Tonight’s New York Times: In Frantic Day, Wall Street Banks Teeter; In one of the most dramatic days in Wall Street history, Merrill Lynch agreed to sell itself to Bank of America for about $50 billion, while Lehman Brothers headed toward bankruptcy.
Tonight’s Wall St. Journal: Crisis on Wall Street as Lehman Totters, Merrill Is Sold, AIG Seeks to Raise Cash. Fed Will Expand Its Lending Arsenal in a Bid to Calm Markets; Moves Cap a Momentous Weekend for American Finance.
Looks like a real meltdown. Let’s try to make sense of it… especially how it might impact things locally.
I saw a woman market analyst on tv, i don’t know anymore, I tuned in late, and she said that there isn’t any money in the Federal coffers, so that any big programs that either of the candidates has plans for, won’t be developed for lack of funds.
I guess that impacts just about everyone. More reason to start thinking out of the box and finding ways we can maintain basic needs and services, and still get some progress made on the educational and health and job fronts.
Pray or hope for a mild winter, too.
Griff,
What is happening has been described as the “greatest financial de-leveraging in history”. There are myriad causes, one of which is the amplification of fear that has generally taken hold.
There is an interesting phenomenon called the Social Amplification of Risk. You can read a bit about how this is impacting the current crisis in a blog posting I made last January.
Often we see the kind of capitulation in today’s news at the end of a major move. But, there are still several vulnerable firms out there. The real squeeze on all of them is the provision of liquidity, or daily capital to operate their businesses. The Lehman failure is the most distressing of all, because Lehman is a counterparty to many complex trades, all of which need to be unwound or assigned. This is a logistical nightmare, but can be managed. AIG is in the headlines today as having some problems too. This is not to suggest that AIG should go the route of Lehman. Sometimes the withdrawal of liquidity is just a human reaction to fear, generally. It is often cruel and uncaring in how it treats its victims.
Maybe it would be of interest to host a kind of town meeting to discuss the current situation and some of its causes. I’ll bet we could fill the Grand for this! I’d be happy to participate or help.
Anyone who is interested in how humans respond to risk and opportunity is free to download a chapter which I wrote for the book called New Frontiers in Enterprise Risk Management. My chapter is called “The Human Reaction to Risk and Opportunity”.
My chapter mostly cites the work of others in psychology. There is some great work done by Paul Slovic, Elke Weber, Dan Kahneman & Amos Tversky among many others about psychology, risk and finance.
There is an excellent summary of behavioral finance written by Robert Shiller of Yale (now known for his Case-Shiller HomePrice Index) which you can download.
The Financial Times just posted this story on emergency talks regarding AIG.
I post this not to fan the flames, but only because I referenced AIG in the post above and this story deals directly with that company. It is intended to provide more information.
FT also has several stories about the crisis which provide good information to anyone interested.
At times like this I’m reminded of W.H. Auden’s great lines on financial crisis, written in Europe in 1933, in the depths of the Great Depression. The same “liquidity crisis” reigned then:
“Europe grew anxious about her health,
Combines tottered, credit froze,
And business shivered in a banker’s winter.”
How long will this current “banker’s winter” last? (lines from the poem “Here on the cropped grass…,” The English Auden, p. 142)
This Guardian column on the role of financial derivatives in the current crisis was very interesting:
http://www.guardian.co.uk/business/2008/sep/16/marketturmoil.lehmanbrothers1
It quotes Warren Buffett, who several years ago apparently issued a warning about the kind of crisis we’re having now.
Lehman is the first domino to fall in a long chain of financial businesses! Merrill was merely brushed under the BofA carpet where it’s derivatives and BofA’s will blow up in a few more months from now. AIG is supposed to be a backstop to check failures like Lehman. Unfortunately, like any insurance company confronted with simultaneous natural disasters will also be bankrupted by the coming failures of more companies like Washington Mutual, a few more regional banks(who were gambling in the mortgage derivative market) and then back to a BofA failure. By this time no one will be loaning any money and bank depositors will be lining up to pull their money out to be put under mattresses at home.
