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Do you want Congress to approve the $700B bailout plan?
Do you think it's necessary?
Congress announced today (9/28/08) that they have drafted a proposed bill to provide up to $700 billion to shore up the U.S. financial system. The bill, entitled the Emergency Economic Stabilization Act of 2008, allows the Treasury to buy "mortgages and other assets that are clogging the balance sheets of financial institutions," according to an official summary. Do you agree that this is necessary? Do you want your dollars used to bailout banks that made bad bets?
In principal I am against tax payer money subsidizing the reckless "casino" behavior of those on Wall Street and let's admit it, the foolish financial decisions of those on Main Street. The many should not have to suffer because of the actions of the few. But the problem is that if we don't help these lenders out, we all will suffer. This is the consensus despite ideological House Republican complaints. This is a failure of the market. These ideological law makers had almost a decade of what they wanted: an unregulated economy. And if they want to be true to their ideology, then millions will suffer because of these policies. They had the gall on Friday to stall legislation and push for cutting capital gains taxes and do nothing about the current crisis.
This bailout in its current form makes sense because it not only will staunch - and perhaps solve - the crisis. It helps out citizens who are struggling to pay their mortgages and will put in punitive (though not as harsh as I would like) measure to limit executive pay. Pay for a job done miserably. This economy hinges on economic growth and if credit is not readily available, growth cannot continue on a wide scale. This means jobs will not be created - they will be lost. This means people will not be able to invest in cars, homes, or education. No one likes this idea of all paying for a few, but if this does not happen, we all will suffer. This is a case of the government trying to work for its people. The government - who are elected directly and indirectly by us - need not be evil. It has the capacity for good.
Since you have apparently seen a bill which is still being written, please explain to me how this bill helps folks with mortgages they cannot afford. The only way this happens is if the government buys the mortgage and then renegotiates it, which means they get paid back less than the $700B. Next explain to me what bad decisions "Wall Street" made that is like gambling at a casino. Wall Street bought packages of mortgages that had been securitized for one reason. Congress said it was ok when they mandated Fannie and Freddie to do the same thing. Without Congress pushing Fannie and Freddie to buy up these bad loans waiting to happen, Wall Street, or more specifically institutional investors which include not only hedge funds but Union pension funds, would have been more risk adverse.
As for deregulation, Glass Steagall occurred with the blessing of Clinton and Rubin, and it is no coincidence that most of the firms who survived were those who diversified as Glass Steagall prevented AND those mergers actually INCREASED regulation to industries less regulated than the banks who bought them.
And if the issue is Republican desire for deregulation, why did the unholy triumvirate of Chucky, Barney and Chrissy torpedo administration efforts at reforming regulation of Fannie and Freddie when the current crisis was first identified by Greenspan? And if your answer doesn't start with "because Fannie, Freddie and ACORN are gold mines for them", don't bother answering.
Lastly, executive compensation has nothing to do with this issue. It is a circle jerk to make you feel good without actually doing anything. If you want to address executive compensation fine, I am against it but go ahead, just don't tack these unrelated pandering temper tantrums onto a bill that is supposed to actually accomplish something. You would be much better off taking your pound of flesh from the people you praise, the ones who started this whole thing in the first place. Congress. They are NOT working for the people. If they had NOT been stopped by the House Republicans, the bill would have sent 20% of any profits to ACORN to fund the congressional campaigns as they have for years. What House Republicans did was keep the fox from being put in charge of protecting the hen house. No ideological stubbornness there, just practical common sense.
Next explain to me what bad decisions "Wall Street" made that is like gambling at a casino. Wall Street bought packages of mortgages that had been securitized for one reason. Congress said it was ok when they mandated Fannie and Freddie to do the same thing.
Well, no. These mortgages were securitized and investment banks bought these packages for a bigger reason: they saw the potential for enormous profits. The lax regulation structure permited this to happen. Error 1: Home buyers, bankers, and investers all assumed that house prices would continue to rise. Error 2: mortgage lenders did not conventional financial background checks. I've heard that some didn't even need proof of having a job. Error 3: Rating agencies failed to do their jobs and look at the value of these packages that were repackage, repackage, and repackaged again as they were sold to bigger and bigger buyers.
And even if Fannie and Freddie were mandated to do buy these packages, it was the choice of those operating in the free market to buy these bad loans. McCain called this "casino" behavior because even he saw (or Steve Smidt) that investors were betting on risky investments to succeed. What happened to personal responsibility and accountability?
(2) You said:
"As for deregulation, Glass Steagall occurred with the blessing of Clinton and Rubin..."
Completely wrong. Glass Steagal was enacted in 1933. Unless you think that Clinton and Rubin jumped into a time machine, went to the future and had advanced genetic cosmetic surgery done to make them look like Depression era Congressmen, and then went back to the 30's and passed the bill, then ok. But this isn't the Family Guy and it didn't happen. Glass Steagal led to the creation of the FDIC and separated commercial banks from investment banks. Look up the info here at wikipedia.
What you are talking about is the Graham-Leach-Bliley Act. Cosponsored by my former Texas Senator Phil Graham (R), this was the bill that lifted regulation. And true Clinton signed the bill, but both parties are to blame for its passage. After conference, the legislation was veto proof.
(3) You said:
"Lastly, executive compensation has nothing to do with this issue."
While I agree that executive compensation may seem like a peripheral issue and it may not at the heart of the solution, it does play a significant role. Congress's phones have been ringing like crazy in response to this bailout. Citizens have a right to know if their dollars are going to executives who did a poor job at management. If anything, these punitive measures lend Congress the moral legitimacy to pass legislation.
But if you don't want the bailout to ensue, then fine. Let the wealthy have their money while the majority suffer through economic hardship. For the sake of everyone, though, I hope the opposition comes up with a better plan if they disagree with this one.
1. totally naive and wrongheaded. Institutional investors do not make investment decisions on profit potential nearly as much as on risk evaluation. Why would lenders care if a borrower had a job? The government through expansion of CRA and mandates to Mac and Mae said they had to make subprime loans. The government wanted them so badly that they mandated Mac and Mae to buy up these under-underwritten loans KNOWINGLY. Why would the lender care if they were good loans when the govt said they had to make them and then took them right off the lender's hands? When the govt pushes subprime loans, what do think that means? Loans that are LESS likely to default? You cannot push subprime lending, remove the risk from the lender and then blame CEOs when the whole thing goes bust.
2. As you correctly point out, I obviously meant to say the UNRAVELING of Glass Steagall. And I did not say it wasn't bipartisan. That was exactly my point. Obama is mischaracterizing deregulation as a partisan issue for his own political gain. My point was that BOTH sides were for that deregulation and also that the mergers resulting from it created the banks strong enough to survive current problems.
3. Your point is facetious. In the small print where voters won't see it is the realization that they cannot just rewrite a contract between a company and its employees. The issue is moot and Congress wants to have its cake and eat it too. They want to beat their chests and tell the voters we are gong to "get" the bad guys. The problem is that CONGRESS is the bad guys. I would hate to see any exec punished unless he shares his cell with Barney Frank (no drop the soap jokes please) Chris Dodd or Chuck Shumer. Giving in to populist outrage is fun for headlines and feels good and is good for votes but it is a deterrence. I have no problem with addressing the issue, but not in something this important.I won't even address the ridiculous notion that this is a rich vs poor issue. Just more populist clap trap.
(1) I'd be the first to admit my naivity about financial matters. But are you really saying that investors are not after profits? perhaps they look at risk evaluation - but why? Ultimately for profits. Is this really a naive belief?
Lenders should care if borrowers have jobs because it is in their interest for borrowers to pay the money back. Again, I'm no economist, but I'm pretty sure that people don't like giving their money away for free. If people had jobs to pay for their mortgages, then we wouldn't be going through this mess.
As for Mac and Mae, I can't speak much about due to ignorance, but my point still holds. Yes you can hold CEOs accountable, because in the end they made the decision to go ahead with bad loans that as you say were less risky, but RISKY nonetheless. Just because the risk is lower, doesn't mean that it is a risk that should be undertaken.
(2) Well, it wasn't obvious. If it was, you wouldn't have neglected to have put that key word in in the first place. Wait, did you just say that the deregulation
"the mergers resulting from [deregulation] created the banks strong enough to survive current problems."
