WHAT IF NO "BAIL OUT" GETS PASSED?

[hoosier]

Deregulation of the banking industry has now led to an unprecedented intervention of the government into the banking industry. Perhaps some day we'll learn that when you deregulate financial markets, the scoundrels move in. But it's not the scoundrels who pay.

Actually the REGULATING of loans to people who couldn't pay them in the name of compassion is the problem...the deregulation that enabled said regulation was a "fix" to the problem. Deregulating is the way to go if you can stomach the pain that will occur sometimes in the path to an overall better market.

Huh? How do you get from subprime lending to "regulating of loans to people who couldn't pay them"?

[bobblehead]

Bobble can you sum up what events led to the build-up of the mortgage crisis? I gotta pwn some newbs.

Your gonna hate this suggestion, but I just hhit this post and have to go to work...go read ann coulter's most recent article. I'm not saying republicans aren't to blame at all, but I also summed it up on page 2 when I posted my private email to a friend.

[HowardRoark]

Deregulation of the banking industry has now led to an unprecedented intervention of the government into the banking industry. Perhaps some day we'll learn that when you deregulate financial markets, the scoundrels move in. But it's not the scoundrels who pay.

Actually the REGULATING of loans to people who couldn't pay them in the name of compassion is the problem...the deregulation that enabled said regulation was a "fix" to the problem. Deregulating is the way to go if you can stomach the pain that will occur sometimes in the path to an overall better market.

Huh? How do you get from subprime lending to "regulating of loans to people who couldn't pay them"?

CRA

[hoosier]

Deregulation of the banking industry has now led to an unprecedented intervention of the government into the banking industry. Perhaps some day we'll learn that when you deregulate financial markets, the scoundrels move in. But it's not the scoundrels who pay.

Actually the REGULATING of loans to people who couldn't pay them in the name of compassion is the problem...the deregulation that enabled said regulation was a "fix" to the problem. Deregulating is the way to go if you can stomach the pain that will occur sometimes in the path to an overall better market.

Huh? How do you get from subprime lending to "regulating of loans to people who couldn't pay them"?

CRA

Canadian Retirement Association? I don't do acronyms today. What are you saying?
EDIT: never mind, I know what you mean, but unfortunately you're completely wrong. CRA=a red herring, the last gasp of finger pointing from an exhausted, bankrupt ideology.

[HowardRoark]

EDIT: never mind, I know what you mean, but unfortunately you're completely wrong. CRA=a red herring, the last gasp of finger pointing from an exhausted, bankrupt ideology.

Need more than that.....explain.

[hoosier]

EDIT: never mind, I know what you mean, but unfortunately you're completely wrong. CRA=a red herring, the last gasp of finger pointing from an exhausted, bankrupt ideology.

Need more than that.....explain.

Community reinvestment act was created in 1977. How is that supposed to have caused a financial crisis that originated in 2004, especially considering that W enacted unprecedented CUTS to CRA? If those questions don't convience you that this is a specious argument being enacted by deregulationist fundamentalists who know their time is up, consider Michael Barr's testimony (Professor of Law, University of Michigan) that 80% of subprime loans were made by lenders not subject to government oversight. Business Week also ran a piece today debunking the CRA-mortgage crisis connection. Back to the drawing board....http://www.businessweek.com/investin...ity_reinv.html

[Tyrone Bigguns]

When did business week become a tool of the liberal media.

Sigh. Another one bites the dust.

[mraynrand]

Michael Barr's testimony (Professor of Law, University of Michigan) that 80% of subprime loans were made by lenders not subject to government oversight.

And assuming you're right, whose fault is it for making and taking those loans - the government?

[mraynrand]

Cluster fucks rarely are due to a single cause. Towit:



THIS MEMO PROVIDES A BRIEF HISTORY OF your actions that helped create this crisis.

1997: Federal Reserve Chairman Alan Greenspan's famous "irrational exuberance" speech in 1996 was somehow ignored by, um, Fed Chairman Greenspan. The Fed missed the opportunity to change margin requirements. Had the Fed acted, the bubble would not have inflated as much, and the subsequent crash would not have been as severe.

1998: Long Term Capital Management was undercapitalized, used enormous amounts of leverage to purchase all manner of thinly traded, hard-to-value paper. It failed, and under the authority of the Federal Reserve a "private-sector" rescue plan was cobbled together. Had these bankers suffered big losses from LTCM, they might have thought twice before jumping into the exact same business model of undercapitalized, overleveraged, thinly traded, hard-to-value paper. Instead, they reaffirmed Benjamin Disraeli's famous aphorism: "What we learn from history is that we do not learn from history."