As long as housing prices continue to fall , which they will till the median price(now 206k )gets to 175K or less, the carnage will continue in the financial industry.
Unfortunately our government adds to the crisis by bailing these companies out. This means more debt and an increase in the budget deficit.
Bright hit in on the head, none of the current candidates address the issue. Let’s don’t forget the Fannie May and Freddie Mac risk was created by government as well.
If you want to know why we have this mad dash to save those businesses
http://www.opensecrets.org/
I am reminded of what a person I met in Eastern Europe said to me after a speech I gave on liquidity risk: “Capital is coward”. It was broken English, but it was a great encapsulation.
But, before you bash the government’s role in Fannie and Freddie, I’d ask you to consider them more carefully. Yes, there are excesses, but the programs of Fannie and Freddie have been the most effective social programs of almost any “created” by the government. Fannie and Freddie were owned by shareholders who have lost nearly all, or maybe still all, of their investments.
Bear Stearns was alleged to have been bailed-out, but it too was owned by shareholders who lost over 95% of their investments. They were not bailed-out.
Lehman’s shareholders will lose almost everything. They are not being bailed out.
What the government is doing is trying to make sure that the coward that is capital does not run away entirely. Have a look at Ben Bernanke’s book on the Great Depression.
Here’s a Mother Jones article on the role (former?) McCain advisor Phil Gramm played in the deregulation of “swaps” and the role this had in the meltdown:
http://www.motherjones.com/
mojoblog/archives/2008/09/
9718_mccain_lehman_crisis_gramm.html
Title:
McCain Blasts Wall Street Failure, Neglects To Mention His Adviser Helped Cause It
This is a Mojo blog post by David Corn, usually of “The Nation” — so of course some right-leaning partisans will dismiss this as partisan left-stuff….
The problem is “Usury” with new sophisticated names.
What got it going :
“An agreement between the Clinton administration and congressional Republicans, reached during all-night negotiations which concluded in the early hours of October 22, 1999 sets the stage for passage of the most sweeping banking deregulation bill in American history, lifting virtually all restraints on the operation of the giant monopolies which dominate the financial system.” http://www.wsws.org/articles/1999/nov1999/bank-n01.shtml
What I think is happening on overview, is that we are not only breaking a few eggs to make an omelette, we are gearing up and buckling down into learning how to make better things than boring ol’ omelettes, and if companies and consumers insist on ignoring that, they’re going to be left out in the outback.
My simple explanation: It was too easy to borrow money. Too easy for businesses and too easy for individuals, and too easy for the US government. Lots of loans, not enough assets. And now we will get the backlash of money being too hard to borrow and that will stifle the economy.
And we’re not out of it yet…credit card debt (1.5 Trillion dollars) might trigger the next domino. It seems like paying the minimum (little or no principal) on these cards is really just a kind of delayed default. Half of all card holders are paying the minimum. Sooner or later many of these borrowers will come to the decision that there is no point in making the payment. Their cards are maxed out and not doing them any good. And it doesn’t take a high percentage of defaulters (as we have seen in the sub-prime debacle) to trigger a crisis. And this debt…as opposed to mortgages is backed by absolutely no collateral.
Here’s a view from Larry Beinhart, author of “Wagging the dog.”
His article is called “Crash Course in Economics:”
http://www.commondreams.org/view/2008/09/15-6
Among other things, Beinhart observes that the economy grows and/or recovers via tax increases (not a typo), and that it tends to suffer from tax cuts that benefit the wealthy.
He observes, among other things, that while Reagan cut taxes at first, social security and medicare deductions went up for the middle class and working poor.
Many other factors. Worth a read.
Lawyers/Law Firms $24,060,136
2 Retired $23,180,767
3 Education $10,375,038
4 Securities & Investment $9,873,356
5 Business Services $6,746,937
6 Real Estate $6,421,385
7 Health Professionals $5,852,212
8 Misc Business $5,411,083
9 TV/Movies/Music $5,161,298
10 Computers/Internet $4,258,226
11 Misc Finance $3,970,218
12 Civil Servants/Public Officials $3,850,719
13 Printing & Publishing $3,478,240
14 Democratic/Liberal $2,899,338
15 Other $2,097,412
16 Commercial Banks $2,081,809
17 Hospitals/Nursing Homes $1,681,256
18 Non-Profit Institutions $1,563,082
19 Construction Services $1,407,576
20 Insurance $1,290,434
Peter Millin writes
“Lawyers/Law Firms $24,060,136….”
