End of the World As We Know It

[CityK]

If (i) is covered (it is), then (ii) isn't an issue unless (iii) happens. Correct?

Well, if you don't mind any disruptions and hassles of having funds in a failed bank then I guess (... though you will have to keep in mind that, IIRC, it is only your capital that is covered .. i.e. no interest paid on your deposits/CD during the period ... but you'll have to check that for sure as I'm not familiar with the specifics as they don't apply to me -- but I thouroughly encourage you to do so ... after all, it is your money at risk!)

I suspect that Stanford FCU is a fairly safe place to be.

I've seen a about three or four bank rating websites that are pretty good. bankratings.com (IIRC) is one.

Would you try to part of something that is "too big to fail"?

That might not be a bad idea, but

Or will that stop mattering soon?

that's the thing -- who is going to survive ? JP Morgan and BAC are good bets of getting a gov't get out of jail free card, but if a cascading event occurs, their counterparty exposures may be even too great for that.

 

[CityK]

also bear in mind dd that a crash & or depression is not a guaranteed thing ... and I hate sounding like an alarmist (for that matter most people won't even listen -- they don't want to hear this kind of stuff, and who can blame them -- life is hard enough on a regular daily basis without getting additional bad news from an area that affects everyone so greatly, but which so few have a grasp upon).

But, in any regard, it should be clear that I'm very bearish. Things are really dire. And I don't think that a crash is avoidable now.

 

[Mercutio]

Now, all I really want is for Stereodude to pop in and tell us how this could've been avoided if we had just regulated financial institutions even less.

 

[CityK]

Here are two things I came across tonight that I thought are worth sharing:

1) Remember how Paulson and Bernenke and the likes have been telling you all along that all is contained, everyone is well capitalized, the economy is sound blah blah blah?

From an NY Times "Congressional Leaders Stunned by Warnings" article tonight:
" Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hil ... the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”


That congressional leaders are stunned is a no brainer :razz: But seriously, that these people are stunned by the contagion is not atypical --- there are actually many in banking system itself that have just slowly awoke to the fact that there are serious problems. I'm not kidding that there is a corporate culture that dislikes those who raise alarms -- on trading desks your expected ring up profits and not rock the boat, cause rocking the boat threatens bonuses. Hence, people and organizations were discouraged from prudent behaviour. Either it is a case of see no evil, speak no evil, hear no evil or not my problem, don't care about it, and it would likely threaten my bonus if I did care about it....so, for example, if you think for a second that someone, like that "rouge" SG trader acted without anyone else's knowledge, well then friend, I have some prime real estate I think you'd be really interested in, just follow me this way sir ....

2) From the newswire article China Fund Rules Out Plan To Bailout Morgan Stanley:

" BEIJING -(Dow Jones)- China's US$200 billion sovereign wealth fund Friday ruled out any plan to step in to bailout two major Wall Street giants, citing concerns about risks and regulatory hurdles.
China Investment Corp., which has suffered losses after taking a 9.9% stake in Morgan Stanley (MS) in December, said the bank and Goldman Sachs Group Inc. (GS) can solve problems on their own as they have sound capital bases, the official Xinhua News Agency reported."


If that is true (its really hard to tell what is legitimate news, rumour etc these days, as there has been so much crap floating around and things/stories changing by the minute), then I'd say China just fired a shot across America's bow. What do they want? I don't know. But the message is clearly krafted --- the fact of the matter is that, despite official announcements to the contrary (whether they come from Paulson, MS or GS themselves, or some Chinese gov't official), MS and GS are not sound. MS would likely not have existed in its present form come this Monday had Paulson and friends not intervened in the markets. And Golden boy GS would certainly not have been far behind.

 

[CityK]

Now, all I really want is for Stereodude to pop in and tell us how this could've been avoided if we had just regulated financial institutions even less.

But here's the catch about that -- he'd be half right.

What we don't need is more regulatory agencies and government intervention. Governments are always prone to messing up -- hell they'd over spend getting out of a paper bag. But a wave of over regulation is exactly what we'll see soon, and I can already say that the beneficiaries are not going to be the little guy.

What is needed is effective regulation. Effective -- the keyword. The SEC and FDIC for example, are hopelessly understaffed and underfunded. Second, they fall squarely within the realm of the notion of regulatory capture -- just whose interests are they serving? And so on and so on.

 

[ddrueding]

Well, a CAEL of 2 seems to be pretty standard. Thanks for the tips so far.

 

[Stereodude]

Now, all I really want is for Stereodude to pop in and tell us how this could've been avoided if we had just regulated financial institutions even less.

No, I'd be popping in to point the finger at the people in gov't who pressured lenders to loan to people who couldn't repay them so that everyone could have a house whether they could afford it or not. Loose lending created the housing bubble. The collapse of the housing bubble has pretty much put us where we are today.

 

[Stereodude]

What is needed is effective regulation. Effective -- the keyword. The SEC and FDIC for example, are hopelessly understaffed and underfunded. Second, they fall squarely within the realm of the notion of regulatory capture -- just whose interests are they serving? And so on and so on.

You'll never get effective regulation from gov't because the people in government aren't smart enough to understand how the market works in order to regulate it. I bet there's not a single person in congress who can explain how derivative products work. If they can't do that, how can you possibly expect them to regulate them?

