Our nation’s financial crisis

Wall_Street

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.

678 Comments

  1. 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.

    September 15, 2008
  2. David Koenig said:

    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.

    September 15, 2008
  3. David Koenig said:

    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.

    September 15, 2008
  4. David Koenig said:

    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.

    September 15, 2008
  5. Bill Ostrem said:

    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.

    September 15, 2008
  6. Mike Zenner said:

    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.

    September 15, 2008
  7. Peter Millin said:

    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/

    September 15, 2008
  8. David Koenig said:

    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.

    September 15, 2008
  9. Paul Fried said:

    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….

    September 16, 2008
  10. David Henson said:

    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

    September 16, 2008
  11. 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.

    September 16, 2008
  12. William Siemers said:

    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.

    September 16, 2008
  13. Paul Fried said:

    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.

    September 16, 2008
  14. Peter Millin said:

    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

    September 16, 2008
  15. Barry Cipra said:

    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

    September 16, 2008
  16. Jane Moline said:

    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

    September 16, 2008
  17. Paul Fried said:

    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.

    September 16, 2008
  18. Peter Millin said:

    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.

    September 16, 2008
  19. Peter Millin said:

    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?

    September 16, 2008
  20. Peter Millin said:

    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.
    —————————————————————————————————

    September 16, 2008
  21. Patrick Enders said:

    Peter wrote,

    7 Health Professionals $5,852,212

    Ooh, look. It’s me! And my father, and my mother, and a lot of our coworkers.

    Good on us.

    September 16, 2008
  22. William Siemers said:

    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.

    September 16, 2008
  23. Mike Zenner said:

    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.

    September 16, 2008
  24. William and Mike, I am in total agreement here.

    September 16, 2008
  25. Peter Millin said:

    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?

    September 18, 2008
  26. Paul Fried said:

    “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

    September 18, 2008
  27. David Henson said:

    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 ?

    September 18, 2008
  28. Barry Cipra said:

    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?

    September 18, 2008
  29. Patrick Enders said:

    David (and Paul),
    It’s hard to be sure, but I think Paul was going for satire in that post. 🙂

    September 18, 2008
  30. Paul Fried said:

    DavidH: The thought had not entered my mind. We had a plan?

    Patrick: Did you miss the URL?

    September 18, 2008
  31. Patrick Enders said:

    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. 🙂

    September 18, 2008
  32. Barry Cipra said:

    I had the same problem with Paul’s link.

    September 18, 2008
  33. Patrick Enders said:

    I’m surprised the MSM hasn’t been covering this yet. It sounds like a big deal.

    September 18, 2008
  34. Peter Millin said:

    LOL tooo funny time to bring out the tinfoil hats

    September 18, 2008
  35. Mike Zenner said:

    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.

    September 18, 2008
  36. Peter Millin said:

    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.

    September 19, 2008
  37. Paul Fried said:

    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)

    September 20, 2008
  38. Paul Fried said:

    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.

    September 20, 2008
  39. Barry Cipra said:

    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!

    September 21, 2008
  40. Peter Millin said:

    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.

    September 21, 2008
  41. Paul Fried said:

    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.

    September 21, 2008
  42. David Henson said:

    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.

    September 21, 2008
  43. Peter Millin said:

    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

    September 21, 2008
  44. William Siemers said:

    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.

    September 22, 2008
  45. Peter Millin said:

    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.

    September 22, 2008
  46. Patrick Enders said:

    Peter,
    Speaking of ‘follow the money’…

    Remember all those lobbyists who are running McCain’s campaign? You know, the ones who want to link Barack Obama to Fannie and Freddie?

    Well, McCain’s head lobbyist – I mean campaign manager – Rick Davis, has been on the payroll of Fannie and Freddie to the tune of $2 million plus:

    Senator John McCain’s campaign manager was paid more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations, current and former officials say.

    http://www.nytimes.com/2008/09/22/us/politics/22mccain.html?_r=3&ei=5070&adxnnl=1&oref=slogin&emc=eta1&adxnnlx=1222056908-k38W66Tg7nuznBsIw26YZg&oref=slogin&oref=slogin

    Mercifully, though, the Democrats aren’t just jumping on to Paulson’s plan to write a blank check to Wall Street firms:

    http://www.nytimes.com/2008/09/22/business/22paulson.html?hp

    I can only hope they’ll come up with some checks on the process, as well as some protection for Americans who were conned into buying houses at inflated prices and dubious mortgage terms.

    September 22, 2008
  47. Barry Cipra said:

    Griff,

    The glitch with postings that include links appears to be back. I’ve had a couple of such postings fail to appear.

    September 22, 2008
  48. Patrick Enders said:

    Patrick…Patrick still wearing your partisan blinders?

    You and me both, Peter.

    I might note that I’m not endorsing a Democratic plan – because I don’t know what they might propose. But I am very concerned about the free cash giveaway to Wall Street that has been proposed by the Republicans, no strings whatsoever attached.

    Given what’s proposed, I hope the Democrats will do at least a little bit better.

    September 22, 2008
  49. Peter Millin said:

    Patrick said

    “You and me both, Peter.”

    LOL..although I think of myself more in the center.

    September 22, 2008
  50. john george said:

    Peter- The American revolution was precipitated by taxation without representation. We now have taxation with representation. Looks like taxes are here to stay. Lets leave off with the revolution. There are enough revolting things occuring in this country right now.

    September 22, 2008
  51. Jane Moline said:

    Peter: In #48 you are listing Mark Dayton, a wealthy Minnesotan who is NOT a senator any longer and who forego his salary when he was a senator. Eliminating him, 18 are dems and 21 are republicans on your list. More interesting would be their net worth before they became senators and their subsequent road to accumulation.

    Your list proves that you have to be rich to be successful in a senatorial campaign. The way we allow campaigns to be financed is its own crime–but not the main one that led to the financial crisis.

    This crisis was precipitated by individuals taking value where there was none–loan originators who charged excessive commissions and passed off the loans with no consequence on the quality–and possible committed fraud by falsifying earnings and ability to pay information– Then bank and financial firm executives who took out value for their part in the process–earning huge incomes and bonuses while putting together complex financial products that won’t hold water. Meanwhile, lower level employee’s will lose their jobs as the companies cut back.

    We should be very concerned that any financial institution that receives federal aid must comply to strict compensation limits and even negation of severance compensation packages–executives of these firms should not gain from the bailout–they should have to comply with strict oversight limiting compensation.

    September 22, 2008
  52. Barry Cipra said:

    Jane writes:

    “Peter: In #48 you are listing Mark Dayton…”

    Peter’s list dates back to 2003. (I overlooked Dayton, but noticed John Edwards on it when I read the posting yesterday.) A google search on any of the numbers should get you to an article at CNN.com headlined “Millionaires populate U.S. Senate.” (I’d give the link, but I’ve had bad luck lately getting posted when I do so.)

    September 22, 2008
  53. Patrick Enders said:

    Peter wrote,

    Patrick said
    “You and me both, Peter.”
    LOL..although I think of myself more in the center.

    I think of myself as a centrist, as well. After all, I’m the only person who really, truly understands exactly how things should be. As a result, everyone else can only be understood in reference to my point of view. Some of them are to the right of me, some are to the left, and some are just plain ‘out there.’ 🙂

    Actually, it took George Bush Jr. for me to finally admit that I am a Democrat. Before him, I simply called myself a liberal. I have problems with the Democrats (like the Republicans, they’re too beholden to business and monied interests, and they’ve not done enough to protect individual rights – and I don’t mean property rights). But they are the only viable party that even comes close to representing my point of view, and they need all the help they can get to put this present insanity to rest.

    September 22, 2008
  54. Barry Cipra said:

    Peter writes:

    “There is a revised list…”

    Poor Herb Kohl lost a hell of a lot of money! Peter’s 2003 list put him second in the Senate at $111 million; the newer list has him 49th at $5.5 million….

    September 22, 2008
  55. Peter Millin said:

    # 59

    “A government big enough to give you everything you want, is strong enough to take everything you have.”
    -Thomas Jefferson

    September 22, 2008
  56. Barry Cipra said:

    Peter quotes Thomas Jefferson as saying:

    “A government big enough to give you everything you want, is strong enough to take everything you have.”

    A quick Google search indicates that this was actually said by Gerald Ford, and is sometimes also misattributed to Barry Goldwater and Ronald Reagan.

    September 22, 2008
  57. john george said:

    If there is any one main underlying characteristic in the events that led up to the bank and investment firm failures, it is probably greed. There are probably numerous reasons for this to arise, basically because it is part of human nature. I noticed this in my own children when they were about a year and a half old. All you parents remember how easy it was to teach your children to unselfishly share? Yeah, sure! It was a lifelong endeavor of teaching and demonstrating to see that characteristic broken before they left the nest.

    One of the things I have seen emerging out of our competitive society, and which has concerned me greatly, is the idea of winning at all costs. I’ve seen this in angry tirades by parents of adolescent sports participants. I’ve seen this in the use of performance enhancing drugs in sports. I’ve seen this in too many of the political campaign ads running now. I’ve seen this in not-quite-but-almost false advertising for procucts. This is a trend we must see stopped before our whole society disentigrates. If education was the cure all for this, the problem would not exist. We are one of the most educated societies in history, but we haven’t learned to be honest in our dealings. Supposedly, there are ethics courses taught in business colleges, but if this is evidence of what is being taught, I seriously question the course contents. I see this as not necessarily a political or economic problem, so much as a moral problem. What do any of you other folks think?

    September 22, 2008
  58. Paul Fried said:

    John G: I’m glad you’re using the “G” word (greed). Rev. Jim Wallis did too (see my comment #41).

    I agree with many of the concerns of those who are against the bailout, but without a bailout, there might be world-economic consequences from which mostly the poor will suffer.

    So I’m fine with a big bailout, as long as it’s accompanied by a big tax increase on the rich, capital gains tax, removing all tax subsidies on excessive CEO pay, etc. The very people who made obscene incomes from the deregulated mess should have to pay steep taxes to cover the fix.

    I’m also fine with bailouts for the little people, to be fair, and a shift in investment from privatized military and Iraqi contractors to US infrastructure and education.

    I read a piece recently that showed how times of great economic growth were times when the rich paid the highest taxes–and times of economic stagnation were times when the rich were given tax breaks. When the rich help pay for a healthy middle class, the rich ultimately benefit the most–far more than the middle class.

    Don’t think of it as forced redistribution of weath (which more accurately describes recent decades in which the middle class have been losing ground while the rich get way ahead). Think of it –yup — as the rich investing in the economic health of the consumer base.

    September 22, 2008
  59. Mike Zenner said:

    John G, the issue is a moral issue caused by a credit card society. The human traits of hard work and the social interaction of working together(team work) to complete a project that all share in the benefits, has been displaced by the CONSUMER society where only the INDIVIDUAL is valued by how much stuff he has (big houses , newest cars, big screens, trophy’s etc) even if it means living beyond his means. The ME society.

    Paul, I would not root for the bailout too hard! It is basically being setup as a “get out of jail free card” for the American banks. The problem is there is so much leverage throughout the global system that even the US gov will not be able to backstop the flood of financial toxic waste. WE ARE TALKING TRILLIONS OF DOLLARS! The US dollar has already dropped over 3% since Thursday, even with much foreign bank intervention. Oil may be back up to $140/bbl before this bill even passes.

    We may well have reached terminal on the American financial system. If their main goal is to hyperinflate the worlds debt away with a flood of freshly printed FED DOLLARS. Welcome to Weimar Germany circa 1923. And we all know who came on the political scene promoting “CHANGE” 10 years later.

    September 22, 2008
  60. john george said:

    Paulo F.- Somewhere in the chronology of the postings, I mssed that one. It is an excellent article. I also agree with your point about the bail-out rescuing low-income individuals in the long run. I hope I did not infer that I was against it. I am not, for the very reasons you cited. It is unfortunate that in our society, the redistribution of wealth must be coerced. My hope would be the rich investing in the consumer base without going through all this. I’m still not convinced that taxation and government programs are the most efficient means for redistributing the wealth, but I’m realistic enough to recognize that it doesn’t seem to be getting done any other way.

    September 22, 2008
  61. William Siemers said:

    Jane M…Re: Executive compensation limits as a part of the bail-out package.

    My concern is that if compensation is limited to just one group of businesses within the economy, then talent will be drawn out of those companies into higher paying jobs in ‘non-controlled’ businesses. And those companies participating in the bail-out will be left with the least qualified leadership in american business. This is not what we need going forward.

    If compensation needs to be limited, limit it for all businesses or don’t limit it at all.

    September 23, 2008
  62. Paul Zorn said:

    Lots of talk about greed in this thread, and plenty of firm stands taken against it. I’m in that camp, too, and proud of it. Greed bad. Very bad.

    But …

    First, greed has been around for a long time. Is it worse now than before? If so, what made us get greedier? If not, how did this age-old problem suddenly cause the current blowup?

    Second, if we stipulate that greed is a bad thing, and that bad players in the current blowup were motivated at least partly by greed, what do we do next?

    I suppose it depends on who “we” is. As individuals we can and will (it feels so good!) and probably should rail against the sin of Midas, praying daily for some Midas-style retribution against the houses of evil.

    If “we” means our government, however, I’d prefer a more practical, less moralizing response to greed. Government, IMO, should leave the moralizing to others and construct well-designed guard rails (what the heck, call them market regulations). The point for government is not to eradicate greedy thoughts or to change human nature but to constrain greed-fueled behavior.

    September 23, 2008
  63. Peter Millin said:

    The notion of regulating executive pay sounds very much like socialism, and history tells us that socialism doesn’t work.

    if we go the route of regulating executive pay are going to hold those responsible that created Fannie May and Freddie Mac in the first place? Will we regulate these people to?

    Their are several questions that don’t sit well with me in this issue.

    1) If you have a 30 year fixed mortgage and you are keep paying on time, what effect does the current mess have on you? I would say none. Let’s don’t forget that subprime mortgages represent only a small part of the mortgage market.

    2) If you default on a sub prime mortgage, maybe you just simply can’t afford a house. Why does society have to bail you out? What happened to living within your means?

    3) Do we really want our government in the mortgage business?

    The planned bailout is nothing more than delaying the pain of the inevitable. Like some of you have noted most people and our government lives about their means. So now the solution is to print more money to refinance our debt. This is like jumping from one credit card to another. Sooner or later you got to pay it back.
    Japan has done it the right way (which is the hard way), buy paying back what they owe. This put them in a 20 year slow or no growth pattern, but they are now starting to be financially sound again.

    The bailout is dangerous and it is an election year ploy. It doesn’t do anything to solve the problem of being leveraged to high.

    September 23, 2008
  64. Jane Moline said:

    Peter, in #73, compensation limits mays sound like socialism, but what else do you call it when the federal government is bailing out businesses? If we are going to give them money for their quite stupid decisions, they should not be rewarded.

    Greed is a bigger problem today, and it is a direct result of tax policies and compensation policies. Someone who has not invented anything or created any business walks in and is compensated disproportionately for their work–they claim their work should be based on the value-added to the company during their tenure–but only if all of the workers recieve the same proportionate “value” pay–instead, the executives convince themselves and the public that they are really worth, say 10 million a year.

    William in #71 you worry that limiting compensation in bail-out banks would cause a net out flow of talent. Good. Let them try and get jobs somewhere with that on their resume. It is reasonable for taxpayers to limit the windfalls to the people who caused the problem. And, because greed is limited the financial industry, maybe we should come with poilicies on compensation, including eliminating the deductibility of compensation in excess of a reasonable amount–like a million bucks, while still taxing the compensation to the individual.

    This bailout is not going to put the government in the mortgage business–it is going to leave the government holding securities of questionable worth–the mortgages are down the pipe on this one. We should all be more worried about how this will affect the small banks that did not contribute to this crisis because they have used best banking practices, have not entered into risky arms and are responsible about to whom they lend.

    Letting the financial industry collapse is not a good alternative–however, we better know what we are buying. The best solution would be one where these financial firms are limited on how they compensate shareholders and executives until they have PAID back what they lost–so if we pay a billion dollars for assets that end up being worth 750 million, they have to pay back the 250 million–and until then are subject to tighter oversight and regulation. Don’t charge them interest–but make them pay regulatory fees that reflect their situation.

    We have a format for this–we have bank regulators and we can use bankruptcy-type oversight. We just have to make sure that the capitalists that were yelling “deregulate” for years and now want a bailout do not continually scream “socialism” for the regulation they should have had all along while downplaying the actual socialism of the government bailing them out in the first place.

    September 23, 2008
  65. Anne Bretts said:

    I think the money should be channeled to the mortgage borrowers to pay down their loans and renegotiate the amounts and terms so they can stay in their houses. This way the mortgage holders have an incentive to solve problems and not just collect on pieces of paper, people stay in their homes and housing prices begin to stabilize. Limit commissions and fees and let the salaries run their course. No bonuses unless companies are solvent and in better shape than when the executive came on board. I don’t have a problem with people being rewarded for success.

    September 23, 2008
  66. Peter Millin said:

    Jane, I don’t support the bailout because it is against free market principals. How come capitalism is good when you make money, but bad when you lose it?

    Who are you to decide who should be paid how much? If a employer sees enough value in a person to pay him/her a lot of money, why does this bother you? What do you have to lose?

    If an employer doesn’t pay you what you think you are worth, move on and find somebody who does. Dictating wages makes no sense from a business or economical perspective.

    September 23, 2008
  67. john george said:

    Mike Z.- I’m not sure credit cards are the problem, per se. I think it is how people have been allowed to use them. Without a philosophical base of self control, a person will not naturally have an incentive to limit their purchases. It is a little like the story of the person who had overdrawn their bank account. The bank called them and told them there was no money in their account and to stop writing checks. The person replied that that couldn’t possibly be true, as they still had 7 checks left in their check book. On another stream, there has been discussion about how some HS graduates do not have a good math base. It may just be possible that without that understanding, there is not a logical way for a person to even add up what they make and what they spend to see how they compare. I’m just speculating, here, but some interactions I’ve had with some young people make me wonder.

    What I see as an underlying premise is the whole concept of instant gratification. In the housing market, it works out this way. I don’t want to wait until I can work into an income level to afford the house of my dreams, so I will just borrow against the future hope that I will eventually get there. That way I am able to have my dream house now and not have to wait. This is foolish thinking, because we don’t know what tomorrow will bring. We just might not get that advancement. Unfortunately, there is a lot of advertising out there pushing just this concept. It is not only in housing, but in every other type of major purchase market from automobiles to swimming pools. If a person has not been taught how to plan for major purchases, then I don’t think they will learn it by osmosis, especially in our consumption society. Leveraging for capital investment is wise only if the products a person is investing in can increase their ability to produce wealth. I don’t think the concept holds true for items that are only consumed and do not increase a person’s ability to produce a good or service. That may be pretty conservative, but it has worked well for my wife and I for the last 40 or so years.

    As far as government regulation in the whole financial area, I think this event has verified the need for that. It is unfortunate that people in leadership of these large firms do not have the moral fiber to regulate themselves, but I think the need is pretty evident. I’m not particularly fond of government interference in the private sector. I think it adds more ineffeciency than effeciency. One of the great benefits of the IT advancements we have seen is to see things done instantly that used to take a week or so just because of the time it took for communications. Perhaps this process needs to be slowed down a little, and government regulation will certainly accomplish that.

    September 23, 2008
  68. Jane Moline said:

    Peter: If compensation policy were that easy. Check out the comparitive executive compensation policies between SUCCESSFUL European companies and the USA.

    In the USA, we have executives that believe they are worth what Tiger Woods or Michael Jordan made. There is a disconnect–where executives convince the compensation committee that they are worth as much as the stock of the company has increased while they are there. This leads to compensation levels in the 10 to 100 million annual range–sorry, but in my expert opinion, this is excessive and takes value out of the company.

    Corporations routinely use stock options to avoid compensation limitations–and argue that it is at little or no cost to the corporation–when in reality these options reduce the value of all the stock. Recently this has led to problems with United Health Group, including millions of dollars in fines and a big bad lawsuit. Overall, it leads to false values of the underlying company–a bubble in value that must eventually be “adjusted” out–often in the stock market and often to the detriment of the shareholders.

    Right now we are facing a financial crisis that is the greatest crisis in our country’s history. We are damned if we do and damned if we don’t. If we do not bail out these companies, banks will fail across the country–resulting in FDIC intervention that will be much more costly than what we are facing now. So even though it is very socialistic of us, we must do it.

    Note that the last bailout by the Resolution Trust Corporation of the S & L industry (gee–also a financial industry1) was precipitated by stock and S & L manipulation that led to the indictment of Keating and his co conspirators–5 Senators where John McCain was cleared of indictable offenses but reprimanded for “poor judgement.”

    That bailout should be an example of what we are facing now. The RTC took over all of the assets of the failed S & Ls, and disposed of them–but the FDIC raised everybody’s rates. Meaning that the 1st National Bank in Northfield and all the banks that have acted well and appropriately are going to see their rates raised.

    I advocate for tight regulation of any company that accepts bailout money–there is no way those executives deserve to be enriched at the expense of the taxpayer. If they can pay back their bailout money–then they can pay themselves whatever they want.

    As far as compensation goes–it is one of the problems stranggling the US economy. We should be looking at tax policies to attempt to rein in the greed.

    Our current tax policies discourage business reinvest and encourage waste-by allowing deductions of excessive compensation and not giving enough credit for reinvestment–this should change.

    I would sincerely consider elimating the entire corporate income tax system and move to a carbon tax system for corporations. That would be a whole other thread.

    September 23, 2008
  69. David Henson said:

    Once one has decided to spend a trillion the question becomes how ? Retrofit tired old systems or build a brand new one. Paulson should also offer other options for how to spend a trillion. Pumping this money into dying institutions will not have the high flying effect of pumping it into main street banks. Real estate is effectively collapsed already and Wall Street has not proven nimble at applying funds where needed (note the 2 million empty housing units). The trillion should be spent on a new transportation system that does not kill 50,000 annually in US (and would benefit the world). The trillion should also be pumped into small manufacturers so they can employ those not building homes.

    September 23, 2008
  70. Peter Millin said:

    Jane I guess you and I just have to disagree with this. I just don’t see how executive pay had any influence on the financial crisis, or why it matters how much a company pays their executives. If an employee is smart and lucky enough to negotiate a good salary for himself then more power to him or her.

    You got make the same argument about any athlete. Why not start telling them on what they can make? Does Tiger Woods deserve a multi million dollar contract? The whole notion is just absurd.

    If an executive ran a company in to the ground and you demand he loses his compensation by breaking a legal contract he has, then shouldn’t we ask to cut politicians pensions because they created the environment responsible for the current meltdown?

    The days of large companies being owned by a single person are over. Most large corporations are owned by shareholders, some of them are bigger then others.
    Maybe you should check your 401K and see how many mean old corporations have contributed to it’s success??

    September 23, 2008
  71. Peter Millin said:

    It is good to see that some cooler heads might prevail. it looks like that the bailout isn’t a slam dunk yet. Thank God.

    The longer it drags on the more questions are being asked, the more we might get closer to the truth.

    September 23, 2008
  72. Peter Millin said:

    http://online.wsj.com/article/SB122212948811465427.html

    Finally we are getting closer to the real story. Is it just me or does anyone else wonder why this is not being investigated?

    Even Paulson (D) told the hearing committee today that this was created here in Washington.

    September 23, 2008
  73. Peter, I am no financial wizard and it is hard for me to even begin to understand all the implications of various regulations and de-regulations, but when all the various players at so many levels are doing the things that they all did at the same time, over time, you will get a hornet’s nest of things to investigate, and then, if you ask them to investigate themselves, they won’t find anything wrong. It’s hard for honest people to even believe that sort of stuff is just the normal way of doing business for some people…from Main Street to Wall Street and up to Pennsylvania Avenue and over to 20515, 20510 and back again.

    September 23, 2008
  74. Mike Zenner said:

    Peter, to #82 ,

    Its pretty much common knowledge that the housing bubble was created to counter the effects of the 2000 stock bubble collapse. For more than 20 years the American economy is driven by the expansion of debt. The Federal Reserve, which is a PRIVATE central bank, its banking partners and the boys and girls in Congress have been complicit in this Ponsi scheme. It has been a slow evolution of a Fascist government who’s time has now come.

    Below is a good article that pretty much spells it all out:

    http://www.321gold.com/editorials/schoon/schoon092308.html

    September 23, 2008
  75. Paul Fried said:

    Peter (#82): It seems the WSJ article you cite was written by some free market (dereg) fans (hard-core commitments there) who don’t want to consider that deregulation had anything to do with the crisis. But they don’t dig deep enough–it was much broader than the issues tied to Fannie Mae and Freddie Mac the authors describe.

    “A man only hears what he wants to hear, and he disregards the rest.” – Paul Simon

    “Things are received according to the receiver.” – Thomas Aquinas

    September 23, 2008
  76. Paul Fried said:

    When Naomi Klein published “The Shock Doctrine,” some financial commentators mocked it, speculating how it might be wise to invest in companies that sell mobile homes to the government after Katrina, etc.

    But her basic idea was that after a crisis, there’s always some folks looking not only to make a buck, but even to change the rules by which bucks are made. If a Tsunami wipes out oceanfront property, big resorts can move in, build, and make a killing. If Katrina wipes out New Orleans, then instead of reviving public schools, make ’em all charter schools run by some private for-profit corporation. Change the laws. Revise the building codes, the zoning, while folks are still reeling and in shock.

    The Wall Street bailout — with no oversight, no transparency, no restrictions on how Henry Paulson chooses to spend the money. Something smells fishy: sounds like the Shock Doctrine at work again, but this time, not in a storm ravaged coastal area, but in Washington and on Wall Street.