In case anyone is wondering, Peter is apparently referring to a list of Obama campaign contributors, which a quick Google search using one of the lines (e.g., “16 Commercial Banks $2,081,809″) traces to a MySpace forum. The corresponding list there for McCain is
1 Retired $23,536,345
2 Lawyers/Law Firms $7,959,446
3 Securities & Investment $6,893,293
4 Real Estate $6,796,844
5 Misc Finance $3,907,413
6 Health Professionals $3,563,798
7 Misc Business $3,122,709
8 Business Services $2,550,153
9 Commercial Banks $1,868,224
10 Insurance $1,655,352
11 Oil & Gas $1,619,390
12 General Contractors $1,401,581
13 Misc Manufacturing & Distributing $1,325,847
14 Civil Servants/Public Officials $1,281,202
15 Education $1,187,867
16 Republican/Conservative $1,182,474
17 Computers/Internet $1,051,038
18 TV/Movies/Music $885,659
19 Lobbyists $841,716
20 Automotive $835,980
McCain has a lot of experience in making crisis. The Keating FIve. He wasn’t much of a pilot--yeah, he served, but had a reputation of losing planes. The last one was the one he abandoned and became a POW.
The Republican lies that “trickle down” economics would “lift all the boats” is not just a joke--it is a catastrophe.
Still, the regular middle class--who got their loans from Fannie Mae and Freddie Mac--would have been fine as borrowers if the Repbulican war machine hadn’t gutted the economy (remember our 300 million dollars a day in Iraq--every day) and forced them into no jobs, lower paying jobs, no health benefits one pay check away from broke.
At the same time, the Republican refusal to tax the rich--yes they pay disproportionately more for taxes but they get disproportionatly more of the income--and let those nice little fund managers at Leyman and Merrill Lynch and Bear Stearns get, oh say 10 or 20 million dollars a year in compensation taxed as capital gains (15%).
Republican tax policies and their attentiveness to special interest policies have encouraged greed in every industry, especially the financial industries but also insurance, drug manufacturers, and war contractors. This has been the biggest shift of wealth away from the middle class and to the wealthy in the history of the United States.
And when somebody is taking all of the profits out, or bubbling value that is not there, it has to come from somewhere else--and that somewhere else is you and me and the rest of the public who thought they were upper middle class except now middle class is poor.
AIG is just the first insurance company to go. Citibank is working on China investors. Hope you all are learning Mandarin, because that will be more important than Spanish.
The financial industries are regulated--but not much any more since the Republican hero, Reagan, deregulated huge portions. rah rah
Regarding the lists of contributors, I don’t think it’s absolutely necessary to make it one’s first priority to find some candidate who doesn’t accept any such contributions. The trick is, perhaps, to pick the candidate who seems most likely, when elected, to do the most good, and if needed, to “bite the hand that feeds them” (or at least a few of the hands).
And soon, we should pick one who would be in favor of major reforms, including consitutional reforms.
Sorry about the erratic posting but I had some issues with posting today.
BTW my source is opensecrets.org
I find it telling that the government is so quick to bailout failed businesses, until I started digging.
Turns out that Dodd, who is the head of the banking committee is receiving large contributions from the banking sector.
SAC Capital Partners $282,000
United Technologies $263,400
American International Group $224,678
Bear Stearns $205,600
St Paul Travelers Companies $205,400
Royal Bank of Scotland $203,750
Goldman Sachs $175,600
Morgan Stanley $155,000
Credit Suisse Group $154,550
Merrill Lynch $134,950
JPMorgan Chase & Co $129,150
Lehman Brothers $128,400
KPMG LLP $113,100
General Electric $108,250
Deloitte Touche Tohmatsu $108,000
UBS AG $101,900
Hartford Financial Services $101,500
The Hartford $94,350
Bank of America $91,300
Question for Barry:
Now that you established that McCain gets the same contributions, how exactly does that make a difference for the average voter?