These banks aren't surviving. The mergers that are now happening are the result of the current problems that deregulation caused.
(3) No, my point is serious. (English Usage Note: the speaker -not the audience - usually is the one who can call his or her point facetious, as they know the intent of the message. The audience might call someone's point funny or amusing, but not facetious if the audience knows that the intent was serious).
Congress are not the only bad guys in this matter. These poor CEOs, what victims they are. And, boo hoo, these poor, foolish borrowers, they did nothing wrong. The fact is everyone except for those who paid their bills on time and played by the rules are culpable.
But to say that the government is the bad guy, when some of them want to make sure that assistance is given to those in economic straits, indicates an ideological bent. I can't really speak to that. Government, in my view, has the capacity for good and bad.
And what you belittle as populism is in my view a virtue of democracy.
1. By now I think you have read me enough to know I am not exactly wishy washy but I can only answer . . . sort of. You know how your financial adviser will always ask you your risk tolerance? How he says you should never take on so much risk that you can't sleep at night? Well as a private investor, I am very aggressive investing in equities (stocks). I make my living in real estate and stocks are sort of icing on the cake so I am willing to take a loss in my chasing of superior returns. I weigh return more heavily than risk. When a union pension fund or an insurance company looks at an investment, they are conscious that they will have to pay out a lot of money each year. They are investing money they could need if a hurricane causes a lot of losses for the insurance company or a strike means a union has to advance striking members some money. I wont need my money for another twenty years so I love days like today when prices go down. I pump more money into the market in times like these. With a twenty year horizon, i look at this as stocks going on sale so I buy more. Institutional investors, even hedge funds, have to keep in mind that their clients will see a quarterly report every quarter and either be happy or pissed off. So institutional investors worry more about downside, or risk, than I do. They might have 5 or 10 % of their investments in financial right now while I have up to 50% some days. They are likely sitting with a lot of gold and treasuries and CDs/Money Market cash accounts as a defensive hedge. I have very little gold, no treasuries and while my cash is high, it is in order to pump it in when I "smell a bottom" (no cracks on that one!) They are in safe places defensively, I am in those cash positions "ready to pounce". I hope I explained that difference so you understand what I was trying to say.
Lenders . . . let me put it this way. I am sure that everyone understands that we use tax credits to encourage behavior we want and use tax hikes to discourage actions we are against. For instance, Clinton never could have banned tobacco products but he COULD and did raise taxes so high that it cut smoking to some extent. On the other hand, to encourage solar power, the government gives you credits for installing solar panels on your house. So, when the government comes out and through the Community Reinvestment Act dictates that lenders MUST make subprime loans, and then rewards them for doing so and taking all risk off the table for doing so . . . the bank would be crazy NOT to make them. The loans were just as risky but the bank who made the loan had ZERO risk. They collect their fee, collect a couple months payments and then sell it to the government backed Mae and Mac. It was just like the government giving then a tax credit to encourage them to do it. The bank CEO has a duty to the stockholders to make money. They cannot do things that are illegal or bad for the country but when the government not only gives these loans their stamp of approval but encourages and even dictates your making these bad loans . . . how is it the fault of CEOs? You do agree that they are supposed to make money for their shareholders, right?
2. In the context of the statement I made, it should have been obvious. As for your comment that if it was so obvious I wouldn't have made the mistake? If you are so perfect that you have never made a mistake and mistyped a phrase or line late at night then please sign your posts as Jesus, the perfect poster who has never made a mistake. Otherwise I will just thank you for pointing out my error and frankly not give a flying Eff whether you want to play gotcha with the issue of my making a mistake. Glass Steagall being neutered was the end of financial company regulation keeping the financial companies from merging into multi purpose conglomerates and the mergers I referred to are not the current asset purchases. Glass Steagall said a company couldn't be a bank, an investment company, commercial bank and sell securities under the same umbrella. Nowadays we all are used to going online on our Bank of America account for example and looking at our IRA or investment account, being pitched on insurance to pay off our credit cards if we are injured on the job, checking our credit card balances and our checking account activity. Before the deregulation, all of those functions were separate. It had been chipped away for years but Sandy Weil, the CEO of Travelers Insurance wanted to buy . . . I think it was Smith Barney, a brokerage firm. Clinton and Rubin supported the Republicans and broke down the chinese walls prohibiting these types of mergers. The large financial conglomerates formed back then were stronger than the investment banks. Commercial banks have deposits to rely on for liquidity. This is why the two remaining old time large investment banks recently agreed to convert to commercial banks. They resisted this because of the additional oversight but now the benefits outweigh the negative of additional regulation. In any case, I was not referring to the mergers happening now but the ones that happened back when Glass Steagall was essentially neutered.
3. you might have been serious but your subject was frivolous as in the following definition of facetious : "concerned with something nonessential, amusing, or frivolous" or this one "amusing; humorous". Not all definitions of the word rely on intent. But I appreciate your Clintonian sophistry and focus on the picayune instead of the context of the post. HINT the previous was said with sarcasm in case you don't recognize it.
Without going back and re reading my post, I am pretty sure I did not say the CEOs were innocent of all wrongdoing. I am pretty sure I did not say that many borrowers weren't greedy and/or naive. I am pretty sure I did not say the Congress was the ONLY culprit. What I DID say is that CEO compensation had NOTHING to do with fixing the problem. It was merely an appeal to the base instincts of the masses to deflect them from the real issues. What I AM saying is that of all these entities, only one started this ball rolling. Only one is now trying to tell us to let them fix it when they caused it in the first place. Congress is the drug overlord in Columbia, the lenders are the local suppliers and the borrowers are the users. Yes you are right that all of the above is guilty to varying extent. But in this case, we are letting the drug cartels police the playgrounds to keep drugs out. If you don't see how absurd this is, I cannot see any basis for further exchange. Let's just play some more gotcha games over mistakes and definitions.
And just for your benefit, Please explain why your populism is not an ideological bent? Typical partisan. Your ideological bent is a good thing but mine is evil. Your saying Govt can't be the bad guy when some of them are trying to help those in need is like saying the mafia cannot be bad when Capone funded soup kitchens in the depression. Of course government has the capacity for good and bad. So does man. But man doesn't always do good. Either does government. And don't try to make this into a theoretical discussion. You just pretend things are said without context. I said congress, specifically the three members I listed are to blame for this "crisis". And now they are among the leaders wanting us to trust them to fix it. The same bad instincts and goals that made their original actions flawed are what made this deal flawed. Congress can have dramatically destructive effects while operating out of good instincts. I am not convinced but I give them credit for good intentions in trying to expand home ownership. But these same Dem leaders were at the forefront of Sarbanes Oxley which pushed "mark to market" accounting on the world which is a HUGE contributor to the current crisis. So just because Congress has good intentions doesn't mean that the results aren't catastrophic. Here are two examples of presumably good intentions gone horribly bad.
I finally DID go back and reread my post which you are responding to and cant find a reference to populism, just pandering so please refer me to my use if you want a response. Otherwise this just appears to be you lauding YOUR ideological bent while decrying what you deduce to be mine without truly having a clue.
First, thank you for the loads of information. Your knowledge of the subject is quite impressive. I'm giving you an up vote for this one. Frankly, I'm learning quite a bit from your posts. Second, tone down your incendiary accusations (e.g. naive, wrongheaded, have no clue, playing games, and etc.) We're not on cable news. I haven't called you names or attacked your character. Be civil enough to do the same to me.
(1) I'll concede that the government put incentives in that led institutional investors and their CEOs to put money into bad investments. I agree CEO compensation is a fringe issue, but in politics, fringe issues can determine outcomes. Indeed, the CEOs have a duty to make money for their shareholders. Perhaps in the end it should be the shareholders who decide compensation and not the government. But if taxpayer money is going to be used to help these institutions out, then why should we subsidize their paychecks?
(2) Okay. Everyone makes mistakes. And I should have exercised more restraint in pointing out an error.
Aside from our tiff, I believe, however, there's nothing wrong with "gotcha" questions, when they are on point. I mean, if people weren't called out for right or wrong answers, what would be the point of arguing?
Again, lots of good information.
