wants that grow in our society force all kinds of dependencies, supply chains, and other systems that can be disrupted. If we were talking militarily, we’d talk of them in Von Clausewitz’s terms as centers of gravity.

The key to good regulation, in my opinion is that the regulations be substantial and have teeth, but at the same time, compliance should be made relatively easy. Temple Grandin, Autistic Author and designer of humane slaughterhouses talked about control points, a strategy that should be familiar to those in the food industry.

One example of a control point is keeping food at the proper temperature, below forty or above One-Hundred Sixty. Another example, given by Temple in her book, is that rather than define in meticulous detail what kind of surface a cattle chute might have on the floor so that the cattle don’t slip, just make a point of the inspection that if a cow slips on the floor, it’s an automatic fail on the inspection.

Another key is a dedication to clarity. The point of much regulation is to inform investors and account holders of what’s actually going on with their money, and ensuring that if there are reasons why people should not be confident about where their money is, that they have the opportunity to correct the situation.

Ultimately, I want things functional. If you can do that with a small staff, sure, go with that. I’m no fan of unnecessary complexity. However, if we need to staff up these agencies and bulk up their regulatory power, then that’s what we do. No point letting an idea we love get in the way of solving a problem we don’t.

Posted by: Stephen Daugherty at October 5, 2008 5:52 PM
Comment #266000

Stephen,

Very thoughtful comments. I do want to re-emphasise the purpose of my call for simplicity. It is not that I believe we can be rid of complexity per-se. I believe we can arrange your centers-of-gravity or “control points” in such a way that we begin to create disincentives to a parasitic complexity.

A society in which more people perform truly productive functions and fewer people perform merely ancillary or even parasitic functions such as those I mentioned above reduces the burden of people who are fed, housed, and provided transportation on the backs of those who really create value. The cost of all goods and services are raised by having to service the people appended to the provision of necessary goods and services who are part of compliance or defence due to unnecessary or overcomplicated regulations. That is a tax on the poorest among us and a burden on our competitiveness in the world.

As long as the political parties play these issues as either-or and rely on our team loyalty to one ideology real solutions to our problems will be impossible. The parties don’t want solutions. They are too empowered by problems played against our prejudices.

Posted by: Lee Jamison at October 6, 2008 11:12 AM
Comment #266023

Thanks for this article. Let me give you a MUST READ IMMEDIATELY back:

Barack Obama and the Strategy of Manufactured Crisis

It is about how the Cloward-Piven Strategy relates to Obama, ACORN, and the current crisis.

Posted by: Arlen Williams at October 6, 2008 4:18 PM
Comment #266050

Lee Jamison-
The thing of it is, many of your fellow conservatives neglect things in terms of regulation that seem to come back to bite a lot of keisters at once. When people were confronted by epidemics of food-borne illness this last year, it hit the folks selling tomatoes pretty hard, and it wasn’t even their fault. When a whole bunch of people suffered life-threatening illness because of undercooked hamburgers, or more recently because of Mad Cow disease showing up, it caused trouble for those industries.

The problem is, there’s a culture of resistance bred into business here. Rather than face the problem and move on, face the problem and improve the situation, they snow-blow the whole affairs over and gamble on avoiding further attention after their denials and obfuscation. It’s become a bad joke.

The resistance to accountability is so great, that even as these people were asking for bailouts, the folks at Lehman Brothers were giving millions in bonuses to the execs leaving the firm. I don’t know how it works in your market, but in mine, you pay to reward people. If you’re paying incompetent, dishonest people a golden parachute to get them to go without a fight, or to avoid having fewer candidates show up, then perhaps you’re recruiting from the wrong places.

Arlen Williams-
I think these last two paragraphs sums it all up:

Barack Obama, the Cloward-Piven candidate, no matter how he describes himself, has been a radical activist for most of his political career. That activism has been in support of organizations and initiatives that at their heart seek to tear the pillars of this nation asunder in order to replace them with their demented socialist vision. Their influence has spread so far and so wide that despite their blatant culpability in the current financial crisis, they are able to manipulate Capital Hill politicians to cut them into $140 billion of the bailout pie!

God grant those few responsible yet remaining in Washington, DC the strength to prevent this massive fraud from occurring. God grant them the courage to stand up in the face of this Marxist tidal wave.

Marxist Tidal waves, eh? You got to watch out for those.

Seriously, though:

1) CRA covers few of the mortgage lenders that got into trouble. Countrywide wasn’t cover at all. The non CRA banks originated mortgages at more than twice the rate of their counterparts. It doesn’t force irresponsible lending, rather it encourages equal lending. It discourages the kind of higher rates and unfair mortgages that made them a problem.