In both cases it is pretty obvious that we the voters are in for it either way. Both candidates are heavily in the pockets of those who are partially responsible for the current financial crisis.
Rest assure that neither of those will see a crimp in their lifestyle anytime soon. Why we the little people have to bail out those that have created this mess in the first place.
This crisis has been created by those in power by either arranging backroom deals or by their own ignorance.
This is the danger when a centralized power structure is trying to manipulate or influence the free market.
The media has successfully managed to turn this in to a partisan issue, which really plays in to the hand of those responsible. We will be spending days trying to pass blame and miss the bigger picture.
http://www.politico.com/news/stories/0908/13471.html
Doesn’t seem like Obama and his supporters are suffering from a financial crisis…..anyone here can afford a dinner for $ 28500 per plate?
How many poor people could this money feed?
DIRTY LITTLE SECRETS…..
—————————————————————————————————
Whose policies led to the credit crisis?
posted at 9:40 am on September 16, 2008 by Ed Morrissey
Send to a Friend | regular view
The credit crisis and the lack of oversight over government-subsidized lenders like Fannie Mae and Freddie Mac occurred on the watch of George Bush, and many blame his economic team for their lack of oversight in the collapse. Barack Obama has made this point one of his major campaign themes, arguing that John McCain would provide more of the same failures that Bush did. However, what many do not recall is that Bush wanted to tighten oversight with a new regulatory board for Fannie Mae, Freddie Mac, and other government recipients for the express purpose of addressing bad loan practices — and Democrats blocked it.
The New York Times reported this five years ago:
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
This should have been a no-brainer, right? With hindsight, we can see that the Bush administration had accurately diagnosed the problem in the lending market and had a plan to address it. Fannie Mae and Freddie Mac reluctantly supported the plan. However, Democrats objected (emphases mine):
Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.
Sounds a little like the Democratic denial of problems in Social Security, doesn’t it? Nothing to see here, no crisis on the horizon. Everybody just move along, now. The Democrats had forced lenders to assume more risk at lower interest rates in the 1990s, as IBD points out today, and they didn’t want to countenance an end to their populist policies:
But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street’s most revered institutions.
Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.
The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but “predatory.”
Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the ’90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.
And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.
It was the Bush administration that wanted to rein in the madness in the credit markets, and the Democrats who wanted to extend the Clinton policies that created the crisis we have now. After the fit hit the shan, as Michelle says, these same Democrats want to shift blame back to the administration that wanted to increase oversight and curtail risk in lending practices while reducing patronage at the giant GSEs.
The Bush administration isn’t blameless in letting this get out of hand, but clearly the origins of the disaster and the efforts to keep bad policies in place fall on the Democrats in this case.
—————————————————————————————————
Peter wrote,
Ooh, look. It’s me! And my father, and my mother, and a lot of our coworkers.
Good on us.
Both political parties have contributed to the economic mess we are in. But more than that, it has been our culture of consumerism that is the culprit. Buying things we don’t need with money we don’t have. Obviously this behavior is enabled and encouraged by the credit industry, not to mention a culture that equates happiness with shopping and a triple garage. But in the end, it is still the individual who whips out the card or signs on the dotted line.
It of course will be the common person who suffers most in this crisis, and the recession that will worsen. Unemployment will rise, money will be tight for student loans, mortgages, business investment…almost every loan that exists will be harder to get. But it has to happen. We have to learn to live within our means.
Spot on William!
Greed, corruption and mismanagement is a bipartisan affair.
The current financial mess can all be tied back to the American culture of misplaced values in more money and evermore stuff. American consumerism can best be visualized as a bacteria that consumes an ever increasing pile of fecal matter that is shoved toward it!
The banking industry loves this because this is where they can extract their ever increasing usury fees.
William and Mike, I am in total agreement here.
There’s a pretty good starter article on this fiasco over at Time: “How Financial Madness Overtook Wall Street”
http://www.time.com/time/business/article/0,8599,1842123,00.html
Patrick,
Thanks for posting the article. Time gives a good explanation for what happened.