    Klein has a brief reflection at Huffington Post:
    http://www.huffingtonpost.com/naomi-klein/now-is-the-time-to-resist_b_128433.html

    No big revelations from Klein, but good to know she’s paying attention.

    September 24, 2008
  77. Paul Fried said:

    Get ready for a shocker: From section 8 of the Bush bailout, one sentence:
    “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

    As noted by Jason Linkins at HuffPost, we should be seeing red flags when we read this sentence. No transparency, no oversight. Henry Paulson becomes Financial King of the bailout for Wall Street.

    http://www.huffingtonpost.com/2008/09/22/dirty-secret-of-the-bailo_n_128294.html

    September 24, 2008
  78. Rob Hardy said:

    The proximity of this thread to the sex education thread in the sidebar is making me think of Wall Street as a promiscuous teenager and the current crisis as an unwanted pregnancy that could have been prevented by contraception (regulation), and the bailout as a child that will now have to be raised by its grandparents (the American people).

    September 24, 2008
  79. Peter Millin said:

    ** 2001

    April: The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.”

    ** 2002

    May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

    ** 2003

    January: Freddie Mac announces it has to restate financial results for the previous three years.

    February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that “although investors perceive an implicit Federal guarantee of [GSE] obligations,” “the government has provided no explicit legal backing for them.” As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. (“Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO,” OFHEO Report, 2/4/03)

    September: Fannie Mae discloses SEC investigation and acknowledges OFHEO’s review found earnings manipulations.

    September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact “legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises” and set prudent and appropriate minimum capital adequacy requirements.

    October: Fannie Mae discloses $1.2 billion accounting error.

    November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any “legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk.” To reduce the potential for systemic instability, the regulator would have “broad authority to set both risk-based and minimum capital standards” and “receivership powers necessary to wind down the affairs of a troubled GSE.” (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)

    ** 2004

    February: The President’s FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: “The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator.” (2005 Budget Analytic Perspectives, pg. 83)

    February: CEA Chairman Mankiw cautions Congress to “not take [the financial market’s] strength for granted.” Again, the call from the Administration was to reduce this risk by “ensuring that the housing GSEs are overseen by an effective regulator.” (N. Gregory Mankiw, Op-Ed, “Keeping Fannie And Freddie’s House In Order,” Financial Times, 2/24/04)

    June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying “We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System.” (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)

    ** 2005

    April: Treasury Secretary John Snow repeats his call for GSE reform, saying “Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system.” (Secretary John W. Snow, “Testimony Before The U.S. House Financial Services Committee,” 4/13/05)

    ** 2007

    July: Two Bear Stearns hedge funds invested in mortgage securities collapse.

    August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying “first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.” (President George W. Bush, Press Conference, The White House, 8/9/07)

    September: RealtyTrac announces foreclosure filings up 243,000 in August – up 115 percent from the year before.

    September: Single-family existing home sales decreases 7.5 percent from the previous month – the lowest level in nine years. Median sale price of existing homes fell six percent from the year before.

    December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying “These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I’ve called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon.” (President George W. Bush, Discusses Housing, The White House, 12/6/07)

    ** 2008

    January: Bank of America announces it will buy Countrywide.

    January: Citigroup announces mortgage portfolio lost $18.1 billion in value.

    February: Assistant Secretary David Nason reiterates the urgency of reforms, says “A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully.” (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08)

    March: Bear Stearns announces it will sell itself to JPMorgan Chase.

    March: President Bush calls on Congress to take action and “move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages.” (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08)

    April: President Bush urges Congress to pass the much needed legislation and “modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes.” (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08)

    May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.

    “Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans.” (President George W. Bush, Radio Address, 5/3/08)

    “[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator.” (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08)

    “Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans.” (President George W. Bush, Radio Address, 5/31/08)

    June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying “we need to pass legislation to reform Fannie Mae and Freddie Mac.” (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08)

    July: Congress heeds the President’s call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing.

    In 2005– Senator John McCain partnered with three other Senate Republicans to reform the government’s involvement in lending.
    Democrats blocked this reform, too.

    September 24, 2008
  80. Barry Cipra said:

    Peter’s source is a (self-serving?) White House press release that’s been making the rounds. I thought I’d doublecheck its citation of the Administration’s FY02 budget. It’s amusing to see what else was in that document. In a column adjacent to the “financial trouble of a large GSE” warning is the following:

    “Information about borrowers is more widely avail-
    able and easier to process, thanks to technological ad-
    vances. Credit scoring models, for example, enable lend-
    ers to make more accurate lending decisions. As a re-
    sult, creditworthy borrowers are less likely to be turned
    down, while borrowers that are not creditworthy are
    less likely to be approved for credit.”

    It’s also worth quoting the entire “financial trouble” paragraph:

    “Uncertainties about the Federal Government’s li-
    ability have increased in some areas. Consolidation has
    increased bank size, and deregulation has allowed
    banks to engage in many risky activities. Thus, the
    loss to the deposit insurance funds can turn out to
    be unusually large in some bad years. The potential
    loss needs to be limited by large insurance reserves
    and effective regulation. The large size of some GSEs
    is also a potential problem. Financial trouble of a large
    GSE could cause strong repercussions in financial mar-
    kets, affecting Federally insured entities and economic
    activity. “

    September 24, 2008
  81. Peter Millin said:

    If we can accept the Huffington Post as a credible source, then we sure can accept the white house?
    The same time line had been published by the Times as well

    September 24, 2008
  82. Patrick Enders said:

    Peter,
    Perhaps you could link to the NYT timeline?

    September 24, 2008
  83. Peter Millin said:

    Patrick I tried to post the link without success. Just Google “Bush + Fannie May”

    September 24, 2008
  84. Barry Cipra said:

    Peter, I had no luck with your Google suggestion. Patrick, did you?

    September 24, 2008
  85. Patrick Enders said:

    No. Not even after I corrected the spelling and tried variations, such as “Bush Fannie Mae timeline site:nytimes.com”

    September 24, 2008
  86. Barry Cipra said:

    Griff, please look into the problem people are having posting links!

    September 24, 2008
  87. john george said:

    This would really score one for the Darwinists if Griff could find the missing link!

    September 24, 2008
  88. Barry Cipra said:

    All we seek is a little intelligent design….

    September 24, 2008
  89. Patrick Enders said:

    One resourceful blogger has uncovered an early draft of the Paulson bailout proposal. It begins like this:

    Dear American:

    I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

    I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

    http://www.theseminal.com/2008/09/23/awaiting-your-correspondance-important-business-matter/

    September 24, 2008
  90. Peter Millin said:

    Proposals on Mortgage Agencies

    Published: May 30, 2002

    The Bush administration is urging new rules to require Fannie Mae and Freddie Mac, the government-sponsored companies that are the largest purchasers of home mortgages, to make financial disclosures similar to those of other publicly traded companies.

    The White House Office of Management and Budget sent a letter asking the Office of Federal Housing Enterprise Oversight, which is the main regulator of Fannie Mae and Freddie Mac, to ”extend generally applicable principles of governance and disclosure” to the companies, which are publicly traded.

    In the letter, John D. Graham, administrator of the Office of Information and Regulatory Affairs, said that even though Fannie Mae and Freddie Mac are not subject to direct Securities and Exchange Commission oversight, they should be subject to standards similar to those that apply to other companies.

    The letter is another challenge to Fannie Mae and Freddie Mac and their supporters, who have been fending off efforts to make the companies provide additional financial information, including registering their securities.

    Representatives Edward J. Markey, Democrat of Massachusetts, and Christopher Shays, Republican of Connecticut, have introduced legislation to require the companies to register their stock at the Securities and Exchange Commission.

    Such a move could force the companies to pay about $150 million in fees to register their debt securities. No action has been scheduled on the bill and no comparable effort has been introduced in the Senate.

    In his letter to the oversight board, Mr. Graham said that issuing a new rule to enhance disclosures by Fannie Mae and Freddie Mac would be ”advancing the goals” of the Bush administration’s plans to promote corporate responsibility.

    Fannie Mae and Freddie Mac issued statements saying they supported the president’s goals. Both said their disclosure policies exceed current S.E.C. requirements.

    Although the companies are not required to register their stock or debt securities or file financial statements, they publish annual ”information statements,” updated quarterly, and a quarterly report for investors and analysts. Both are available on the companies’ Web sites and are distributed to investors.

    September 25, 2008
  91. Peter Millin said:

    Proposals on Mortgage Agencies

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    Published: May 30, 2002

    The Bush administration is urging new rules to require Fannie Mae and Freddie Mac, the government-sponsored companies that are the largest purchasers of home mortgages, to make financial disclosures similar to those of other publicly traded companies.

    The White House Office of Management and Budget sent a letter asking the Office of Federal Housing Enterprise Oversight, which is the main regulator of Fannie Mae and Freddie Mac, to ”extend generally applicable principles of governance and disclosure” to the companies, which are publicly traded.

    In the letter, John D. Graham, administrator of the Office of Information and Regulatory Affairs, said that even though Fannie Mae and Freddie Mac are not subject to direct Securities and Exchange Commission oversight, they should be subject to standards similar to those that apply to other companies.

    The letter is another challenge to Fannie Mae and Freddie Mac and their supporters, who have been fending off efforts to make the companies provide additional financial information, including registering their securities.

    Representatives Edward J. Markey, Democrat of Massachusetts, and Christopher Shays, Republican of Connecticut, have introduced legislation to require the companies to register their stock at the Securities and Exchange Commission.

    Such a move could force the companies to pay about $150 million in fees to register their debt securities. No action has been scheduled on the bill and no comparable effort has been introduced in the Senate.

    In his letter to the oversight board, Mr. Graham said that issuing a new rule to enhance disclosures by Fannie Mae and Freddie Mac would be ”advancing the goals” of the Bush administration’s plans to promote corporate responsibility.

    Fannie Mae and Freddie Mac issued statements saying they supported the president’s goals. Both said their disclosure policies exceed current S.E.C. requirements.

    Although the companies are not required to register their stock or debt securities or file financial statements, they publish annual ”information statements,” updated quarterly, and a quarterly report for investors and analysts. Both are available on the companies’ Web sites and are distributed to investors.

    September 25, 2008
  92. Peter Millin said:

    New Agency Proposed to Oversee Freddie Mac and Fannie Mae

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    By STEPHEN LABATON
    Published: September 11, 2003

    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.

    ”There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,” Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.

    Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.

    The administration’s proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies’ exemptions from taxes and antifraud provisions of federal securities laws.

    The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.

    After the hearing, Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration’s proposal. Industry executives said Congress could complete action on legislation before leaving for recess in the fall.

    ”The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,” Mr. Oxley said at the hearing. ”We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,” the independent agency that now regulates the companies.

    ”These irregularities, which have been going on for several years, should have been detected earlier by the regulator,” he added.

    The Office of Federal Housing Enterprise Oversight, which is part of the Department of Housing and Urban Development, was created by Congress in 1992 after the bailout of the savings and loan industry and concerns about regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.

    At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve. Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families. This year, however, the chances of passing legislation to tighten the oversight are better than in the past.

    September 25, 2008
  93. Peter Millin said:

    New Agency Proposed to Oversee Freddie Mac and Fannie Mae

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    By STEPHEN LABATON
    Published: September 11, 2003

    Reflecting the changing political climate, both Fannie Mae and its leading rivals applauded the administration’s package. The support from Fannie Mae came after a round of discussions between it and the administration and assurances from the Treasury that it would not seek to change the company’s mission.

    After those assurances, Franklin D. Raines, Fannie Mae’s chief executive, endorsed the shift of regulatory oversight to the Treasury Department, as well as other elements of the plan.

    ”We welcome the administration’s approach outlined today,” Mr. Raines said. The company opposes some smaller elements of the package, like one that eliminates the authority of the president to appoint 5 of the company’s 18 board members.

    Company executives said that the company preferred having the president select some directors. The company is also likely to lobby against the efforts that give regulators too much authority to approve its products.

    Freddie Mac, whose accounting is under investigation by the Securities and Exchange Commission and a United States attorney in Virginia, issued a statement calling the administration plan a ”responsible proposal.”

    The stocks of Freddie Mac and Fannie Mae fell while the prices of their bonds generally rose. Shares of Freddie Mac fell $2.04, or 3.7 percent, to $53.40, while Fannie Mae was down $1.62, or 2.4 percent, to $66.74. The price of a Fannie Mae bond due in March 2013 rose to 97.337 from 96.525.Its yield fell to 4.726 percent from 4.835 percent on Tuesday.

    Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.

    ”The regulator has not only been outmanned, it has been outlobbied,” said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ”Being underfunded does not explain how a glowing report of Freddie’s operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.”

    Significant details must still be worked out before Congress can approve a bill. 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.

    September 25, 2008
  94. Peter Millin said:

    reddie Mac Again Delays A Report on Its Earnings

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    By JONATHAN D. GLATER
    Published: September 26, 2003

    Freddie Mac announced yesterday that its review of its finances would take longer than expected and that it now expected that its reported earnings over three years were off by about $4.5 billion or more.

    The announcement came as the head of the company’s federal regulator suggested to members of a Congressional panel that his agency needed greater independence and enforcement power to do its job. The Bush administration earlier this month outlined a proposal that would replace the agency, the Office of Federal Housing Enterprise Oversight, with a new regulator that would be part of the Treasury Department.

    Any regulatory overhaul raises the question of whether a new agency should take on oversight of the Federal Home Loan Bank system, a network of 12 banks whose members extend credit to local home lenders. Currently the housing oversight office regulates Freddie Mac and its larger counterpart, Fannie Mae, both of which are government-sponsored buyers of home loans.

    Underscoring some of the financial risks confronting the home loan banks, the Federal Home Loan Bank of New York announced that it would not pay a dividend this quarter because of losses on investments in loans for mobile homes, also known as manufactured housing.

    Freddie Mac embarked on a thorough review of its finances early this year, after its auditor raised concerns about its accounting practices. The company announced in January that it would restate its reported net income for 2000, 2001 and 2002, and in June said it would have to adjust after-tax earnings upward by $1.5 billion to $4.5 billion.

    ”We regret the need to extend our restatement deadline of Sept. 30, but our No. 1 priority has been, and continues to be, getting our financial statements right,” Martin F. Baumann, Freddie Mac’s chief financial officer, said in a statement yesterday. He added that the delay was not the result of newly discovered accounting errors.

    Freddie Mac executives initially had said that the restatement would be complete by the end of the third quarter, or sometime next week. But in the course of the final review of the restated financial results, the company discovered a software glitch that had affected the numbers and that had to be corrected, a company spokesman said.

    ”I’m disappointed that it’s a two-month delay,” said Christopher J. Buonafede, an analyst at Fox-Pitt Kelton, a subsidiary of the reinsurance company Swiss Re. Mr. Buonafede said he was not overly concerned about the announcement because the company did not report new accounting problems. ”If it was a week, fine.”

    Compared with the news from Freddie Mac in recent months, yesterday’s announcement was relatively minor. The company went through two chief executives this summer — Leland Brendsel abruptly retired in June, six months into the company’s internal investigation, and last month the board announced that his successor, Gregory Parseghian, would step down after regulators voiced concerns about his role in transactions whose accounting has come into question. Regulators have also told the board that Freddie Mac should treat Mr. Brendsel as if he had been fired, reducing his benefits by as much as $53.7 million.

    According to a report issued by a law firm retained by the board, Freddie Mac executives approved transactions whose purpose was to smooth growth of reported earnings at the company. Those earnings had grown volatile as a result of investments in increasingly complex transactions involving use of derivatives.

    Shares of Freddie Mac closed at $53.22 yesterday, down 6 cents.

    The New York Home Loan Bank, one of 12 government-sponsored institutions that lend to local home lenders, made its announcement on canceling dividend payments late Wednesday. In a statement, the bank attributed the decision to $183 million in losses incurred on bonds backed by loans for manufactured housing.

    The bank ”is working to assess various strategies for this portion of its investment portfolio and to develop prudent measures that minimize the bank’s costs and risks,” according to the statement. It added that the losses in its portfolio would not affect the bank’s ability to meet its debt obligations.

    September 25, 2008
  95. Peter Millin said:

    Oversight Plan of Lenders Is Criticized

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    Published: October 8, 2003

    President Bush will not support legislation aimed at strengthening oversight of Fannie Mae and Freddie Mac unless it gives the new regulator authority to block new products, a Bush administration official said yesterday.

    The legislation, scheduled to be considered today by the House Financial Services Committee, does not meet the requirement and is only a minimal improvement over existing regulation, said Wayne Abernathy, the Treasury Department’s assistant secretary for financial institutions.

    ”One of the central tools of a financial regulator is the ability to say no to new activities that are inconsistent with their mission or the public’s interest,” Mr. Abernathy told a banking conference in New York. ”We must not settle for a crippled regulator.”

    Fannie Mae last week said it opposed giving the Treasury Department the right of approval, saying it should stay with the Department of Housing and Urban Development.

    Efforts in Congress to tighten regulation of the government-chartered companies have intensified after Freddie Mac said in June that accounting errors led it to understate income by at least $4.5 billion the last three years.

    ”The current legislation resulted from discussions with all parties and reflects, in large measure, the current status of thought from committee members on both sides of the panel,” said Peggy Peterson, the communications director for Representative Michael Oxley, Republican of Ohio, who chairs the committee.

    September 25, 2008
  96. Peter Millin said:

    Treasury Secretary Insists On Fannie Mae Veto Power

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    Published: October 17, 2003

    Secretary of the Treasury John W. Snow took issue with the chief executive of Fannie Mae in the Senate yesterday about whether giving the Treasury Department the power to block new products would inhibit Fannie Mae’s growth.

    In testimony to the Senate Banking Committee, Mr. Snow urged that Congress give the Treasury the authority to disapprove block loan programs like a Fannie Mae plan that would allow borrowers to skip payments and add them to the balance of the original debt. Fannie Mae faces greater scrutiny from regulators after another big housing financier, Freddie Mac, said it would restate earnings by about $4.5 billion because of accounting errors.

    But Fannie Mae’s chief, Franklin D. Raines, told the committee that ”Congress should not open the door for the regulator to prescribe, outside the necessities of safety and soundness oversight, how the enterprises conduct their business.”

    Mr. Snow’s proposal addresses some concerns of competing financial institutions like Wells Fargo and the American International Group. They have complained that the two big mortgage financiers have an unfair advantage, and lower borrowing costs, because the Treasury can shield them from default with its power to buy as much as $2.25 billion of the securities of each.

    Nine days ago, the House Financial Services Committee postponed a vote on a bill after the White House said it would not support the legislation, contending it was too weak.

    Mr. Snow said the Federal Reserve already had such review oversight of new products offered by banks. ”We see no reason why providing similar authority to the new regulator agency would stifle innovation,” he said.

    The Bush administration is stepping up pressure on Congress to adopt a plan this year for stricter oversight of Fannie Mae and Freddie Mac. Mr. Snow says a new regulator is needed to ensure the financial soundness of the mortgage buyers, and he wants the new agency to be at the Treasury.

    September 25, 2008
  97. Peter Millin said:

    Official Hints U.S. Could End Its Credit Line To Loan Giants

    By STEPHEN LABATON
    Published: October 23, 2003

    A senior Treasury official said on Wednesday that the Treasury Department was willing to consider the elimination of the credit line it extends to Fannie Mae and Freddie Mac, the two largest players in the mortgage lending industry, as part of the effort in Congress to overhaul regulation of the two companies.

    The announcement, made by an assistant Treasury secretary, Wayne Abernathy, in response to a reporter’s question after a speech this afternoon, briefly shook the stock prices and bond yields of the two companies. It also prompted other officials to emphasize that the administration was not making the proposal but was willing to consider it if proposed by a lawmaker.

    The incident illustrated the deep political and financial sensitivities involved in overhauling the regulation of Fannie Mae and Freddie Mac, which are big buyers of home loans. The two companies, known as government-sponsored enterprises, have historically had enormous influence on Capitol Hill and, according to their critics, run circles around regulators.

    The companies have come under increasing political pressure after corporate missteps this year. 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.

    After a speech in Washington on Wednesday afternoon, Mr. Abernathy was asked whether the administration would support the elimination of the $2.25 billion in credit lines that each company has with the Treasury, and by extension, the implicit government guarantees of its debt. The guarantees are a vital implicit pledge that enable the companies to issue billions of dollars in debt each year at substantially lower yields than competitors.

    He replied that if ”Congress wants to take on that issue, we’re open to having that discussion,” according to Reuters and Bloomberg.

    The Treasury Department later emphasized that the administration had not proposed eliminating the guarantees but was open to considering it and other options that might be proposed by legislators.

    Last month, the administration recommended the most significant regulatory overhaul in the housing finance industry since the savings-and-loan crisis a decade ago. The plan has encountered some resistance in Congress, where the two companies have traditionally been formidable political forces. The companies have supported some changes but opposed others that they say could restrict their ability to offer new products.

    Administration officials had hoped that Congress would be able to adopt legislation before going into recess as early as next month. But the measures have run into some difficulties, and it appears that they will be pushed aside until next year.

    Two weeks ago, the administration found itself in a feud with the Republican-controlled leadership of the House Financial Services committee, which had scheduled a drafting session over a bill that was criticized by the Treasury Department. After Mr. Abernathy held a news briefing by phone that attacked the House measure, the committee abruptly canceled the markup session.

    The companies said on Wednesday that there was no significant effort under way to alter their lines of credit with the Treasury.

    ”There has been no discussion of changing the G.S.E. charter in any way including the line of credit,” said Sharon McHale, a spokeswoman at Freddie Mac. ”The discussion has been centered on ways to strengthen the regulatory oversight of G.S.E.’s but not to change the line of credit in any way.”

    Chuck Greener, a Fannie Mae spokesman, said, ”Our understanding is that Assistant Secretary Wayne Abernathy in subsequent comments today indicated that Treasury was not proposing eliminating Treasury’s authority to purchase a limited amount of G.S.E. debt and he also noted that no U.S. lawmaker was proposing such a change.”

    ”We at Fannie Mae also see no support for such a fundamental change to our charter,” Mr. Greener said.

    September 25, 2008
  98. Peter Millin said:

    Our political system can be rather nimble at reacting to financial crises, but when it comes to preventing them, well, that’s another matter. Issues that seem more urgent can get in the way of reforms that can stave off the next crisis, as can bureaucratic inertia and the fact that the status quo benefits powerful interests.

    Efforts in Washington to strengthen financial oversight of the government-chartered mortgage giants, Freddie Mac and Fannie Mae, are a case in point. Accounting irregularities at both companies in recent months, though not in themselves catastrophic, have served as a warning that it no longer makes any sense to have these institutions regulated by an obscure office within the Department of Housing and Urban Development.

    The Bush administration is rightly pushing for the Treasury Department to regulate the two giants, along with the network of federal home loan banks. Freddie Mac and Fannie Mae provide financing to lenders by creating a secondary market for mortgages. All told, these two institutions’ debt portfolio exceeds more than $1.5 trillion. Their current regulator is ill equipped to keep tabs on Freddie’s and Fannie’s sophisticated hedging strategies and the other financial moves they use to manage their huge investments.

    Lax regulatory oversight of these companies is made more worrisome by confusion over the extent to which Uncle Sam backs them up. An ”implied guarantee” gives Freddie and Fannie a competitive advantage in the marketplace, part of which is passed on to home buyers. But there is a danger (remember the savings and loan crisis?) in having the marketplace complacently assume that normal risk assessments need not apply to these players.

    Even without signs of an imminent calamity, it is hard to argue that these financial enterprises — essentially two huge hedge funds — should continue to evade the type of rigorous oversight that banks face on issues like capital requirements and new lines of business. Yet it looks as if Freddie and Fannie, along with the home builders’ lobby, may succeed in blocking legislation to transfer regulatory oversight to the Treasury.

    The two mortgage enterprises have helped to add liquidity to the housing market and put more working families in new homes. That mission need not be threatened by stronger oversight of their finances. Indeed, it will be protected.

    September 25, 2008
  99. Peter Millin said:

    Sorry for all the postings but I can’t seem to be able to paste that link to the NYT archives or can you guys find them.

    I think I proved my point…..