Gov't is the home of unintended consequences.

 

[Mercutio]

Loose lending created the housing bubble. The collapse of the housing bubble has pretty much put us where we are today.

And why was lending loose? Why did EVERYONE in the industry ignore fundamental rules of money management?

Because a bunch of depression-era regulations that were put in place to keep people from doing stupid things with money were relaxed or removed entirely. Because new financial instruments were created to skirt regulations in the first place . Because the "smart people" started working from the fundamentally incorrect assumption that the housing market was only going to increase in value. And because a lot of rich people, incapable of handling their responsibilities to shareholders as well as to their customers, got very greedy.

Regulation certainly does slow growth. I'm fully aware of that. It also promotes safety. I'm fine with that. I'd rather it be generally harder to get a loan for generally worthy people than watch the buying power of my income drop by half. But maybe that's just me.

 

[ddrueding]

You'll never get effective regulation from gov't because the people in government aren't smart enough to understand how the market works in order to regulate it.

Completely agree

Gov't is the home of unintended consequences.

Perhaps I'm too cynical, but I think that they are intended consequences. If you find smart people (or those who have smart advisors) in power who profited, assume they did it on purpose. I don't think this is an accident. Unprecedented amounts of money went into a few pockets here, and will continue to do so.

And why was lending loose? Why did EVERYONE in the industry ignore fundamental rules of money management?

Because a bunch of depression-era regulations that were put in place to keep people from doing stupid things with money were relaxed or removed entirely. Because new financial instruments were created to skirt regulations in the first place . Because the "smart people" started working from the fundamentally incorrect assumption that the housing market was only going to increase in value. And because a lot of rich people, incapable of handling their responsibilities to shareholders as well as to their customers, got very greedy.

Regulation certainly does slow growth. I'm fully aware of that. It also promotes safety. I'm fine with that. I'd rather it be generally harder to get a loan for generally worthy people than watch the buying power of my income drop by half. But maybe that's just me.

And I agree with all that. Good stuff.

 

[Stereodude]

And why was lending loose? Why did EVERYONE in the industry ignore fundamental rules of money management?

Well, there are several causes and plenty of blame to go around. Greenspan held interest rates so low for so long financial institutions apparently couldn't help themselves. They were lending to anyone because they could get the money so cheap to lend, so blame both Greenspan, gov't and the banks there. There was pressure on the financial institutions to lend to unqualified applicants to end "redlining". On top of that Fannie and Freddie were both operated in a corrupt fashion. They were immune from oversight of gov't regulatory agencies and were allowed to thrive despite having their money leveraged something like 33:1 because the markets generally accepted that the gov't would bail them out when push came to shove (and it did), so blame Congress for not allowing Fannie and Freddie to be regulated.

And this is just the tip of the iceberg...

 

[Gilbo]

1. Stereodude is right.

1.1 The Bush Administration's "ownership society" definitely was a prime contributor to this whole mess. They presided over the run up to the greatest bubble in all of history and they did everything the could to help it along.

1.2 If you go back even farther, Alan Greenspan's naive efforts to get the U.S. economy out of the Tech Bust just primed the pumps for yet another bust.

1.3 If you go back even farther the Government Sponsored Enterprises, Fannie Mae & Freddie Mac, we're also terrible ideas over the long term. They increased the supply of credit & money, causing market forces to compensate by inflating prices.

Hell, even your tax exemption on the interest you pay on the mortgage on your home encourage people to invest beyond their means in Real Estate. (Good luck getting rid of this... could you imagine!)

Nearly every U.S. government structure related to housing is Fucktarded in hindsight (which several people predicted in advance).



2. Mercutio is right. The regulatory hammer needs to be dropped the fuck down.

2.1 You need --most critically-- honest, rational accounting rules for all business entities. And you need them as fast as humanly possible. No more "marking to market". What is the maximum downside risk you're exposed to through derivatives contracts --no matter how improbable, if shit hits the fan, like it has, how much do you owe?

The reason they needed to stop shorting is that, because of the accounting BULLSHIT the U.S. government lets corporation get away with no one can even figure out if, on a fundamental basis, any of these financial companies are worth anything at all! They damn well should be shorted into oblivion, because their books can't prove that their solvent, and no one will own up to their liabilities!

2.2 All derivatives positions must be publically recorded in a central exchange aka NYSE or a Commodities Futures Market.

2.3 Lastly, no --under any circumstances-- hiding stuff in off balance sheet vehicles or Quasi Special Purpose Entities. Any potential liabilities must be listed on a company's public books for their share holders. I guess you can leave off assets if you want... To shit day, Wall Street is fighting this modification tooth & nail and the accountants and congress have all backtracked on it.

In an era where public entities compete minute-to-minute for equity on stock markets, they will fix their books every which way if they're allowed.

2.4 The U.S. needs a financial transaction tax that encourages investors to pay attention to the fundamental value of an equity position. Way too much investing goes on in the States with no examination of value fundamentals. While this provides liquidity, it also destabilizes the markets and encourages large bubbles and crashes. A small transaction tax would moderate this effectively.