(3) As I mentioned above, I agree that CEO compensation has little to do with a solution, other than getting constituents on board for the legislation. I maintain that governement has dual capacities of good and bad. I add though that it is too facile a conjecture to say that all of Congress are the bad guys. There are what, 535 members total from all over the country, representing an array of interests and ideologies, who regularly change in membership.
It was a Republican dominated Congress that led to the deregulation. But now its a Democratic run Congress that is pushing for more regulation.
You said:
"What I AM saying is that of all these entities, only one started this ball rolling. Only one is now trying to tell us to let them fix it when they caused it in the first place. Congress is the drug overlord in Columbia, the lenders are the local suppliers and the borrowers are the users..."
I read that pressure from the banks to deregulate had been strong since the 80s. Imagine a static ball on the incline of a hill. The only thing preventing that ball from rolling down hill was government regulation. The ball wasn't rolling in the 80s because of government regulation, but in the 90s when regulation was lifted that ball went on rolling. Who's fault is it? The banks who wanted deregulation or the government who lifted regulation?
I think it's a chicken and egg type question. I just don't see the point of giving Congress the lionshare of the blame when the situation as I'm sure you would agree is so very messy.
As for populism. Yes it is ideological. But I would argue that since populism argues that it serves the interests of the most people, it appears to be more democratic. But I'm sure that those on the right could legitimately argue that their economic policies in the end would serve the people best. Fine. I merely meant that I can't really say anything about you position, because we both have legitimate claims. And you brought up populism, so I just briefly responded to your comment.
But no I never said you position is evil and mine holy. Nor did I ever commit to the idea that government always do good. I do maintain that government does not always do bad.
(4) If no bailout then what should we do? I know this is an unfair question to ask, but what other plans are out there now? Since you are very knowledgable about finance, what do you think should be done? I'm being serious :)
You drop the sophistry (whether my error was obvious or not in the context of what I said) and the word games (definition of facetious) and I will try to tone down my combative writing style. I have no problem apologizing or admitting when i am wrong but when I admit my error and encounter an argument of what degree of obvious my error possessed, it is . . . shall we say annoying.
I agree with you that fringe issues determine outcomes of votes. My position is that they also can turn a good bill into a bad bill and this bill has so much interest I want no fringe interest to cloud the issues. When supermarket baggers and gas station attendants are talking about this arcane stuff it needs to be accepted that this is of unusually widespread interest for a complex accounting/economy bill. Congress demands transparency of corporations, why shouldn't I demand the same of them? As I said before, I am against government setting limits on compensation but agree it is certainly a topic that can be addressed. I just don't want to see in this bill. Now that it is obviously not going to be rushed through, maybe we can discuss it. But it's presence in the bill voted on was solely pandering in my opinion.
2. Gotcha questions are about winning debate points instead of exchanging ideas, opinions and information. They are objectionable to me probably for the same reason that the aggressive language I use is objectionable to you. It shows a lack of respect, for the other party, the seriousness of the issues and the exchange of opinions itself. While I am not above it, I find it intellectually dishonest to go for winning debate points instead of just making one's point. And to me gotcha doesn't mean pointing out one's mistakes. I am much more nasty in print than in person. I guess it is just intensity that causes me not to always see how something sounds/looks in print. I hear in my head the message, not the words.
3. I was not saying all of Congress is bad. I several times listed the three I hold as representative of those responsible. But just like I cannot print "In My Opinion" after every sentence I type, I find it easier to type "Congress" rather than "Chucky, Barney and Chrissy" every time (plus it minimizes my demeaning use of the familiar diminutive forms of their names if I use them too often :) ) So when I say Congress in that context, I Am talking about those members guilty of the actions I decry. Just like when you talk about fat cat CEOs or overpaid execs, you don't mean all Execs; I am sure you don't mean John Mackey of Whole Foods Market. My posts are surely long winded enough without making e type lists of specific congressmen each time. Surely if I type out the unholy trinity a few times, you get the message when i cut back to just saying "congress" when my fingers begin to cramp.
Deregulation is a Republican cornerstone. No argument here. It is one reason I consider myself a Republican even when the Republican Party has very little resemblance to classic Republican positions any more. The Republican Party, MY party has been hijacked and it pisses me off to no end. I am not even mad at Democrats. They do what Dems are supposed to do. I am TRULY pissed off at my own party because when we controlled the executive and legislative branches, we squandered the opportunity to do everything we as Republicans stood for and instead spent money like drunken Democrats. The only things we accomplished in our period of controlling 2 and nearly a third branch of government is to give away our image as the more competent party in terms of governance and better party for foreign affairs/domestic security. So believe me. I understand who is for deregulation. My positions are that the Democrats do more damage passing regulation than Republicans do avoiding it and that when they can use regulation to pad their campaign coffers, Frank, Shumer, Obama and Dodd have proven to be all for regulation and have been as vicious as a momma bear in protecting their cubs (ATMs) when Greenspan, Bush and McCain (among others) tried to introduce regulation designed in a very narrow focus on preventing EXACTLY the problems we are facing now. So while deregulation might be a classic Republican issue, I would assert that the Republican Party has little resemblance to classic Republican planks and further assert that when faced with regulations which threaten to shut off their spigots of cash, the Democrats aren't as pro regulation as you might believe listening to Obama now. Pardon the non sequiter but just imagine how much money came Obama's way from Fannie and Freddie for him to take in more in two years than all other senators but one (Barney Frank) did in NINE years! Do you think his years working for and with ACORN might have had something to do with such a windfall for a freshman senator? And yes, I am saying that ACORN is just another "bad guy" on Obama's Rolodex of "acquaintances" with Ayres and Wright and Farrakhan et al.
So I guess mys response is that Republicans are always against deregulation as a philosophical point. But with the Mac and Mae and Acorns of the world, it was the Dems who killed any regulation. And for purely financial, political self interest, not any philosophical reasons. Before you extrapolate from that, I am not saying Dems are evil and Republicans are pure of thought and spirit. Just limiting the discussion to the specifics of our current topic which is the "bailout bill" and my assertions that Democratic treatment of Fannie and Freddie and ACORN was the largest single impetus for this crisis.
I admit I don't know the history of Republican efforts for deregulation other than those surrounding the Grammy bill that allowed the Travelers deals with Salomon, Shearson Lehman, Primerica, Barclays and Citibank. I tried to use the Gramm bill to pass a law myself in conjunction with Jack Kemp, using CRA to force the non bank aspects of these huge merged companies to offer services to help lower income persons. I wanted the brokers to offer free IRA accounts so someone who could only invest $100 a month didn't have to pay a fee that ate up all of his contributions and get CRA credits for doing so, just like banks do for loaning to those folks. For what it is worth, I also used CRA to build and sell low income housing in inner cities. Lost my shirt but had more fun than any other business I ever started. This was all back in the early and mid nineties so you can see I come by my knowledge of CRA honestly and it goes way back. I disclose this to prove that I once was idealistic enough to think I could influence the government, now I just try to understand what it is doing.
The tensions between labor and capital, regulation and deregulation, socialism and democracy and spending and savings are all natural states. In this country the pendulum never settles in the middle, it swings from one extreme to the other. It is the job of the govt to be in the middle reducing the friction and arbitrating between the two. When Industrialists abused labor, they stepped in with regulations on child labor, minimum wages, work week limits etc. When unions got heavy handed they stopped destructive work stoppages. When deregulation was stifling progress in the financial markets which had changed from the thirties they lessened regulations. I am not blaming deregulation for this crisis because the Gramm Bill did not lead to the problems that specifically have created this crisis. I am sure it exacerbated the issues in ways I am not aware of but the direct causes of the crisis are traceable, IMO directly to mandated sub prime loans and Mark to Market both of which came from bad regulations, not lack of good regulations. I lay the lion's share of the blame on Congress, or that specific subset I keep naming, because:
1. they mandated actions which started the mess
2. They killed regulations undoing the damage they had done
3. They killed it for purely financial and political self interest.
4. They expect us to let them manage the fix to the problem they created
5. They have not admitted the role they played and instead point their fingers at others and act "holier than thou".
4. I am in no position to even put forth a plan and call it comprehensive and to say I know the ramifications of any plan I might propose. I have some strong feelings about a framework but details are way over my head.