    September 25, 2008
  100. Peter Millin said:

    More from IBD
    ——————————————————————
    UNCOMMON KNOWLEDGE
    How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable
    Backed by White House, Fannie, Freddie became power players in politics
    What Caused The Loan Crisis? THIRD IN A SERIES
    BY TERRY JONES INVESTOR’S BUSINESS DAILY

    One of the most frequently asked questions about the subprime market meltdown and housing crisis is: How did the government get so deeply involved in the housing market?
    The answer is: President Clinton wanted it that way.
    Fannie Mae and Freddie Mac, even into the early 1990s, weren’t the juggernauts they’d later be.
    While President Carter in 1977 signed the Community Reinvestment Act, which pushed Fannie and Freddie to aggressively lend to minority communities, it was Clinton who supercharged the process. After entering office in 1993, he extensively rewrote Fannie’s and Freddie’s rules.
    In so doing, he turned the two quasi-private, mortgage-funding firms into a semi-nationalized monopoly that dispensed cash to markets, made loans to large Democratic voting blocs and handed favors, jobs and money to political allies. This potent mix led inevitably to corruption and the Fannie-Freddie collapse.
    Despite warnings of trouble at Fannie and Freddie, in 1994 Clinton unveiled his National Homeownership Strategy, which broadened the CRA in ways Congress never intended.
    Addressing the National Association of Realtors that year, Clinton bluntly told the group that “more Americans should own their own homes.” He meant it.
    Clinton saw homeownership as a way to open the door for blacks and other minorities to enter the middle class.
    Though well-intended, the problem was that Congress was about to change hands, from the Democrats to the Republicans. Rather than submit legislation that the GOP-led Congress was almost sure to reject, Clinton ordered Robert Rubin’s Treasury Department to rewrite the rules in 1995.
    The rewrite, as City Journal noted back in 2000, “made getting a satisfactory CRA rating harder.” Banks were given strict new numerical quotas and measures for the level of “diversity” in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another
    Loans started being made on the basis of race, and often little else.
    “Bank examiners would use federal home-loan data, broken down by neighborhood, income group and race, to rate banks on performance,” wrote Howard Husock, a scholar at the Manhattan Institute.
    But those rules weren’t enough.
    Clinton got the Department of Housing and Urban Development to double-team the issue. That would later prove disastrous.
    Clinton’s HUD secretary, Andrew Cuomo, “made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis,” the liberal Village Voice noted. Among those decisions were changes that let Fannie and Freddie get into subprime loan markets in a big way.
    Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks.
    Since they could borrow at lower rates than banks due to implicit government guarantees for their debt, the government-sponsored enterprises boomed.
    With incentives in place, banks poured billions of dollars of loans into poor communities, often “no doc” and “no income” loans that required no money down and no verification of income.
    By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market — a staggering exposure.
    Worse still was the cronyism.
    Fannie and Freddie became home to out-of-work politicians, mostly Clinton Democrats. An informal survey of their top officials shows a roughly 2-to-1 dominance of Democrats over Republicans.
    Then there were the campaign donations. From 1989 to 2008, some 384 politicians got their tip jars filled by Fannie and Freddie.
    Over that time, the two GSEs spent $200 million on lobbying and political activities. Their charitable foundations dropped millions more on think tanks and radical community groups.
    Did it work? Well, if measured by the goal of putting more poor people into homes, the answer would have to be yes.
    From 1995 to 2005, a Harvard study shows, minorities made up 49% of the 12.5 million new homeowners.
    The problem is that many of those loans have now gone bad, and minority homeownership rates are shrinking fast.
    Fannie and Freddie, with their massive loan portfolios stuffed with securitized mortgagebacked paper created from subprime loans, are a failed legacy of the Clinton era.

    September 25, 2008
  101. Holly Cairns said:

    To say that the poorest among us, or “minorities”, caused our financial crisis is absurd. It was the selling of the loans that made it all wrong… wasn’t it. Our bank keeps the loans and desires people to make their payments. And they give out loans with that in mind. They want people to make it. But did all lending institutions have the homeowner’s stability and happiness in mind?

    Let’s think back, who remembers hearing about loans with fine print, and people losing their home when interest rates went up? I remember the ads. And the banks collected huge monies. It’s my opinion that what went wrong is a lack of banking/ investment regulation, graft, and misplanning. I fear we’ve made a mess of things and now the future looks bleak for our children.

    I’ve heard a huge percentage of the real estate business here in town is foreclosure sale related. That means empty and dirt cheap houses. That makes it hard for those trying to sell their home at a reasonable price, even if it is $75,000 to a $100,000 below the 2006 appraisal.

    I think some have seen this coming for a while, now. The Fannie and Freddie government backed loans were a good idea, but in the end there was a way to manipulate the system.

    I wonder if this financial crisis will hurt the middle class, the lower class, or the rich the most.

    There is a Wisebread discussion which is coverning this a bit more indepth. The premise is that the housing boom caused this crisis, not a “correction” as Paulson suggests.

    I thought comment 25 was interesting:

    I thought the cause was people getting very stupid loans which in turn was caused by banks suddenly offering and allowing these loans. It’s about banks collecting all the closing costs for bad loans and then bundling them with other loans to look good and selling them to either naive or lied-to buyers.

    This reminds me of developers who build…

    and comment 29:

    The crisis scenario is this:

    Banks (as a group) can’t borrow money. They hold so much bad debt that they’re insolvent (or close enough). They can collect small deposits because small deposits are insured, but they can’t sell bonds, they can’t sell commercial paper, and they can’t issue huge money market CDs…

    Comment 32:

    Wages have not increased enough to cover the inflated price of housing. Meanwhile, banks and mortgage brokers, and real estate agents have their taken their profit out of the house.

    Comment 33:

    Since no new taxes are politically possible, well, a trillion dollars worth of monetization will have a significant impact on domestic price levels.

    September 25, 2008
  102. Peter Millin said:

    Holly,

    i am old enough to remember when your word was your bond..the same goes for signing a contract.
    Do a little research on the CRA enacted by Carter and follow it’s history. Does wall street bare responsibility..of course and we should make them pay.

    What makes me mad is that the very same people that created the environment for this are now on the high horse “calling for oversight and executive pay cuts”, while trying to avoid responsibility for their actions….this is sad really sad.
    What’s worse, our journalists are supporting this by not investigating the story.

    September 25, 2008
  103. Peter Millin said:

    The tax meter is still ticking……it ain’t over yet.

    ——————————————————————
    FDIC May Need $150 Billion Bailout as Local Bank Failures Mount

    By David Evans
    More Photos/Details

    Sept. 25 (Bloomberg) — Deborah Horn tugs on the handle of the glass-paned entrance of the IndyMac Bancorp Inc. branch in Manhattan Beach, California. The door won’t budge. The weekend is approaching, and Horn, 44, the sole breadwinner in a family of three, needs cash.

    A small notice taped to the window on this Friday afternoon in mid-July tells her why she’s been locked out. IndyMac has failed, the single-spaced, letter-sized paper says; the bank is now in the hands of the Federal Deposit Insurance Corp.

    “The Receiver is now taking possession of the Bank,” the sign says.

    “I’m physically shaking,” says Horn, an academic tutor, as she peers into the bank. Inside, an FDIC examiner is talking to six stone-faced IndyMac employees. “I don’t know when I’m going to be able to get my money,” Horn says. “I’m a single mom. This is the money I live on.”

    Don’t worry about Horn. She’ll be all right, as will most of Pasadena, California-based IndyMac’s 200,000-plus customers.

    That’s because the FDIC, created in 1934, insures all accounts up to $100,000 at its member banks, and it has never failed to honor a claim. The people to worry about are U.S. taxpayers.

    The IndyMac debacle is taking a large bite out of FDIC reserves, and if scores of other banks fail in the year ahead, the fund will be depleted. Taxpayers will have to step in.

    Worst Wave

    Americans have gotten used to the idea that bank failures were as rare as a category five hurricane. No banks went bust in 2005 or 2006. Seven collapsed in 2007 as the credit crisis began to exact a toll. So far in 2008, 12 more, with total assets of $42 billion, have fallen — that’s the worst wave of bank failures since 1992.

    IndyMac, which had $32 billion in assets when it went into receivership, is the most expensive bank failure the FDIC has ever covered. And that record may not stand for long.

    By the end of 2009, about 100 U.S. banks with collective assets of more than $800 billion will fail, predicts Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based firm that sells its analysis of FDIC data to investors.

    “It’s not going to be Armageddon,” says Mark Vaughan, an economist and assistant vice president for banking supervision and regulation at the Federal Reserve Bank of Richmond, Virginia. “But it’s going to be bad.”

    FDIC’s Secret List

    The FDIC knows which banks are at risk; it has a watch list with 117 institutions. The agency won’t disclose their names because doing so could cause depositors to panic and pull out all of their funds.

    It won’t take many more failures before the FDIC itself runs out of money. The agency had $45.2 billion in its coffers as of June 30, far short of the $200 billion Whalen says it will need to pay claims by the end of next year. The U.S. Treasury will almost certainly come to the rescue.

    Regardless of who wins control of the White House and Congress in November, no politician is likely to vote in favor of leaving federally insured depositors out in the cold.

    A taxpayer bailout of the FDIC would come on the heels of intervention by the U.S. Treasury Department and Federal Reserve to save investment bank Bear Stearns Cos., mortgage giants Fannie Mae and Freddie Mac and the world’s largest insurer, American International Group Inc.

    Uninsured Deposits

    Emergency federal funding of the FDIC could swell the cost of government rescues of failed financial institutions to more than $400 billion — not including the $700 billion general Wall Street bailout now under discussion in Congress.

    That number would be even higher if the government were on the hook for uninsured deposits — which amount to $2.6 trillion, 37 percent of the total of $7 trillion held in the U.S. branches of all FDIC member banks.

    The subprime crisis — which started in the suburbs of California and Florida and migrated through the alchemy of securitization to Wall Street investment banks — has come almost full circle, spreading its toxins to the very lenders who first extended those teaser-rate, no-document mortgages to homeowners.

    In 2006, IndyMac was the largest provider of mortgages that didn’t require borrowers to provide proof of their incomes. And as of mid-September, investors were worried that Washington Mutual Inc., the biggest thrift in the U.S., would be the next bank to go belly up.

    A federal takeover of Washington Mutual, which has assets of $310 billion, could cost taxpayers $24 billion more, according to Richard Bove, an analyst at Miami-based Ladenburg Thalmann & Co.

    Slower To Hit

    The reckoning that has run through Wall Street, claiming investment banks Lehman Brothers Holdings Inc. and Bear Stearns among its victims, has been slower to hit Main Street. In mid- 2007, Wall Street firms began disclosing losses on their packages of securitized home loans.

    From August 2007 to September 2008, banks worldwide wrote down more than $500 billion. Regional banks, by contrast, have waited to write off their bad mortgages, hoping the housing market would improve and defaults would level off. Instead, they’ve risen.

    FDIC-insured banks charged off $26.4 billion of bad loans in the second quarter of 2008, the most since 1991.

    U.S. lenders, in their embrace of subprime lending, committed the same analytical fallacy as their Wall Street counterparts. When it came to assessing risk, they relied on the recent past to predict the near future.

    Living in the Past

    They were blinded by years of rising home prices and low mortgage default rates.

    The FDIC fell into the same trap. As recently as March, an internal FDIC memo estimated the cost to cover bank collapses in 2008 would be just $1 billion, dropping to $450 million in 2009. It wasn’t even close.

    The IndyMac failure alone, which happened four months after that memo was circulated, will cost the FDIC $8.9 billion — and the bill for all 12 collapses will be about $11 billion, the FDIC says.

    FDIC Chairman Sheila Bair says the agency’s forecast was based on models using data from the past 20 years, which included long periods with few bank failures.

    “Given the change in economic conditions, we need to weight the more recent data more heavily,” Bair says. “You also need a good dose of common sense.”

    Bair says depositors shouldn’t fret about their banks. “We do have a handful with some significant challenges,” she says. “Overall, banks are quite safe and sound.”

    Bair is duty bound to say that, says Joseph Mason, an economist who worked for the Treasury from 1995 to 1998. Part of the FDIC’s job is to reassure the public and prevent runs on banks. Mason says Bair’s rhetoric masks the agency’s inability to grasp the scope of the coming crisis.

    `Ignoring the Problem’

    “The FDIC and the banking regulators are ignoring the problems, hoping they’ll go away,” he says. “They won’t.”

    The quake that shook markets in September may make the FDIC’s task more complicated and expensive. With investment banks in eclipse, deposit-taking institutions will now play a larger role in financing the economy.

    Earlier this month, Bank of America Corp. agreed to buy Merrill Lynch & Co. for $50 billion, and Wachovia Corp. and Morgan Stanley were in talks about a potential merger.

    ‘Would Be Miraculous’

    From 2002 to 2007, U.S. lenders made a total of $2.5 trillion in subprime mortgages, according to the newsletter Inside Mortgage Finance. “Given the magnitude of the bad loans still on bank balance sheets, it would be miraculous for the FDIC to squeak by with losses of less than $200 billion,” Whalen says.

    On Sept. 18, in yet another stunning turn of events, Paulson proposed a plan that would cost the government, if not necessarily the FDIC, hundreds of billions of dollars more.

    The Treasury secretary says the government will purchase toxic mortgage debt from banks in an effort to cleanse the financial system. In an unprecedented move, the Treasury also pledged $50 billion to insure nonbank money market funds.

    Bair says Paulson’s plan won’t reduce the number of banks on the FDIC’s watch list.

    One reason the rolling financial crisis is hitting regional banks later than it walloped Wall Street is because the very system that is meant to protect depositors — federal insurance — has also served to prop up weak lenders. So has the ready supply of credit extended to banks by another government- chartered group, the Federal Home Loan Banks.

    Because all deposits up to $100,000 are insured, most savers can be agnostic about where they put their money. They don’t have to know — or care — whether a bank is making sound or foolish loans.

    Unlike buyers of stocks or bonds, people who put their money in banks rarely do research about the soundness of the institution. That makes it easy for banks — both prudent and reckless ones — to raise cash.

    Brokered Deposits Loophole

    Banks have taken the FDIC’s protection and run with it, thanks to the phenomenon of brokered deposits — and a giant loophole in federal regulations.

    As of June 30, Whalen says banks held $644 billion from brokers who offer customers a way to gain FDIC insurance for multiple accounts.

    Promontory Interfinancial Network LLC, an Arlington, Virginia-based company founded in 2002 by former federal officials –including some from the FDIC itself — has figured out how to help wealthy clients insure as much as $50 million each by putting their money into separate accounts at 500 different banks.

    While the law does limit insurance to $100,000 per account, it places no ceiling on the number of different banks where an individual can hold accounts — a loophole Congress failed to close even after the savings and loan debacle of 1984- 1992.

    Missing Discipline

    Bair says brokered deposits can provide quick cash but also create potential danger.

    “It is quite easy to get brokered deposits, and there’s not a lot of market discipline with the brokered deposits,” she says. “When there’s excessive reliance on them, particularly to fuel rapid growth on the balance sheet, that’s definitely a high-risk factor.”

    The other big source of money for banks is the FHLB, an under-the-radar network of 12 regional banks created by Congress in 1932 to help lenders finance mortgages. Lenders had borrowed a total of $840.6 billion from the FHLB system as of June 30, up 38 percent from $608 billion in the same period a year earlier.

    Treasury Secretary Henry Paulson, in a little-noticed action on Sept. 7, the day after he announced the bailout of Fannie and Freddie, extended a secured credit line to the FHLB to provide an emergency source of funding if needed.

    FHLB Advances

    Vaughan says credit from the FHLB is keeping some sick banks afloat and postponing the inevitable.

    `What’s going to happen,” he says, “is that weak banks will use FHLB advances to avoid discipline from funding markets. In some cases, that will keep their doors open longer than they otherwise would, all-the-while offloading more and more potential losses onto the FDIC and taxpayers.”

    Normally, the FDIC is no more than four initials customers see when they walk into their banks. In recent years, the agency hasn’t had to close many banks, as it collected small amounts of insurance premium payments.

    President Franklin D. Roosevelt signed the law creating the FDIC in the middle of the Depression. As part of the New Deal, Congress created a system of federal insurance to end bank runs by reassuring the public that depositing money in banks was safe. All banks paid the same rate for insurance.

    Wave of Failures

    The FDIC shares regulatory authority with other agencies. The Office of Thrift Supervision oversees federally chartered savings and loans, the Comptroller of the Currency monitors national banks, and state banking regulators review state- chartered banks.

    The FDIC is the only one of these agencies that insures deposits.

    By and large, the government’s insurance system worked until the 1980s, when thrifts went on a commercial real estate lending binge, triggering a wave of failures and consolidation that lasted from 1984 to 1992.

    In 1991, Congress changed the way FDIC premiums were assessed, requiring banks to pay rates based on how well capitalized they were for the risks they faced. As bank failures subsided to less than a dozen a year by 1995, the FDIC’s reserves began to swell.

    As a result, the agency cut to zero the premiums it charged to the 90 percent of the banks deemed safest. That free ride continued for 10 years.

    `No Good Way’

    In 2006, Congress increased insurance payments for most banks, averaging $5-$7 per $10,000 of deposits.

    The insurance premiums imposed by the FDIC on the riskiest banks — running as high as $43 per $10,000 — are still far below the rates private insurers would charge, says Sherrill Shaffer, former chief economist of the Federal Reserve Bank of New York.

    At the same time, charging struggling banks a fair price for insurance premiums may drive them into insolvency, he says.

    “That can be destabilizing,” says Shaffer, who’s now a professor of banking at the University of Wyoming in Laramie. “There’s really no good way around that. It’s an issue that policy makers and analysts have wrestled with for decades.”

    Bair says the FDIC is gearing up for the coming wave of bank failures. She says she’s developing a plan to raise insurance premiums.

    The agency’s Division of Resolutions and Receiverships has boosted authorized staffing levels by 48 percent, to 331, this year. It has hired 178 new financial specialists and called up 65 retirees for temporary service under a special program.

    Bair vs. Enron

    Bair, 54, an attorney who graduated from the University of Kansas School of Law, has challenged financial institutions as a regulator for more than a decade. President George W. Bush nominated her as chairman, and she was sworn in on June 26, 2006.

    She replaced Donald Powell, a former Texas banker. In 1992, as a member of the Commodity Futures Trading Commission, Bair cast the lone vote against Enron Corp.’s effort to exempt certain energy contracts from the agency’s anti-fraud and anti- market manipulation enforcement powers.

    Nine years later, Enron blew up in one of the biggest financial scandals in U.S. history.

    As assistant secretary of the Treasury for financial institutions in 2002, Bair criticized abusive subprime mortgage brokers.

    “Lenders have made loans with little or no regard for a borrower’s ability to repay and have engaged in multiple refinance transactions that result in little or no benefit to a borrower,” she told the Pittsburgh Community Reinvestment Group on March 18, 2002.

    `Rock and Brock’

    Bair has published two children’s books. One of them, “Rock, Brock, and the Savings Shock” (Albert Whitman, 2006) is a tale of two twins — Rock the Saver and Brock the Spender — that encourages thrift and explains the benefits of compound interest to elementary school readers.

    Some of those lessons seem to have been lost on America’s bankers and lawmakers, starting with the dangers of brokered deposits. During the S&L crisis, banks financed their lending spree by raising billions of dollars by selling FDIC-insured CDs, often at high interest rates, through brokers.

    When banks rely on brokers to garner as much as 15 percent of their deposits, it’s a red flag calling for closer examination by regulators, Yeager says.

    ‘I Was Death’

    William Isaac, who chaired the FDIC from 1981 to ’85, tried to ban brokered deposits.

    “I was death on brokered deposits,” says Isaac, 64, now chairman of Vienna, Virginia-based Secura Group of LECG LCC, a bank consulting firm. “I waged a major war against them. I lost that battle with courts and the Congress.”

    In 1991, Congress passed a law banning banks that weren’t classified as “well capitalized” by the FDIC from using brokered deposits. The law left open a loophole, and the FDIC made it wider. Banks that are just “adequately capitalized” are allowed to petition the agency for exemptions from the law.

    From 2005 to 2007, 88 banks asked the FDIC for waivers, according to agency records. The FDIC granted approval to all of them.

    “There are always financial incentives for banks in the U.S. to use brokered deposits to take on excessive risk without having to pay for it,” Shaffer says. “It allows them to bring in large chunks of money relatively quickly.”

    In 1980, following lobbying from the S&L industry, Congress raised the ceiling on accounts that qualified for FDIC insurance to $100,000 from $40,000. That ceiling has holes in it.

    $2 Million FDIC-Insured

    A family of two adults and two children can get up to $2 million of FDIC insurance at just one bank.

    Here’s how: Each person opens an individual account, insuring a total of $400,000. They can hold four more insured joint accounts, each in the names of two family members, protecting another $400,000.

    The family can protect $600,000 more if each spouse opens an account that’s payable upon death to family members. Each adult can also insure $250,000 for individual retirement holdings in the same bank.

    And a family-owned incorporated business qualifies for another $100,000 of insurance.

    Banks don’t always explain these rules to customers. They might not even know about them.

    “They’re very complex for depositors to understand,” says Alan Blinder, 62, a former vice chairman of the Federal Reserve. “My mother every once in a while asks me a question, and I don’t always get it right. I have to scurry back to the rule book. It is complicated.”

    Biggest Loophole

    Blinder is now vice chairman of Promontory Interfinancial, the deposit broker that exploits the biggest FDIC loophole of all — the one that allows individuals to have insured accounts at an unlimited number of banks. Isaac serves as an adviser to Promontory.

    Along with the flood of brokered deposits that flows into their coffers, banks can also tap another source of money: loans from the Federal Home Loan Banks.

    They lend money to banks at low interest rates, accepting mostly real estate debt worth as much as twice the value of the bank loans as collateral.

    In 1989, until which FHLBs lent just to savings banks, Congress expanded the charter to allow most commercial banks to tap into the inexpensive source of loans. New York-based Citigroup Inc., the largest U.S. bank by assets, was the largest borrower this year, with $84.5 billion from the FHLBs as of June 30.

    Lacks Staff

    Former Fed economist Tim Yeager says FHLB offices lack the staff to keep up with financial conditions of their thousands of member banks.

    “The Federal Home Loan Banks cannot effectively control or monitor the risks that are in these institutions,” says Yeager, now a finance professor at the University of Arkansas at Fayetteville. “As long as they have collateral, they’re just going to lend.”

    Behind the scenes, the surge of FHLB lending has created a clash of federal authorities. Bair says the ability of struggling banks to borrow billions from FHLB branches is likely to lead to large losses for her agency.

    The FDIC can’t start recovering assets from a failed bank until after the FHLB collects 100 percent of its loans.

    “We really get a double whammy,” says Bair, who has short dark hair and is dressed in a well-tailored gray suit, with a pearl necklace, as she speaks in San Francisco before participating in a panel discussion on financial education.

    `I Have a Beef’

    “The Federal Home Loan Bank has priority over us in the claims queue if we have to close the bank,” she says. “I have a beef with excessive reliance on Federal Home Loan Bank advances.”

    John von Seggern, president of the Council of Federal Home Loan Banks, a nonprofit trade association that lobbies Congress on behalf of the 12 independently operated regional offices, says the FHLB provides an essential service, quickly dispatching low-interest loans to member banks.

    “We are not the regulator,” he says. “Our role is to be the liquidity provider.” He says the FHLBs would halt lending to a weak bank if a bank regulator asked; he doesn’t remember that ever happening.

    “If we turn off the tap, that bank would positively fail,” he says. “Even healthy banks would fail.”

    Von Seggern opposes Bair’s efforts to increase insurance premiums for FDIC member banks that rely on FHLB advances for a large share of their funding.

    `Making Good Loans?’

    “The question should be, `Are you making good loans?’ as opposed to `Where did you get the money to fund those loans?”’ von Seggern says. “This is a tough issue. We are very interested in working with the FDIC in coming to an agreement that works for both of us.”

    Vaughan of the Richmond Fed says the FHLBs will be stretched with more banks on the cusp of failing.

    “U.S. bank supervisors barely have the staff to handle routine bank exams,” he says.

    “Now, when a bank falls into problem status, there’s a lot of stuff you got to do,” he says. “You’ve got to monitor the condition of that institution continuously, put all kinds of enforcement on them and stay in contact with the bank to make sure they’re doing what they need to do. Dealing with a long list of problem banks takes resources, and there aren’t a lot of bodies to spare.”

    As FDIC examiners find the truth about a bank’s deteriorating condition, the agency faces a conundrum. It knows which banks are on the verge of failure, but in order to avoid customer panic, it doesn’t make its watch list public.

    No Warning

    The FDIC gave no warning to the public or depositors that IndyMac was nearing collapse. The agency knew that IndyMac was at risk a month earlier when it placed it on the watch list, the FDIC says.

    Still, as recently as May 12 — two months before it failed — IndyMac declared it was “well capitalized” by FDIC standards as of March 31.

    When IndyMac collapsed, $10 billion, or a third of the bank’s assets, were funded by FHLB advances. Another $5.5 billion came from brokered deposits.

    Indymac specialized in so-called Alt-A loans, also known as liar loans because they didn’t require borrowers to provide documentation of their income. The bank accepted whatever borrowers said they had in annual wages.

    Bundled Loans

    From 2003 to 2007, the bank had bundled many of its loans into securities and sold them to Wall Street firms. As the credit crisis took hold on Wall Street, the bank could no longer offload its mortgages.

    It had $2.7 billion in bad loan reserves on its books on June 30, up from $813 million a year earlier. Over its final nine months, the bank reported losses totaling $896 million.

    The agency almost always closes banks on Friday afternoons, after the close of the U.S. stock market. That timing allows FDIC examiners a weekend to prepare the bank to reopen the next business day.

    Customers generally have uninterrupted access to their insured funds over the weekend through the use of debit cards and checks.

    No Buyers

    The FDIC shut down IndyMac at 6 p.m. New York time on Friday, July 11. The FDIC tried to find a buyer for IndyMac, as it had for every other bank that failed this year. That usually is the least-expensive solution.

    No bank was willing to purchase IndyMac for a fair price, the FDIC says. So the FDIC took over bank management itself — just the 13th time in the agency’s 74-year history that it has taken control of a bank, spokesman Andrew Gray says.

    The agency is now working to sell IndyMac’s assets. One of its goals is to recoup customer losses of uninsured deposits from remaining bank holdings, Bair says.

    The FDIC told 10,000 customers that it wasn’t certain it could repay their $1 billion in deposits in excess of the $100,000 insurance limit. The agency told these depositors it would pay them 50 percent of their uninsured money in so-called dividends.

    Further recovery of those uninsured assets will depend on the salvage value of the bank’s holdings.

    `A Big Mistake’

    One IndyMac customer who had uninsured funds is Jeff Capistran, an architect undergoing chemotherapy for colon cancer. Capistran, 46, had planned to close his $127,000 account at the bank a few days before it was shut down, but he was unable to because of his medical treatment.