Unfortunately they forgot to mention how we got there in a first plac.
See the article below.
——————————————————————-
Congress Tries To Fix What It Broke
INVESTOR’S BUSINESS DAILY
Posted 9/17/2008
Regulation: As the financial crisis spreads, denials on Capitol Hill grow more shrill. Blame an aloof President Bush, greedy Wall Street, risky capitalism — anybody but those in Congress who wrote the banking rules.
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?
http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aVPBaUbYV_qQ
Finally the congress does the right thing…and goes home.
“Japan and China announced today that the US would be received into a joint conservatorship by the two countries, which hold a major stake in the US national debt. This bold move was made due to the increasing debt obligations of the US, the falling value of the dollar against other world currencies, and the slim prospects that the US economy would recover, considering the high liklihood that the upcoming presidential election in the US would be rigged, like the last two, and Republicans would maintain control, according to a joint spokesperson. A high ranking source in the Japanese government explained that it was their only way to secure the world from economic collapse, and protect Japan from huge loses in loans to cover the US national debt. China also gave similar reasons, citing the huge growth of Chinese manufacturing of US goods in recent years. “By taking the US into this joint conservatorship, there’s still a chance US consumers may still buy our goods,” said Wang Xing, spokesman for the Chinese People’s Economic Authority. Dr. John B. Pulinyerleg of the Harvard School of Crisis Economics said the news came as something of a shock, but after the initial shock wore off, it made perfect sense from a strictly economic viewpoint. “These countries are just protecting their investments, and the purpose of investing is to make money, not lose it. The US economy seems to be set up for long-term losses, but if they’d just let the damage unravel, it would have meant global economic catastrophe.” US Secretary of State Condoleeza Rice, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke were unavailable for comment, but US President George W. Bush laughed it all off, claiming “They’ll never sleep in the Lincoln bedroom,” and hinting at possible US reactions: “We’re keeping all our options on the table. Japan’s just a little island or two, and China, well, we’d like to work that out for the sake of our businesses over there, but we, well, we won’t rule ‘em out. Our options, I mean. We’ve got some unfinished business in Iran that we’ll be takin’ care of before the election, but (Defense) Secretary Gates tells me we got more planes than that little operation would require.” When asked if he meant the US was considering bombing China and Japan as well as Iran, the president said, “I never said anything about specifics. Look back through the transcript. It ain’t there.”
You can read the whole article here:
http://www.outoftheeasterny.com/news/pullinlegs/2008/1809/article1984/checkagain/RUlafin/4227/youstillwithme/bridge4sale/omg/rotfldude/html
Paul are you suggesting the US may have known our debt repayment was going to become a problem and camped out 14 battalions on an ocean of oil before bothering to let the world know ?
In posting #23, Mike writes:
“American consumerism can best be visualized as a bacteria that consumes an ever increasing pile of fecal matter that is shoved toward it!”
Mike, your description depicts consumerism as an efficient, industrious, natural, and necessary component of the economic environment. Is that how you intended it?
David (and Paul),
It’s hard to be sure, but I think Paul was going for satire in that post.
DavidH: The thought had not entered my mind. We had a plan?
Patrick: Did you miss the URL?
Paul,
I tried to click on your link, but it didn’t work. Perhaps you should check again to make sure you wrote the address out correctly.
I had the same problem with Paul’s link.
I’m surprised the MSM hasn’t been covering this yet. It sounds like a big deal.
LOL tooo funny time to bring out the tinfoil hats
Barry,
To comment #30,
“Mike, your description depicts consumerism as an efficient, industrious, natural, and necessary component of the economic environment. Is that how you intended it?”
That is how it is being sold today “America the CONSUMER of last resort”.
Unfortunately, as with nature, once you stop the fecal flow (due to a collapsed US dollar and economy) the bacteria will exponentially use up the rest of the pile then DIE.
http://www.politico.com/news/stories/0908/13602.html
I wonder how long we have to wait before somebody in Washington will be held responsible for this.
No wonder they “come together”….they know they are guilty. Because of government miss management we have now settled our children with $ 1Trillion dollar in additional debt…….yeah I think we should bring them back in November.