a. I think we cant just remove the bad debt blocking up the credit plumbing. We need to do something more comprehensive IMO. I hate to be a broken record but if we can't break the pattern of partisan gotcha oneupmanship and party over country, not much else matters. I think we need to legislate with the knowledge and acceptance that parties will push the limits around the edges for profit. Legislation should be overseen and revisited regularly. You cannot have a Barney Frank mandating politically correct loans at the expense of fiscally correct loans. Business has to be able to conduct business. Wall Street is good for Main Street, not toxic to Main Street. They have a symbiotic relationship which true, does sometimes swing too far toward either extreme of the arc. EVERY working American should have a stake in Wall Street. We can ban or regulate derivatives and MBSs and risk mitigating securities. I do like the idea out forth on the video that Kukla put on this thread of using exchanges to regulate derivative activity instead of legislating them. Frankly I don't understand the ramifications but that aspect appeals to me. I think Mark to Market has to go because it exaggerates accounting gains in good times and exacerbates losses in bad times. Both are dangerous. I think we need to go back to a cap of 12 percent leverage, allow shorting but reinstate the uptick rule, up the insurance aspects of our governments role but lessen the participation in investments (IE. warrants). One exception to this but it would be a whole new discussion is this. If we take the $700B, and put into social security as the beginnings of a plan to partially privatize it, it would be a HUGELY complicated endeavor but I believe it is the only way to save social security. I do not believe that taxpayers should be "investing" in companies because of the risk factors we discussed earlier. You cannot get a return without risk. So we have to risk losing all 700B in order to get a return on it. Our budget cant take that hit. But since I believe that Social Security as currently constituted is dead and the only question is when, we have nothing to lose and much to gain by coming up with a means of privatizing social security. If we take $1T worth of warrants in the firms we saved, mortgages and physical real estate, we can start to privatize it without the government disrupting the market by dumping huge $$ into the market as social security investments. It also means we can use money coming in to pay current payments due and credit the new money coming in against an existing pool of assets obtained in this "bailout" measure. This would be rife with danger but if you agree that social security is the walking dead already, what are we really risking?
Part of my thinking is that all Americans should be treated the same to whatever extent is possible. I believe welfare is toxic. When I sold low income housing there was no sweat equity and it was not run as a non profit. I could have created a non profit and raised money for it and paid myself a wage. That is the way most people do it including Obama as a community organizer. But that is anathema to me. I wanted to prove that as a Republican I could operate as a for profit and build a three bedroom, one and a half bath home, 1050 square feet in the inner city which sold for under $48K without treating the buyer as a welfare case. We used CRA to get banks to give us loans designed for our program. We used the Urban League to educate and do credit counseling so that buyers could qualify for a loan just like you or I do. Granted they had special help and special programs but they didn't have to use sweat equity and charity. Turned out that I could not compete with the non profits. Not financially but cities and pols wouldn't let me pay them for land off the unpaid tax rolls when they could give it to Habitat and have a photo op with Jimmy Carter.
Another example is what I mentioned earlier. I wanted to extend IRAs to folks who could not afford enough money per year to have it make sense to pay Merrill Lynch an annual fee on what might only be 200 or 500 dollars a year. Why pay 5% to 10% of that in a fee? So I wanted to use CRA to force Merrill etc. to give free accounts to less wealthy folks. It might not accumulate enough to replace Social Security but if it totals 100K after 40 years, that ain't so bad as a supplement! This lets those folks invest for retirement just like you or I or Bill Gates (ok, bit of a stretch) would do. I think it is very empowering for someone to have a home and a retirement fund. I think it would lessen what I consider to be irrational anger at wall street which Obama etc are fueling. They need help but not charity. Or as my hero Jack Kemp said "empowerment, not entitlement."
That is my version I guess of compassionate conservatism. I believe that Republican classic values are no less compassionate than Democratic ones. We just go at it from a different philosophical bent. I believe that it is bad for society and the individual to perpetuate welfare. I think charity has a place but I think giving with no hand up drags down the spirit. I understand that the starving have no room for spirit until they are fed but I think we can make folks feel good about themselves by treating them as citizens, not charity cases.
Interestingly, just like Barney Frank et al's desire to do good had unfortunate consequences (IMO), every attempt of mine to do social good has had costs. Difference is mine cost me money, not the country its economy.
OK, I have babbled on about a lot more stuff than anyone here could possibly care about so let me apologize to anyone still reading this blog version of war and peace. I know I didn't answer you on specifics of what I want to see but I copped out and told you mostly what I don't want. Sorry but just because I talk a lot doesn't mean that i know any more than you about the details of this mess. I know what I have had reason to learn and I can apply that to a little more but this mess is an octopus with eighty arms instead of eight
(1) I think we both can settle on what's been said. Whether wrong or right, it appears that constituent pressure or political pandering are going to limit executive compensation.
(2) I'm not sure about the notion that "gotcha" questions are a sign of disrespect. Or more precisely maybe I'm okay with them being disrespectful if the error being argued about is indeed wrong. If someone gets a fact wrong, then they deserve to have that point - not the person - disrespected.
I'm sure you've seen the recent CBS Katie Couric interview with Palin and McCain. Couric highlights a discrepancy between Palin's and McCain's position on a foreign policy matter. Palin, like Obama, answered a voter's question about hypothetical unilateral U.S. military action in Pakistan without the foreign government's consent. McCain in the first debate said that Obama was naive (or something to that effect) about discussing such matters openly. When Couric pressed the issued and asked if this was a discrepency between the two, McCain and Palin avoided answering called this a "gotcha" question by a journalist. Couric said, it was actually a question from a voter and that Palin was quite specific in her answer. I'd say that it is a legitimate question to ask if a Presidential candidate and his or her VEEP candidate agree on an issue.
I also take exception to the idea that debates should focus on candidates making their points rather than "winning" a debate. Just because a candidate makes his or her point, doesn't mean that that point is right or true. For instance, a candidate could make his or her point and illustrate an opposing candidate's position inaccurately. The whole point of asking questions (and I'm not sure what distinguishes a "gotcha" question from an ordinary question) is to ascertain the truth. To me, winning a debate entails having a stronger argument than the opponent. And the strength of an argument is in great part determined by the truth of its evidence.
(3) Being precise can be understandably taxing. But I do think it is necessary if people are to communicate with one another effectively. As for Chucky, Barney and Chrissy, I don't know enough about their records - other than from your posts - to give a satisfactory response. I can say, though that when you substitute "Congress for "Chucky, Barney, and Chrissy" the argument is affected. For example you said,
"I lay the lion's share of the blame on Congress, or that specific subset I keep naming, because...[1.2.3.4.5.]"
Haven't the Republicans had the majority in Congress over much of the past decade or longer? And again, I'll plead my ignorance about these Senator's voting records, but in this context, can you squarely lay the blame on these three senators? Were they this powerful?
Am I right in reading that you wrote that Bush and McCain pushed for regulation and Obama's words indicate he is for deregulation? If so please send me the information or examples of these cases.
Am I also right in reading that you tried passing a law? So are you a Congressman? If so, it's an honor debating with you. (If not, an honor still!)
(4) Completely agree with this:
"Wall Street is good for Main Street, not toxic to Main Street. They have a symbiotic relationship which true, does sometimes swing too far toward either extreme of the arc. EVERY working American should have a stake in Wall Street."
If I understand this correctly, I think I agree with this:
"We can ban or regulate derivatives and MBSs and risk mitigating securities."
I think that many legislators now agree that mark-to-market needs to go.
However, I feel I have to part with you on your plan to privatize Social Security. There is no question there is an impending problem with funding, but I'm just not sure that privatization is the right path. I think that investing could lead to higher returns, but I'm worried that it could also lead to higher losses. I believe the the current system is set up to make sure no one loses (except of course those who could have been richer in a privatized scheme).
I also think that investing is not a trade that everyone can do because it requires a degree of smarts - smarts stupid people don't have! Again, losses might ensue. I just imagine what would have happened if President Bush had succeeded in his effort to privatize Social Security. Wouldn't many people be losing or under threat of losing their retirement in the current market?
My knee-jerk objections aside, I'm not sure I understand your plan. Are you saying that we take the money that would have gone into the bailout, put it towards privatizing Social Security, and get people to invest in the market?