2) Most experts believe that the securities and credit derivatives are the real center of the disaster. Regulation of those was explicitly barred by someone else entirely. Either Phil Gramm is in on this little scheme, or your story has a major hole.

3) Speaking of which, how do a capitalist like Hank Paulson, and a business friendly guy like Bush fit into this Marxist conspiracy? They’re the ones who suggest the big bail-out.

4) If you’re going to try and lionize McCain’s role, don’t forget that his campaign manager is on retainer for those two mortgage giants, and served as the head of an organization that sought to slow, halt, or rollback regulatory concerns. The key with McCain is not to watch what he does with his lips, but what he and his campaign staff have done with their hands. I know McCain talked about regulating those two GSE’s, but he’s always voted for deregulation, and has repeatedly posed deregulation as the panacea of financial markets.

5) The SDS connection likely is a connection with the student radical group, rather than with the terrorist group which hijacked its name and mantle after the decline and dissolution of the group.

Based on these and other facts, I think most people could conclude that this is just Right-Wing Paranoia. It’s all they have left, after years of their own incompetence and failed leadership: scare tactics.

Posted by: Stephen Daugherty at October 6, 2008 11:32 PM
Comment #266052

Two additional points: ACORN fights against predatory lending, which is seen as one of the major causes of the Mortgage collapse.

Second, I was not explicit enough in my fifth point: most of the people listed as SDS, as though it were always a terrorist organization, were probably members when it was a relatively radical organization, but still on the right side of the law. Only Ayers, as far as I can tell, had connections to the splinter group that hijacked the moribund group’s trappings afterwards.

Posted by: Stephen Daugherty at October 7, 2008 12:20 AM
Comment #266065

Stephen,

What you say about business is true. But is it any less true if you replace the word business with the word government?
No.

The problem is that accountability is hard to apply to any large organization. Yes we need a strong government to stand as an effective foil for the inherent avarice of human organizations. We must not forget, however, that government is also one of those avaricious organizations. They never stop thinking they should have more power, more money, or more control over the world.

Where was Mad Cow worse, Stephen, in the largely free-market United States, or the much more protection-oriented United Kingdom? In the U.K., with a population roughly the size of California, at least seventeen people have died the hideous death of Kreutzfeld-Jakob from consumption of contaminated beef. Their cattle industry was then devastated. In the U.S., with six times the population, ONE person has died of the disease.

We could do better, somehow, but your solution is better intellectually and on paper than it is in cattle markets.

Posted by: Lee Jamison at October 7, 2008 9:32 AM
Comment #266067

Hmmm, let me clarify the deaths issue. In the last decade one American has died of Kreutzfeld-Jakob traceable to consumption of contaminated beef. I don’t know that there have not been other deaths, since all mammals (including sheep, goats, and wild deer, a source of some concern among public health officials) are susceptible to the prion disease.

Posted by: Lee Jamison at October 7, 2008 9:38 AM
Comment #266201

Lee Jamison-
The solution to dealing with Mad Cow Disease is ridiculously simple: either don’t feed animals to each other, or don’t put central nervous system tissue in there!

Simple solutions really, but its going to cost them a little to go for alternatives. Well, that’s the price of avoiding both the disaster of an outbreak, and the bad publicity.

And yes, you’re right: the approach can be applied to government. Has been. The Bush Administration has been one of the worst examples. The reform needs to be a cultural one, and the reform needs to be an embrace of integrity and problem solving over a tendency towards ass-covering and trying to paper things over with PR campaigns.

We also need a culture of compliance, rather than defiance with regulation. As long as the attitude is, “how can we get away with what we want to do”, rather than, “how do we solve the problems that bring on this regulation, regulations will compound themselves, and companies will regularly indulge in the bad behavior that gets them a bad reputation.

Put simply, my theory on this is, if companies work with the government to seriously and sincerely solve the problem, if both sides look for the best way to regulate properly and comply conscientiously, then you will see fewer controversies resulting from misbehavior from companies, and therefore fewer regulations and calls for regulation from those injured or offended by the debacles. The first casualty of a war on regulation is the simplicity of regulation, because people will look for loopholes, which the public will then demand are closed.

Ultimately, cooperation is the name of the game. Government with voters, Businesses with government. This would have the added benefit of making your average voter more sympathetic to business, as they see less attempts made by businesses to act against their interests. Corporations enjoy such a bad reputation because most of the time they see them, they’re apparently trying to screw their employees, pull some dangerous financial stunt or dump some pathologically dangerous substance into the environment. That, or their making excuses about it that most people know are BS.