3. This isn't an either/or, false dichotomy situation.

3.1 This is a "let's blame everyone involved, because, well, they're all goddamned guilty and they all benefitted tremendously" situation. Everyone in the government is guilty. Everyone on Wall Street is guilty.

3.2. And two, let's smack them with every remotely reasonable restriction, let's disproportionately tax them in a way that targets speculators and anyone who invests in companies without requiring an analysis of their fundamental equity position, let's break their business models when it suits us --while the investment banking model was killed off just 2 days ago by the market itself, if we'd done it ourselves earlier we wouldn't be in this mess. It was always a broken business model that was designed to get around good and legitimate limitations on leverage for financially critical institutions.


On and on. There is tons of blame to go around and everyone who deserves it should get some, and there are tons of things that need to be done to make a financial system that works.

Most fundamentally, investors need to receive accurate books, and investors who don't care about books need to be told their capital is as dangerous as it is useful and that, consequently, we are going to strongly discourage your mentally retarded, antisocial investment style by taking not-insignificant chunks of your capital and redistributing to infrastructure improvements and other more socially worth enterprises.

See Dean Baker's proposed tax, or Interfluidity's. Best quote:

If it's illegal to short in a "panic", we ask, why isn't it illegal to go long during obvious asset price bubbles? If you can tell a panic from a correction, then surely you can tell an asset bubble from a genuine boom, right Mr. Greenspan?

If you need to socialize losses and keep profits private the distinction makes sense...

P.S. I think it's going to take a violent revolution to fix your country. Accountability is way out of style in the U.S.A. The people that really need to be nailed, definitely won't be. People also need to to understand that being wrong means you get punished. Damn Christians think good intentions or obliviousness are excuses. If you're in a position of responsibility, and you're wrong you should be crucified, no messing around --whether it's on Global Warming, the amount of leverage Investment Banks should be allowed, Weapons of Mass Destruction... if you're wrong the citizenry needs to tear you to pieces and put the pieces on display so that the next guy thinks twice. Being wrong is enough, no intent necessary, no good intentions excuse you; being wrong is the worst most evil thing if you're in a position of power or responsibility and it needs to be dealt with proportionately.

 

[ddrueding]

Great post overall, Gilbo. But this part deserves special recognition:

People also need to to understand that being wrong means you get punished. Damn Christians think good intentions or obliviousness are excuses. If you're in a position of responsibility, and you're wrong you should be crucified, no messing around --whether it's on Global Warming, the amount of leverage Investment Banks should be allowed, Weapons of Mass Destruction... if you're wrong the citizenry needs to tear you to pieces and put the pieces on display so that the next guy thinks twice. Being wrong is enough, no intent necessary, no good intentions excuse you; being wrong is the worst most evil thing if you're in a position of power or responsibility and it needs to be dealt with proportionately.

I've felt similarly, but couldn't express it nearly as well.

 

[jtr1962]

I agree 100% also. If I were in a position of power, the principles involved in this mess would be lined up against a wall and shot ASAP. And I'm totally in agreement with the part about deducting mortgage interest. The tax system should be neutral regarding housing. Either get rid of the mortgage interest deduction, or allow a deduction for rent also.

I'll also add that the idea of "investing" in private homes is retarded. Speculators buying and renting homes are in large part responsible for the housing bubble. There should be a law on the books prohibiting rental of single family homes, and one of the units of two or three family homes. In other words, those who buy homes should do so because they intend to live in them, which is why private homes were built in the first place.

Regarding short selling plus any other form of betting on the down side-make it illegal permanently. Any time you have people making money on a negative event it basically encourages tearing down perfectly good companies. Speaking of which, the idiotic CEO model of the last two decades needs to be changed. It used to be a good CEO made his company money by expanding their market share via innovation. In fact, this was the very definition of capitalism. Nowadays CEOs increase short term profits by gutting companies. They get rid of customer service, R&D, "unnecessary" staff, etc. Sure, the short term profits go way up and they look great, but long term the company ends up being screwed. But they don't care as they're on their next victim by then after receiving their golden parachute (and those BTW should be contigent upon a company remaining viable for x number of years after the CEO leaves).

 

[Howell]

Gilbo,
Do you make a distinction between transparency and accountability and regulation? I don't have a problem with audits and transparency. It may be a difference in semantics.

And what's with the christian bashing? Its really irrelevant.

 

[Handruin]

I'll also add that the idea of "investing" in private homes is retarded. Speculators buying and renting homes are in large part responsible for the housing bubble. There should be a law on the books prohibiting rental of single family homes, and one of the units of two or three family homes. In other words, those who buy homes should do so because they intend to live in them, which is why private homes were built in the first place.

I don't see a problem with letting people do what they want with their private home. I'm currently living in someone's private home as a renter. The amount I pay is less than if I were to buy it. I've also gone on several vacations where I've rented homes from people. In both cases I was able to stay in a place that I could not do so if renting them wasn't allowed.

 

[Mercutio]

Transparency = Whether or not an outside party is able to tell what's going on.
Accountability = Whether or not anyone will do anything about what's going on.

It's entirely possible to have one without the other.