If I have this right, then would this necessarily lead us away from the credit crisis? I mean don't we have to find a way to get rid of these bad assets and reopen credit floodgates? Or would your plan do this?
1. It certainly is. As I was afraid of, Congress is apparently now tying funding for Ike relief into this bill and all sorts of issues from another bill that is a bundle of tax issues to make the political cost of not voting for this bill higher. In other words if the House Reps or the Blue Dog Dems don't vote for this bill when next presented, they will be accused of voting against hurricane relief for those hurt by Ike. This is exactly what I said I DIDN"T want to see happen. Muddying the waters of this bill for political reasons so that if the bill sucks, it still goes through for all the wrong reasons.
2. My example of a gotcha question was asking Palin what she thought of the Bush doctrine. I say this because Gibson had to know that there are several issues that have been referred to as the Bush doctrine and when asked to clarify the question, he declined to explain. If he really wanted to know what she thought about preemptive attacks, or the Axis of Evil, or intent to destroy global terrorism organizations, he could have explained what he wanted her commentary on. Instead he played gotcha with the question by insisting she respond to the "Bush Doctrine". I say he did this knowingly because Gibson had previously described it one way and that night after she answered his pseudo question as best she could, he gave a different definition of the Bush doctrine. A gotcha question is one where you don't really want the answer, you want a flub you can make hay off of. either for partisan reasons or just because it is good for ratings. This is why when I watch the debate, I do not want TMZ moments. I want to know what they really think. I already know that Palin is weakest of the 4 on foreign policy. No shame in that. So why hit us over the head with it? Let her demonstrate what she does know instead of making a gotcha moment. I know Biden. I don't need to hear him. I want to hear her. I want to see if she can beat the odds and hold her own. But we know darn well she will be given scant chance to show us her self. Everyone wants to see her flop. Letterman and Leno want it. Gloria Steinem and Rosie ODonnell want it. Biden and Obama want it. The network wants it. I like Gwen Ifill from back in the days when she was local here in DC and think she is good at her job and scrupulously fair, but now her book deal gives us reason to think even the moderator wants it of all silliness.
3. I do believe they were this powerful for three reasons. first they were long timers and power in congress does accumulate with longevity; In the vernacular, they know where the bodies are buried. second, and related, part of power increasing with longevity is key committee assignments and these guys held the key committee posts regarding Fannie, Freddie and the specifics of most of what we are talking about, and last neither side has had the 60% necessary to override a veto in ages so having the majority has a lot of import but not enough to cram something through. Either side with enough of its members standing firm can kill any bill even from the minority position. So even when the Repubs ruled the Pres, the senate and the house, the Dems could block their attempts to regulate the GSEs (fannie and freddie). I believe the three of them WERE this powerful but don't forget, Power in the congress comes from getting your buddies to vote with you. The Congressional Black Caucus for one group of "buddies" were unanimous in backing their attempts to protect the GSEs. This was natural because it helped much of their specific constituencies. So while any one of those guys is only so powerful, he brings certain alliances with him.
I am no congressman. I like politics but hate the limelight. I don't have that kind of money or ambition. When I was building low income houses, Jack Kemp was secretary of HUD. We worked together on what I was doing and I supported (euphemism for gave and raised money) for him. Later when he had his "think tank" Empower America, I went to him with a couple ideas I had, the ones I described in that post and one other. He basically patted me on the head and told me to run along but he did give me a couple contacts and they pretty much went nowhere in terms of getting a congressman to sponsor it as an actual bill. Sorry if I gave the impression of something of more importance. But like the money losing low income homebuilding, I loved every minute of it. The third idea has been implemented by a friend and I have written studies on it trying to drum up more interest but so far it is a hobby/dream that won't grow into more, no matter how good an idea "I" think it is.
What I said about Bush & McCain is that in 2004 and 2005, Greenspan had been hammering the Freddie/Fannie issues and the administration started beating the drum on this. Not ONLY for altruistic reasons. It was no secret that ACORN/MAC/MAE were funneling huge money into democratic party campaigns. So while in retrospect they were right on fiscal, moral and legal grounds as well, it didn't hurt that they were going after BIG Dem money. It would be like today doing the right thing and oh, by the way, taking down George Soros. So the administration went after MORE, not less regulations for the GSEs and attacked Franklin Raines. McCain was a part of that effort when the Senate set up the hearings under Chris Shay. If I said Obama was in favor of deregulation, I misspoke. I think I said somewhere that Obama was blaming the current problem on Republican efforts to deregulate Wall Street. At that point I agreed with you that Republicans generally favor deregulation but in the narrow scope of the GSEs which I believe are at the heart of this problem, when the Republican administration and legislators tried to regulate them to avoid exactly what we are now going through, it was the Dems who fought it. So that single instance was a reversal of normal roles, yes I agree with that. At the bottom of one of the posts I made today on this thread/argument is a link to some video of Republicans (specifically Chris Shays who led the hearing) pushing for regulation of the GSEs and of many Dems (including Frank and several prominent members of the Congressional Black Caucus indignant that anyone would want more regulation of the GSEs which had no fiscal probs and were doing such a good job. Interesting is that one of the guys seen in there, a young Rep from Alabama has recently apologized for being blind to the problems, much to his credit.
I understand completely the resistance to privatizing social security. I am for it for a couple reasons. Inflation is usually 2 to 3 percent. Social Security averages a 1.5% return on your "investment". SO instead of making sure no one loses, it guarantees that EVERYONE loses. I would not want anyone to have choices in the privatization. I agree that not everyone can invest successfully . . . not because they aren't smart enough but because most of us don't have the discipline it takes to resist our wrong headed instincts. Stocks are the only thing I can think of that the average person refuses to buy on sale and cant buy enough of when it is marked up to a premium. The only people who are losing money in the current market are those who have to sell to live now. If you are investing in your IRA, You are now buying twice as many shares of the same stocks as you were 6 months ago. Since you are going to sell it in when you retire in say 20 years (my target date as I am 50), the price you sell it at will be the same for the one share you bought 6 months ago as for the 2 shares you bought today. If you are retiring in a year or so, you may get hurt. But if you have been investing in your IRA or your 401K for 30 years, you are still ahead more than social security's 1.5% return. Just not as far ahead as you were 6 months ago. Does that make sense? You don't have to be smart to get this . . . just brave! You have to keep sending in your monthly check to your IRA as the market is crashing all around you. I suggest looking at the number of shares you are buying, keep diversifying and don't look at the balance because in the 20 years between now and when i sell it, it will be up, it will be down, sometimes it will go sideways. But the more shares I have, the more I will have to sell at WHATEVER the price is on retirement day. So down 777 points on the Dow is like going on sale for 8% less than the day before (rounded). I will say that if the market had gone down 666 points instead of 777 . . . I might have rethought my position on a LOT of things! Lil
Briefly back to privatization. My biggest objection to it is this. I don't want the govt dumping HUGE amounts of social security dollars into the market. Someone is gonna get rich and it wont be me. But this 700B bill is a unique opportunity. Think of it this way. We already (the collective we, the taxpayers) took warrants and stock from companies we have helped out already. We are talking about taking on another big bunch of assets. Let's say we have a trillion dollars worth of assets in exchange for deals already made plus the new 700B. Lets say we give that trillion in assets to the social security trust fund. The trust fund now has assets. Next month you pay, as you do every month 77 dollars in social security premiums (made up number). This time, instead of giving the $77 to the general fund as usual and the general fund sending an IOU to the social security trust fund, your social security account gets a credit or claim of $27 against the assets represented by that trillion dollars worth of warrants, mortgages, homes etc. The other $50 gets handled as usual. So you have your safety net of $50 plus $27 of more risky but potentially more profitable holdings. The govt is going to hold those assets anyway so the taxpayers are assuming the risk anyway. The 700B would be used to do exactly what it is going to do anyway but the assets would be held in social security. The govt doesn't have to dump a trillion dollars into the stock/bond market and the growing deficit in the social security books either shrinks or grows slower. I have no doubt there area million reasons why this wont work. Reasons I cant imagine never mind think of. But this kind of drastic move is what I want now. Normally I don't want to let a Ron Paul remake our country all at once. Whiplash would kill us even if he was absolutely 100% correct. But in the crisis mode we are in, I want bold action to fix things, not to bandaid a hemorrhage. Now is the time, as the other thread/argument said to be VALIANT!