You want to know why the government jumped so fast on to the bailout?
Follow the money…..
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSEtGBXG0C0s&refer=worldwide
Priceless……
The Scent of Fear
AIG’s Rotten Paper Could Bring the House Down
By William Greider
September 17, 2008
http://www.thenation.com/doc/20080929/greider2
Rev. Jim Wallis on greed, morality, sin and economic collapse:
“Greed in the Economy: It’s the Morality, Sinner” -- by Jim Wallis
Everyone has heard the famous phrase, attributed to James Carville, which supposedly won the 1992 presidential election for Bill Clinton: “It’s the economy, stupid!” It’s still good advice, especially as the shocking collapse of the financial markets has turned the election campaign into a much more serious and somber discussion than lipstick on pigs.
But the issue is deeper than just the economy. I would now rephrase Carville and say, “It’s the morality, sinner!” And I would direct it to the people who have been making the decisions about the direction of this economy from Wall Street to Washington. Here is the morality play:
Aggressive lending to potential home-buyers using subprime and adjustable rate mortgages led to “mortgage-backed securities” being sold to investors at high returns. As housing prices dropped and interest rates rose, homeowners got caught, fell behind on payments, and millions of foreclosures followed. That resulted in the mortgage-backed assets losing value with banks unable to sell the securities. So the subprime lenders began to fail. Asset declines then spread to investment banks. We have now seen the sale of Bear Stearns brokered by the government, and last week the government took over Fannie Mae and Freddie Mac as mortgage defaults threatened them. Then Lehman Brothers fell into bankruptcy and Merrill Lynch was sold. Now another bailout, this time of AIG, the largest insurance company in the country — whose potential demise threatened the whole financial system even further.
During the height of the lending frenzy, many people got very rich, as they did during the previous technology bubble. Now with the collapse, experts say the most likely result will be further tightening of credit and lending standards for consumers and businesses. Home, retail, and business loans will become more expensive and harder to secure. And the consequences of that will spread to most of America.
In the accounts and interpretation of these events, a word is slowly entering the discussion and analysis — greed. It’s an old concept, and one with deep moral roots. Even venerable establishment economists such as Robert Samuelson now say, “Greed and fear, which routinely govern financial markets, have seeded this global crisis … short-term rewards blinded them to the long-term dangers.”
The people on top of the American economy get rich whether they make good or bad decisions, while workers and consumers are the ones who suffer from all their bad ones. Prudent investment has been replaced with reckless financial gambling in what some have called a “casino economy.” And the benefits accruing to top CEOs and financial managers, especially as compared to the declining wages of average workers, has become one of the greatest moral travesties of our time.
In the search for blame, some say greed and some say deregulation. Both are right. The financial collapse of Wall Street is the fiscal consequence of the economic philosophy that now governs America — that markets are always good and government is always bad. But it is also the moral consequence of greed, where private profit prevails over the concept of the common good. The American economy is often rooted in unbridled materialism, a culture that continues to extol greed, a false standard of values that puts short-term profits over societal health, and a distorted calculus that measures human worth by personal income instead of character, integrity, and generosity.
Americans have a love-hate relationship with government and business. The climate seems to shift between an “anything goes” mentality and stricter government regulation. The excesses of the 1920s, leading to the Great Depression, were followed by the reforms of Franklin Roosevelt.
The entrepreneurial spirit and social innovation fostered by a market economy has benefited many and should not be overly encumbered by unnecessary or stifling regulations. But left to its own devices and human weakness (let’s call it sin), the market too often disintegrates into greed and corruption, as the Wall Street financial collapse painfully reveals. Capitalism needs rules, or it easily becomes destructive. A healthy, balanced relationship between free enterprise on the one hand, and public accountability and regulation, on the other, is morally and practically essential. Government should encourage innovation, but it must also limit greed.
The behavior of too many on Wall Street is a violation of biblical ethics. The teachings of Christianity, Judaism, and other faiths condemn the greed, selfishness, and cheating that have been revealed in corporate behavior over decades now, and denounce their callous mistreatment of employees. Read your Bible.