And christian bashing is ENTIRELY relevant here, because there are a whole bunch of lousy excuses for human beings who think that asking for forgiveness for their transgression is equivalent to being forgiven. Jim Baker or Ted Haggard can stand up before a congregation and talk about what they were doing with all those midgets and that donkey and that check for $400,000 that came from ignorant pensioners, and they can say with tears in their eyes that they're sorry that they did the wrong thing, and there are people who will say "Aw, that's OK. You'll do the right thing next time.

By the same token, there are a whole lot of financial industry creeps, guys who took advantage of the same group of ignorant Americans, who are basically saying "Mea culpa. Now please just give me billions of dollars and I promise I won't fuck up next time."

You can make the same case for WMDs in Iraq: "Sorry, next time we'll use actual intelligence before we start a $3 trillion dollar war."

And the thing is, a lot of Bush cronies and other loathsome evangelical types, who are big on all that born again, Jebus forgave me shit, are perfectly willing to go along all of this. It plays in to a certain political ideology perfectly.

 

[jtr1962]

I don't see a problem with letting people do what they want with their private home. I'm currently living in someone's private home as a renter. The amount I pay is less than if I were to buy it. I've also gone on several vacations where I've rented homes from people. In both cases I was able to stay in a place that I could not do so if renting them wasn't allowed.

The problem is that speculators bought homes solely with the intention of reselling them at a profit, and in the meantime rented them out to have the renters cover some of the bills. Prohibiting rentals suddenly means it becomes a lot more expensive to buy and hold a home, and hence fewer people will do so. This in turn means less demand for houses, and lower housing prices. Who knows, perhaps housing prices now would be low enough that you could have bought that house for what it's costing you to rent it. In a nutshell, renting encouraged speculation which in turn created the housing bubble. And before any says anything about free markets, it was the speculators driven by low interest loans who distorted the housing market out of all semblance of reality. As I said earlier, home prices historically more or less keep pace with inflation when the only people buying homes are those who intend to live in them. That obviously hasn't been the case in perhaps the last two decades.

And rentals in resort areas is an entirely different animal.

 

[CityK]

Regarding short selling plus any other form of betting on the down side-make it illegal permanently. Any time you have people making money on a negative event it basically encourages tearing down perfectly good companies.

good grief jtr! I have no idea where you came up with such, but that is a grossly misinformed sentiment to the ninth degree !!!!!!!!!!!!

Shorting is a fundamental aspect of a well functioning financial system. Without it you can kiss good bye price discovery, hedging, and liquidity. Hell, if folks can only go long, why don't we just dispense with markets altogether and instead just print whatever price we feel assets should be in the papers on a daily basis.

Please do not buy into the shorting is evil crap. It is nothing of the sort. Shorting is evil crap is prevalent today, and always comes into fashion as the scapegoat, in difficult economic conditions. Perfectly good companies need never fear short selling.

 

[Handruin]

Does the Lady from Ohio seek recognition.... I like this woman.

 

[Gilbo]

Gilbo,
Do you make a distinction between transparency and accountability and regulation? I don't have a problem with audits and transparency. It may be a difference in semantics.

In some sense I do. The vast majority of the regulation I want is a simple requirement that companies do not falsify or obfuscate their financial positions to their investors.

I also however want inevitably arbitrary limits on leverage vs capitalization ratios and maximum downside exposure via special purpose vehicles/derivates vs capitalization ratios (if we don't just standardize & open up the derivatives market entirely).

Sometimes it's good to force companies to compete on a particular playing field, it reduces information asynchronicity, which improves the efficiency of the market. Clearly the efficiency of the market was grossly compromised, since such a large variety of instruments were so ridiculously overpriced... Obfuscation, complexity -- we're talking about a variety of what are, at heart, information asynchronisms here (is that a word?)

And what's with the christian bashing? Its really irrelevant.

Maybe. I'm disappointed in myself that it came across as superficial bashing, but the fact is, that's what it is on its face as presented above.

However, I do believe that Christian philoshopy and theology form a morality that is distinct from, and contrary to the one I was advocating. It is also a moral philosophy that permeates the world view of a great number of Americans, many possibly not even "Christians". Whether or not real Christians actually practice as their books teach is another question. There are many normal christians that use reason to perform the majority of their moral analysis, despite the fact that they claim to be Christians.

The religions of the book in general distinguish between good and "evil". I'm advocating moral responsibility based on good vs "bad" if you appreciate the distinction I'm implying. Evil implies intent, malevolence, choice, opposition to a universal moral authority... connotation after connotation etc. --all things that don't matter in my mind.

In contrast, I believe the morality of an action is determined by the sum of its consequences --not by a priori prescriptions, nor by intent, nor by naivete (which is the ideal of much Christian moral philosophy). The problem is that moral action is difficult, because you need to carefully think about the consequences of your actions, and you cannot simply examine them in isolation --what would be the long term consequences if everyone behaved the way you were planning on behaving? The Golden Rule, Kant's Categorical Imperative: one must evaluate one's actions not just in terms of A to B, in this particular situation, but in all the A and B's.

It may be right to rig the election to get a weak or incompetent power out of power, but is it a good thing if everyone starts rigging elections all the time? Where do you draw the line? Strong universal constants fade quickly, and are replaced with heuristics: by default thou shalt not kill, but sometimes it's going to make the world a better place. The question is also: "Will the world be a better place if everyone who thinks that they know who needs to die to make the world a better place, starts killing all those people?" This context greatly narrows the situations where it's rationally acceptable to kill someone. Anything past immediate self-defence of yourself or a presumed innocent becomes very complicated...