By the time all is said and done, the taxpayer won't lose a dime.
The government will buy these assets for dirt cheap. In two to three years, when the market is better, these assets should be worth more than the government bought them for.
And if they aren't, then the bill has a clause that says "any losses will be assesed to the banks" so that taxpayers don't lose any money.
We need a big bailout to get credit moving. If it doesn't happen, we may see another great depression.
I am not sure you are correct. I am not sure that investors will sell for 30 cents on the dollar. I am also not sure that the housing market will bounce back so quickly. There is a lot of pressure to keep stocks and housing from bouncing back up quickly. There is going to be a lot of money that consumers don't put back into the system by spending as they used to do and is used to pay down debt and put into savings. The consumer is the engine for growth and I think he is going to withhold fuel for the next boom. Investors, including institutional investors are not chasing these speculative gains you are predicting. They are in gold and TBills and bonds. Look at what happened to yields today. The main short term problem is keeping money in the banks and out of safe havens like TBills. We are going to have to do something like the Cramer suggestion of increasing FDIC guarantees of deposits to prevent a run on commercial regional banks. The issues here are so big that I cannot even begin to understand or even detect the pitfalls awaiting us at every turn. I do know that Congressional leadership is not our friend in this. They started this problem. I do know that anger over executive compensation and other silly knee jerk pandering is counterproductive.
The revolution of the House Republicans is a GOOD sign. Someone is thinking about the issues and not about partisan politics. The Bush plan was a joke and the Democratic modifications were more of the same. Congress is the problem, not the solution. Hopefully now the Congress can go back to work and cobble together a bill to actually fix something without pandering to people's fears and worries and frankly ignorance of the real issues. This was a bad bill and its death is a good thing. The Dems are on TV right now trying to make this a partisan issue but over 40% of the Dems refused to vote for this abomination too. It is not about partisanship as much as it is about backbone. Who had the backbone to buck the leadership of their own party. They all need to come back with a bill that goes beyond this one with none of the nonsense intended to make a scapegoat or pander to voters.There are bigger issues than the mortgages and they need to be addressed as well. Liquidity, bank runs, currency issues, dollar issues . . . if we don't have a comprehensive approach, we will just throw away money as usual when Congress signs something into law.
I don't think that's the case at all. I think who bears responsibility are the banks who ignored risk and started lending in this manner. I also blame the last 20 years of financial deregulation which led us right into the mess we're in today.
I agree, we have a problem of confidence. I also think FDIC reserves should be boosted (wait, isn't that Congress who does that?!?).
And Lastly, i think the president, fed chairman, and treasury secretary should go in front of the nation everyday and remind people that there is plenty of cash in the system and that nobody is going to lose their accounts.
With that said, as long as banks are holding on to bad assets and hoarding cash to anticipate future losses, then the credit markets will not function normally.
Have you seen what's happening in the commercial paper and credit default markets? It's crazy. Margin calls of well over $150 billion were made last week alone.
What happened today, was nothing more than politics. It's an election season and certain republicans want to keep their "Free market" credentials before re-election.
I can nearly guarantee that if this crisis had occurred after the elections, the bill would have made it through congress just fine.
So let me see if I understand. You think that 20 years of deregulation is the problem. And yet you feel that the legislative branch, who is responsible for regulation is innocent of wrong doing. You think banks are responsible for doing what Congress told them and incentivized them to do but Congress isn't to blame. I assume that you also think it is a coincidence that when the current administration tried to regulate Mac and Mae because Greenspan warned of the crisis we are currently facing, Congressional leadership ( I have cited the names specifically often enough already) fought him tooth and nail. And it is a further coincidence that that unholy trinity, along with Barack obama are the largest recipients of lobbying funds from Mac, Mae and ACORN. Congress passed the Community Reinvestment Act which mandated sub prime loans. You think banks came up with the idea of making bad loans on their own? THE GOVERNMENT SAID THEY HAD TO MAKE THOSE LOANS. As part of the regulation of banks which you think was inadequate. This is why Republicans HATE over regulation. Congress invariably passes laws in a knee jerk, reactionary, pandering way that has effects they never intended. Barney, Chucky and Chrissy never meant to torpedo the World's economy when they said lenders must make sub prime loans. But that is what they did. By regulating. Without having a clue what they are doing. You want more regulation but you refuse to admit that it was the current regulation that started this whole thing.
The commercial paper is worthless on the books despite having real value and this is causing the credit default crisis. 30 to one leveraging, credit default swap securities, mortgage backed securities . . . all of these derivative actions were prompted, welcomed and coordinated by the folks who created Mac and Mae and gave them their mission. This part of the derivatives market worked hand in hand with the entities Frank and Dodd created. They had to exist because the lenders understood what Frank didn't. That sub prime is another word for bad. And they are all exacerbated by Mark to Market accounting. And where did Mark to Market accounting come from? Sarbanes Oxley. Overzealous REGULATION done in a knee jerk reaction to Enron so the CONGRESS could go home and tell the voters they did something. This problem was caused by BAD regulation, not a lack of regulation.
What else are banks supposed to do? ALL investors are on the sidelines which will kill jobs and kill growth. Taking bad loans out of the system to the tune of 700B is NOT enough. We need to fix the problem, not feed it. We need to kill Fannie and Freddie, replace them with covered bonds, guarantee bad loan losses so the market can trash derivatives, remake the system so lenders stay on the hook so if they make bad loans and fudge careful underwriting they take the hit. But it is not fair, equitable or possible to punish lenders for what Congress forced them to do. And trusting the unholy trinity to fix what they messed up is the height of folly. Fannie Freddie and ACORN pump way too much money into their campaign pockets as well as Obama's for us to trust them to get rid of them. DO you know that is only two years in the senate, Obama is second in fund received from them over the last nine years? In two years he has gotten more money than all but one senator has over the last NINE years. How can we trust him to do what needs to be done when it is hurting the very folks who underwrite him? Dems went ape shit when Cheney had the gall to meet with oil execs when trying to formulate an energy plan. Who the F would you meet with to discus an energy policy? Sheep farmers? Those execs weren't paid to come have Cheney consult them. But Dems screamed bloody murder. Now that we need Fannie and Freddie eliminated or at the very least fixed, we don't worry at all that the very representatives of the people who profited most from and dictated the mission to the Maes and Macs and ACORNs who screwed us. Where is your outrage at this craziness? To paraphrase, crazy is letting the crooks who broke it, now fix it and expecting anything different.
Lastly, your "nearly guarantee" is worth all of what the guarantor is worth. I will leave you ponder just how much comfort I "nearly" take from your "nearly" guarantee.
So you don't think, not even for a second, that it was the financial industry that lobbied the hell out of our politicians for relaxed rules?
You don't think that leveraging by 30 times... would eventually lead to chaos? You don't think that banks and the financial institutions did absolutely nothing wrong? That it was all a cause of legislation?
Last time I checked, legislation typically comes about because the industry lobbies politicians for new rules and regulations. And let's not forget that our entire Federal Reserve system is bought and owned by the biggest bankers in the nation.
It seems to me, that Wall Street has a little too much power on capital hill. And that greed, more than anything else, drove their decisions and got them into the mess they are in today.
If the industry didn't agree with what congress was saying, wouldn't they have lobbied against that? And somehow, i bet they didn't lobby against it at all. In fact, they got in deeper and deeper even recognizing the serious risks of it.
Anyone who paid attention to the financial markets saw this coming years ago. So why weren't the big banks and institutions prepared for it? Greed and stupidity.
As far as Mark to Market rules, I don't think they are bad at all. The only time they are bad is when big banks put too much of their worth into one group of assets that all go bad at the same time (like right now).
Lesson? Maybe some diversification would have done the trick, don't ya think?
Also, these rules had been around long before Sarbanes Oxley. One thing Sarbanes did was eliminate mark to model or mark to fantasy accounting (you know, what Enron did).
Either way, it looks like the SEC temporarily haulted Mark to Market accounting. Mainly because real estate assets are worth dick and banks would have been trully exposed for the frauds they perpetrated.
A classic case of insiders helping insiders, no doubt.
I just don't know why you don't understand that. Or why you give off the impression that in an unregulated market, worse frauds than happen today would be the norm.