The strongest critics of the Wall Street gamblers call it putting self-interest above the public interest; the Bible would call it a sin. I don’t know about the church- or synagogue-going habits of the nation’s top financial managers, but if they do attend services, I wonder if they ever hear a religious word about the practices of arranging huge personal bonuses and escape hatches while destroying the lives of people who work for them. We now need wisdom from the economists, prudence from the business community, and renewal courses on the common good from the nation’s religious leaders….
(Clipped from a Sojourner Magazine email newsletter)
Peter M: You come to a false conclusion by leaping willy-nilly from who owns stock to the fact of the financial crisis.
I may own stock in AIG through a mutual fund. You might. But we didn’t vote in favor of the casino-economy practices and deregulation that led to the problem.
It’s good for Republicans to be aware, not only of which Democrats own which stock, but which Republicans do. If you only see one half of the picture, then you may just be taking the splinter from the other party’s eye, but missing the plank in the eye of your own party.
For example, a major step in the overall movement toward deregulation since Reagan was taken during the Clinton administration by the Republican majority congress — but some Democrats voted for it too. If you want to play pick the splinter, you could blame it all on the Democrats who voted in favor, instead of on the majority (at the time) of Republicans, and Phil Gramm, who was for a while an advisor to McCain. But blaming the Democrats, when most of the votes came from Republicans, would be missing an important part of the story: The deregulation movement started with the Republicans who introduced the legislation.
This is not to say the Dems have no money trail. It is said that Kerry owns a lot of stock in companies that profit from the war. Is it valid to ask if this is problematic? Of course. Do I see a big problem there? Yes. But many Republicans profit too. It would be wrong to blame Kerry as the source of the problem, when the actual problem is much larger, and many more are to blame.
On a different thread, Paul Fried writes:
“Twice here I’ve created what I hope were seen, at some point, as humorous URL’s to nowhere”
Paul, I assume one of those occasions was your posting #28 in this thread. Patrick Enders and I both asked about the link. We both recognized the “excerpt” you posted as satire, but I think we were both curious to see what else was at your source. It didn’t occur to me that you had taken the time to compose the entire posting yourself. Nice work!
Paul you are missing my point.
While you get hung up on details to defend your side of the aisles, you and I are paying regardless.
The point of my post was to point out to liberals like you, that the Democrats are not with out fault in this mess.
I have yet to see anybody step up and admit they were wrong on this. It is all about them covering themselves.
In Germany there is a nice way to describe this con game.
“One crow will never pick out the other crows eye” (this is a literal translation I hope it makes sense)
It means that one crook will never sell out another crook.
Thanks, Barry! No actual joint conservatorship of the US by Japan and China -- yet. But I’ve been hired by their govmts to start working on the press release, so I wanted to test the waters.
Peter: Of course the Dems share in the blame. The Repugs say “Tax Cut!” and the Dems, sheepishly, scramble to figure out how to design a tax cut of their own. The Repugs talk about Free Markets, and Getting the Gubmint off the backs of business, and too many Dems sheepishly huddle to figure out how to be complicit in getting all the sheriffs and deputies out of Dodge so that the corporate plunderers can go about that business. The Repugs have, too often, been framing the issues, and the Dems merely following (limping) along. This wasn’t my point.
My point was this: You said follow the money, but you listed examples of some Dems who lost money because they owned AIG stock. You weren’t following the money: You were following the losses.
The money goes to the CEO’s who are among the richest 3% of the nation’s earners, who have golden parachutes for their escape when they fail and are replaced, who get special tax breaks, and who contribute to the growing gap between the richest, who are getting richer at a rate unlike any since the days of the robber barons, and the rest of us, who are losing ground.
If Kerry and Pelosi are losing money because of stock in AIG, they were not tipped off as some claim the institutional investors were. Many of the rest of us will be paying for all this, and our children will, for a long time unless there is radical reform.
So Peter, my largest complaint about your comment #39 is that you told us to follow the money, but you didn’t keep your eye on the ball.
http://www.brillig.com/debt_clock/faq.html
Paulson should be made to show specific examples to the American public of mortgage situations to be bailed out. Here is the house, here is the mortgage, here is today’s value, here’s the owners income stream, here’s where this mortgage was sold, etc.