1999: The Financial Services Modernization Act repealed Glass-Steagall, a law that had separated the commercial-banking industry from Wall Street, and the two industries, plus insurance, came together again. Banks became bigger, clumsier, and hard to manage. Apparently, risk-management became all but impossible, even as banks had greater access to larger pools of capital.

2000: The Commodities Futures Modernization Act defined financial commodities such as "interest rates, currency prices, and stock indexes" as "excluded commodities." They could trade off the futures exchanges, with minimal oversight by the Commodity Futures Trading Commission. Neither the Securities and Exchange Commission, nor the Federal Reserve, nor any state insurance regulators had the ability to supervise or regulate the writing of credit-default swaps by hedge funds, investment banks or insurance companies.

2001-'03: Alan Greenspan's Fed dropped federal-fund rates to 1%. Lulled into a false belief that inflation was not a problem, the Fed then kept rates at 1% for more than a year. This set off an inflationary spiral in housing, and a desperate hunt for yield by fixed-income managers.

2003-'07: The Federal Reserve failed to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned such standards as employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability. The borrower's ability to repay these mortgages was replaced with the lender's ability to securitize and repackage them.

2004: The SEC waived its leverage rules. Previously, broker/dealer net-capital rules limited firms to a maximum debt-to-net-capital ratio of 12 to 1. This 2004 exemption allowed them to exceed this leverage rule. Only five firms -- Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley -- were granted this exemption; they promptly levered up 20, 30 and even 40 to 1.

2005-'07: Unscrupulous home appraisers found that they could attract more business by inflating appraisals. Intrinsic value was ignored, so referrals kept coming in. This helped borrowers obtain financing at prices that were increasingly unsupportable. When honest appraisers petitioned both Congress and the bureaucracy to intervene in the widespread fraud, neither branch of government acted.

THERE'S ACTUALLY A LOT MORE we could add to these items. We could mention impotent supervision of Fannie and Freddie by the Office of Federal Housing Enterprise Oversight; the negligent oversight on ratings agencies; the Boskin Commission's monkeying around with how inflation gets measured; the "Greenspan Put," etc.

We could mention former Fed Governor Edward Gramlich, who warned about making home loans to people who could not afford them, and who said the runaway subprime-mortgage industry would create problems in housing and the credit markets. But Gramlich was up against a Fed chairman who apparently believed that markets can regulate themselves. (Gramlich died last year, three months after the housing bubble started to deflate.)

We on Wall Street do not deny our part. We created these securities, we rated them triple-A, we traded them without understanding them. Now that they have gone bad, we are real close to getting the rest of the country to take them off our hands.

Thanks, D.C. None of this would have been possible without you.

Very truly yours,
Wall Street

(By BARRY L. RITHOLTZ, Barrons)

[hoosier]

Michael Barr's testimony (Professor of Law, University of Michigan) that 80% of subprime loans were made by lenders not subject to government oversight.

And assuming you're right, whose fault is it for making and taking those loans - the government?

Uh wuh? My point is that total deregulation created a situation in which the "boom and bust" cycles that are characteristic of a global financial market have the devastating effects that we're witnessing. I posted this in response to Howie's assertion that government regulation (i.e. CRA) created the mess. I showed him the Business Week to debunk that, and we haven't heard a word from him since. How exactly does your comment relate to all this?

[HowardRoark]

Michael Barr's testimony (Professor of Law, University of Michigan) that 80% of subprime loans were made by lenders not subject to government oversight.

And assuming you're right, whose fault is it for making and taking those loans - the government?

Uh wuh? My point is that total deregulation created a situation in which the "boom and bust" cycles that are characteristic of a global financial market have the devastating effects that we're witnessing. I posted this in response to Howie's assertion that government regulation (i.e. CRA) created the mess. I showed him the Business Week to debunk that, and we haven't heard a word from him since. How exactly does your comment relate to all this?

I have been busy. I have a three year old son that no matter what I say, he responds, “no I don’t…or, yes I do”….depending on what I am trying to discuss with him, he says the opposite; without any reasons or backing of the statement. It’s frustrating.

Then I come here, and I get nothing but the same. Frankly, I think I am going to pull a “Harlan” and just start focusing on football. But that could be a tough thing too this year.