I am POSITIVE that the financial industry lobbies constantly against regulation of their industry. Sometimes I am sure I would agree with them and sometimes disagree. But I am likewise positive that that industry did NOT lobby Congress to be mandated to make bad loans. I am not against regulation. I am against BAD regulation and forced hurried knee jerk regulation without study of the potential ramifications. I am against regulation that has self interest at its root. The Dems I keep bringing up tried to get money funneled to their own personal ATM, ACORN in this bill and House Republicans raised a ruckus. I am against unrelated pet projects or self dealing being attached to all regulation.
I have repeatedly said that it is not my assertion that the lenders AND the borrowers are partly to blame. But you had better check again. The problem legislation was hated by banks and forced on them. They DID engage in lobbying efforts against CRA but it was enacted for two reasons. A misguided attempt to do good and an opportunity to enrich their campaign coffers. Certainly not out of any lobbying efforts by the Banking community.
Some day all Dem sympathizers have to realize that Lobbying works both ways. Labor Unions, Trial Lawyers and ACORN spend gobs and gobs of money just like oil industry lobbies do. Barack is "in the pocket" of ACORN to at least as big a degree as Cheney is in the pocket of the oil lobby. We all have a past. Obama worked as a lawyer for the Woods Fund with Ayres, the Annenberg Challenge with Ayres and ACORN, trained their activists and taught the principles of Saul Alinsky to them. Take that as you want but it is no different, zip, nada, nuttin' different than Cheney running Halliburton. Did Banks lobby against CRA? Of course they did. But like all Dems you think one sided. Why don't you ask whether anyone lobbied FOR the bill? Radical liberals are no longer useless hippies. They have organized under Alinsky's principles and formed groups like ACORN.
Why weren't the banks ready for it? Because the govt made them engage in it and made it SO profitable they couldn't just stop taking the money. It was a game of musical chairs. You don't stop playing because you know only one will survive. Answer your own question. Congress knew the problem was coming because Greenspan and the administration tried to pass regulations to avoid this crisis. Barney, Chrissy and Chucky and the whole black caucus called the changes racist and attacking the poor and the changes died. Now they are still blaming the Republicans. Take a look at the video below for what they said against changing regulation in 2005 ( I think that was the year). Granted it is edited but I think the one sidedness of it is accurate. And this was just three years ago, not back in the 70s when CRA came around or the thirties. As an interesting note, Rep Davis of Alabama has recently apologized for being wrong back then
You are twisting facts. real estate has value. Values have come down from highs artificially sustained by bad regulations. THAT was the fraud, not the lending of the money. When the money was lent it had a certain value. That value has plummeted but certainly not to zero. It is the loans that are affected by Mark to Marketing, not the underlying real estate. The insiders are the self dealing congressmen who made this mess and then refused to let it be cleaned up before it tanked the whole economy. Mark to Market existed prior to S-O but was an obscure footnote to GAAP. S-O made it the method of choice as dictated by the federal govt. I don't know why you don't admit this, because I am sure you understand it clearly. If you really believe that a lender is to blame for doing EXACTLY what the government told him he has to do . . . what response can I give you??
The knee-jerk response is to say "no!" because it all came from greed, mismanagement, and lack of oversight and regulations. But the sad truth is that the economy truly will fail if our financial institutions fail.
It is imperative, however, that there be severe restrictions on CEO salaries and golden parachutes. Also, there must be an oversight panel that keeps track of and approves of how every penny is spent. The original bailout was an unfettered blank check, which is the same as giving a sub prime loan to an individual who can't afford to make the payments. It is this kind of irresponsibility that started the whole downfall!
"The first few hours were intense and contentious, participants said, marked by shouting over executive pay and a last-minute Democratic request for a fee on the financial services industry to cover the cost of the bailout program."
I trust Barack Obama and my Democratic representatives to make sure that the bailout protects and serves the taxpayers. Yes, Main Street, not Wall Street.
I'm inclined to agree on you with this with one exception. Is the sad truth that the economy WILL fail if some of our financial institutions fail?
The portion about CEO salaries is a part of what irks me and from that same article; "According to a recent report by the Institute for Policy Studies, the chief executives of large U.S. companies made an average of $10.5 million last year, 344 times the pay of the average worker." Considering there have already been 'Golden Parachutes' seen in the skies before so many companies went down...and those because they saw the handwriting on the wall. We must find a way to bring these Gold Digging executivess to justice and penalize them monetarily for life if needs be.
Any bank, like Bank of America, JP Morgan/Chase or financial institution that is still viable should be buying up some debt here. I don't trust Ben Bernake or Paulson or practically anyone else in this matter but I listened to a video the other day that made some sense to me. I admit, I am NO financial wizard by any stretch of the imagination and don't usually get involved in discussion revolving around finances but please watch this and see if it makes any sense to you as it did me. I am of the opinion that NO taxpayer dollars go to bail these crooks out. Find the way to let them help themselves as they have to our money and investments.
wow, if any of that made some sense to you, you are way beyond me. I understood so little of it I can barely comment on it. I assume level three assets are derivatives such as mortgage backed securities and asset default swaps but am not sure. Disclosure is never a bad idea but it does have costs to it. I have no idea of the possibility, costs and effects of taking derivatives off OTC and onto an exchange but i do like the idea on the surface of stopping the arbitrage of such securities. I find it hard to believe that this would solve a large part of the crisis but I admit freely most of this is over my head. Leverage is something I have been talking about and I agree with that part.
Maybe I just have a problem trusting someone named "Carl, your ticker guy" with fixing our economy. :)
I agree with everything except your last statement.
Did you know that Barack Obama signed a bill that prevented reform of Fannie and Freddie back in 2005? Had that bill passed, Fannie and Freddie would have been fixed then, and not bailed out (Causing the mess it did) now.
From a recent response...
"A bill passed the Senate Banking Committee that would create a regulator that would cause Fannie and Freddie to rid their investments in high risk paper as well as additional oversight. Too bad the bill didn't pass, because things would be a lot different today. The bill never made it to the Senate floor because the democrats blocked it.
It was Senate Bill #190 and was, incidentally, co-sponsored by Senator John McCain, blocked by Senator Chris Dodd (who received over $125,000 in campaign contributions from Fannie and Freddie), Senator Barack Obama (who received over $165,000 from Fannie and Freddie), Senator Hillary Clinton (who received over $75,000 from Fannie and Freddie). You can throw Barney Franks in there too."
I don't trust Barack because I don't trust any politician. They are all opportunists who are bought out by the elite.
Who should pay them back with interest? The homeowner who is having his foreclosure forestalled by a govt bailout and will likely have his mortgage renegotiated to an extent that he can afford? The banks who made him the loan merely to collect their fees and then pass on the bad loan ticking like a time bomb to either Freddie or Fannie or some private equity investor? Or the private investor/Freddie/Fannie whom we are bailing out of their mistake? Or congress who dictated that all three of these players HAD to participate in this boondoggle? Just who should pay this interest?
From a different perspective, perhaps Americans should consider their standing as a member of the world economy. International investors want their investments returned. They were lenders whom brokers sold mortgages to. They were shareholders in Bear Stearns, in AIG. When an American broker uses foreign money to give trailer trash a home, the American broker earns the money, the American citizen gets the home, but if it fails, it's not the broker or the homeowner who looses out, it's the foreign investor. These investors were sold falsely classified investments, what should have been rated D but were instead marketed as AAA. Now, how will the international financial community feel about this gross subversion of trust? Do you think, if they never get any of their investment back, that they would ever again invest in America? America has a reputation to hold. The world has been hurt. If you do not address this loss of confidence, then the world will hurt America back. IF a bailout does not occur, and foreign investors do not get their money back, then America can wave foreign investment goodbye. That is why congress needs to bail out the banks, to protect America's reputation, or at least, salvage it.
P.S. This is in reference to the second bailout proposition.
yes i beleive that we need this because at the rate were going we will be in the middle of the next great depression in just a few years. WE NEED THIS BILL!!!!!!!!!!!
First of all, anyone who answers your specific question right now is not worth reading. No one has seen the form of the final bill to be voted on as it is being written as we speak, or so I understand.
To speak in some general concepts is something worthwhile. I would make the following points.