If corporations here acted more benignly, people would feel less nervous about cooperation with them.

Unfortunately, people can only see as far as competitive interest go. So, everything becomes a zero-sum game and everybody loses.

This is the price of division: everybody’s trying to control everybody else. Only when we yield some control to each other, can everybody relax a little bit.

Posted by: Stephen Daugherty at October 8, 2008 3:16 PM
Comment #266282


“Ultimately, cooperation is the name of the game.”

“If corporations here acted more benignly, people would feel less nervous about cooperation with them.”

In the last thirty years, the politicians have done nothing but cooperate with the corporations.

The politicians have slashed corporate taxes by more than half.

The politicians have allowed the corporations to export millions of jobs.

Politicians have allowed 30 million low wage workers to enter our country illegally.

The politicians have dismantled part of the New Deal legislation which helped to prevent the formation and consolidation of huge mega-corporations which cooperate with each other on price fixing and are now considered to big to fail.

Republican and Democrat politicians voted in overwhelming numbers to deregulate the banking industry.
Democrat politicians voted unamiously to prevent more scrutiny of Fannie and Freddy, and in doing so, they did irreparable damage to many of the poor that they were trying to help. Many of these people may never get another opportunity to own their own home.

All in all, I think it would be hard for politicians to do more for the corporations than they have in the last three decades, short of announcing the establishment of a fascist state.

As to the people being upset with corporations, so what! When it comes to cooperation with the corporations, the politicians could care less about what the people think.

The people said no to outsourcing, no to illegal immigration and no to the bailout. The politicians said SCREW you to the people and guess what? The people (the voters) are going to reelect these politicians.

So who cares about what the corporations and their politicians are doing? Apparently the voters don’t care.

Posted by: jlw at October 9, 2008 12:16 PM
Comment #266321

Stephen Daugherty,

Your answer, by avoiding dealing with the embarrassment of recognizing that Great Britain is very, very much more the sort of environment you profess to crave, collapses under its own weight. People in Great Britain died at more than one hundred times the rate that they died in America of Mad Cow disease in an environment that is extremely friendly to regulation, so even your “ridiculously simple” solution somehow went amiss.

You are engaging in a form of intellectual sloth by believing that the government is made of better, more ethical, or more capable people than private industry. They are, in fact, the same lazy, slimy, greedy, power-hungry people one finds in the midst of EVERY OTHER human endeavor. They just don’t have to deal with the same checks and balances the rest of us must negotiate.

That makes them dangerous, and the people of England have paid a dear price for their naivete.

Posted by: Lee Jamison at October 9, 2008 3:49 PM
Comment #266379

I don’t know how many government programs we’re talking about here, but I assume one or two of you refer to a handful of programs and one or two refer to all programs.

It should be remembered that very few programs showed up on their own…virtually every one was put in place because there was something the civilian/commercial sector was leaving out or mishandling.

Posted by: Marysdude at October 9, 2008 9:14 PM
Comment #266441

Marysdude,

You will seldom see me say a bad word about labor unions. They, too, arose from bad things happening in the private sector, but, because they are themselves private organizations they can, if not improperly favored by government, fail if they serve their constituents poorly. That is precisely what has happened over the last few years as unions failed to recognize the threats to the industries they depended on from overseas labor pools and unfair government favoritism for industries abroad.

If there is a resurgence of unions it will hopefully be because they have learned to serve their members in a more forward-thinking way.

Government, on the other hand, simply costs us more when it fails, and even obsolete programs, like mohair subsidies, never go away. We have no real market by which we may control governments or enforce real discipline on them until we become embittered enough to throw all the bums out.

Posted by: Lee Jamison at October 10, 2008 12:11 PM
Comment #266451

Lee,

Labor is at a disadvantage in the workplace. They have only individual voices against money, power and corruption, but they are not the only ones hurt when their voices are not heard…that is why many of the socialistic programs now in place came into being, and why certain labor laws are on the books.

Without a bigger, organized voice, Social Security would not be in place…I remember when the older people in my town could still not believe they’d not have to continue making quilts, milking cows, cobbling shoes, etc., until the day they died. And, in too many cases, they died much too early.

If free enterprise is so efficient, how can it be that Social Security became so necessary?