The mess is many people’s fault. I think I have been honest in my assessment all along; starting with my posts in July. The CRA was part of the problem. So was 40:1 leverage. So were the rating agencies. So was the insatiable appetite for this crap (worldwide). So is and was representation in Washington that could not understand the complexities of this problem if their lives depended on it. And yes, Bobby, greed too.

Galt has an honest post above too. It would be nice to get some from the other side. But I guess you guys are all drunk on the prospects that The Autobiographer will soon be our President.

[HowardRoark]

Here is another loony right Wing hack:

No one's clean in this mess

Democrats and Republicans must share the blame for the failure to pass a $700-billion bailout plan.

Jonah Goldberg

September 30, 2008

On Sunday evening, Republican House Minority Leader John A. Boehner explained his considered opinion on the $700-billion Wall Street bailout plan: It's a "crap sandwich," he said, but he was going to eat it.

Well, it turned out he couldn't shove it down his colleagues' throats. The bill failed on a bipartisan basis, but it was the Republicans who failed to deliver the votes they promised. Some complained that Democratic Speaker Nancy Pelosi drove some of them to switch their votes with her needlessly partisan floor speech on the subject. Of course Pelosi's needlessly partisan. This is news?

The Republican complaint is beyond childish. Democratic Rep. Barney Frank, a man saturated with guilt for this crisis, nonetheless was right to ridicule the GOP crybabies on Monday. "I'll make an offer," he added. "Give me [their] names and I will go talk uncharacteristically nicely to them and tell them what wonderful people they are and maybe they'll now think about the country."

Would that Frank had been imbued with such a spirit earlier. Frank, chairman of the House Financial Services Committee, has spent the last few years ridiculing Alan Greenspan, John McCain and others who sought more regulation for Fannie Mae's market-distorting schemes -- the fons et origo of this financial crisis. Now he says "the private sector got us into this mess." His partner in crime, Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), a chief beneficiary of Fannie Mae lobbyists' largesse, claims this mess is the result of poor oversight -- without even hinting at the fact he is in charge of oversight of banks. They sound like pimps complaining about the prevalence of STDs among prostitutes.

And let us not forget that the Democrats, with a 31-seat majority, could not get 95 of their own to vote for the bailout, largely because it didn't provide enough taxpayer money to their left-wing special interests. Would that they thought about the country.

The one man who truly tried to treat this crisis like a crisis -- McCain -- was ridiculed by Senate Majority Leader Harry Reid, who implored him to come to Washington to help in the first place. And the news media, which now treat any Republican action that threatens a Barack Obama victory as inherently dishonorable, uncritically accepted the bald Democratic lie that McCain ruined a bipartisan bailout deal last Friday.

This is not to say that McCain knows what to do. Faced with an unprecedented financial crisis involving frozen global credit markets and a maelstrom of moral hazard, his standard response is to talk about wiping out earmarks and eliminating waste, fraud and abuse. Memo to Mr. McCain: Waste, fraud and abuse are the only things holding the system together at this point.

Obama is no better. The man has spent two weeks irresponsibly excoriating his opponent for saying the fundamentals of the economy are strong -- a perfectly leaderly thing for McCain to have said during a panic. Then, campaigning in Colorado on Monday, the day the market plunged 777.68 points, Obama proclaimed: "We've got the long-term fundamentals that will really make sure this economy grows."

Perhaps after Al Qaeda seizes Baghdad, a President Obama would finally declare, "Hey, we can win this thing!"

Meanwhile, President Bush, his popularity ratings stuck at below-freezing numbers, has decided to cling to Treasury Secretary Hank Paulson for warmth on the grounds that the vaunted former Goldman Sachs chair has the credibility to sell the solution to a problem he's been exacerbating for 18 months. When a reporter for Forbes magazine asked a Treasury spokesman last week why Congress had to lay out $700 billion, the answer came back: "It's not based on any particular data point." Rather: "We just wanted to choose a really large number."

There's a confidence builder.

As for the reputedly free-market firebrands of the congressional GOP, with whom my sympathies generally lie, I cannot let pass without comment the fact that they controlled the legislative branch for most of the last eight years. Only now, when capitalism is in flames, does this fire brigade try to enforce the free-market fire codes without compromise.

I loathe populism. But if there ever has been a moment when reasonable men's hands itch for the pitchfork, this must surely be it. No one is blameless. No one is pure. Two decades of crapulence by the political class has been prologue to the era of coprophagy that is now upon us. It is crap sandwiches for as far as the eye can see.