    “I’m somewhat worried,” he says. “I made a big mistake.” Still, the FDIC has told him he’ll get half of his deposit above $100,000. “I have faith they will come through with the rest,” he says. “This is an election year.”

    On Monday, July 14, three days after the FDIC closed IndyMac, the bank reopened under FDIC supervision. More than a hundred depositors lined up to pull their money from the bank’s Manhattan Beach branch.

    Horn, the single mother who had shown up the previous Friday to find the branch shuttered, transferred all of her funds to a new account at Wells Fargo & Co. She says her new bank allowed her to withdraw just $5,000 and held the balance, $27,000, for two weeks.

    “The mere fact that it was from IndyMac, they put a hold on it,” she says. Wells Fargo spokeswoman Julia Bernard says her bank wouldn’t have placed a hold on an IndyMac check unless it was unable to verify it.

    `What’s Going On?’

    Which will be the next bank to fail? Depositors like Capistran and Horn have no way of knowing. Even the experts can be stumped.

    “How are people supposed to know what’s going on in the depths of the bank’s balance sheets when the regulators, as we’ve learned in this crisis, don’t even know?” Blinder asks.

    One warning sign may be the size of a bank’s brokered deposits, Shaffer says.

    “Banks that are in distress, facing a reluctance by the general public to place money in these banks, may be forced to turn to brokered deposits,” he says.

    Six of the 12 banks across the U.S. that failed this year relied on brokered deposits for more than 15 percent of their customer holdings. The average rate among all U.S. banks is 7.5 percent.

    ANB Financial NA of Bentonville, Arkansas, had received 87 percent of its deposits from brokers; Columbian Bank & Trust Co. of Topeka, Kansas, had received 44 percent; and Silver State Bank of Henderson, Nevada, had received 41 percent.

    Bite the Dust

    In mid-September, investors were signaling that Seattle- based Washington Mutual, the nation’s largest thrift, would be the next big lender to bite the dust.

    It had reported losses totaling $6.3 billion during the previous three quarters.

    WaMu, which has 2,300 branches, has a 98 percent chance of defaulting on its debt over the next five years, according to credit-default-swap traders, as of yesterday.

    On Sept. 8, Washington Mutual fired CEO Kerry Killinger and disclosed that the Office of Thrift Supervision had heightened scrutiny of the bank.

    Five percent of WaMu’s $182 billion of residential mortgage holdings were in default on June 30, according to Moody’s. On Sept. 11, Moody’s reduced WaMu’s senior unsecured debt rating to Ba2 from Baa3.

    Since November 2007, Moody’s has slashed that rating by six grades, to Ba2 from A2.

    Tripled FHLB Loans

    WaMu owns $53 billion of option-adjustable-rate mortgages, according to Moody’s. Because these mortgages allow the homeowner to skip payments by adding them to their existing loans, WaMu failed to receive about $2.5 billion of interest payments in 2006 and 2007.

    As of June 30, WaMu had gathered $34 billion through deposit brokers, which amounted to 18 percent of all its deposits, according to the FDIC. As bad loans grew, the bank raised cash by tripling its borrowing from the FHLBs during a 12-month period to $58.4 billion.

    Advances as of June 30 represent 19 percent of WaMu’s assets, up from 7 percent a year earlier.

    About $45 billion of the deposits at WaMu aren’t insured by the FDIC.

    Across the U.S., still-standing banks large and small have similarities to the 11 that have failed.

    Florida’s Largest Bank

    BankUnited Financial Corp., based in Coral Gables, Florida, is the state’s largest bank. Hard hit by the collapse of the state’s real estate market, BankUnited for the first time began using brokered deposits in the quarter ended on June 30.

    It raised $268 million through such long-distance deposits in three months, according to its SEC filings, which showed $7.6 billion of total deposits on June 30. It brought in another $506 million the same way during the next six weeks.

    BankUnited has borrowed $5.1 billion from the FHLB of Atlanta, amounting to 36 percent of its $14 billion in assets. The bank reported delinquent payments on $982 million, or 8 percent, of its loans as of June 30.

    Fifty-eight percent of the bank’s loans are option- adjustable-rate mortgages. Customers took advantage of that deferral option in 92 percent of those loans, filings show.

    BankUnited reported losses of $117.7 million in the quarter ended in June. On Sept. 5, the OTS reclassified the bank to “adequately capitalized” from “well capitalized.” Without a waiver, the bank will be banned from receiving brokered deposits.

    `Prospects Fraying’

    The bank’s stock has lost more than half of its value since it began trying unsuccessfully in June to raise $400 million in a stock sale.

    “We see the prospects for viability increasingly fraying,” says analyst David Bishop, who follows the bank at Stifel Nicolaus & Co. in Baltimore. BankUnited spokeswoman Melissa Gracey didn’t return calls and e-mails requesting comment.

    Investors may or may not be right about which banks will fail next. Only the regulators know, and even they may not be sure. What’s in little doubt, though, is that more collapses are on the way.

    Banks still hold too much toxic debt, says Kenneth Rogoff, chief economist of the International Monetary Fund from 2001 to 2003.

    “Like any shrinking industry, we’re going to see the upset of some major players,” says Rogoff, who’s now a finance professor at Harvard University in Cambridge, Massachusetts.

    `Doesn’t Make Sense’

    “The only way to put discipline into the system is to allow some companies to go bust,” he says. “You can’t just have an industry where they make giant profits or they get bailed out. That doesn’t make any sense.”

    Horn, the IndyMac depositor, has already experienced the fear of being separated from her life savings and watching hundreds of anxious fellow customers lined up outside her branch — like a scene from a 1930s newsreel.

    Even with FDIC insurance, she no longer takes it for granted that making a bank deposit is risk free.

    “I just don’t know if any investment — even a bank deposit — is safe anymore,” she says.

    To contact the reporter on this story: David Evans in Los Angeles at davidevans@bloomberg.net
    Last Updated: September 25, 2008 00:40 EDT

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    September 25, 2008
  104. Holly Cairns said:

    Peter, blaming the victim is exactly what got us WWII. And it started in Germany, in 1936, with a “nobody” who couldn’t make it into art school.

    When you point the finger, you’d better be right. And I think you are wrong. This reminds me of Harding’s presidency, where graft and etc. caused great damage. Should we blame the person who was bilked? Or the corrupt, bilker?

    On another note: Peter said:

    What makes me mad is that the very same people that created the environment for this are now on the high horse “calling for oversight and executive pay cuts”, while trying to avoid responsibility for their actions….this is sad really sad.
    What’s worse, our journalists are supporting this by not investigating the story.

    Those that create opporutunity for the least among us are the noble ones. Those that find the cracks and slide between them to make huge monies and break the system aren’t the noble ones. Get it right, Peter.

    September 25, 2008
  105. Peter Millin said:

    Ouch……you got the WW2 wrong…but that’s for another thread.

    As for the rest I suggest you read the whole comment, where do I defend those that took advantage of the cracks?

    These people are not victims, they willingly went in to a contract which they are now to break.

    Based on your logic can i just walk away from my car payment?

    September 25, 2008
  106. Holly Cairns said:

    I don’t suggest anyone walks away from a contract. It’s going to get rough, there, since many people are just now realizing they owe more than the house is worth, etc.

    My logic is there was lack of banking etc. regulation, and a convenient “government backed” program to fall back on. The government backed program was noble, but the people who sold loans and didn’t care if people made it in the house… that was irresponsible. Housing prices soared. Soon, even the average joe thought a 200,000 dollar house was acceptible, because that was a starter home. And the fine print was tricky, and the loans sounded great to me and I’m educated.

    I did not get WWII wrong.

    The point is you need to be careful when you point the finger. Be responsible.

    September 25, 2008
  107. Patrick Enders said:

    Peter,
    Good god that’s a lot of pasted text. If you have a point hidden in there somewhere, I’m not going to waste my time trying to find it.

    Why not just state your point, quote a little bit of the text you want to reference, and link to the rest?

    September 25, 2008
  108. Peter Millin said:

    Patrick,
    You asked for supporting posts to my previously posted time lines on the financial crisis and the fact that Bush was trying to address this back in 2001 and 2003…well here it is.

    I couldn’t post these links for some reason.

    September 25, 2008
  109. Peter Millin said:

    Holly,

    The primary banks were forced to make bad loans based on the CRA regulation put in place by Carter and modified by Clinton.
    The CRA was based on the premise that banks didn’t make enough loans to minorities and the poor. This was called redlining.
    If Banks didn’t comply, they were refused access to the same interest rates that other banks had from the Federal Reserve.
    In order to get mortgages to lower income people and minorities the existing standards of loan qualifications were lowered. Standard income, down payment and collateral checks were abandoned.

    These was done with the understanding that Freddie Mac and Fannie Mae would back those or buy them.
    The banks than repackaged the mortgages in to the threaded “derivatives”. Those were bought off by Fannie Mae and Freddie Mac.

    1) The CRA should have never been modified. Basic financial standards should have been left in there.

    2) Banks should have not gotten greedy and mad risky mortgages

    3) Government should have not wrote a blank check to back those mortgages. The government even let the FM and FM be capitalized at only 2.5% as oppose to the 10% usual standard.

    4) People who took out those mortgages should have been aware of their own financial situation, and not committed to a mortgage they couldn’t afford.

    September 25, 2008
  110. Patrick Enders said:

    Was one of those your reported timeline from the New York Times? I can’t tell what the source is for most of what you posted.

    Also, I’m not following what the common thread is in all of this stuff you are pasting. Perhaps you could state it again, or at least tell us what it is that you find interesting in each of the countless articles you’ve posted wholesale above.

    September 25, 2008
  111. Peter Millin said:

    FOLLOW THE MONEY

    —————————————————————–
    Money and Votes Aligned in Congress’s Last Debate Over Bank Regulation
    Published by Massie Ritsch on September 23, 2008 11:43 AM | Permalink | Comments (0)

    The last time Congress seriously debated how to regulate the financial industry, the result was legislation that allowed the nation’s largest banks to get even larger and take risks that had been prohibited since the Great Depression. A look back at that debate, which was over the 1999 Financial Services Modernization Act, reveals that campaign contributions may have influenced the votes of politicians who, a decade later, are now grappling with the implosion of the giant banks they helped to foster.

    Looking back at the vote on the 1999 act, and the campaign contributions that led up to it, the nonpartisan Center for Responsive Politics has found that those members of Congress who supported lifting Depression-era restrictions on commercial banks, investment banks and insurance companies received more than twice as much money from those interests than did those lawmakers who opposed the measure.

    In 2008, until the U.S. government threw a taxpayer-funded lifeline this month to Wall Street banks drowning in a sea of bad debt, the potential for these financial giants to go under had been dismissed. The banks were “too big too fail.” It was the 1999 legislation, commonly referred to as Gramm-Leach-Bliley (for its sponsors’ names), that cleared the way for these companies to grow so large.

    For decades before, the financial industry had been segregated by government regulations dating to 1933, when Congress passed, and President Franklin Roosevelt signed, legislation known as the Glass-Steagall Act. Sponsored by a former Treasury Secretary known as the “father of the Federal Reserve,” Virginia Democrat Carter Glass, and Alabama Democrat Henry Steagall, the law responded to concerns that over-speculation by banks during the 1920s contributed to the stock market crash of 1929 and, in turn, the Great Depression. Commercial banks were taking too many risks with their depositors’ money. Glass-Steagall set up a regulatory wall between investment banking and commercial banking, prohibiting commercial banks from underwriting insurance or securities.

    Sixty-six years later, in 1999, the financial services industry succeeded in essentially shattering Glass-Steagall, after putting a number of cracks in the law over the intervening years.

    (As with the 1933 act, those in the know often use the names of the Financial Services Modernization Act’s chief sponsors when referring to it: Gramm-Leach-Bliley. Former Texas senator Phil Gramm is now vice chairman of Wall Street firm UBS and advised John McCain’s presidential campaign. Jim Leach, a Republican congressman from Iowa, is retired from Congress and supports Barack Obama for president. Tom Bliley, a Republican congressman from Virginia who chaired the House commerce committee, is now a Washington lobbyist, representing clients including the Commercial Mortgage Securities Association.)

    The congressional vote on Gramm-Leach-Bliley in November 1999 was not close. The bill passed handily with bipartisan support in both the House of Representatives and Senate, 450-64 between the two chambers. President Bill Clinton supported the legislation and readily signed it. There were some strong arguments for the bill, chiefly that American banks were too constrained to compete with German and Japanese banks. There was also criticism that the legislation was pushed through too quickly and that it didn’t modernize the marketplace’s regulatory system. Pressing most aggressively for Gramm-Leach-Bliley was Citigroup, which had merged its bank with Travelers insurance company, and needed a change in federal law to keep the giant corporation together.

    The finance, insurance and real estate sector contributed more than $86 million to members of Congress between 1997 and the key vote on Gramm-Leach-Bliley in November 1999. As the graph below shows, on average, those lawmakers voting “yea” received about $180,000 in campaign contributions from individuals and PACs in the financial sector during that period. Those who voted “nay” received about $90,000 each, or half of what supporters got.

    There was little difference in the money collected by Republicans who supported the bill and those who opposed it; the 255 GOP supporters collected an average of $179,175, while the opponents in their ranks-and there were only five of them-collected $171,890. On the Democratic side, however, there was a wide gulf, as the graph indicates. The 195 Democrats who supported the Financial Services Modernization Act had received an average of $179,920 in the two years and 10 months leading up to its passage, while the 59 Democrats who opposed it received just $83,475.

    Many of the Democrats who voted for Gramm-Leach-Bliley are still in Congress, as are many of the Republicans. Republican presidential nominee John McCain was recorded as absent for the 1999 vote. Democratic nominee Barack Obama was not serving in the Senate then, but his running mate, Joe Biden, supported the bill. McCain’s running mate, Sarah Palin, was mayor of Wasilla, Alaska, at the time.

    For Gramm-Leach-Bliley’s Democratic supporters, at least, the contributions from that time suggest they were cozier with the financial sector than the bill’s opponents and, thus, more inclined to vote for a piece of legislation that — at least until Wall Street’s recent collapse — greatly benefited their contributors.

    The new law paved the way for financial institutions, which were already large, to get even larger, and it put businesses that the nation’s financial regulators had intentionally segregated under the same umbrella once again. Critics of Gramm-Leach-Bliley predicted that if these mega-banks were to ever fail, the impact on the U.S. and global economy would be so great that the public treasury — i.e. taxpayers — would have to rescue them.

    Nine years later, Congress is debating a proposal from the Treasury Secretary to assume the bad investments that are weighing down the nation’s financial institutions, at taxpayer expense. And lobbyists representing the financial services industry are trying to once again shape fast-moving legislation to their clients’ benefit. Whether campaign contributions will again correlate to congressional votes remains to be seen.

    The following chart summarizes the votes and money around Gramm-Leach-Bliley in 1999. Below it is a table of all current members of Congress, how much money their campaign committees have received from the financial sector in their congressional careers and how they voted on the 1999 Financial Services Modernization Act. An “A” indicates they were absent for the 1999 vote, as McCain was. An empty vote column, as with Obama, indicate the lawmaker was not in office at the time.

    September 25, 2008
  112. Peter, you are 100% right, as far as I can tell, with two additions to be fair.
    I saw Bill Clinton on tv three times in the last two days. He said that he did deregulate the banks, along with others in govt, and he did it at a time when we actually had no debt, And because the way govt reports these things, I use the term ‘no debt’ advisedly, just to be very cautious. BC figured there would be money to cover any problems, I guess.

    Clinton also admitted that in the last several years, the Dems should have paid heed to what the Republicans were telling them about the impending mortgage crisis, but wouldn’t heed the warnings because of political reasons. He also added that there is blame enough to go around.

    But blame gets us nowhere. That is for the historians and eggheads to ponder, so as to get to how did we get there so we don’t’ go there again. But, things always change so much, it’s really really hard for anyone to set up enough rules that won’t be broken to actually get to the place where everything will be good for everyone.

    As much as I am disappointed in Clinton’s bad oval office behavior, I have been watching him for years and admire his intelligence and sincere desire to help the American people. I know he loves people and would do anything to help them.

    Now, whenever Bill is lying or getting ready to spin or talk around a question, he gets all twitchy, it’s kind of cute, cuz now he feels the full impact of guilty lying and it bubbles out like there is a mechanical agitator inside of his chest. When he is telling the truth he is very focused and the only thing moving is his mouth as all the facts come dashing out. Hahaha.

    September 25, 2008
  113. Holly, for this financial crisis, I think one of the big things that makes or lets it occur is the fact that these entities can buy up big bundles of mortgages and then turn right around and sell them off to other companies. Just since we have been in Northfield, our mortgage has been sold four times in five and a half years by American companies (who have foreign investors).

    This really makes for a scenario where the mortgage companies don’t care about who are what they are handling that much, cuz they are just gonna sell it off anyway.

    September 25, 2008
  114. Patrick Enders said:

    Peter,
    So your argument is: “Follow The Money”?

    What question does that answer?

    Here’s a question for you: what should the government do, if anything, at this point regarding the current financial crisis?

    September 25, 2008
  115. Peter Millin said:

    It answers the question on who is responsible for this crisis. Some Democrats want to put the blame on McCain and/or Bush, which is only partially true.

    The government shouldn’t do anything at let this play out. Remove itself from backing unsound mortgages and stop the silly notion that everybody should own a house.

    It will be painful and unpopular, but I strongly believe that the bailout is just extending the pain. Very similiar to those that keep themselves above water by refinancing or consolidating loans, yo don’t pay down anything you just move it to another place.

    September 25, 2008
  116. Holly Cairns said:

    Peter, At least you moved away from blaming those that can’t pay their loans and put the blame on deregulation. It wasn’t just Clinton, but a lot went down in the last eight years, too.

    Don’t bail them out? Hoover did nothing and look what happened… sucked the money right out of everyone’s pockets. Goodbye jobs. Goodbye being able to buy anything. Etc.

    We need to protect America’s hardworking families with some immediate action. And now. Not just bailing out the big banks. Something else… does anyone have a good idea? In the ’80’s farmers were able to “renegociate” at a set cost (fees charged)… what about something like that.

    September 25, 2008
  117. Holly Cairns said:

    Okay, so if no one is going to correct me, I guess I’ll have to correct myself.

    I think Americans in general need to be more fiscally responsible. There is guilt in lack of foresight and planning, and living beyond our means.

    What I meant: We need to move away from saying things like “those that shouldn’t have had houses and were given loans.” That implies those that are struggling just to get in a starter home. The blame should fall squarely on all Americans, not just the bottom percent. Yes?

    Maybe those homeowners in trouble could stretch their loans out and pay over a longer period of time at a reduced interest rate. Would that work?

    September 25, 2008
  118. Peter Millin said:

    Holly,
    Those that are foolish enough to sign a contract they don’t understand, they shouldn’t be bailed out with my tax money.

    September 26, 2008
  119. This country has bailed out all kinds of people and companies. Many countries governments subsidize all kinds of stuff like food housing health care and other services, auto companies. It’s like heroine and it’s more than getting to be a habit. Every time we do that it deepens the legal precedent to keep doing it.

    I am not a lawyer, but in Know that our legal system is mostly based on laws that began a long time ago in England. Once you have a way of doing something legal, the next time they do something similar, but slightly different, they look to how the old thing was done…then they build on that and they keep doing that until you have a hundred or a thousand different steps to what we have for out laws now.

    If we bail out the people who could not afford to stay in their homes now, we will keep doing that. Some people will plan on the govt bailing them out.

    I am not saying we should or we shouldn’t, but every time we do, prepare for more of the same on down the line…they will keep defaulting and we will keep paying.

    It is important for people to have housing that is both livable and affordable.

    September 26, 2008
  120. William Siemers said:

    Holly…
    you said…”Maybe those homeowners in trouble could stretch their loans out and pay over a longer period of time at a reduced interest rate. Would that work?”

    That would work. It was done during the depression. The government took over troubled mortgages from banks and reworked the terms. In the end almost all of the mortgages were paid off and the government made money on the arrangement. It was one of the most successful New Deal programs.

    Of course the program was for people who wanted to stay in their homes. Today there are many mortgage holders who did not intend to stay in their houses very long from the start. Their loans were for investment purposes first and foremost. Expecting the bubble to last forever, they intend to ‘flip’ the houses and make a bundle. Others made the mortgages with no intention of ever living in the properties. Now these folks have a 400k mortgage on a 200k house. Many of these people don’t want relief…they want out of their contracts. Now they might participate in reworking of their loans to buy some time (and get a friendlier lender)…but the outcome will be the same…only the govt. will be doing the foreclosing. Imagine the hue and cry when that happens.

    I think it is necessary for the govt. to do something. But I think the idea that most, if not all, of the 700 billion bail-out money will be repaid is wishful thinking. We will all be on the hook for bad investment decisions.

    September 26, 2008
  121. Patrick Enders said:

    William wrote,

    Of course the program was for people who wanted to stay in their homes. Today there are many mortgage holders who did not intend to stay in their houses very long from the start. Their loans were for investment purposes first and foremost. Expecting the bubble to last forever, they intend to ‘flip’ the houses and make a bundle. Others made the mortgages with no intention of ever living in the properties. Now these folks have a 400k mortgage on a 200k house. Many of these people don’t want relief…they want out of their contracts.

    Do you really believe that this is the case for the majority of people in trouble? If so, I’d like to see some evidence to support such a claim.

    Most people own one home. People who bought that one home under truly sketchy loan terms deserve an adjustment to more reasonable, standard loan terms.

    September 26, 2008
  122. Jane Moline said:

    This bail-out is not about taxpayers who can’t understand a contract–(by the way, the mortgage contracts are ridiculous long, have complex paragraphs, and are very difficult to understand. Most people, without having an attorney review (an additional expense most people try to avoid) and with some attorneys not that competent to analyze such long, boiler-plate contracts, trust the lending institution where they get their loan.)

    The current crisis is not about people who did not read or understand their contracts–in some cases they borrowed at a store-front loan originator who misrepresented the terms. In addition, the borrowers believed that they would have a sound economy where they would continue to have jobs–and when they borrowed the money gas had not nearly doubled in cost and groceries had not gone up–or they did not have a medical crisis or they had a job they now lost because of the poor economy.

    The war sucked money out of this economy faster than anyone anticipated (except for the Nobel-prize winning economists, and bunches of other people, some like me), while at the same time excessive compensation–to the loan originators, the bundlers, the corporate investment managers, and over-compensated executives–took another huge cut–while main street tightened their belts and hunkered down, causing even more economic turmoil–today Washington Mutual FAILED.

    (I am simplyfing the terms here so that it makes sense–it is a bit more complex than this.)

    If we don’t do a bail out, all of our banks could fail. They all invest in bundled mortgages–they thought it was to mitigate risk–and if all of these bundled mortgages (bonds) become worthless all the companies that invested in them, including main street banks, could fail.

    However, if we bail out the bundled mortgages, we end up with a group of assets (mortgages) that are only partially worthless. Then we go to work selling the marketable, working out the work outs, and foreclosing and recovering on the rest.

    Washington is currently spending all of their time on the acquisition of the bundles–and are just getting into the nitty-gritty of how to function once they acquire the mortgages.

    That is where protecting the taxpayer comes in. Should we go after the loan orignators that defrauded the borrowers? Do we restrict the compensation on the company executives who put the mortgages together in a bundle–and have taken excessive compensation for selling products that are not worth what they claimed they were because they misrepresented the risk?

    Do we get paid back? How? We have a previous model that worked–the Resolution Trust Corporation, which was formed to manage and dispose of assets acquired during the downfall of the Savings and Loans in the 80’s.

    We can raise fees on the companies that were the most involved in passing off the risk–investment banks, but you can bet that they will not be able to pay enough for this bailout–so regular banks will see their FDIC rates rise.

    We can sell the mortgages back to the banks where the mortgagee is located–at a discounted price–and have special work out provisions that those banks can execute–with their employees –to keep most borrowers in their homes and still have a profitable loan for the banks.

    We are bailing out the companies that have bought “bundles” of mortgages and the companies that sold these mortgages–not the taxpayer who made a poor loan decision.

    If we don’t bail out these investments–all the banks that invested in them could fail–and then all the companies that need cash flow to function could fail–this would be a disaster beyond comprehension–failure is not a choice–how we make sure the bail-out protects the taxpayer and returns us to REASONABLE REGULATION of these industries is what is important.

    If we let our economy collapse, other economies throughout the world would also collapse (but not China’s), including most European countries, Russia, and probably Canada and Mexico.

    We are currently diseased and we need to cure ourselves before we infect the whole world.

    September 26, 2008
  123. Holly Cairns said:

    Hi William,

    Yes, I think there are a lot of people that invested in housing. There probably should be a limit to the govn’t aid (one housing unit or something). But I think that Bush/ executive branch etc. doesn’t like the direct bailout idea. No Main Street help… is that what I am hearing? And the Washington Democrats aren’t standing up for the Main Street person, either.

    Also, I agree that bailing out Wall Street won’t result in great prosperity, but maybe it will help us avoid total collapse…

    Can you or someone else tell me exactly where that 700 mill will go? Some banks were bought and sold, some weren’t, and some were govn’t backed. And there’s the Freddie and Fannie “takeover”. I suppose I look stupid for asking… duh.

    The govn’t should act fast, but if they aren’t logically approaching the problem with care and concern (just “acting fast by Friday”), then I wonder “who was pushing what agenda.”

    I know it’s cyclical, but a recession might be best for our global economy… instead of tent shacks down by the river here in Northfield, etc. as we had in the GD.

    My kid came home from school yesterday worried about college and there being a lack of loan money. Uh oh. I bet her economics class is really having good discussions right about now.