This is not too complicated (it’s stupid but not that complicated).
Does the plan actually help anyone but the affluent who own these valueless instruments ?
How does the plan help the home owner and community in the examples Paulson has yet to provide ?
How does it help deal with the millions of units now empty in the USA ?
What created this problem is the lending was never tied to reality and Paulson’s solution is just another leap of faith until it gets tied down to reality -- the fact that a few elected officials like Barney Frank, who sort of floats in the ether himself, think it’s OK is not convincing. Paulson should take the time to tie it down for all of Americans even if it takes a few hours on TV.
Paul I was following the money. Every time our politicians agree on something to quick I get concerned.
The way the congress , senate and the president jumped on the bailout makes me want to step back and dig deeper.
1) We are yet to hear from congress as to the source of the trouble. While wallstreet surely is to blame, who set the stage by passing bad regulations in the first place?
2) Who is making the most money on this? Playing the “mean wallstreet executive card” only deflects from the fact that most of the politicians are multimillionaires themselves.
I am sure Kerry/Pelosi and others are welcoming an AIG loan, they only profit from it.
No I didn’t keep my eyes of the ball……follow the money.
Below is the net worth of some of the senators.
Note that 8 out of the top ten are Democrats.
John Kerry, D-Massachusetts: $163,626,399
Herb Kohl, D-Wisconsin: $111,015,016
John Rockefeller, D -West Virginia: $81,648,018
Jon Corzine, D-New Jersey: $71,035,025
Dianne Feinstein, D-California: $26,377,109
Peter Fitzgerald, R-Illinois: $26,132,013
Frank Lautenberg, D-New Jersey $17,789,018
Bill Frist, R-Tennessee: $15,108,042
John Edwards, D-North Carolina: $12,844,029
Edward Kennedy, D-Massachusetts: $9,905,009
Jeff Bingaman, D-New Mexico: $7,981,015
Bob Graham, D-Florida: $7,691,052
Richard Shelby, R-Alabama: $7,085,012
Gordon Smith, R-Oregon: $6,429,011
Lincoln Chafee, R-Rhode Island: $6,296,010
Ben Nelson, D-Nebraska: $6,267,028
Lamar Alexander, R-Tennessee: $4,823,018
Mike DeWine, R-Ohio: $4,308,093
Mark Dayton, D-Minnesota: $3,974,037
Ben Campbell, R-Colorado: $3,165,007
Chuck Hagel, R-Nebraska: $2,963,013
Olympia Snowe, R-Maine: $2,955,037
James Talent, R-Missouri: $2,843,031
Arlen Specter, R-Pennsylvania: $2,045,016
Judd Gregg, R-New Hampshire: $1,916,026
John McCain, R-Arizona: $1,838,010
James Inhofe, R-Oklahoma: $1,570,043
John Warner, R-Virginia: $1,545,039
Kay Bailey Hutchison, R -- Texas: $1,513,046
Mitch McConnell, R-Kentucky: $1,511,017
Harry Reid, D-Nevada: $1,500,040
Sam Brownback, R-Kansas: $1,491,018
Thomas Carper, D-Delaware: $1,482,017
Ted Stevens, R-Alaska: $1,417,013
Maria Cantwell, D-Washington: $1,264,999
Barbara Boxer, D-California: $1,172,003
Orrin Hatch, R-Utah: $1,086,023
Mary Landrieu, D-Louisiana: $1,080,014
Bill Nelson, D-Florida: $1,073,014
Charles Grassley, R-Iowa: $1,016,024
Peter M….I agree that Dems, in this case, should not make an issue of executive compensation. They should demand provisions that allow loan modifications for troubled borrowers and adjustments to bankruptcy law that allow judges to make adjustments to mortgages. Both partys should resist pressure to change accounting standards to allow asset valuation based on purchase price, rather than the current market value method. That change would really screw the tax payer.
I further disagree that the federal government should just buy the bad debt. If anything we should demand they liquidate bad debt just like it was done after the S&L bailout.