Unfortunately, all this is too much work and responsibility for most people. Hence the religions of the book supply "evil" and a simple manual so most people don't actually have to think about the consequences of their actions. As soon as you think, you're responsible --at least somewhere deep down in your soul--, but as long as you can chalk your behaviour up to God, or naivete, or innocence your conscience is clean (what an odd moral ideal...).

Anyway, that's why I feel that the subconscious dominance of a fundamentally Christian moral philoshopy is a large part of why America is spiralling out of control. If an official "can't recall" or "wasn't aware" or "couldn't have expected" he is forgiven. Innocence is never EVIL, but it can damn well be very BAD for everybody... People should be punished proportionately to the damage they do to society, if you do not do that, people will never think about the consequences of the action, and the most duplicit, treacherous people will always play the lambs and be forgiven.

 

[Gilbo]

good grief jtr! I have no idea where you came up with such, but that is a grossly misinformed sentiment to the ninth degree !!!!!!!!!!!!

Shorting is a fundamental aspect of a well functioning financial system. Without it you can kiss good bye price discovery, hedging, and liquidity. Hell, if folks can only go long, why don't we just dispense with markets altogether and instead just print whatever price we feel assets should be in the papers on a daily basis.

Please do not buy into the shorting is evil crap. It is nothing of the sort. Shorting is evil crap is prevalent today, and always comes into fashion as the scapegoat, in difficult economic conditions. Perfectly good companies need never fear short selling.

This is true jtr. I didn't understand it myself for the longest time, but they aren't making a profit off of a negative or some sort of destruction. They're taking advantage of an information disparity in the market, and making it more efficient. Shorting stocks is analogous to buying commodities futures. When a farmer locks in a price for his grain, he's betting that the market will drop (and implicit in that cost is a premium to provide himself with security and stability), at the same time the counterparty is "speculating" that prices will rise. There's a short for every long...

Certainly there is the possibility for malevolent manipulation and distortions of the market, but, as the article I linked at Interfluidity points out, asset bubbles from excessive 'longing' are just as troublesome. Banning shorting in this case only served to socialize losses at large financial institutions at the expense of the American tax payer.

A stock is worth what a stock is worth. There are fundamentals available. If Goldman Sachs went bankrupt today, and liquidated its assets today, what's it worth? The reason these companies are so vulnerable to shorting is that the same accounting obfuscations that inflated their stock prices and brought in capital in the past have now ensured that no one can actually figure out what any of these companies are worth and have eradicated their capital (ironic...)! No one has any idea what these companies are fundamentally worth. Hence they're vulnerable to being shorted out of existence.

But this is right, if they can't demonstrate solvency via their books, they deserved to be shorted right out of friggin' existence!

 

[jtr1962]

Gilbo and CityK:

Here's the thing-I don't see what's happening merely as something which can be fixed eventually and then we all go on our merry ways. I think part of the recent "shorting is evil" mindset is an implicit acknowledgement that we may well be seeing the discrediting of capitalism as a system, in much the same way as communism was discredited in the 20th century. What will replace it I have no idea, but I suspect the idea of free markets may well be on the wane. Even more so, I think in the future it's going to be a lot harder to make money trading commodities, stocks, and other financial instruments. Rather, it may well go back to the idea that you don't deserve to make a dime unless you create real wealth (i.e. a tangible good or a service people really need). Where this might ultimately lead I again I have no idea. However, far from being the rising tide which lifts all boats, capitalism in the last decades has mostly just transferred more wealth into the hands of the few, regardless of whether those few actually earned it in the conventional sense. As such, people are disenchanted. While I highly doubt we'll see communism or even strong socialism, I think the era where a few can get very rich off the backs of the many are done. It wouldn't entirely surprise me to see strict limits on how much wealth any one person can accumulate, and with much stricter accounting practices it will be much harder to take wealth off the books. How this will bode for the common man, again I have no idea, but maybe if average people can keep a larger, more proportionate share of the wealth they create we might actually be at the start of a new, golden age.

And I fully agree that people should be punished in proportion to the damage they do. Unfortunately, this country has a history of being soft on white collar crime which to me is puzzling. If a human life has a value of several million dollars by most estimates, then shouldn't deliberately stealing or causing losses of this magnitude legally be equivalent? I think so, although I know I'll never see the day when we execute Wall Street swindlers as much as I would like to see it. Regardless, this time around we need to go after those who are criminally liable, and apply the full extent of the law. IMHO the public will only be satisfied if we put hundreds of people in jail, preferably for life, and fine them every penny they've ever earned. That includes the lawmakers who first got the bright idea that banks must provide loans to the poor under the Community Reinvestment Act, and followed by those who basically gutted the entire system of checks and balances. See this post from another site regarding this:

Congress is the Culprit behind the financial crisis

Such denials won't hold against the angry facts banging on their doors. The only question is whether the guilty party can keep up the barricade until Election Day.

A visibly annoyed House Speaker Nancy Pelosi rejected suggestions that Democrats share blame for the meltdown. "No," she snapped at reporters who dared ask.