First, it is not the banks who we are bailing out. The banks made these loans with little underwriting being done. This is because Congress mandated that Fannie and Freddie would trade in these loans to unqualified borrowers. So the banks could take their fees and get the bad loans to be off of their books. So let's understand what has happened here.
Congress, specifically Barney Frank, Chuck Shumer and Chris Dodd, tried to do a good thing, encourage homeownership by less advantaged and qualified folks. In this country owning your own home is a key, perhaps THE key component of the American Dream so obviously this was a good thing. Forget for now that they abused the "doing a good thing" by creating an ATM out of Fannie, Freddie and ACORN to fill the coffers of key senators campaign war chests. So first Congress created the CRA, Community Reinvestment Act which literally mandated that banks must make loans to less advantaged folks in the neighborhoods in which they did business and then they mandated that Fannie and Freddie would buy/ guarantee those loans. This mean the banks could earn CRA credit and book the fees without taking on the risk of the loans which were sure to go bad. This became such a profitable and predictable and low risk income producer, the banks found ways to pass these lowered underwriting standards on to as many different groups as they could. The fact that Fannie and Freddie were mandated by the govt to buy these loans meant that private hedge funds, insurance companies, union pension funds and other huge institutional investors saw a govt endorsement of these products. This artificial support caused a bubble just as surely as "irrational exuberance" did in the equity markets ten years ago.
So what popped the bubble? The bubble saw folks buying houses for second homes or for investments which they could not afford if things were less than perfect. Just like the stock bubble people bought betting that prices could keep going up forever. Unlike your primary residence, there is less resistance to letting these properties go so foreclosure rates went up and the investors, who had a set formula for how many loans out of 100 would go bad, suddenly found that their formulas were worthless. They had no idea how to price the packages of mortgages so they stopped buying them. Without these investors, the banks and mortgage companies were stuck with their mortgages which meant two things. No liquidity so they didn't have the money to make new loans, and they were stuck with these bad loans on their OWN books. However unlike private investors, banks are subject to govt regulation. So when a loan goes bad, a bank has to increase capital reserves, which mean they have even LESS money to conduct normal business.
Now let's make sure a couple things are clear. When the government mandates that Fannie and Freddie buy up these loans, it is telling the banks it wants these loans made. So while the banks and mortgage companies might have been greedy and opportunistic and turned the loans into uses never intentioned, they were reacting to the government mandate to push sub prime loans.
OK, now that we know what happened, what needs to be fixed? First, we need the bad loans removed from the packages of mortgage backed securities so that investors can price these vehicles and restore liquidity to the market. Next we need to make sure that the entity doing the underwriting keeps some of the risk so that they will seriously underwrite their loans. My personal choice for doing both of these in one fell swoop is to remove Freddie and Fannie from the equation and replace them with covered bonds. A covered bond stays on the banks books and if a mortgage in the portfolio underlying the bond goes bad, the originator has to replace it with a good loan. So liquidity is restored because the investor knows what he is getting. The bank has a hammer over it to seriously underwrite loans because their bad decisions stay on their books. Fannie and Freddie are removed from the equation because they have been abused. Money funneled to them was used to enrich not only shareholders and execs which is fine for a private company but not for a government sponsored entity but also to fill the coffers of Senators who protected Fannie and Freddie when Green span, the administration and a few brave congressmen actually tried to impose some restraint on the system over the last 5 years.
So, I do not think the bill should pass as I understand it to be formed. I do NOT think that executive compensation is the issue here. It is mere pandering by the very senators who caused this mess in the first place. I absolutely would go wild if any money were put into the slush fund existing for years at Fannie, Freddie or ACORN. Any profits, and frankly I don't believe there will be any profits but any money generated should either be used to pay down the social security deficit or pay off debt. Nothing else is acceptable and you just KNOW that it will get diverted in the future. Fannie and Freddie have to either be dismantled by a covered bond structure or at the very least they cannot pay lobbyists or in any way influence the congress which has treated them like an ATM. There should be NO add ons, earmarks, unrelated riders, pet projects or anything muddying up this bill. If you want to target exec pay, fine. But don't do it here; it has nothing to do with this issue. It is merely pandering. Oversight cannot be by the same people who caused this problem. Namely the pertinent committee chairmen (Barney, Chucky and Chrissy). They should be forced to admit that they screwed up and fall on their swords. Allow them to claim they had the best of intentions but they must admit they screwed up and were primarily responsible for this mess. First for putting the government stamp of approval on these loans and then by fighting and stymieing the efforts over the last few years to address the Fannie/Freddie mess before it got to this stage. Last, no recess for Congress.
As soon as this bill in a form acceptable passes, they need to address the underlying, potentially bigger problem of the dollar crisis. Investors liked to say that the "ROW", rest of world, could thrive while we floundered and so they either invested in foreign countries (BRIC, Brazil, Russia, India and China) or in commodities that these countries needed like hard metals and energy. But recent events have proven that if we get a cold, the rest of the world sneezes. There are underlying dollar issues that Congress needs to address. And if they have any energy after they are done with all that, there are the good ole mundane things that Congress has refused to address for decades, social security, welfare, health care and the deficit/debt load.
Hard to believe as long as that post was that I forgot something but . . . Has anyone heard whether we will be buying up these bad loans at face value? A percentage of face value? A percentage of new appraised value? Will Mark to Market and BPOs be continued or disposed of? Too much that we don't know about this deal.
Here's another take on the reasons we should not bail them out. I know you guys are gonna yell, but it comes from a guy at Huffington named Dean Baker. It makes sense to me as well! Again, bear in mind I am no financial guru but I do try and weigh what I have read from both sides. Perhaps because of my inexperience in such matters I'm taking a more simplistic view but I do know that sometimes, the simplest way out happens to be the best way out...and I do not believe in my heart and mind we should bail these thieves out! I'm thinking they really are trying to scare us to death so we'll shut-up and go with it!
Again, Dean Baker on the Bailout and the "Great Depression" that would never ensue if they were not bailed out. It is said that the bill was passed tonight. I'm going to have to see the language of the bill and how it helps taxpayers and metes out justice for those who stole our money and retired to Egypt with it!
The numbers may not be exactly right yet on this, but I like the idea of "fixing it from the bottom up" as opposed to the top down. Hopefully Kucinich isn't ignored (which he usually is) by both sides. I'd have to think that at face value at least this is a plan dems and republicans can get behind.
This plan is not too far off from the reference I have made a couple times to privatizing a portion of social security with the warrants and preferred stock and real estate assets the govt is accumulating. Instinctually I like it but I am sure there is a ton of mess behind it I haven't thought of yet. I really, REALLY hate the idea of the govt being a player in the equities market with a presence bigger than every hedge fund and union pension and mutual fund as this fund increases over the years. But I like privatization and am not sure how else you accomplish it.
I think both sides would do well to listen more to both Kucinich AND Ron Paul even though I think they are both dangerous with too much power, they are both valuable sounding boards and smart independent thinkers.
it is a very stupid plan. our country is trillions of dolllars in debt,yet we are spending billions more which is just digging a big burden for our kids and grandkids.
all of this money should come back as the assets mature. Plus, it looks like companies will be on the hook to pay for some of the losses, if they even occur.
Still see conflicting details. One article says there are limits on exec compensation in companies dealing with this new program but another doesn't say limits, but says companies will be taxed on golden parachutes. so no idea what the facts are there. Also still have no idea how govt is going to legally rewrite employment contracts already in place. It looks like there will be a reverse auction so that the investor who bids the lowest price on their toxic loans will be bought out. No idea yet what that means in terms of likelihood that deal turns a profit or how much room is created to deal with homeowner. Modifications to the "Hope for Homeowner" program are referred to but aren't detailed. My understanding is that only BAC/Countrywide has shown any interest in this program. None of the unholy three are included on any oversight capacity except as part of the whole congress and in choosing members of outside oversight chosen by Congressional leadership. New concern is how much the various levels of admin are going to cost over and above the 700B. Also no details on how the warrants are handled. Seems to me these could be put into Social Security as a part of a partial privatization that is eventually going to have to be part of any plan to save Soc Sec. They are studying a rejection of mark to market accounting. Lots of meat in here but still just looking at summaries. I don't trust the details until i see what pet projects are in here.