    September 26, 2008
  124. Jane Moline said:

    Holly; please read my post about the bailout and where the money will go-if set up as past bailouts, taxpayers-through the federal government–will acquire the “bad” assets and make them into good or write them off. This is not about bailing out people who made bad loan decisions, but it could be–if we do the workouts in a way that helps–and this is what the discussion is about bankruptcy rules–we can help main street, too.

    This is bailing out all the financial companies that invested in these “bad” assets–but we can set it up so they repay some or all of the bailout monies, and making sure they do not engage in similar risky behavior in the future.

    September 26, 2008
  125. Holly Cairns said:

    Hi Jane,

    Let’s see, I liked post 49, 75, and 88 (notes here, I doodle as I read). What post are you refering to? I suppose I’ll have to read all Jane posts.

    Yes, need more regulation.

    September 26, 2008
  126. Holly Cairns said:

    Maybe 136 is your idea of what I wanted? I want a clear plan for the distribution of the 700 bill. Why 700 bill? Why not 3 trill? Why not 200 bill? Someone must have a good idea for what we need…

    It would be nice to see the govnt release several plans they are choosing from. We’ve asked Congress for the goods by today, but we haven’t seen or heard anything in depth. There is speculation, but without a clear plan laid out for me to read, I worry about misuse of funds. “Hurry up, give 700 bill” is strange to me. Meanwhile, I haven’t been looking at the news for hours, now. It’s probably a done deal and we’ll learn more.

    September 26, 2008
  127. Patrick Enders said:

    Holly,
    The ‘agreement in principle’ that seemed to be scuttled by McCain’s visit to DC would’ve approved only a small (if you can call $250b small) portion of that $700b, with subsequent distributions to be dependent upon a bipartisan oversight board. Or something like that.

    September 26, 2008
  128. Holly Cairns said:

    Hmm, the agreement in principle. Yes, what is that. I’ve seen “Paulson’s plan” and “architects of the bailout” but I could not find specifics.

    I like the idea of dollars ready to spend… is that what I am hearing? “To be decided?” I suppose that means, with interest of at least 2% if we’re lucky, the money will never deplete.

    September 26, 2008
  129. Patrick Enders said:

    Holly,

    Here’s what little we know about that agreement, from the Washington Post:

    During a nearly three-hour meeting, lawmakers reached an “agreement on principles.”

    Under that agreement, the package would be broken into three parts. Paulson would receive $250 billion immediately and $100 billion more upon certification that the funds are necessary. The final $350 billion could be dispersed without additional congressional approval, but Congress would be given 30 days to object.

    The agreement calls for strong oversight of the bailout program, including an independent inspector general and regular audits by the Government Accountability Office. It also would require the Treasury to set standards to ban “inappropriate or excessive” compensation for executives at participating firms and establish stronger protections for taxpayers, including a requirement that they receive equity in all participating companies. The latter provision ensures that the Treasury could recover the cash it invests in bad assets if the firms return to financial health.

    http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092500268.html?hpid=topnews

    September 26, 2008
  130. Holly Cairns said:

    Oh, thanks for that. Still not very specific. I’m glad to read about Congressional approval, but I’m not very happy with what’s been going down for oversight already.

    I’ve had time to look around, and I guess the Paulson plan can’t be revealed… court ordered silence?

    Here’s a
    good post
    on how the world will look at our new debt once we’ve added the $700 billion to the already huge amount that we owe:

    That $700 billion price tag will increase the national debt ceiling to $11.3 trillion, that’s more than double where it was in 2000 and it represents 80% of U.S. GDP. Why is that important? Because in international banking circles any country whose debt exceeds 60% of GDP is considered at risk of not being able to pay back its debt.

    September 26, 2008
  131. Peter Millin said:

    Patrick wrote:
    People who bought that one home under truly sketchy loan terms deserve an adjustment to more reasonable, standard loan terms.

    Only if you can proof fraud, this should not be a blank check.

    September 26, 2008
  132. Holly Cairns said:

    I’ve got an idea: if people can’t live in their homes anymore let’s let them live, downtown, in tents. No matter the circumstance (their own inability to pay, or the effect that others’ inability to pay has had on them).

    Hmm, not helping those that need help will probably cost me more in the long run, and I’ll suffer longer, too. And maybe after job loss I’ll be the one living in a tent.

    And so there it is. Do we pay now, or more, later? Where should we invest?

    Yes, we need to be fiscally responsible. Of course. OF COURSE! BUt damning people now won’t be much help. Damning certain groups of people is entirely inappropriate, but I don’t think anyone here is blaming the poorest among us, right…

    September 26, 2008
  133. Peter Millin said:

    They just have to move in to a rental…like some said earlier here….there is nothing wrong with living in a rental unit…right??

    Seriously, what do you suggest? using tax money to pay off their mortgages?

    September 26, 2008
  134. Holly Cairns said:

    No, seriously, what I suggest is longer terms and a renegociation of the interest rate for the house they live in. And this means some of your tax dollars will be spent keeping houses full of people instead of empty, bad debt on the banks’ books.

    And, your rental idea. How long is it before there is job loss and inability to buy things, and pay rent? Or you think this will all go away if we don’t help?

    Think about it. Loans are sold and bundled and sold, as Bright said above, hers being sold 4 times. What do you suggest? Weeding through the paperwork to find the persons who couldn’t pay, and somehow getting it out of them? Your “not my tax dollar” idea isn’t going to help YOU, in the end.

    September 26, 2008
  135. Peter Millin said:

    An over supply on empty houses will slow down development of new ones, keeps rents low and makes housing more affordable.

    September 26, 2008
  136. Patrick, I totally agree with your favorite part blocked quote in #151!
    Tow days ago I watched CSpan and saw Paulson try to pull this off.
    Nobody was gonna take that! Kind of gives me hope. This is exactly the
    one moment they went all the way bipartisan, but it didn’t last. The
    infighting started as soon as they kicked out the press.

    September 26, 2008
  137. Holly Cairns said:

    Yikes. That’s power, or what. Unchecked power. Do we need that right now? Who teaches econ at Carleton or Olaf? Do we need this to be so unchecked?

    September 26, 2008
  138. Holly Cairns said:

    Oh, and I laughed the first and second time, Patrick. Perfect. BTW, I get way too many of those e-mails. Way too many.

    Off on the bike. Please don’t pass so close, Mr. blue with light blue truck owner. I had my arm out saying I was taking a left, which means I was going from the right side of the road to the center lane where I would stop behind the cars, and you sped up, passed within inches, crossed in front of me, and then got into the turn lane. Naughty.

    I hate that four way stop by the high school.

    September 26, 2008
  139. Patrick Enders said:

    Holly,
    You wrote,

    Oh, and I laughed the first and second time, Patrick. Perfect. BTW, I get way too many of those e-mails. Way too many.

    After way too many email problems (spam and otherwise) with independent email providers, I finally bit the bullet and gave up my privacy to Google. Their Gmail service does an absolutely amazing job of filtering out almost every single bit of spam, without ever (as far as I know) filtering out any real email.

    September 26, 2008
  140. Patrick Enders said:

    Popular(?) conservative columnist David Brooks has a pretty good take on the economic bailout package and the House Republicans here, titled “Clueless.”

    http://campaignstops.blogs.nytimes.com/2008/09/26/clueless/

    He writes:
    Gail, as far as I can see, there are several basic approaches to the Wall Street crisis. There’s the Henry Paulson approach, where the government buys toxic debt. There’s the Chris Dodd approach, where the government gets pieces of the banks holding the toxic debt. There’s the House Republican approach involving mortgage insurance. And then there’s the approach floating around various liberal and conservative quarters that involves shoring up the mortgage market directly, possibly by nationalizing individual mortgages. My favorite variation of the latter involves knocking down empty houses, to reduce the supply.

    Of these which one is best? Like most politicians, I can guess — I’d go with Dodd — but I have no real confidence in my judgment. I have no real confidence because I’m not a professional finance guy, but I also notice even the professionals have no real confidence.

    The establishment — and yes, this week there really is such a thing — is saying we have to pass something even if it’s ugly. The greater risk is inaction, not bad action. I happen to agree with this position, for what it’s worth, influenced by the brilliant economic blogger Megan McArdle, who points out that given how bad the Great Depression was, it’s probably worth taking heroic measures to prevent another.

    Then there are the House Republicans, the dissidents. They are standing up against the establishment, slowing down the migration toward a Paulson-Dodd mind-meld plan, and saying Wall Street should pay for its own mess.

    Many Democrats would be for this position if the House Republicans hadn’t gotten there first. But since the Republicans are for it, liberal Democrats are against it.

    What strikes me most about the House Republican position is the awesome chutzpah. Given all the uncertainty, they are still willing to stake out an astonishingly bold position that goes against the grain of conventional wisdom. If they are successful in blocking the Paulson approach and they are wrong, we will enter another Depression, the Republican Party will be blamed and the G.O.P. will cease to exist.

    I’m not exaggerating.

    As for the proposal…

    My favorite variation of the latter involves knocking down empty houses, to reduce the supply.

    …I can’t help but be reminded of this piece from The Hitchhiker’s Guide to the Galaxy, in which a bunch of useless middle-management types crash land on a primitive planet – which turns out to be prehistoric earth, just at the time the Neanderthals are dying out.

    “Notwithstanding the fact that they haven’t figured out what to eat, or how to build shelter from the weather, or settled any of Maslow’s basic needs,” they are holding a board meeting:

    “If,” he said tersely, “we could for a moment move on the subject of fiscal policy…”

    “Fiscal policy!” whooped Ford Prefect. “Fiscal policy! […] How can you have money if none of you actually produces anything? It doesn’t grow on trees you know.”

    “If you would allow me to continue. . .”

    Ford nodded dejectedly.

    “Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich. […] But we have also run in to a small inflation problem on account of the high level of leaf availabiliy, which means that, I gather, the current going rate has something like three deciduous forests to one ship’s peanut. […]

    So in order to obviate this problem, and effectively revalue the leaf, we are about to embark on a massive defoliation campaign, and. . .er, BURN DOWN ALL THE FORESTS. I think you’ll all agree that’s a sensible move under the circumstances.”

    Text from The Hitchhiker’s Guide To The Galaxy by Douglas Adams, quoted from
    borrowedsuits.blogspot.com/2007/01/hitchikers-guide-to-galaxy-sci-fi.html

    September 26, 2008
  141. Patrick Enders said:

    And yes Griff, I had to break up that last web address into chunks and remove the ‘http…’ part, in order to get LGN’s brain to accept that post.

    September 26, 2008
  142. Patrick Enders said:

    Oh, and I missed the blockquotes that should’ve been around everything from “Gail,” to “I’m not exaggerating.”

    September 26, 2008
  143. Paul Fried said:

    Holly: Regarding your (and Bright’s) comment about mortgages being sold to other companies:

    I heard an interesting proposal on NPR where they described how, in some countires, there is a transaction fee for various sales (like that, or other investment deals). The commentator described how such a fee or tax could be used to help pay for the bailout.

    And William, besides the money the government made on taking over mortgages which you describe, another move during the depression was to guarantee farmers fair prices for their crops.

    Regulation is OK. We need more, not less at this point. Government supports are OK, as long as they’re working. And the more you support a strong consumer base, the more solid the economy would be. It just doesn’t work to have real (inflation-adjusted) wages for the middle class to go down over decades, while income for the rich rises exponentially. It has been an unfair forced redistribution of wealth upward. It’s time to be more fair and tax the rich.

    September 27, 2008
  144. William Siemers said:

    Patrick…

    I said ‘many’ borrowers never intended to stay in their homes, not ‘most’. But I do mean many. 20% of sub-prime ARMs are in default. (Default being late or in foreclosure). 10% of all residential mortgages are in default. That’s alot of houses. And even if only 10% of the borrowers had a ‘flip this house’ attitude that is, in fact, very many houses.

    Jane…

    I don’t see how the bail-out plan insures that the credit markets will open up…and isn’t that the whole reason for doing it?. The economy will still be in bad shape, the housing market will still be overpriced in relation to income, the stock martket will be very uncertain, the dollar will lose even more value. In this environment, I think the banks and securities firms getting this money will keep it liquid and wait out the uncertainty.

    In any case…We will be putting money into a system that didn’t work well to begin with…a system that made it’s money by trading mortgage backed deriviatives…clearly this system has failed. And now we are going to put nearly a trillion dollars back into it? I gotta believe there is another way. And I don’t buy that we will go to hell in a handbasket if we don’t do something by Sunday night. Let’s take some time and look at alternatives before we take this final, and irrevocable, plunge into crony capitalism. The partnership of big capitalism and big government got us into this mess, can we expect that it will get us out of it?

    Maybe the govt. should partner with, and/or help create, small community banks that could then buy local ‘toxic’ loans from wall street at MARKET rates. These micro banks could then keep the loans on the property local and either ‘work out’ the terms or foreclose…putting the property on the local market at affordable prices. I don’t know…just an idea.

    September 27, 2008
  145. Patrick Enders said:

    William,
    Do you really think that punishing a small minority of opportunistic investors is a more important principle for guiding national policy than is protecting the well-being of the majority of well-intentioned, honest mortgage holders?

    September 27, 2008
  146. William Siemers said:

    Patrick…

    I didn’t say anything about punishing anyone. I am trying to express what I see as the reality of the situation…many of these mortgages will never have the full principal amount paid off. Almost all the others in default will have to have new terms. I do not oppose new terms for owner occupied homes. But we have to face the fact that this will cost the taxpayers many billions of dollars by the time it is all said and done

    I do oppose making wall street whole when they created the mess. There are other ways of bringing liquidity into the market rather than the proposed solution. Let’s not futher enable the people who got us into this mess. 150 top economists sent a joint letter oppossing the proposed bail out. Let’s consider what they have to say. The sky will not fall if the bill is not passed by sunday night.

    September 27, 2008
  147. Holly Cairns said:

    Gmail is cool, but I have my own holly at northfieldweb.com (the northfieldweb.com part is important, see)

    Okay, I heard German and other banks were failing now, too.

    Your ideas are interesting, William.

    Paul, the banks usually charge those fees. My idea was actually from PLordFaris, who suggested a reduced fee and loan renegociation to help with foreclosure (recently used in the ’80’s to help farmers) . It’s too bad PLordFaris didn’t appear until so late in the race. I like Franken, though. I’m just waiting to hear what the plan is for foreclosure/ the crisis– from both Obama and Franken. I don’t think there will be a quick fix. We’ve got to be more fiscally repsonsible.

    September 27, 2008
  148. Holly Cairns said:

    I’m mad about us being in Iraq. Here’s the cost of war

    Couldn’t we just go get Bin Laden, instead?

    September 27, 2008
  149. Jane Moline said:

    William and everyone. If we do not bail out these obviously ill-advised investment vehicles, all of the companies that have invested in those bad investments will go under, pension funds and regular banks included. We will have a run on regular banks when consumers find out their retirement funds have tanked. The FDIC will step in, but you will have to wait for your money. Meanwhile, regular companies that use bank financing to function for cash-flow–thats just about all companies, will collapse because their loans will be called or cut off. There will be rampant unemployment–well over 25% and probably about 40%. The dollar will be worthless after rampant inflation. It will really be the GREAT DEPRESSION.

    Or we can bail em out, work em out, and cut out the losers. So go ahead and take a hard line so the economy can collapse. Or lets be practical, admit the mistakes of eccess of the Bush economic policies, and start regulating these businesses (whatever survives.)

    Unfortunately, regular banks that have engaged in good, sound credit practices are affected because they purchased a portion of the bad securities. We should not let the practices of a few destroy the economy of the world.

    September 27, 2008
  150. Paul Fried said:

    From Yes Magazine, a view from a former Wall Street insider about the economy as a means for the exchange of goods, and about thinking locally. Some paragraphs from a longer piece, URL at bottom:

    “Finance to Serve The Economy”
    How urgent is the financial situation? A Wall Street veteran says problems in finance don’t mean the end of the economy.
    by Leslie Christian

    We have been informed by our leaders and many experts that the US financial system was on the brink of collapse last week. It probably was. And may still be. We’ve also been told that our entire economy is at risk. I think that’s a bit of a stretch and has the unfortunate effect of inciting emotion and panic rather than sound analysis and plain old common sense.

    Our “financial system” is not equal to the economy. The economy is the exchange of needed goods and services. The financial system exists to facilitate that exchange. Our financial system has far exceeded that rather modest role. We have come to accept the mainstream message that the financial system creates wealth by creating money. But money isn’t wealth at all. Some money is simply air.

    If you own a house you have wealth in the form of shelter and security. If you bought the house for $100,000 you have a financial value. If your neighbor’s identical house has just sold for $300,000, you may very well increase your personal statement of net worth by $200,000 based on this one transaction. But the house-the tangible wealth-has not changed. This is fairly innocuous until you decide to go to the bank and cash in on that new value by borrowing $200,000 using your house as collateral. Still fairly innocuous, assuming you can make the loan payments. But, what if you discover that your house isn’t worth $300,000 anymore? Suppose it’s only worth $150,000. Now, you owe $200,000 but don’t have enough collateral to back the loan. The wealth you once had has dissipated-you no longer own the house-and you are left with a great big debt. Now, what if you had taken that $200,000 and used it as a down payment for another house? And what if the new house’s value goes down? All of a sudden you are saddled with lots of debt but fewer assets.

    This is what the experts mean when they use the polite term, “leverage.” They really mean debt-too much borrowing against assets. Wall Street took this concept and put it on steroids by using all kinds of tricks, called derivatives, to borrow as much as possible with as low a down payment as possible. It all looked great until the assets at the bottom of the pile of debt started losing value. And then, like a game of Jenga, it all started to fall apart.

    As a financial advisor and former Wall Street professional, I find myself caught in alternating waves of nostalgia, sadness, relief and fear. It’s sad to say goodbye to the “good old days,” as flawed as they were. We lived in a speculative bubble that allowed us to make believe for awhile-fun but fictional. It’s a relief to have things finally come to a head. It had to happen sooner or later. There’s just too much debt (leverage) backed by now-worthless assets like bad loans and securities structured from these loans. And it’s scary to witness the disaster response mentality of our leaders. It’s as if we can only deal with problems when they become crises-before that, we deny and ignore them. Perhaps, after scaring us into a war in the Middle East, our leaders have come to believe that this is an effective way to govern.

    Was the financial system really on the brink of collapsing? In this environment of crisis management and hyperbole, we may never really know. However it is characterized, what I find fascinating is the presumption of control. As if Congress and the Treasury can swoop in and solve the problem. As if they can possibly believe that a country that has more than $9 trillion in debt can keep on printing money in order to save itself. In reality, it may be possible to ease or defer the pain, but, sooner or later, we will have to begin living within our means. It’s actually amusing to listen to the experts talk about “taxpayers” money when, in reality, the funds to rescue our financial system will be borrowed on the world markets. Of course, then it becomes the taxpayers’ obligation. So, it really isn’t our money-it’s our debt.

    The one thing I know with certainty is that the people and institutions that got us into this mess are not going to be the ones to get us out of it. Not the Federal Reserve, not Wall Street, not Congress, and not the Administration. Yes, we can engage in discussion and debate about the “right package” and what Paulson had to say today and how the Congressional leadership is doing. But, in the end, my suggestion is that we focus on what we can actually do.

    We have been told a horror story, but we don’t have to let it paralyze or immobilize us. And we shouldn’t believe everything we’re told. We need to test every statement, every scare tactic against our own experiences and what we know is true in our lives and communities. And we can choose to see that this “meltdown” is really a cleansing, a time that offers great opportunity to get back to the basics, to focus on what’s realistic and what we can accomplish at a local economic level.

    Let’s get to the task of facilitating the efficient exchange of goods and services, which, in the process, employs people in productive capacities so they can then afford to buy what they need. It sounds simple, and it is simple. We have allowed ourselves to be convinced that the Economy is a god when, in fact, it’s our human system for getting things done. Despite the behavior of the Wall Street crowd, the economy is not a casino and does not need gambling to thrive. Much of the financial loss we are seeing is the equivalent of the big winner at the craps table whose luck has all of a sudden turned. If you weren’t at the casino, don’t be fooled into thinking that you’re a loser. Perhaps we’re really the winners.
    ….
    ________________
    (These are some paragraphs from a longer article:
    http://www.yesmagazine.org/article.asp?ID=2983

    September 27, 2008
  151. William Siemers said:

    Jane…
    So there is a difference of opinion on this matter. I’m no expert, I don’t know if you are, but in any case there are plenty of experts who think we should proceed more cautiously than the administration and congress are urging. There are economists, bankers and wall street types, of all stripes, who are against this plan. Do they all want to ‘let the economy collapse’? Maybe everyone can work on the problem in a reasoned, calm and rational way over the next few weeks, instead of rushing to a solution over the weekend. If the world is still here on Monday morning, we’ll know we are moving in the right direction. I am not against a solution…even a 700 billion solution, I just want it to be the best solution and an equitable solution.

    September 27, 2008
  152. Mike Zenner said:

    Paul,

    Good article. It pretty much sums it up. The days of shuffling funny money from one “asset” to another and collecting a fee on each transaction is OVER!

    We need to return to realizing that real wealth is the capacity to produce useful things!

    The visual on this financial bailout is image the global financial industry as the WTC. On Monday, no bailout the WTC collapses in the matter of hours taking out whatever little real liquid capital and 3/4 of the shadow banking industry with it! With bailout, the building will still come down but only by a couple of floors blow off per week. This buys enough time for thoughs with any liquid capital to run for cover, and allow some of the corrupt bankers friends to escape the building with some free taxpayer money in hand!

    Either way, in the end the (Finance World as we knew it) building is leveled!

    September 27, 2008
  153. Paul Fried said:

    Mike: Thanks.

    And William: Thanks for the link. I’d heard about that over breakfast this last Thursday. I’ve also been reading about some of the many economists who are not buying the “Be Afraid: Collapse Coming If You Don’t Support the Bailout” rhetoric of the President. I’m glad many Republicans don’t like it, but concerned that some seem to want to use it as an occasion for more deregulation and tax breaks for the rich.

    September 27, 2008
  154. Patrick Enders said:

    Mike Zenner wrote,

    …in the end the (Finance World as we knew it)…

    …and I feel fine. 🙂

    September 27, 2008
  155. john george said:

    This whole thing reminds me of a couple comments from two people out of my past that I respected very much. I know one was certainly not a financial genious, he was my father. He used to tell the story about the dog he owned at one time that was worth $3000.00. At least he figured it was worth $3000.00, because he traded to a fellow for two $1500.00 cats. The other person was Paul Harvey. I heard him once describe the American economy as twelve people standing in a circle. Each person has his hands in the pockets of the other persons next to him, and they all think they are getting rich. I think these two discriptions pretty well fit the Finance World as we have known it.

    September 27, 2008
  156. David Henson said:

    A bank borrows $10,000 from the rich
    The bank loans a builder $10,000
    The builder pays carpenters $10,000 to build home 80%
    Carpenters spend the $10,000 on rent, groceries etc.
    Home sits because there are no buyers
    Bank is not collecting interest or principal
    Bank cannot borrow more because now bad risk (how ironic)
    Home begins to degrade in value
    Carpernters are unemployed

    With millions of units a mass liquidation will submarine housing prices
    and the banks owed monies will be insolvent

    ______________________________________________________
    This is the part I do not understand
    The Gov’t buys the bad debt for $10,000 (or ?)
    Now the bank has $10,000
    The bank then:
    a) repays the rich
    or
    b) uses the money to lend (for what ?)
    ————————————————
    It seems all this money would be being injected back into a market area all ready over built with too few buyers (unless this is going to be tied to a loose credit policy – which silly as it sounds is probably needed).

    Wouldn’t the tax dollars be better injected into new areas of the economy ?
    ————————————————
    Maybe taxpayers need to hear this debate

    September 27, 2008
  157. kiffi summa said:

    This morning on George Stephanopolous’s news analysis show, you could have heard two brilliant thinkers, Robert Reich and Newt Gingrich … people you would generally categorize into opposing partisan camps … coming to the same conclusion on bailout/fix.

    When two people like that, with their divergent histories, agree … I think that people should listen.

    And don’t start dividing up into camps of who you would most prefer to believe, based on their past politics. This financial crisis should have everyone working together; FORGET the party politics … There may be an initial congressional solution, a supposed short-term fix, but the real work will come after that.

    This will NOT end with the bill put forward today.

    September 28, 2008
  158. Peter Millin said:

    176..you are right we should forget party politics..let’s all pay up together. Why those who have created this mess (politicians and executive) get a free pass.

    Does it worry anybody that those trying to solve the crisis have either received massive donations from those they are about to bail out or have worked for some of those firms?

    September 28, 2008
  159. Martha Cashman said:

    You bet I am worried that those trying (?) to solve this financial mess are on the perpetual tit of congress.

    I think we should ‘lock’ Congress in WDC until they figure this out — right. Any time someone is back in their district campaigning for their re-election we should ask them, “What the hell are you doing here? Go back and do the job you were elected to do!” I also think that, in the future, any one from Congress who is running for the Presidency needs to resign for their House or Senate seat. Join the real world, McCain and Obama.

    Kiffi is right about the REAL work ahead of us as a country. Please, everyone who cares about this issue listen to the clip of THIS WEEK. Reich and Gingrich do have it right. We need to INVEST in America’s long-term dividend areas — education, a sound, sustainable energy policy, roads, bridges, utilities, research and development.

    Our lives — our children’s and grandchildren’s lives depend on getting this right.

    September 28, 2008
  160. Peter Millin said:

    Seems like there is still enough brain trust left in DC. Congress has rejected the bailout. Great.