Stick to our narrative, she scolded: The bursting of the housing bubble was another story of market failure and deregulation.

"The American people are not protected from the risk-taking and the greed of these financial institutions," she said, while calling for investigations of the industry.

Only, the risk-taking was her idea — and the idea of all the other Democrats, along with a handful of Republicans, who over the past 30 years have demonized lenders as racist and passed regulation after regulation pressuring them to make more loans to unqualified borrowers in the name of diversity.

They were the ones who screamed — "REDLINING!" — and sent banks scurrying for cover in low-income neighborhoods, where they have been forced to lower long-held industry standards for judging creditworthiness to make the subprime loans.

If they don't comply, they are threatened with stiff penalties under the Community Reinvestment Act, or CRA, a law that forces banks to make home loans to people with poor credit risks.

No fewer than four federal banking regulatory agencies are responsible for enforcing the law. They subject lenders to racial litmus tests and issue regular report cards, the industry's dreaded "CRA rating."

The more branches that lenders put in poor neighborhoods, and the more loans they make there, the better their rating. Those lenders with low ratings can not only be fined, but also blocked from mergers and other business transactions needed to expand.

The regulation grew to monstrous proportions during the Clinton administration, obsessed as it was with multiculturalism. Amendments to the CRA in the mid-1990s dramatically raised the amount of home loans to otherwise unqualified low-income borrowers.

The revisions also allowed for the first time the securitization of CRA-regulated loans containing subprime mortgages. The changes came as radical "housing rights" groups led by ACORN lobbied for such loans. ACORN at the time was represented by a young public-interest lawyer in Chicago by the name of Barack Obama.

HUD, in turn, pressured Fannie Mae and Freddie Mac to purchase more subprime mortgages, and Fannie and Freddie, in turn, donated to the campaigns of leading Democrats like Barney Frank and Pelosi who throttled investigations into fraud at the agencies.

Soon, investment banks such as Bear Stearns were aggressively hawking the securities as "guaranteed." Wall Street's pitch was that MBSs were as safe as Treasuries, but with a higher yield.

But they weren't safe. Everyone in the subprime business — from brokers to lenders to banks to investment houses — absolved themselves of responsibility for ensuring the high-risk loans were good.

The mortgage lenders didn't care, because they were going to sell the loans to other banks. The banks didn't care, because they were going to repackage the loans as MBSs. The investors and traders didn't care, because the MBSs were backed by Fannie and Freddie and their implicit government guarantees.

In other words, nobody up and down the line — from the branch office on main street to the high-rise on Wall Street — analyzed the risk of such ill-advised loans. But why should they? Everybody was just doing what the regulators in Washington wanted them to do.

So everybody won until everybody lost, including the minorities the government originally mandated the banks to serve.

The original culprits in all this were the social engineers who compelled banks to make the bad loans. The private sector has no business conducting social experiments on behalf of government. Its business is making profit. Period. So it did what it naturally does and turned the subprime social mandate into a lucrative industry.

Of course, it was a Ponzi scheme, because they weren't allowed to play by their rules. The government changed the rules for risk.

In order to put low-income minorities into home loans, they were ordered to suspend lending standards that had served the banking industry well for centuries. No one wants to talk about it, so they just scapegoat Wall Street. Even John McCain has joined the Democrat chorus on this.

The FBI is now investigating 24 large mortgage lenders for alleged abuses. But who will investigate the pols and the lobbyists and the community agitators who made the bad decisions that ultimately forced businesses to make their bad decisions?

 

[time]

But who will investigate the pols and the lobbyists and the community agitators who made the bad decisions that ultimately forced businesses to make their bad decisions?

Are you kidding? What a giant load of claptrap. Speaking from the perspective of someone who wouldn't know the difference between a republican and a democrat, the sole purpose of that article was to try to twist something into political advantage. Spare us, the media dumps enough shit on us already.

 

[Mercutio]

Yeah, jtr, what you did right there was literally post sone Republican's talking points for why we should all blame Democrats for the current financial crisis. You might want to adjust the settings on your bullshit meter.

 

[Fushigi]

20 of the past 30 years have seen Republicans in charge of the white house. 7 of the 9 Supreme Court justices were appointed by Republican presidents. Exactly who is signing off on, executing, upholding, and not striking down the laws that may be the legislative source the problem?

Regardless of the laws, this is really about corporations run amok. "Greed is good" is only goes so far if you want to look at society and not a single company; it should really be "greed is good when none suffer because of it". As long as corporations are allowed to be amoral entities this will continue.

 

[jtr1962]

Yeah, jtr, what you did right there was literally post sone Republican's talking points for why we should all blame Democrats for the current financial crisis. You might want to adjust the settings on your bullshit meter.

It's just something I read on another site and I figured I would throw it in to see what people here think about it. I don't necessarly believe all of it. The Republicans aren't blameless in this, I know that. They're the ones who pushed for more and more deregulation of business. As Fushigi said, greed is only good when none are harmed because of it. However, in the absense of regulation companies will act solely in their own best interests.

 

[udaman]

Yeah, Merc, what you did right there was literally post some Democrat's talking points for why we should all blame Republicans for the current financial crisis. You might want to adjust the settings on your bullshit meter.