I’ve said it before and I’ll say it again…every sorry assed government program we have to pay for today is in place because someone dropped the ball in the free market. And soon, health care will join those programs, and the only reason is that the free market did not include it in their start-up plans. They assumed that poverty wages was enough to eat on and stay healthy too. They were wrong…

Posted by: Marysdude at October 10, 2008 2:06 PM
Comment #266459


The greatest mistake that labor made was assuming that liberals would not sell them out. But, liberals did sell them out for slave wage markets around the world and slave wage workers from across the border. Isn’t our country so much better for it? Haven’t we been treading water every since Nafta and the trade agreements waiting for the ax to fall?

I’ve heard that five million of the defalted morgages were made to illegal immigrants.

Posted by: jlw at October 10, 2008 4:16 PM
Comment #266460

>I’ve heard that five million of the defalted morgages were made to illegal immigrants.
Posted by: jlw at October 10, 2008 04:16 PM

jlw,

I’ve heard that extra-terrestrials have six heads…does that make t a fact?

Posted by: Marysdude at October 10, 2008 4:19 PM
Comment #266493

Marysdude,

It is extremely difficult for me to address anyone who takes Social Security seriously with a straight face and a civil vocabulary. It is a farce, a lie, and the purest example of politicians playing their bosses for fools ever devised. Yes, children, FOOLS. The only thing that saves the current crop of politicians from being boiled in their own juices eventually is that the poor younger slobs who have bought the lie will get old enough to need it after they die.

Worry not, though, you WILL be mad enough eventually to dig them up and boil them anyway.

I have instructed my children to vote against Social Security every single chance they get because it will, along with the burden of Medicare and Medicaid, ultimately pull the economy of the United States down around them.

Social Security, Medicare, and Medicade are the very best examples of why the lies of government socialism are simply a way of using economic promises to get the people to sell their freedom, both political and economic. I have known since I was in my middle twenties I would never collect from the ultimate Ponzi Scheme. I know that because, unlike you, I don’t trust politicians of either party when they promise me something it is obvious there is no mechanism for the delivery of.

You, on the other hand, believe Democrats because they are Democrats, and are thus a better form of human being who can deliver on promises made of thin air.

Hope you can grow fat on thin air.

Posted by: Lee Jamison at October 10, 2008 7:57 PM
Comment #266498

Lee,

It’s just a generational thing…

Posted by: Marysdude at October 10, 2008 8:22 PM
Comment #266804

Social Security could have worked if $12.8 Trillion had not been borrowed and spent from it, leaving it pay-as-you-go, with a 77 Million baby-boomer-bubble approaching.

Another dishonest, usurious, pyramid scheme is the Federal Reserve.
It uses inflation to extract wealth from the middle-class.
Look at the GDP in 1950 and 2005 Dollar$ on this graph (here’s a ZOOMed view of that graph ; see GDP in 1950 (green diamonds) and 2005 Dollars (blue diamonds) at the bottom and top of the graph, respectively).

GDP in BOTH 1950 and 2005 Dollars has been falling since year 2006, and that has never occurred before to the current magnitude ever before (not even in the Great Depression)!
Some people will try to tell you that GDP has been growing every year, but not really; GDP has been falling when you measure GDP in both 1950 and 2005 Dollars!
Inflation is destroying wealth and GDP on a massive scale, as evidenced by the massive fall in GDP since year 2006 (measured in BOTH 1950 and 2005 Dollars)!
Inflation is actually much worse than reported, because the federal government deceptively changed the inflation measurement method in 1983 and again in 1998 to make the inflation today look much smaller than it really is.
We are being lied to - big time, and the Main Stream Media is totally clueless about all of it.
How can we go from a “mere economic slowdown” and a “fundamentally sound economy” to “economic crisis” in the span of a few weeks?
Not even the federal government and Federal Reserve can be that incompetent, can they?
That means someone has been hiding the facts, fudging the data, and cooking the books.
It’s only a matter of time before the debt from all of it is so large that we can’t even keep up with the interest payments (that is, not without completely eroding the value of the U.S. currency).

Posted by: d.a.n at October 14, 2008 1:20 PM
Comment #267860

McCain pledging to enact an “across the board spending freeze,” and take a hatchet to some programs whilst using a scalpel on others. Obama’s take was to “go through the federal budget page by page, line by line” in order to cut out those programs that are dysfunctional. Both of the candidates pledged to bring the change that America needs, but what does that mean? For instance, many politicians want to do away completely with the payday loans industry. Should they succeed, it will mean the end of the freedom to choose for the consumer, and the triumph of certain interest groups (the banks and credit unions, who have gotten themselves in enough trouble already) over the freedom of we, the American People.

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Comment #270772

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Comment #309476

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