    September 29, 2008
  161. john george said:

    Peter- This may or may not be a great event. Time will tell. I just read an article today in the Strib about what the government actually owes. If this $700 billion all goes through, along with what has already been taken on with the AIG and Fannie & Freddie Mae companies, and gets added into the national debt, it will amount to 75% of the GNP. In other words, the only way for the government to pay this off is to collect 75% of all we earn, worker, business, etc., as taxes. Now, that is a scarey thought!

    September 29, 2008
  162. Peter Millin said:

    John,

    There is no easy way out of this, but I believe that paying down your debt will be better in the long run.

    Japan has been in a similar situation, they chose to pay back what they owe. It took them close to 10 years to digg themselves out, but they are better for it today.
    The bailout is nothing more then moving your debt from one credit card to another.

    September 29, 2008
  163. Mike Zenner said:

    Peter,

    Your advice to John is good on a personal level, but once the entire nation starts collectively paying down it’s debt, which people are doing now, then there will be less that is going to national consumption.

    Unlike Japan, that has a productive economy, the US economy is almost all consuming(70%GDP) and little producing. Paying down debt collectively will cause a spiraling down DEFLATIONARY death sentence for the US economy.
    US debt level is at 350% of GDP. The highest level since the Great Depression, when we actually had a productive economy that could produce real wealth! To bring this back to historical levels would require paying off $28 Trillion, which is just private debt , not public.

    This is unacceptable for the banking elite and the US imperial government. Hence bailout plans to keep the consuming party going.
    Bankers would collect much less usury, and Government much less tax revenue.

    They will try to counter act this by:
    1. printing excessive amounts of fiat
    2. reneging on all foreign debts
    3. Start another war
    4. all the above

    September 29, 2008
  164. john george said:

    Peter- I’m all for paying down debt. In fact, in my personal finances, I simply do not incur debt in the first place. The question I have is where is the government going to get all this money to pay the debt? I’m afraid it is going to come out of all our pockets. Hopefully, those who make $1,000,000 plus per year will pay the same percentage as those who make less than $100,000 per year.

    Mike- Your observation about our consumption vs. production is right on. Most of the so called profits of the high finances of Wall Street were simply comissions paid for moving money from one acount to another. Instead of increasing wealth, by actually producing a good or service, these profiteers actually deminished the true wealth. This has been going on for too long of a time, IMHO, so to see this reversed is going to be traumatic, to say the least. I think we as a nation need to completely rethink how we approach business and financial investments. I don’t have all the answers for this, but I think it is time to admit that we cannot continue the status quo.

    September 29, 2008
  165. David Henson said:

    In exchange for asking Americans to pony up $700 Billion maybe language could be added to the bill resetting all Americans credit scores to perfect. This way people could save some of the funds back by getting lower rates on their cc cards and mortgages. This would also open a big new class of buyers for the empty housing stock and lift values. Paulson should float this trial balloon and watch the tidal wave of positive letters coming pouring into Washington.

    September 29, 2008
  166. Patrick Enders said:

    John wrote,

    If this $700 billion all goes through, along with what has already been taken on with the AIG and Fannie & Freddie Mae companies, and gets added into the national debt, it will amount to 75% of the GNP. In other words, the only way for the government to pay this off is to collect 75% of all we earn, worker, business, etc., as taxes. Now, that is a scarey thought!

    John,
    GNP is an annual figure. If the government took 75% of your income for just one year, they could pay it off right away.

    Don’t worry, though. That debt will be extracted from your children and grandchildren instead.

    September 29, 2008
  167. Mike Zenner said:

    Perhaps there is a silver lining in the rejection of the bailout plan. The average American’s outrage at this package, regardless of party, may be a galvanizing force that brings the American people to come together against the corrupt and arrogant Congress and Administration. This will result in all the R and D incumbents being replaced by 3rd party candidates this Nov 4, including rejecting McCain and Obama, the handmaidens of corporate fascism.

    Perhaps, then America can begin to seriously address the real issues confronting this country.

    September 29, 2008
  168. Paul Fried said:

    JohnG and Mike: I’m glad you’re talking about “real” wealth and productivity vs. the tricks of the economic system (that make some folks rich but don’t produce much of value), and about paying down debt.

    In a household, if you want to pay down debt, you might do a few things:
    1) Work more hours, or get a higher-paying job, to earn more.
    2) Buy less so you have more to use to pay down debt.
    3) Buy smarter, so your dollar stretches (eliminate wasteful spending).
    4) Produce some of your own goods (as with gardening) so that you don’t need to use money exchange for as many necessities, and thus have more left to pay down debt.

    Some of these could apply as analogies for what a nation needs to do, but some might have a negative economic effect in the short-term.

    Example: If consumers simply consume less (or garden more) and thereby spend less of their money so more is left to pay debt, the effect on a nation is that consumer spending is down, so businesses that create or sell goods may have to cut back hours, lay people off, etc.

    But if you have a big family of nine in which one is eating and living like a king or queen, the majority are just getting by, and a few are malnourished, then while you are working on paying down debt, family members might consider getting rid of financial waste by questioning the right of those who are sucking off a great deal of the family money.

    In #168 I posted part of an article that took a simple, tho’ idealistic look at what economic systems are for. It said economies are for distributing services and goods. This is true, but in the real world, there is no “pure” economic system. There are CEO’s who make obscene wealth even when they fail (they have created a corner of the economic system in which free markets don’t correct for failure and waste). There are clever operators of casino-economy who profit off of derivatives of questionable value. Many players are not really tending an economic system that is purely for facilitating the exchange of services and goods; many are, as much as they can, trying to get money for as close to “nothing” as they can.

    Using the family analogy, if the family has debt to pay, a major tool in this system is to eliminate the waste caused by the person leeching off the system, like the CEO’s and casino-economy operators who are trying to maximize their profit and protections by drawing wealth away from the family system without creating much of value.

    Having a system that helps offer affordable loans to low-income members of the family is fine; having a system that offers complicated mortgages which gouge the poor and make a small group at the top rich is not only immoral, but it’s very wasteful in the economic system.

    Some free-market fans are pushing for less regulation and more tax cuts to benefit the rich, but in fact, if you want the family members to pay down their debt and have a fair system in which all contribute, you need fair rules, and you need taxes. Many of the current problems started with deregulation and tax cuts, including capital gains. We used to say that if some were aquiring wealth without producing, you get taxed. Then we deregulated and cut capital gains tax, and created a little elite safe-harbor where CEO’s didn’t get certain parts of their earnings package taxed, and where certain people in the financial system didn’t get some of their commissions or profits taxed. We basically created a system in which a few have become obese while other family members are starving.

    One way to pay down debt, then, is to eliminate waste in the system: Get rid of some of those kinds of jobs that depend on the wasteful parts of the system. Get rid of those financial tools that only suck wealth off the system for a select few at the top. Make those tools illegal through stricter regulation. And tax those who profit excessively without creating some product or service that is of real value to more in the system instead of just to the economic leeches.

    Another way to pay down the debt is by eliminating other wasteful spending: If a bridge to nowhere or certain military spending creates relatively few jobs and a relative few receive most of the profit, then if the spending isn’t absolutely essential, maybe we can find better ways to spend the money where more benefit, and/or you save more of the money to pay down debt.

    September 30, 2008
  169. Paul Fried said:

    Former CIA consultant Chalmers Johnson on where to find the money:
    “We Have the Money
    If Only We Didn’t Waste It on the Defense Budget” – at TomDispatch

    There has been much moaning, air-sucking, and outrage about the $700 billion that the U.S. government is thinking of throwing away on rich New York bankers who have been ripping us off for the past few years and then letting greed drive their businesses into a variety of ditches. In fact, we dole out similar amounts of money every year in the form of payoffs to the armed services, the military-industrial complex, and powerful senators and representatives allied with the Pentagon.

    On Wednesday, September 24th, right in the middle of the fight over billions of taxpayer dollars slated to bail out Wall Street, the House of Representatives passed a $612 billion defense authorization bill for 2009 without a murmur of public protest or any meaningful press comment at all. (The New York Times gave the matter only three short paragraphs buried in a story about another appropriations measure.)

    The defense bill includes $68.6 billion to pursue the wars in Iraq and Afghanistan, which is only a down-payment on the full yearly cost of these wars. (The rest will be raised through future supplementary bills.) It also included a 3.9% pay raise for military personnel, and $5 billion in pork-barrel projects not even requested by the administration or the secretary of defense. It also fully funds the Pentagon’s request for a radar site in the Czech Republic, a hare-brained scheme sure to infuriate the Russians just as much as a Russian missile base in Cuba once infuriated us. The whole bill passed by a vote of 392-39 and will fly through the Senate, where a similar bill has already been approved. And no one will even think to mention it in the same breath with the discussion of bailout funds for dying investment banks and the like.

    This is pure waste. Our annual spending on “national security” — meaning the defense budget plus all military expenditures hidden in the budgets for the departments of Energy, State, Treasury, Veterans Affairs, the CIA, and numerous other places in the executive branch — already exceeds a trillion dollars, an amount larger than that of all other national defense budgets combined. Not only was there no significant media coverage of this latest appropriation, there have been no signs of even the slightest urge to inquire into the relationship between our bloated military, our staggering weapons expenditures, our extravagantly expensive failed wars abroad, and the financial catastrophe on Wall Street.

    We would better respect our armed forces by bringing the futile and misbegotten wars in Iraq and Afghanistan to an end. A relative degree of peace and order has returned to Iraq not because of President Bush’s belated reinforcement of our expeditionary army there (the so-called surge), but thanks to shifting internal dynamics within Iraq and in the Middle East region generally. Such shifts include a growing awareness among Iraq’s Sunni population of the need to restore law and order, a growing confidence among Iraqi Shiites of their nearly unassailable position of political influence in the country, and a growing awareness among Sunni nations that the ill-informed war of aggression the Bush administration waged against Iraq has vastly increased the influence of Shiism and Iran in the region.

    The continued presence of American troops and their heavily reinforced bases in Iraq threaten this return to relative stability. The refusal of the Shia government of Iraq to agree to an American Status of Forces Agreement — much desired by the Bush administration — that would exempt off-duty American troops from Iraqi law is actually a good sign for the future of Iraq.

    One of America’s greatest authorities on the defense budget, Winslow Wheeler, worked for 31 years for Republican members of the Senate and for the General Accounting Office on military expenditures. His conclusion, when it comes to the fiscal sanity of our military spending, is devastating:

    “America’s defense budget is now larger in inflation-adjusted dollars than at any point since the end of World War II, and yet our Army has fewer combat brigades than at any point in that period; our Navy has fewer combat ships; and the Air Force has fewer combat aircraft. Our major equipment inventories for these major forces are older on average than any point since 1946 — or in some cases, in our entire history.”

    This in itself is a national disgrace. Spending hundreds of billions of dollars on present and future wars that have nothing to do with our national security is simply obscene. And yet Congress has been corrupted by the military-industrial complex into believing that, by voting for more defense spending, they are supplying “jobs” for the economy. In fact, they are only diverting scarce resources from the desperately needed rebuilding of the American infrastructure and other crucial spending necessities into utterly wasteful munitions. If we cannot cut back our longstanding, ever increasing military spending in a major way, then the bankruptcy of the United States is inevitable. As the current Wall Street meltdown has demonstrated, that is no longer an abstract possibility but a growing likelihood. We do not have much time left.

    http://www.tomdispatch.com/post/174982/chalmers_johnson_the_pentagon_bailout_fraud

    September 30, 2008
  170. Paul Fried said:

    Nobel economist explains flaws in bailout:

    “As Nobelist economist Joseph Stiglitz has written of this outrageous rip-off, there are four problems facing the financial system, and the bailout proposal only addresses one–getting the toxic mortgages off the banks’ books and onto taxpayers’ hands. Left unsolved is the gaping hole in banks’ balance sheets in the form of loans made to people and companies which cannot be repaid, which will mean they still won’t start lending money again. Left unaddressed too is the continuing collapse of housing prices, which will inevitably lead to more bank collapses even after the bailout. Finally, Stiglitz says there is the general loss of faith in the financial system–a major crisis which the bailout will also not solve. ”

    Author of the article, David Lindorf, considers another problem:

    “Stiglitz doesn’t even address a fifth problem which is that this trillion-plus-dollar boondoggle (and when you add in the bailouts of Fannie Mae, Freddie Mac, AIG, Bear Stearns, the multiple mega-bank failures and the pending auto-industry bailout, you’re already talking $1.5 trillion and counting), all of it with borrowed money, the stage is being set for a collapse in the US dollar, with consequences that will reverberate through the economy. Consider: if the dollar collapses, as many experts say is almost inevitable with this kind of huge addition to the national debt, oil prices (which are set in dollars) will soar to compensate, the price of all the other goods that Americans import–more than half of everything we use in daily life thanks to the decimation of American manufacturing–will rise dramatically, and ultimately, in an effort to stem the bleeding, interest rates will have to be raised, thus bringing what’s left of the economy to a grinding halt.”

    Cheery way to start your day, eh?

    http://www.commondreams.org/view/2008/09/29-8

    September 30, 2008
  171. Finally, cooler heads are prevailing and the creative minds have some time to work this whole financial credit boondoggle rescue out in a thoughtful and comprehensive way. That is my hope anyway. There is an old “Hitchiker’s Guide to the Galaxy” saying, some of you might remember, and that is…

    Don’t
    Panic!

    September 30, 2008
  172. Leonard Witt said:

    Hi All:

    I am the person behind the Representative Journalism Project that is taking place in Northfield via Locally Grown. As many of you know, Bonnie Obremski is your very own Rep J reporter. In Griff’s initial crisis post, almost 200 comments and several new economic catastrophes ago, he wrote:

    Looks like a real meltdown. Let’s try to make sense of it… especially how it might impact things locally.

    So why not add some evidence-based reporting by Bonnie to this discussion? Who are key people with whom she should be speaking? What stories could she do to answer your questions on how this economic crisis might affect Northfield? What effects are already taking place that should be reported in greater detail?

    I have asked her to concentrate on what we are calling Spotlight on the Economy — she needs your help, your ideas.

    The idea is for her to provide evidence based reporting and for all of you at Locally Grown to put the stories into a greater context, build upon what she finds, provide story ideas, tell your personal stories and when appropriate suggest ways to act on those stories.

    I do believe with that combination of her reporting and your contextualizing we will have a greater understanding of what all this means to your private lives and to the public life of Northfield.

    September 30, 2008
  173. Holly Cairns said:

    Hmm, good idea Leonard. What does Bonnie make of this via fact analysis? Here I go with something that might need correcting, which is why it would be nice to have facts:

    Where are we in this topic and discussion. I like the idea of a transparent, smart bailout. I hope we go a smart route. I am okay with our US Congress still thinking. I hope.

    I notice the Feds wired money to the big banks last night. Was it 650 billion? OR, did I hear that wrong? Someone out there must be listening to MPR, too…

    Why the hurry for the “bailout”? Keeping our #1 status worldwide? Or what? Maybe we’re worried about raising taxes? Did we just bailout the big banks, anyway?

    September 30, 2008
  174. Holly Cairns said:

    Okay, so here’s Reuters talking about
    pumping billions
    into the economy, and the new interest rate we’ll be paying on the global market.

    September 30, 2008
  175. Holly Cairns said:

    Okay, so
    the Reserve and other (foreign) central banks pumped money
    wired about 620 billion dollars last night… right?

    A fortnight ago, central banks had agreed to pump about $US290 billion extra into the system to tackle the problem.

    But yesterday’s intervention by the Reserve, combined with measures by central banks in the US, Canada, England, Japan, Denmark, Europe, Norway, Sweden and Switzerland, takes the total amount of US dollars pumped into global markets to $US620 billion. The efforts to alleviate the squeeze come amid heightened speculation about a coming round of co-ordinated global interest rate cuts.

    September 30, 2008
  176. Holly Cairns said:

    Still thinking outloud. So the bailout happened, just at a higher cost?

    September 30, 2008
  177. Leonard Witt said:

    Hi Holly:

    There is no way that Bonnie is going to do the international banking aspects of this story. She will do the local story. How is the fiscal crisis affecting Main Street and your neighbors right in Northfield?

    Of course, the international banking story affects the local economy in profound ways. The Rep J/Locally Grown community’s challenge is to make sense of something which is driven by forces far from home.

    As I wrote above:

    The idea is for her to provide evidence based reporting and for all of you at Locally Grown to put the stories into a greater context, build upon what she finds, provide story ideas, tell your personal stories and when appropriate suggest ways to act on those stories.

    I do believe with that combination of her reporting and your contextualizing we will have a greater understanding of what all this means to your private lives and to the public life of Northfield.

    September 30, 2008
  178. Holly Cairns said:

    Hi Leonard,

    I know someone pumped 50,000 into this site to have something happen. I am not exactly sure what is the intent… Is it the reporter only to be discussing local issues via the reporter… I thought the blog was opened to any topic.

    Anyway, I wasn’t suggesting Bonnie cover the international aspect, but going on to discuss what I thought was interesting via the latest wiring of money. It seems like the bailout happened, and while Congress was on vacation… But would you rather we only talk local issues?

    September 30, 2008
  179. Leonard Witt said:

    Hi Holly:

    The discussion you have here at Locally Grown is up to you. It can be as expansive or local as you want.

    I am just saying if your discussion turns to a place where you would like evidence-based, local reporting to further your understanding of Northfield issues, then you might want to get Bonnie involved in the conversation.

    She is a reporter who belongs to the community, so it is a resource you might consider using in the best ways possible. Other places have reporters, but they don’t belong to you as a community. She does.

    September 30, 2008
  180. Holly Cairns said:

    Very good then, Len.

    Hey Bonnie, I don’t know how we ask you to do this so I’ll just jump in with an idea– I’d like someone to investigate at Edina Realty. I was once told that what is happening at their local office was 75% foreclosure related. But I am not sure of the time period, or if I heard that right.

    I worry that I won’t be able to sell my home for a reasonable amount of money if a hobbyfarm down the street is in foreclosure… and there’s at least one root of the problem.

    For a while now it seems interested buyers can’t get loans, and now homes are devaluing due to many factors, including foreclosure sale. Edina realty just added a “search by foreclosure” tab, so it must be a sign of the times, and not just Northfield.

    So, and then maybe ask a banker– it seems banks are reluctant to give out loans right now. Why is that? Appraisal values are tricky do nowadays? Or is there worry of money loss due to protection of consumers in foreclosure?

    Maybe as the local banker how we could fix this all, too. Are they giving out loans? If not, what would it take to begin giving out loans again? Would stretched out loans at a reduced rate help banks avoid empty houses and consumers, or only help consumers, etc.

    And, where would at least two local bankers like the government to be focusing its resources?

    September 30, 2008
  181. Anne Bretts said:

    Ok, so I’m in southern California and I can give you a couple of dramatic consequences of this financial mess. WaMu (Washington Mutual) has a lot of ATMs in the area, and when we were in a local drugstore, the ATM was down — because WaMu had failed and Citi hadn’t finished all the paperwork to take it over. So WaMu clients are in a mess, other bank customers were without ATMs…
    My daughter is a professional graphic designer and a check from a client bounced because it came from a Merrill Lynch account which had been frozen as a part of that mess. It finally got straightened out, but the the NSF fees and domino-effect bounced checks through the system are a nightmare for people (but a bonanza for banks). Lots of other cases of small businesses who use lines of credit for payroll being frozen as well.
    Bonnie might check with any professors on the campuses who teach economics, with the local wealth managers and of course, the bankers, to see what’s happening to them.
    I’m a news junkie and even I am torn on what would be the best solution. I just know that the world is waiting for leadership and it’s not there.
    Paulson should step down and Bush should ask Warren Buffet to step in as transition secretary until the new president takes office. Buffet is the only one anybody trusts at this point.

    September 30, 2008
  182. john george said:

    David H.- Your suggestion about recalibrating everyone’s credit score to perfect is a little scarey for me. To begin with, it penalizes all those who actually worked to earn a good credit score. The other thing is, it does not address the underlying problems in the people with low credit scores. There are lifestyles and decisions that must be addressed in this, or we will end up in the same place as we are now, except a trillion or so more in debt.

    Paul F. One thought about a “free-market” economy, does this only work when we are dealing with the exchange of actual goods and services? Perhaps, with all the, what I call voodoo business practices involving derivatives and what have you, going on on Wall Street, this economic system just doesn’t work in this environment. Just a thought. I’m certainly no economist.

    I will throw out this idea that I mentioned in a previous post. I think what we need in this country is a change in people’s behavior. Once we have people free from greed, then I think any economic system could work. I think that trying to impose this change in behavior through governmental programs will not actually accomplish the change. It will only force it under the surface, and, I believe, it will surface again sometime later. I am talking about philosophical change, here, not structural change. Once we have a change in a person’s heart, then the structure will follow. I don’t have any urls to link to here. These are just some conclusions I have come to from observing this country over a period of time. They are just my opinions, and, with closer analysis, may not hold any water. Anyone have any response?

    I do have one reference point for my opinion, which I have referred to in the past. It is a statement by Dr. Francis Schaefer that he made way back in the ’70’s. He said that at that time, the greatest problem facing the world is the compassionate distribution of accumulated wealth. I think we have seen the opposite demonstrated in some of the Wall Street moguls. There are some contemporay philanthropists out there, Bill Gates and Bono are two that come to mind. I think Gates sets a great example. He has used Micro Soft to create a huge amount of wealth. I’m sure he has done his part in sustaining consumerism, but he also is using a huge amount in reaching out to the impoverished in the world. Too bad there aren’t more like him. In fact, I think there could be if they would only choose to do so.

    September 30, 2008
  183. John G wrote:

    Once we have people free from greed, then I think any economic system could work.

    As usual, I like the spirit of your posts and certainly your optimism.

    I don’t see how a capitalist economy can be separate from greed. Greed inspires and fuels capitalism. As a society, we have tried to put some restraints on greed but invariably they fail. The masterminds of Enron’s disaster were wealthy, but they wanted more wealth. Now, I hear more universities are offering business ethics classes, and they may help some, but I don’t think a class in “good” ethics will turnaround a lifetime of society-taught “bad” ethics for most students.

    The simple way out of capitalism, but far from easy, is socialism or communism. It’s rare to find someone who likes these systems. Another way out is to force ethics, i.e., apply regulations, but there is a never ending tug-of-war about how many and what sort of regulations. While the economists take decades to debate the merits of capitalism and regulations, consumers like you and me suffer the consequences.

    I don’t believe that an unregulated business will act benevolently. In fact, corporations are supposed to act cutthroat to increase their profits for their shareholders. Nor do I believe that regulations are enough to tame greedy businesses.

    At the root, I agree with you John. I’d like capitalism to remain in place but be less focused on ‘capital’. I’d like corporations to have less disparity in pay between CEO and custodian. I’d like greed and bailout to be in our headlines less often. To accomplish these wishes, we don’t need a economic revolution. We need more … transparency and accountability … with corporations. Corporations will fight these, but the way to break greed is to make the individuals who perpetuate it personally responsible. If the corporate veil was easier to pierce, corporations would either become more ethical, or they’d be sued into bankruptcy.

    I am personally grieved at the failures of these institutions. I was raised during the Cold War, thinking that the Communists might attack us. As a matter of self-preservation and patriotism, of course I felt some loyalty to capitalism. Now that the USSR has gone, capitalism seems to be a greater threat to us than the Communists ever were.

    September 30, 2008
  184. William Siemers said:

    Leonard/Bonnie

    Stories have been done, but it is still of interest locally…How the local food shelf is dealing with twice as many clients as a year ago.

    September 30, 2008
  185. Anne Bretts said:

    John, I think you hit the nail on the head when you talked about the derivatives and other bundling practices taking away the responsibility for the success of the original transaction.
    “It’s a Wonderful Life” is a great lesson in the basics of the real estate/saving and loan/local economy relationship. The banker loaned money to people he knew, using money from people he knew and the borrower felt a responsibility to pay it back. Today there are people in foreclosure in Minneapolis because the agencies who help renegotiate problem loans can’t get any person to sign off on a deal. The loan has been chopped up and turned into so much paper that nobody who wrote the loan (and collected the fee) is responsible for collecting on the loan. The housing bubble was all about the fees, the deal, the immediate profit.
    And one more question about the impact on the local market: if housing prices are down 30 percent, are people demanding property tax abatement? Is the county reassessing property downward, or is it waiting for people to demand it? And if the total property value of Northfield drops 30 percent, what impact will that have on the budgets of various taxing bodies?

    September 30, 2008
  186. Holly Cairns said:

    Food shelf story is good, too. Is it doubled? My family worked there on Thursdays until recently… seemed like a lot.

    Also, so people are telling me that the 250+ billion overnight wire from our Reserve bank was just the usual “pumping money into the economy.” (comments 194 and 195).

    September 30, 2008
  187. David Henson said:

    John – there is not a ticker on the Wall Street Journal for JH (John’s house) like there is for the DOW but you are already being punished. The credit system is a usury trap in the US and I believe usury (which was any amount 8% for most of our nation’s history) has radically damaged our financial system and creates discord with those caught in this trap. The fact is people with less money have been asked to pay more with the profits creating the “illusion” of great returns – in addition to the financial house of cards now crumbling those abused by this system feel great disdain for the system (note the deluge of personal letters to congress). Don’t mistake usury for the ethics of responsibility. Christ, history and common sense would put the burden of stopping predatory lending (being responsible) on those who have excess funds to lend.

    As a practical matter freeing up borrowers “at fair and sustainable rates” would shore up housing prices and do much to generate goodwill.

    September 30, 2008
  188. Hello! Thanks to everyone for their insight and ideas. I’m looking forward to gathering more information for stories based on your tips. If anyone would like to talk with me one-on-one or meet me in the future, send me an e-mail at RepJNorthfield@gmail.com or call me at 774-272-0730.