Can I have a link Merc, for what you base your speculation on ? Are you sure Lieberman, a registered independent, didn't say that . Always blame the 'other side', rule#1 in politics when you can't come up with an worth while rebuttal in a limited time frame, or are just lazy.

Google is all of your, high-speed Net connections, friend; while I use dialup much of the time, so am at a significant handicap.

Here's some more for you to rant against Merc (but don't post more than 3 or 4 sentences in reply, ut wise I might get a headache an not be able to figure out what you're trying to communicate).

Above 'article'/editorial came from site linked below (you'll have to put some effort in if you want to find it):
'Crony' Capitalism Is Root Cause Of Fannie And Freddie Troubles

By TERRY JONES
INVESTOR'S BUSINESS DAILY | Posted Monday, September 22, 2008 4:30 PM PT

http://www.ibdeditorials.com/IBDArticles.aspx?id=306978378974502

Well, those critics may be right — it is a crisis of capitalism. A crisis of politically driven crony capitalism, to be precise.
Indeed, Democrats have so effectively mastered crony capitalism as a governing strategy that they've convinced many in the media and the public that they had nothing whatsoever to do with our current financial woes.
Barack Obama has repeatedly blasted "Bush-McCain" economic policies as the cause, as if the two were joined at the hip.
Funny, because over the past 8 years, those who tried to fix Fannie Mae and Freddie Mac — the trigger for today's widespread global financial meltdown — were stymied repeatedly by congressional Democrats.
This wasn't an accident. Though some key Republicans deserve blame as well, it was a concerted Democratic effort that made reform of Fannie and Freddie impossible.
The reason for this is simple: Fannie and Freddie became massive providers both of reliable votes among grateful low-income homeowners, and of massive giving to the Democratic Party by grateful investment bankers, both at the two government-sponsored enterprises and on Wall Street.
The result: A huge taxpayer rescue that at last estimate is approaching $700 billion but may go even higher.
It all started, innocently enough, in 1994 with President Clinton's rewrite of the Carter-era Community Reinvestment Act.
Ostensibly intended to help deserving minority families afford homes — a noble idea — it instead led to a reckless surge in mortgage lending that has pushed our financial system to the brink of chaos....





President Bush, reviled and criticized by Democrats, tried no fewer than 17 times, by White House count, to raise the issue of Fannie-Freddie reform. A bill cleared the Senate Banking panel in 2005, but stalled due to implacable opposition from Democrats and a critical core of GOP abettors. Rep. Barney Frank, who now runs the powerful House Financial Services Committee, helped spearhead that fight.

I'll stop quoting here, as I'm sure Obama Boy (as opposed to Grrl ) Merc will not bother reading further.

Part two,

Ah well Merc's already got a headache...for those who took some Tylenol or other pain reliever...continue on

Good Intentions Paved The Road To Subprime-Stoked Meltdown

By TERRY JONES
INVESTOR'S BUSINESS DAILY | Posted Tuesday, September 23, 2008 4:30 PM PT

http://www.ibdeditorials.com/IBDArticles.aspx?id=307061229501695

For those looking for a real start to today's financial meltdown and government rescue, you need to go back — way back — to 1977, and the Jimmy Carter presidency....

It was then, for the best and purest of reasons, that well-meaning Democratic members of Congress brought the Community Reinvestment Act into being.
The main idea, as the late Democratic Sen. William Proxmire said on the Senate floor in 1977, was "to eliminate the practice of redlining by lending institutions."

That term — "redlining" — seems quaint today. But in the 1970s, it was widely seen as the cause of housing disparities between white and black Americans....



For black Americans, it's up from just below 42% in 1970 to 47.2% last year. It's still below 50%, and still the lowest of any minority group.
Today, Americans might rightly ask 31 years after the CRA was passed whether the more than $1 trillion lent under its auspices did what its proponents promised.

This one's pretty funny:
How Obama Applies Alinsky's Rules

By INVESTOR'S BUSINESS DAILY | Posted Monday, September 22, 2008 4:20 PM PT

http://www.ibdeditorials.com/IBDArticles.aspx?id=306977141583041

At a recent Las Vegas rally, Obama poked fun at Sen. McCain for what he described as bragging about "how as chairman of the Senate Commerce Committee, he had oversight of every part of the economy."
"Well, all I can say to Sen. McCain is, 'Nice job. Nice job,' " Obama said in a sarcastic tone. "Where is he getting these lines? It's like a 'Saturday Night Live' routine."
Then he belittled the 72-year-old McCain for vowing to take on the old boys network. "In the McCain campaign, that's called a staff meeting," he sneered.
The late Alinsky, a trench-warfare socialist who despised American capitalism, advised community organizers like Obama to "laugh at the enemy" to provoke "irrational anger."
"Ridicule," he said, "is man's most potent weapon. It is almost impossible to counterattack ridicule. Also it infuriates the opposition, who then react to your advantage....
And work for radical change from the inside — "like a spy behind enemy lines," as Obama said in his first memoir. He wrote it before entering politics, while still working with hard-left Alinsky groups and training street agitators known as "community organizers."
As he wrote, he became a community organizer in 1983 because of "The need for change. Change in the White House, where Reagan and his minions were carrying on their dirty deeds."
That's when he set out to "organize black folks" for social revolution, first in Harlem, then the South Side of Chicago."