    September 30, 2008
  189. john george said:

    Jerold- Thanks for the response. One thing I question is your opinion that capitalism is fueled by greed. I think there are many business practices that are fueled by greed, but these are not based in capitalism, per se. I think our free society allows greed to exist, and capitalism is just the medium in which it grows. I think this exposes a basic flaw in our human nature.

    If communism would have actually changed people, then I don’t think that we would be seeing the rampant abuses occuring in Russia since the change to a capitalist economy. That is why I made the point, “…I think that trying to impose this change in behavior through governmental programs will not actually accomplish the change. It will only force it under the surface, and, I believe, it will surface again sometime later…” Actually, I don’t believe it was communism that kept the greed in check so much as the totalitarian government. As soon as the government stepped out, the greed had room to flourish.

    I have visited Russia, and one of the things that has carried over from the Communist period are the family dachas. Most of what a typical Russian lives on, he grows in his little garden around his dacha. During the Communist Regime, there was such an apathy to produce for the common good that the government allowed each family to have a small garden plot. There was now a greater incentive to produce valuable goods. If this same incentive had been there in the workers’ efforts on the communal farm, there would not have been the rampant shortages in the old system. So, from this example, I don’t have any hope in any type of economic system working unless there is a selfless commitment to the common good within the people of that society. This is something that I do not believe can be legislated.

    I have lived in a Christian community, patterened after the first century church in Acts 2, where they had all things in common. The only thing that allowed that to work was the work of sanctification in each of our hearts. We ran on a different economic system of giving and receiving. The one thing that we lacked was a common trade where we could produce something. Most of our income was from ministry gifts and an occasional outside job. There is another community that is still functioning in Bloomington called Bethany International. They started out producing the Bethany camping trailers and then went into publishing. These businesses were operated fro profit to fund the various internation mission outreaches fro which they trained people. It is not un-Christian or un-Biblical to produce goods or services or to make a profit from them. Even Paul the Apsotle was a tentmaker. Nor is it un-Biblical to give to the poor or live in a community. In my opinion, where these systems break down in the natural world is where they depend upon unregenerate man. That is the source of greed.

    Sorry. I started this this afternoon about 4:45 and finally had a chance to finish it.

    September 30, 2008
  190. john george said:

    Patrick- I finally have a chance to respond to your post #185. You said, “…Don’t worry, though. That debt will be extracted from your children and grandchildren instead…” That IS a worry for me, in that if we allow the interest on this debt to continue, it will surpass the GNP. The hook in this thing is that we do not owe this debt to ourselves. Much of it is owed to other countries, such as China and Japan. The failuire of our economy will be when these countries come to collect their debt. There will be no way to pay it off short of some miraculous intervention of God, or the rising of a worldwide government that will control all wealth through one worldwide economic system. Hmmmm. Sounds too much like a Book I have read.

    September 30, 2008
  191. Just a note about communism; when Russia had no readily available resources, communism was the thing, but now they, too have access to their own oil and they are making a lot of money and have some $$$capital to do things with now.

    It makes a world of difference when you create or sell or offer a product which the world deems necessary…like oil, shoes, roofing material, food,
    silk and cotton for clothes, and oil for clothes, and bamboo for building and clothes. Or wind mills or wind turbines, refrigerators, toothbrushes.

    When you invest in companies that make garlic smashers, and other unnecessary inconveniences, why you might find those places going out of business during hard times.

    September 30, 2008
  192. john george said:

    David H.- Good points in your post #207. Take a look at my response to Jerold in post #209 (I think!). Instead of lending out money at interest, how about just giving it where there is need? Then, when you are the one with need, you will be able to receive. This is the principle we lived by when we were in the community in the ’70’s. In my opinion, what keeps this principle from working in our present system is greed. And, it is also the reason that wealth must be redistributed by coercion through taxes.

    Where we as individual Americans have contributed to the downfall is the perpetuation of debt. If a person uses credit for immediate needs against future earning power, the debt will be paid off in the future. An example is a home. Very few of us have cash lying around in an account to go out and buy a $250,000 house. We borrow against future earning power to take care of an immediate need- housing. Where we have gotten into trouble is borrowing more than our future earning power can ever pay for. We have just paid interest on a house in the hope that at a future time, the house will acrue enough in value to pay off the debt. We never did have enough future earning power to actually pay off the debt. This is something that should have been evident in the loan application process, but it appears that it was not followed. Now, when there is a downturn in home values, we are really up the creek in that we have no equity and insufficient earning power. This is a violation of the whole idea of using credit wisely. Where we have made a mistake is in believing that the current system would actually work. It seems apparent that it doesn’t, so we need to make some type of course adjustment. What the course adjustment actually will be is up for discussion. One thing I think you and I probably agree on is that, unfortunately, the people who siphoned off millions in comissions in the process will probably not be the ones tapped pay off the debt.

    September 30, 2008
  193. John G.:

    I’m wandering a ways from my expertise, so I’m eager for others’ input on the following.

    There have been other communist societies besides the USSR and China. A common feature of native American society was non-ownership of land and property, or at least not like the jealous ownership the Europeans practiced. Like the communities you described and lived in, native Americans divided labor and the whole tribe enjoyed the fruit from each other’s work.

    I don’t claim that communism cures greed. The USSR and China had wealthier and poorer communists. I wouldn’t be surprised to learn that native American communism was also imperfect. Even if it was perfect, I don’t believe that the native American style of communism could exist in our large society, but as you cited, it can exist in small benevolent communities.

    Since we live in a complex community, what is the cure for greed? A love of ethics is the surest option, but sadly, this is unpopular. Regulations help. So again, I go back to accountability. I would have liked to have seen greater consequences when the tobacco companies were caught covertly making cigarettes more addictive. Let businesses be profitable, sure. Let market forces affect supply and demand. But also let fear of litigation keep greed in check.

    As it is, corporate officials are protected against most litigation because of the corporate veil. This means that the officials can do terrible things but only under very few circumstances can they be sued personally. This will tend to make officials more daring because of the immense legal protections they receive. Daring officials are great if they have a solid understanding of ethics, but all the unethical, daring officials are scary. They are the reasons for Enron, etc.

    The ultimate result might be corporations with less daring officials, making businesses more conservative in their growth. Such a suggestion is considered to be a bane of capitalism. I don’t understand why conservative growth is a bad thing if it gives the public a great deal of protection from corporate greed. Rather than mourn the CEO who can’t afford to buy his own island, I’d congratulate the society who didn’t endure Great Depressions, Black Mondays (1929, 1987 or 2008), or $700B bailouts, ad infinitum.

    October 1, 2008
  194. Holly Cairns said:

    Yes, there seems to be some confusion between socialism and communism. And unfettered capitalism doesn’t seem to work.

    Kiffi said:

    And don’t start dividing up into camps of who you would most prefer to believe, based on their past politics. This financial crisis should have everyone working together; FORGET the party politics … There may be an initial congressional solution, a supposed short-term fix, but the real work will come after that.

    Right, except I think one party will do a better job looking out for me than the other one. Fundamentally, Democrats and Republicans aren’t of the same line of thinking.

    October 1, 2008
  195. john george said:

    Jerold- I’m certianly not any economic expert. either. I think both of us have the intellect to analyze what we observe, though. My comment in post #209, “…I don’t have any hope in any type of economic system working unless there is a selfless commitment to the common good within the people of that society…”, I think, is realistic in its expectations. One thing that helped the Native Americans and the community I was in was possibly the size. It is easier to live out a commitment to the person sitting across the table from you than the person living in Ohio because there is a daily interaction and relationship there. That is why I don’t necessarily have a conviction that there are good and bad economic systems. So much of our negative reaction to communism is because we have only really known about those societies that used the system under a totalitarian government. My point in all this is that outside legislation does not change the heart of the person being legislated. It only drives the baser nature underneath the surface. Unless these basic motivations are changed, the underlying nature is sure to come out at some time. In the circles I move in, we refer to the need for a revival in this nation, and not just some emotional or religious experience. In my opinion, we need to change our ways from the inside out. This is what actually brings lasting change in a person.

    October 1, 2008
  196. Holly said;

    Right, except I think one party will do a better job looking out for me than the other one. Fundamentally, Democrats and Republicans aren’t of the same line of thinking.

    Holly, could you expound upon your statement. How and when has the party you go with done things that you think help you? What and how do you think they will actually do to help you in the future? Remember, broken Promises aren’t evidence.

    Just trying to get a bead on what people are thinking. Don’t need more media thinking for us and hope this community newsletter doesn’t turn into another arm of the old school main stream media.

    October 1, 2008
  197. How do we change others from the inside out?

    The study of ethics is unpopular, much less their practice. Even if there was sudden mass interest in discovering morality (how to resolve conflicts of interest in just ways, how to ameliorate suffering, how to help society flourish), this sudden interest would take generations to become second-nature to Americans. Presently, most Americans practice ‘intuitive’ ethics, but intuition has proven itself to be a poor ethics teacher. Must we wait for generations?

    Until a love for ethics can have enough effect to protect society from gluttonous greed, I think we need several layers of imposed protection. Business ethics classes are a fine start though I’d prefer normative ethics. Government regulations help as a preventative measure. But the corporate official who does bad things safely behind the corporate veil should find no veil to keep him and his cohorts from bankruptcy. I think it’s great for someone to invent a widget and become a billionaire, but it must be done within safe societal standards.

    In April 2008, the NY Times reported, “The chiefs of the 10 largest financial service firms were awarded a combined total of $320 million last year, even though the firms reported mortgage-related losses that totaled 55 billion and wiped out more than 200 billion in shareholder value.”

    October 1, 2008
  198. Jerold Said:

    I think it’s great for someone to invent a widget and become a billionaire, but it must be done within safe societal standards.

    Just want to give a little background here on why we don’t see widget inventing as a way to become a billionaire. If you work for a company, and think of an idea, the company rules state that those ideas belong to the company. Whether or not the invention has much to do with the company work. Also, when my husband worked for a Tech company, he was told that he could not work in that same type of business for two years after he left the company. To me this is complete hogwash, though i understand that companies need to find ways to guard against loosing business, I don’t think this is properly American or ethical. Just my opinion, and to let others know what is going on out there.

    October 1, 2008
  199. Peter Millin said:

    Jerold,

    I agree with your call for regulations to contain executive greed. The point that is missing here is , who will protect us from Washington’s greed?

    Let’s don’t forget that this issue was created by those that want to prescribe “the medicine” to fix it.

    The fact that Dodd, Paulson and others are being heavily lobbied by wall street should send up red flags.

    The current proposal reminds me of soviet area central government economy, and we all know how that ended.

    October 1, 2008
  200. Bonnie Obremski said:

    Many people are debating philosophical questions surrounding greed and the intrinsic nature of our country…How could I get a handle on that story? Who could I interview around here that could talk about how people, not just “the government” are responsible for what’s happening?

    As for the suggestions I’ve already seen here, thank you! I plan on looking into Edina Realty, how the crisis could be affecting charity organizations like the food shelf and how are schools are affected.

    October 1, 2008
  201. Bright: Don’t forget the Wrigley’s and Heinz’s of the world who made fortunes out of widgets, even if it’s chewing gum or ketchup. Did someone mention Bill Gates? My point is that I don’t condemn wealth, I condemn gluttonous greed.

    Peter: Yes, government greed… The story of corporations, as I understand it, is that corporations can accumulate great wealth with immense (criminal, civil and tax) legal protections, and with their concentrated wealth, they can select greedy politicians to do their bidding. Politicians come and go, but corporations enjoy ageless perpetuity. For this reason, I think the root is at the corporation.

    Before there were corporations, there were still wealthy people influencing politicians. I think that’s more of a “voter beware” issue than anything, but I agree that after an election, the public needs some assurances that they will be faithfully represented.

    In line with your thinking, I have a favorite quote from Baron Macaulay (http://en.wikipedia.org/wiki/Baron_Macaulay):

    A democracy cannot survive as a permanent form of government. It can last only until its citizens discover that they can vote themselves largesse from the public treasury. From that moment on, the majority will vote for the candidates promising the greatest benefits from the public purse, with the result that a democracy will always collapse from loose fiscal policies, always followed by a dictatorship.
    The average age of the world’s greatest democratic nations has been 200 years. Each has been through the following sequence:

    From bondage to spiritual faith.
    From faith to great courage.
    From courage to liberty.
    From liberty to abundance.
    From abundance to complacency.
    From complacency to selfishness.
    From selfishness to apathy.
    From apathy to dependency.
    And from dependency back again into bondage.

    October 1, 2008
  202. kiffi summa said:

    Bonnie : Re; property taxes in the downtown …
    When the downtown building, south across my alley sold for 400K, my property taxes doubled. The CountyTax Assessor (very nice guy by the name of Paul Knutson, by the way) said the doubling of my taxes was justifiable, since my building was twice the footprint of the building to my south. (i.e. value established on basis of one real estate transaction).

    This morning at the ERTeam committee meeting(subcommittee of the NDDC) one of the committee members said that he and another downtown property owner had been down to F’bault to talk to Mr. Knutson, and asked if now that the real estate market in NF is devaluing, can the evaluations of the buildings go down, and therefor the taxes on those buildings.

    No way … was the answer!

    Next question … WHY? if they can go up because of a sale, why not down?

    You”ll have to ask Mr. Knutson that question, as I can’t quote exactly the answer … and he IS a “nice guy” … and I don’t want to misquote him, since I wasn’t there, and the answer is pretty crucial.

    So ask the question, if it fits your story, and let us know the answer…
    Thanks.

    October 1, 2008
  203. Bonnie, since leaving Chicago, where it’s kind of hard to tell what is going on, and moving down to Tulsa, OK and then also here, over the last ten years, I have noticed two things…a lot of housing being built and a lot of banks being built. I kept saying, who has the money for these huge houses and to save $ at all these banks?

    Since we have lived here, well there are three banks and one credit union within walking distance of my place. This is a tiny town for so many banks, isn’t it? There are eight banks and ten buildings, I think. That’s 1200 people for every bank. How do they all stay in business? I don’t know the answer.
    Today I heard that the average bank customer has $5,000 in savings.
    So say 400 people per bank, which discludes kids, is 2 million dollars per bank, but the bank has costs of employees and buildings, etc every year and savings don’t keep pace.

    Maybe there are too many banks, so they have to make money by selling mortgages. Maybe that’s part of it, maybe not. Don’t take my numbers seriously cuz I am just tossing around estimates generally.

    October 1, 2008
  204. john george said:

    Jerold- Great quote from Baron Maccauley. I was thinking about that one but hadn’t had the time to look it up. I don’t know that it gives me any hope in what is happening right now, but I agree with the observation.

    Bonnie- The whole concept of greed from a philosophic point of view is, in my opinion, a very subjective area. I know that you are trying to accomplish fact based reporting, but if you talk to 10 different people about the underlying causes of the same event, you will probably get 10 different perspectives. We all evaluate these things from our own set of core vales and experiences. In other words, I don’t really have any suggestion for you as to how to appraoch this philosophical discussion.

    October 1, 2008
  205. Jerold, that is part of my point, they (wrigley and heintz)got there first and they are still there holding the doors closed with both fists. Yeah, stockholders and all which is fine with me. and Funny you should mention it, but my 2 first cousins are grandsons of the Wrigley founder.

    I have watched so many gum, water, ketchup, hot sauces come and go. These products try to break into the market, but with the big guys paying so much for shelf space at the chain grocers, it’s nigh on to impossible to make any more than a small splash. Even if you have a gimmick, like Paul Newman’s charitable giving, (which is a fine thing indeed) or you have an organic product, it is still an uphill battle to get name recognition, committed distribution, and guarantee of product when all the big guys can get tomatoes from all over the world when one area runs down and all you have is a couple of promises and good intentions as a newbie.

    Getting back to the ethics point, wouldn’t it be ethical to legally open up some percentage of the market to new endeavors instead of the iron clad hold that slows down new markets? Or am I just being a fuddy dud?

    October 1, 2008
  206. Holly Cairns said:

    Looking for facts here, Bonnie, from Edina Realty. But, could you also ask a banker who in town (on or off the record) for their opinion on how to avert a more serious crisis? PLEASE? Maybe two bankers over coffee or something.

    Okay Bright, that’s a long answer you’d like me to give re: difference between the parties and which one would help me. I guess the bottom line for me is that Democrats believe in fiscal responsibility and willing to invest in our future. That means paying now, rather than paying more, later.

    It also means spreading out the monetary responsibility to keep our government afloat. We’re all in this together, and we should be looking at ways to reduce our debt.

    Also, Democrats are concerned about access to affordable health care. Republicans continually vote against that, even though our health care costs us more than a lot of other countries’ citizens have to pay. If we fixed our health care problems, we’d see a lot of money problems being fixed for folks.

    I know the Democrats are consistently for “regulating” our economy– which is better than “taking control” over our economy, which is now being done. I like regulations that help avoid crisis, rather than take-overs.

    And things that aren’t related to money, but show that one party is looking out for my interests:

    Many democrats want to balance taking care of our environment and also taking care of our farmers. Without a clean and healthy environment, we’d be done fishing and hunting. But without farmers and their crops, we’d be hungry.

    Also, (sorry for the rant), many Democrats are pro-woman’s life. Not for abortions, but for saving the woman. Perhaps I would die for my baby, but I’d like the choice.

    October 1, 2008
  207. Stephanie Henriksen said:

    A farmer in our township called Dundas Bank (Frandsen Bank) to get their take on this crisis. They said it was overblown, that local banks operate mostly on local capital. Anyone else done any local calling?

    I called Rep. Marcy Kaptur’s office (D-Ohio) about 1 pm Monday to thank her for her short statement (youtube) opposing the bailout bill. She referred to it as a “tar baby.” Her staff person said debate was finishing up and they were about to vote so I turned on CSPAN and saw every bloody minute of it.

    Kaptur has an alternative “no bailouts” bill posted on her website that everyone should see. She and Fazio of Oregon explained it on CNN yesterday. It has 5 points and is based on corrections done in the past at no cost to taxpayers. Even if the bogus Senate bill passes tonight, I am hoping the House moves to the Kaptur version by Friday.

    October 1, 2008
  208. Stephanie Henriksen said:

    Here’s the Kaptur bill:

    No BAILOUTS Act

    Bringing Accounting, Increased Liquidity, Oversight and Upholding Taxpayer Security

    1) Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.

    This bill will require SEC to implement a rule to suspend the application of fair value accounting standards to financial institutions, which marks assets to the market value, no matter the conditions of the market. When no meaningful market exists, as is the current market for mortgage backed securities, this standard requires institutions to value assets at fire-sale prices. This creates a capital shortfall on paper. Using the economic value standard as bank examines have traditionally done will immediately correct the capital shortfalls experienced by many institutions.

    2) Require the Securities and Exchange Commission to restrict naked short sells permanently

    This bill will require SEC to implement a rule that blocks naked selling,
    selling a stock short without first borrowing the shares or ensuring the shares can be borrowed. Such practices many times harm the companies represented in the sales and hurt their efforts to raise capital. There is no economic value produced by naked short sales, but significant negative effects.

    3) Require the Securities and Exchange Commission to restore the up-tick rule permanently.

    This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies “to protect the integrity and quality of the securities market and strengthen investor confidence.” This rule prevents market crashes brought on by irrational short term market behavior.

    4) “Net Worth Certificate Program”

    This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount “borrowed” as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.

    Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program.

    In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program.

    5) Increase the FDIC Insurance limit from $100,000 to $250,000.

    The bill will require the FDIC raise its limit to provide depositors confidence
    that their money is safe and help eliminate runs on banks which are destabilizing to the industry.

    Washington Office
    2186 Rayburn Bldg.
    Washington, DC 20515
    Tel: (202) 225-4146
    Fax: (202) 225-7711 Ohio Office
    One Maritime Plaza – Sixth Floor
    Toledo, Ohio 43604
    (800)964-4699 | Tel: (419) 259-7500
    Fax: (419) 255-9623

    October 1, 2008
  209. Jane Moline said:

    Please note that the SEC has floated suspending fair-market accounting. Fair-market accounting rules require companies to present their balance sheet assets at their fair value.

    The suggested suspension of these rules appears to allow companies to state their assets at just about any number they want. This will be a disaster for investors, who will have no way of knowing which assets are “funny numbers” and which are reliable. Note that this is not part of the current bail-out bill–it was a part of the defeated bill but is now being suggested by the SEC separately.

    Please contact your Congressman and Senator and oppose the suspension of fair-market accounting rules. These rules prevent companies from falsely claiming value in assets that do not have any value. Ask your representative to contact the SEC and tell them we want to keep accounting rules in place during this economic disaster–because reporting accurate balance sheet information is imperative to the trustworthiness and reliability of Wall Street claims.

    October 1, 2008
  210. Scott Oney said:

    Peter M. (re: your post on October 1 at 9:12 a.m.): Do you think this whole “crisis” is part of the George Soros October surprise predicted by Brown and Troxler in their book Obama Unmasked? They predicted that it would involve a drop in the Dow of between 800 and 1,500 points. And now Soros is jumping in with a “solution.”

    October 1, 2008
  211. Peter Millin said:

    Politics as usual…

    http://www.politico.com/news/stories/1008/14161.html

    Here we go..while we supposed to be in a financial crisis our leaders are still resorting to the same tax and spend or borrow or spend sideshow. This is truly disgusting.

    Not only will this bill support Acorn (a pet of Obama) but it will also support a long list of other earmarks.
    Enough is enough….just for spite I will vote against EVERY single incumbent.

    October 1, 2008
  212. Peter Millin said:

    Scott,

    I never read the book you are referring to. I just now that Soros has been an avid liberal supporter pumping millions in to the democrats campaign.

    I find it quiet silly when a democrat tries to tell me that the Republicans are the party of the rich…….

    Soros has enough money to manipulate just about everything he wants to. Some of it he does for political reasons, but in the end it’s all for profit….just see what he did for the bank of england…

    October 1, 2008
  213. Stephanie Henriksen said:

    Jane,

    You’re saying the Kaptur plan is fatally flawed? No value in any of the points? This is getting scarier by the minute.

    October 1, 2008
  214. Bright, where do you think the rural people bank? Are you counting those of us who live in the country in your banking statement? And my children have bank accounts, too…

    October 1, 2008
  215. Peter Millin said:

    Isn’t it odd that those that want to “reform” wallstreet are getting the biggest checks from them?
    Just these facts alone just make people scratch their heads.

    ———————————————————–
    http://www.opensecrets.org/politicians/summary.php?cid=N00006424&cycle=2008

    http://www.opensecrets.org/politicians/summary.php?cid=N00009638&cycle=2008

    Fannie Mae and Freddie Mac Invest in Democrats

    Published by Lindsay Renick Mayer on July 16, 2008 5:27 PM
    The federal government recently announced that it will come to the rescue of Freddie Mac and Fannie Mae, two embattled mortgage buyers that for years have pursued a lobbying strategy to get lawmakers on their side. Both companies have poured money into lobbying and campaign contributions to federal candidates, parties and committees as a general tactic, but they’ve also directed those contributions strategically. In the 2006 election cycle, Fannie Mae was giving 53 percent of its total $1.3 million in contributions to Republicans, who controlled Congress at that time. This cycle, with Democrats in control, they’ve reversed course, giving the party 56 percent of their total $1.1 million in contributions. Similarly, Freddie Mac has given 53 percent of its $555,700 in contributions to Democrats this cycle, compared to the 44 percent it gave during 2006.

    Fannie Mae and Freddie Mac have also strategically given more contributions to lawmakers currently sitting on committees that primarily regulate their industry. Fifteen of the 25 lawmakers who have received the most from the two companies combined since the 1990 election sit on either the House Financial Services Committee; the Senate Banking, Housing & Urban Affairs Committee; or the Senate Finance Committee. The others have seats on the powerful Appropriations or Ways & Means committees, are members of the congressional leadership or have run for president. Sen.Chris Dodd (D-Conn.) chairman of the Senate banking committee, has received the most from Fannie and Freddie’s PACs and employees ($133,900 since 1989). Rep. Paul Kanjorski (D-Pa.) has received $65,500. Kanjorski chairs the House Financial Services Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, and Freddie Mac and Fannie Mae are government-sponsored enterprises, or GSEs.

    Top Recipients of Fannie Mae and Freddie Mac
    Campaign Contributions, 1989-2008
    Name Office Party/State Total
    1. Dodd, Christopher J S D-CT
    $133,900

    2. Kerry, John S D-MA
    $111,000

    3. Obama, Barack S D-IL
    $105,849

    4. Clinton, Hillary S D-NY
    $75,550

    5. Kanjorski, Paul E H D-PA
    $65,500

    6. Bennett, Robert F S R-UT
    $61,499

    7. Johnson, Tim S D-SD
    $61,000

    8. Conrad, Kent S D-ND
    $58,991

    9. Davis, Tom H R-VA
    $55,499

    10. Bond, Christopher S ‘Kit’ S R-MO
    $55,400

    11. Bachus, Spencer H R-AL
    $55,300

    12. Shelby, Richard C S R-AL
    $55,000

    13. Emanuel, Rahm H D-IL
    $51,750

    14. Reed, Jack S D-RI
    $50,750

    15. Carper, Tom S D-DE
    $44,389

    16. Frank, Barney H D-MA
    $40,100

    17. Maloney, Carolyn B H D-NY
    $38,750

    18. Bean, Melissa H D-IL
    $37,249

    19. Blunt, Roy H R-MO
    $36,500

    20. Pryce, Deborah H R-OH
    $34,750

    21. Miller, Gary H R-CA
    $33,000

    22. Pelosi, Nancy H D-CA
    $32,750

    23. Reynolds, Tom H R-NY
    $32,700

    24. Hoyer, Steny H H D-MD
    $30,500

    25. Hooley, Darlene H D-OR
    $28,750

    October 1, 2008
  216. Holly Cairns said:

    Peter, so what you suggest we do is “survival of the fittest”. Those that shouldn’t have had a loan should suffer, and all the prices of houses will fall…

    You don’t seem to have much faith in our government. I do. I think good people will prevail, and limits have to be set. In the money market, we just see money, not people. I think there weren’t dumb people who signed loans they shouldn’t have. I think there were people who were reaching for the stars, and etc. Someone should have seen this coming. But I am not one for conspiracy theories. I just would like the best way out to avoid a GD.