A change, a change we can believe in,lol

So, how's capitalism been doing in HK jtr, say over the last few decades?



ps: no wonder you don't have any time to reply to emails jtr, must be the carple tunnel from all your ranting and raving posts, venting frustration over life/world we have no control over at the micro level, lol.

 

[sechs]

If (i) is covered (it is), then (ii) isn't an issue unless (iii) happens. Correct? I suspect that Stanford FCU is a fairly safe place to be.

As long as you are under the FDIC or NCUA insurance limits, it doesn't matter if the institution is ready to fail or not. If need be, the printing press will be fired up.

Unfortunately, Bay Area credit unions seem to have been the worst about this mortgage mess. A number have entered NCUA conservatorship.

Washington Mutual just raised their rates (presumably to cover the money of irrational folks walking out). Might get you at the inflation rate.

 

[jtr1962]

ps: no wonder you don't have any time to reply to emails jtr, must be the carple tunnel from all your ranting and raving posts, venting frustration over life/world we have no control over at the micro level, lol.

Actually, I did reply to your last email on the 21st. And I replied to a few emails from others. Did you receive it? I'm asking because so far NOBODY I wrote to replied. Even though the emails are in the sent folder, I'm wondering now if something is wrong and nobody received them.

 

[jtr1962]

And now back to your regularly scheduled topic:

US may sell out Taiwan to finance the bailout

 

[mubs]

The next episode in this soap opera: WaMu becomes biggest bank to fail in US history

So are we in the beginning of the end, the middle of the end, or is this just the end of the beginning?

 

[Fushigi]

So now the bank that's bought every bank I've ever had an account with has bought the only bank I've ever had (and still have) a mortgage with. Lovely.

 

[sechs]

With BofA supposedly in merger talks with Wachovia, I've become convinced that, soon, all banks will be Taco Bell.

 

[jtr1962]

With BofA supposedly in merger talks with Wachovia, I've become convinced that, soon, all banks will be Taco Bell.

It might be even worse-we might simply end up with "The Company" running literally everything as in the Alien movies. Let's see-all banks merge into one. Ditto for every other major industry. M$ buys up all these megacorporations and runs the world. Bill Gates dons a Darth Vader suit. :errr:

 

[ddrueding]

It might be even worse-we might simply end up with "The Company" running literally everything as in the Alien movies. Let's see-all banks merge into one. Ditto for every other major industry. M$ buys up all these megacorporations and runs the world. Bill Gates dons a Darth Vader suit. :errr:

So Google is just waiting for them all to weaken before making it's move?

 

[CityK]

Just before 4, the newswires broke that Wachovia had begun talks with Citigroup. Since then the reported list has expanded, including Banco Santander SA, Wells Fargo & Co. etc etc. Be assured, they are talking to everyone. Strong chance they'll be gone by the end of the weekend. They won't make it another week (cds spreads on them went asymtotic today).

A number of the regionals are in severe distress too (National City, Downey, First Fed, ...).

Morgan Stanely's paper is trading a pitiful levels. Despite their recent actions (giving up IB status, injection from Japanese bank), their future is starting to look quite uncertain too.

So are we in the beginning of the end, the middle of the end, or is this just the end of the beginning?

We're likely somewhere in the 4th inning now. There is a lot of pain to come.

I hope no one fell for the lines about Warren Buffet being such a saviour this week. What a self serving bastard -- anyone think he'd make a deal with GS unless he got an assuance that GS would not be allowed to fail? Anyone see how desperate GS was (i.e. how sweet a deal WB extracted from GS)? Anyone see that old fart pimping the Paulson bailout the very next day. Disgusting. Someone needs to kick that old man in the balls.

Anyone see that idiot GWB this past week call the markets' recent behaviour as being non normal ? Got news for you, the markets were/are behaving exactly how they normally should in face of issues of insolvency.

Anyone see that the US creditworthiness was being assessed as worse then McDonalds this morning? I kid you not. CDS spread on MickeyDees was ~3bp better then the US's. What a joke!!!

 

[ddrueding]

McDonalds has a good business plan and competent leadership. Of course it is better than the US.

 

[CityK]

Watching the jackass vs jackass debate as I type. Haven't been paying too much attention, but so far, I haven't been terribly impressed by BO's performance...kind of thought that he was going to decimate the old guy, but haven't seen that yet. Interesting.

Anyway, I also thought I'd mention that there might be some more stress, in the form of CDS against WaMu, starting to rear its head next week. Don't think anyone knows what the extent might be just yet, but it could set off a wave.

Also, anyone see Jon Stewart last night and his side by side illustration of GWB tactics. Hillarious. Modis Operandi -- wash rinse repeat.

 

[Mercutio]

One of the things that I noticed in the debate was that every time Obama talked about money, but particularly in relation to current spending levels, the amounts he was talking about were an order of magnitude higher than McCain's.

For example
McCain: $18 billion in earmarks
Obama: $300 billion in corporate tax loopholes

John McCain seemed to be worried about piddly sums of money, given that we're throwing around numbers like $700 billion and $1.2 trillion for the Financial Corporate Welfare program.