    It makes me wonder, John and Jerold, what is the difference between “greed” and “making a profit”? Explain it to me.

    I’m getting anxious for some real solutions to this all.

    October 1, 2008
  217. Tonya, my numbers weren’t to be taken seriously. I really don’t know anything about any of this. I don’t work with money. I am not a money person at all. I am just trying to understand what people are thinking about any of this interesting situation.

    So, I guess if you are in rural Northfield, you are one of the 12,000 in my guestimate.

    And Good for your kids! Savings are good!

    October 1, 2008
  218. Holly: Your question is eternal. When I was studying corporate law, I read that the judges who considered the same question, the difference between “greed” and “making a profit”, concluded the ever elusive, “We know it when we see it.”

    I am a little more daring. I look at consequences. When people are accumulating wealth and zero societal ills follow, I classify that as making a profit. The opposite extreme is gluttonous greed, when societal ills are sure to follow. Judging what falls in between isn’t as easy.

    I am not so quick to condemn simple greed. Depending on various factors, wanting more than one needs may or may not be bad. I sharply criticize greed when it’s known, should be known, or is reasonably foreseeable that societal ills will follow. If Ross Perot has $70,000 and decides to buy a speed boat, he is turning his greed (for argument’s sake, he’s greedy) into income for speed boat buyers. I can’t say that Ross’s greed is bad because the consequences aren’t necessarily bad. If, however, Perot is so greedy that he ruins the lives of others to buy a speed boat, that’s gluttonous and should be condemned.

    As the judges concluded, they can’t come up with anything better than intuition. I don’t claim to have perfected it, but I am driven by consequences when I consider right and wrong. Consequences are easier to qualify than intuition.

    October 2, 2008
  219. Holly Cairns said:

    Jerold, thanks for the answer. I think businesses are most often so far removed from “the consequence” that we can’t rely on the population to be “good” or “bad”, hence a moral revolution won’t have the effect we’re looking for.

    October 2, 2008
  220. Jane Moline said:

    Stephanie: NO. My comments were not about the Kaptur plan–which sounds really great.

    The SEC is stating that it will suspend normal accounting rules so companies will not have to admit that their assets–the investments in these screw-ball securities–are not worth as much as they paid for them.

    Also, all the politicians claiming we are buying assets with a value that could make the taxpayers’ money are lying—the reason we have to bail them out is because they are NOT worth that much and NOBODY else will buy them.

    If we don’t do some sort of bailout we will lack liquidity in the credit markets that will result in many companies and many citizens not being able to get loans to keep the economy moving–and high business failures will result–some of them will be “dead weight” companies that it is good to be shed of–but some will be otherwise good companies that struggle without help for cash flow.

    October 2, 2008
  221. Jane Moline said:

    Stephanie: NO. My comments were not about the Kaptur plan–which sounds really great.

    The SEC is stating that it will suspend normal accounting rules so companies will not have to admit that their assets–the investments in these screw-ball securities–are not worth as much as they paid for them.

    Also, all the politicians claiming we are buying assets with a value that could make the taxpayers’ money are lying—the reason we have to bail them out is because they are NOT worth that much and NOBODY else will buy them.

    If we don’t do some sort of bailout we will lack liquidity in the credit markets that will result in many companies and many citizens not being able to get loans to keep the economy moving–and high business failures will result–some of them will be “dead weight” companies that it is good to be shed of–but some will be otherwise good companies that struggle without help for cash flow.

    October 2, 2008
  222. Peter Millin said:

    http://www.breitbart.tv/?p=186723

    So why did you vote for it McCain? Another proof that money has more pull then doing the right thing.

    October 2, 2008
  223. Anthony Pierre said:

    I read through the bill. There is a lot of renewable energy in it.

    October 2, 2008
  224. Sarbanes Oxley http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act

    Jane, or anyone, wasn’t this bill passed into law after the Enron debacle and wasn’t it supposed to cover reporting of assets? Isn’t it more about the lack of oversight and enforcement that is causing these types of problems to continue? I am asking in all sincerity, as I have stated, I am not a money person, but I am trying to get more educated.

    October 2, 2008
  225. Peter Millin said:

    Anthony,

    Should government decide which renewable energy deserves a tax break? Your focus on renewable energy in this bill diverts from the rest of the pork that is in there.
    To pursue a one sided agenda in neglect of common sense politics is not very smart.

    October 2, 2008
  226. Holly Cairns said:

    Okay, Jane, maybe that is what Anthony was saying.

    But I still think Democrats get too windy when they describe what they want. And they don’t connect with the people who want the same things they want. It’s pretty simple. It’s even in the wording Democrats use to describe what they want.

    Many Democrats hunt, and yet they are for “Gun Control”. Democrats should change that to “Gun Safety” since that might mean keeping the guns away from criminals and terrorists but still allowing people to hunt/ protect themselves. No alienation based on verbage.

    Many Democrats abhor abortions and wouldn’t suggest one for their daughters. And yet we say we’re “Pro-choice.” Which has come to mean “Abortion lover.” Dems should say they are “Pro- Woman’s Life” Which might mean an abortion to save the life of the mother. No alienation based on verbage.

    Cut and run spending: Just what the hell does that mean? Do people out there think Democrats love to give their money to Uncle Sam? NO. Please. Dumb. Maybe Democrats should talk about fiscal responsibility. We all are in this together, and we’ve maybe ruined it for our children. It’s not a good time for “no new taxes.” It’s a good time to pay now, because if we don’t we’ll pay more, later.

    For years Democrats have wanted regulation of the money market. What happens if we don’t regulate? Boom. Government control. THAT is TERRIBLE. I like a relatively free market system. Not a relatively controlled system.

    October 2, 2008
  227. john george said:

    Holly- You have to admit that it depends on whose “relative” is controling the system. Ha! Ha!

    October 2, 2008
  228. Holly Cairns said:

    Hmm, I suppose so, John George. It’ll be an Obamination to have anyone but Obama.

    October 2, 2008
  229. David Henson said:

    The congress is going to borrow money from citizens to be paid back from future taxation. Congress is going to hand that money over to banks so they can loan the money at interest back to those same citizens. Congress is doing this because these banks have suffered tremendous losses as a result of poor lending decisions. I just don’t get it ? Why not create liquidity by letting the citizens at least decide on their own which banks should get the money. Or better yet create a lending web site for the citizens to pump the money into the economy. Why re-centralize the money with institutions know to be incompetent ?

    October 2, 2008
  230. Peter Millin said:

    David you are right I would only add that the politicians who have created this environment (Fannie Mae and Freddie Mac) are the very same who are trying to fix it.

    To add insult to injury they load up the bill with even more debt.
    ——————————————————————
    “This is how Washington works,” said Keith Ashdown of Taxpayers for Common Sense, a Washington research group. “A big pot of pork is their recipe for final passage.”

    The special provisions include tax breaks for:

    * Manufacturers of kids’ wooden arrows – $6 million.

    * Puerto Rican and Virgin Is- lands rum producers – $192 million.

    * Wool research.

    * Auto-racing tracks – $128 million.

    * Corporations operating in American Samoa – $33 million.

    * Small- to medium-budget film and television productions – $10 million.

    Another measure inserted into the bill appears to be a bald-faced bid aimed at winning the support of Rep. Don Young (R-Alaska), who voted against the original version when it went down in flames in the House on Monday.

    That provision – a $223 million package of tax benefits for fishermen and others whose livelihoods suffered as a result of the 1989 Exxon Valdez oil spill – has been the subject of fervent lobbying by Alaska’s congressional delegation.

    Some of the pork-barrel measures buried in the financial rescue package had been contained in a bill that previously passed the Senate, but died in the House.

    The Congressional Budget Office said the package of breaks – including obvious pork and some more defensible tax-relief measures – will add about $112 billion to budget deficits over the next five years because the bill doesn’t contain enough offsetting revenue hikes to keep the budget balanced.

    The legislative lard annoyed Tom Schatz, president of the watchdog group Citizens Against Government Waste.

    “There’s always something that goes on at the end where the last dozen members are trying to get something for themselves or for a special interest rather than what might be good for the country,” Schatz said.

    Some of the other measures added to win approval include a $3.8 billion health-care provision that forces insurance companies to provide coverage for mental-health treatment equivalent to the coverage they provide for physical illness.

    Other add-ons will increase individual tax credits and help shield more than 20 million Americans from the painful alternative minimum tax, and offer breaks for businesses that invest in alternative fuels.

    Also, several federal income-tax breaks due to expire will now be extended through 2009.

    October 3, 2008
  231. Jane Moline said:

    David Henson: You are right–you just don’t get it. The financial markets are much more complex. Your explanation is wrong–that is not how it works.

    Right now, financial markets are seizing up because of lack of liquidity–buying these “bad assets” will free up the credit markets–this transaction is supported by taxpayer money–but it is not tax dollars that will “pay it back”–the assets purchased have a value and can be resold after being repackaged–worked over to eliminate bad loans and adjust good loans. The banks and other investors who are selling these “bad assets” will take a loss on selling them to the US Government-but I still think the US Govt will have to pay more than they are worth to avoid failure by the banks.

    I am skeptical of claims that the taxpayers might make some money on the deal, but it is very likely we will break even–in addition, there are jobs created by the need to manage these assets–these jobs are good, mid-level jobs that will also help stimulate the economy.

    It is not primarily main street banks that created the problem (although some contrbuted)–they have been subject to regulation all along–it is OTHER lenders that were allowed to grow with deregulation–these “non-main street bank” lenders came up with new, innovative mortgages and competed for undesirable borrowers–and it is these lenders that are going out of business. Unfortunately, they are dragging regular, well managed banks down with them–that is what the bail out is meant to stop–

    I feel that there should be a provision to go after the loan originators that misled borrowers, all the way up the chain to including the head of Lehman and other hedge fund and securities originators who profited and have now fled the scene. You can bet that loan originators are shredding their records so they don’t have to face the music on their bad practices.

    October 3, 2008
  232. john george said:

    Holly- It will only be an Obama nation if he is elected. OK! I’ll settle down here and get serious, but it was fun while it lasted!

    October 3, 2008
  233. Peter Millin said:

    The reason why money is supposedly tight is, because the holders of the bad debt are waiting for the government check to see how much they can make on the bad debt.
    Jane, if in fact those loans are such a good deal how come no private investor has jumped on those? Believe me if there is money to be made somebody would have have jumped in already.

    Lehman Brothers are bankrupt. AIG already has a government loan. Wachovia will be bought. Goldman Sachs sold a lot of shares to Buffet. Wamu was bought already. Bears and Stearns was bought already…….so who are we bailing out?

    Last week we been told that if we don’t do anything by Friday the world would come to an end…well we are still here.

    Now we had to add 150 billion dollars in pork to make the bill pass, with items completely unrelated to the financial crisis?
    So all it takes is a little more of taxpayers money to change a vote?

    This whole bailout stunk from the get go and it stinks more the longer it sits. I know this is wishful thinking but I hope the congress does the right thing and votes it down.

    Jane, don’t let them scare you…..think for yourself.

    October 3, 2008
  234. David Henson said:

    Jane – I’m sorry to tell you this Jane but those loans are not worth the paper they are written on (some were zero down at 125% of appraised value before housing stumbled). If the country is going to pump $700 Billion into the economy then the whole point is pump the money into the main street banks and not the failing Wall Street banks.

    October 3, 2008
  235. There is still intrinsic value of the homes themselves. Plus if the Wall Street people are responsible, they aren’t stupid…they usually hedge their bets, and it better not be taxpayers that foot the bill and loose in the end. I have a lot of faith that Wall Street can bail itself out. 700-800 billion dollars can only buy four big companies like Apple, I heard today. And that isn’t much compared to the Fortune 500, or businesses around the world. Why should economies collapse under this?

    If businesses are that far behind, they were about to go down anyway. Businesses do fail all the time. Entropy does set in and nothing will save a company at the point of entropy.

    Oh, btw, I heard that we subsidize the Health Care Industry at the tune of $15 billion per year. That’s pretty much socialized medicine, isn’t it?

    This is just me throwing some stuff out there that is rattling thru my head.
    Don’t take it too seriously, cuz I don’t.

    October 3, 2008
  236. David Henson said:

    Bright – those are really good points. Either the amount is not near what’s really required (probably true) or Wall Street can figure it out without taxpayer funds (also probably true).

    October 3, 2008
  237. Jane Moline said:

    David and Peter:

    1. The loans have a value. Some are sub-prime, some are in foreclosure–but most can be worked out. If the underlying loan is on a property that is worth 75% of the loan, than the loan is worth something more than that–this is not a question of total worthlessness. As I said in my comment, they will be bought at a discount–the question is whether the discount will cover the governments future costs–if not, then there should be a way to retroactively recover from anyone who receives bailout money. (Part of the way is through increased insurance fees, but that only covers regulated banks–there should be a “bail out recovery fund” that the participants also have to pay into.

    2. The money is going to main street banks. The holders of the securities will sell the securities–and then have cash–at a discount from their face value, but cash none the less–that they can lend to borrowers. Some of the owners of the securities are investment banks–some are pension funds–some are small banks.

    Currently governments are experiencing difficulty in bonding–they cannot borrow money if there is no market for their bonds–so public works would not be able to go forward. These governments did not participate or contribute to this crisis (at least directly.) Businesses are currently experiencing difficulty in securing loans for working capital–to pay their payroll and suppliers–these companies did not contribute to this crisis.

    The federal government is not in a position to make loans directly to governments or companies to the scale needed–nor should they be–we do not want a nationalized financial system–we want financial institutions to act prudently. Right now we are cutting off all funds for all markets–you can see it as a big conspiracy where investors are “waiting” to extort as much as possible out of the government–but I don’d see it that way at all–and I am not alone–many economists see that there is no market for these securities–and the impact is being felt right now here and around the world. Just because your local bank hasn’t folded does not mean there is not current and immediate problems.

    Wells Fargo bought Wachovia because Citibank does not have the funding. It could be Citibank that folds next. The Wachovia deal will be the loss of thousands of jobs in North Carolina.

    All of the bank acquisitions are a sign that the economy is NOT sound and that the troubles are just starting. If we want healthy competition in our financial institutions, we have to encourage independence, not this continual acquisition.

    As usual, the politicians are telling us all kinds of stories–some of it may be the truth–but we have to sift through to see what is true. Just because some said we had to act by their deadline of last Friday–and when the deadline past we did not have the sky falling–does not mean that we don’t ever have to act–only that the deadline was not true.

    If we do not act today more banks will fail or be acquired to avoid failure. If we do not act, more companies will find it harder to get necessary financing, which will strangle the economy as people are laid off and companies either close completly or are prevented from growing.

    Retirees are seeing their retirement funds shrink–and they will see them shrink faster, causing a run on retirement funds and 401k plans; as their children watch their retirement plans shrink and figure they may as well take it now rather than watch it devalue–so more and more will pull their savings. Then everybody’s banks will fail as the FDIC rushes to provide cash to keep up with depostor’s demands.

    Nationally, people will stop contributing to retirement plans as they see them as a bad investment. Our dismal savings rates will drop further. Any surviving banks will have even less liquidity–and will be unable to continue.

    Of course, by then everybody else in the world that has a money–especially the Chinese, will start buying up these failed American companies. Great–lets take that wait and see approach.

    October 3, 2008
  238. David Henson said:

    Jane – “jobs” are not really “jobs” unless they are adding value to the economy. Having a bunch of people walk around in circles or build sand castles would not be adding value to the economy. The US has destroyed a large part of it’s economy by employing people in trading high interest paper debt – using taxpayer funds to prop up that system while it gets a few more gasps of air makes no sense.

    The government should probably being creating a mega fund to insure the Internet stays up and viable in an economic collapse as information flow creates it’s own liquidity in redeploying human resources. But I really hope they don’t sell the Internet to the Chinese.

    October 3, 2008
  239. Jane Moline said:

    David: Professionals that work on troubled loans are not building sand castles. Many of them even like to think that their job is helping both their employer AND the borrowers who are in trouble. But go ahead and diss them and all the other professionals out there.

    Just because you are outraged that the people robbing the financial institutions blind were really robbing the American people blind doesn’t mean that everybody in that industry is a crook. Most of the financial industry is made up of hard working people like you and me. They didn’t profiteer, and they need to work too.

    Crashing the whole industry for retribution against a few is cutting off your nose to spite your face.

    October 3, 2008
  240. Patrick Enders said:

    Curt,
    Curt,
    That is really great news!

    from your link:

    After a 12-year fight, mental health advocates won passage of legislation championed by the late Minnesota Sen. Paul Wellstone to require insurance companies to treat mental health on an equal basis with physical illnesses, when policies cover both.

    Of course, the potential weak point in this reform is: “when policies cover both.” I can only hope that the (insurance companies’/employers’ cost-cutting) solution to this is not to drop mental health coverage entirely.

    As long as that doesn’t happen, this will be a significant change for the better for those who have insurance.

    October 3, 2008
  241. nick waterman said:

    that *is* good news about the mental health coverage as long as that potential loophole is not exploited.

    what i don’t get about the bailout is this: why are we only socializing the crummy companies? why are we socializing the debt of, say, the banks, and not the profits of, say, the oil industry?

    and I have to say that our ignorance, mine included, about economics is being horribly exploited here. it just doesn’t pass the smell test to me that this entire economy is being toppled by the 3% of mortgages currently in foreclosure.

    October 3, 2008
  242. Peter Millin said:

    FYI,

    The bill passed is not 700 billion it is actually 870 billion.

    October 3, 2008
  243. David Henson said:

    Jane – my point is a nation cannot push all manufacturing off shore and have it’s economy function by selling homes back and forth and charging imported goods on credit cards. The USA has deployed an unsustainable number of people into government & finance.

    October 3, 2008
  244. Paul Fried said:

    Josh Silver on how the media failed to do its homework on the bailout:

    http://www.huffingtonpost.com/josh-silver/how-the-media-sold-their_b_130891.html

    Liquidity is fine, but instead of top-down, it would have helped as much (and helped more) to do it the way William described it has having been done during the Great Depression: Bottom up, with the government taking over (and re-negotiating) the mortgages so that folks could stay in their homes.

    I just don’t want to hear about lipstick on a pig again. Really. Even though this is what the new bailout looks like.

    October 3, 2008
  245. Mike Zenner said:

    David to #268,

    You are quite correct about the false economy we have been running on the last 2 decades!

    My question is where do we go from here? To build plants to make big screen TV’s to sell to China and Japan doesn’t make sense.

    I can only think of two ideas. Either we start a massive renewable energy program to get America working on real wealth again, or our leaders decide to start a world war to cause a little “creative destruction” that will later have to be rebuilt, with help from world bankers!?

    I would think the renewable energy program would require the US to end it’s global hegemony program and pull out of its current wars and global outposts. This plan would not appeal to the military industrial complex and the petro-dollar recycling finance system. Power is not an easy thing to give up! I fear our leaders are more inclined toward the “creative destruction” option!

    October 4, 2008
  246. Peter Millin said:

    Why the bailout won’t work.

    http://articles.moneycentral.msn.com/Investing/SuperModels/can-the-bailout-work-fat-chance.aspx

    The bailout has done little more than delayed the inevitable interestingly enough just long enough to get past the election. Priceless.

    In a global economy we just can’t compete in manufacturing. Our structural cost is much higher then China, India and South America.
    Soon this cost will rise even higher due to added fringe benefits i.e. health care cost.
    The only way out of this is with innovation and new technology. This requires brain trust and the willingness to do so.

    The mitigating factor could be energy cost. Today imported goods are cheaper due to lower labor costs. If energy prices keep going higher they might offset the lower cost of labor, maybe.
    The current cheap producer will soon or later catch up with their labor cost and we will be more on par.
    I have read in an article as of late, that now some Chinese companies are starting to outsource in to cheaper labor markets. Go figure.

    One way to slow the tide would be to “Buy American only”, but most people don’t have the extra cash to afford the more expensive American made goods.

    October 4, 2008
  247. Peter Millin said:

    From Factcheck.org

    ——————————————————————–

    The Real Deal

    So who is to blame? There’s plenty of blame to go around, and it doesn’t fasten only on one party or even mainly on what Washington did or didn’t do. As The Economist magazine noted recently, the problem is one of “layered irresponsibility … with hard-working homeowners and billionaire villains each playing a role.” Here’s a partial list of those alleged to be at fault:

    * The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.

    * Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.

    * Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.

    * Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.

    * The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.

    * Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.

    * Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.

    * Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.

    * The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.

    * An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.

    * Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.

    The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation. Claiming that a single piece of legislation was responsible for (or could have averted) the crisis is just political grandstanding. We have no advice to offer on how best to solve the financial crisis. But these sorts of partisan caricatures can only make the task more difficult.

    October 4, 2008
  248. Stephanie Henriksen said:

    Leonard Witt and all,

    Also check Saturday Oct. 4 “This American Life” for language on another option called “stock injection plan” that got into the Senate version which was adopted by the House and passed Friday. No one caught onto it until late Friday or early Saturday, evidently. Or maybe those who knew it was in there was keeping quiet so as not to incite the bank lobbyists who had been feverishly working against it previously. Here’s the gist:

    There is language in the Senate bailout bill about a better option Secy Paulson could choose for disseminating the $700 billion called “stock injection plan.” For example, if $10 billion is given to a bank, the govt (we the taxpayers) gets $10 billion in shares (preferred stock). Taxpayer is then the last to lose if things get worse.

    Anyone who missed the program, check the website for “This American Life” w/ Ira, Alex and Adam. It went into the history of credit/default swapping that was going on and one of them told how banker lobbyists had been fighting the stock injection idea for a couple weeks and everyone assumed it was no longer under consideration. But lo and behold it was discovered AFTER the vote that someone got the language into the Senate version (400 plus pages) which was then adopted by the House on Friday and passed. This means since very few know about it yet, we should activate a lot of calls to our legislators to promote this Paulson goes ahead w/his favored plan.

    Suggestion was that conservative Republicans would not like the idea of govt owning shares and would likely not support it. I don’t trust passing this on to Kline right now. Or should I?

    October 5, 2008
  249. Stephanie Henriksen said:

    Correction: We could generate a lot of calls to our legislators to promote the “stock injection plan” BEFORE Paulson goes ahead in coming days w/his favored plan.

    October 5, 2008
  250. Stephanie Henriksen said:

    Thanks for going ahead to hear the podpost. Here’s part of the intro from the website:

    Here’s what you may not know: That White House plan wasn’t the only plan. It wasn’t even necessarily the plan you think it is. In this podcast, Adam Davidson tells This American Life host Ira Glass about a mysterious phone call in which a tipster suggested that an alternate proposal had crept into the language of the reworked bill. Davidson says that it concerns so-called stock injection, and that economists like it — a lot.

    This is really hot news, though I’ve heard nothing more from the media on this today, Sunday.

    October 5, 2008
  251. Peter Millin said:

    Seems that the bailout might have prevented the worst from happening, but we are still likely to see a recession.
    The wild card here is consumer credit, which by some opinions are the next big bailout.
    Hold on to your wallets….change is coming.

    October 6, 2008
  252. I hope someone can help me understand just a little something. I know that investors , banks or otherwise, bought bundled subprime mortgages, then they wanted insurance on that, so they bought insurance, but called it SWAPs, so it wouldnt be regulated so much, then the housing market saturated, housing stayed flat or went down in value, and all hell broke loose. Here’s what I want to know…

    Where is the original invested money, to the tune of 50-76 Trillion dollars?

    and WHO TOOK THAT MONEY??? (same question, really) and when are they going to give back that same money?

    October 6, 2008
  253. Mike Zenner said:

    Bright,

    Google up “fractional reserve banking” , “Federal reserve”, “shadow banking system” and “fiat money”

    In a nutshell due to fractional banking(loaning at 12X whats on deposit), banks loaned out money that in essence money that does not exist as a liability to tangible savings. In essence ALL REAL SAVINGS in banks and 401k’s,and pension funds have all been expended in buying excessively overpriced real estate! All that is left is unpaid DEBT!

    The Shadow banking industry was supposedly insuring against mortgage defaults, but really all they were doing was buying and selling 100’s trillions of dollars of abstract derivatives and collecting fees on each move, and small movements in the derivatives value caused by small moves in interest rate changes, currency rate changes and stock price changes. They did not set aside any reserves in case of the massive fallout in housing prices that of coarse occurred.

    October 6, 2008
  254. Bonnie Obremski said:

    Curt-Thanks for alerting me to the Strib article, I’ll try and see if our colleges would release any information about how the crisis is affecting their finances.

    Holly-Have not looked into Edina yet!

    I did interview developer John Mathern about how the crisis is affecting his business and that video should be up later today.

    Thanks for the tips!

    October 7, 2008
  255. Peter Millin said:

    The Pool of Money is only one side of the story…here is the rest.
    ——————————————————————
    Both Sides of the Financial Crisis
    By Lawrence Henry
    Published 10/3/2008 12:07:57 AM

    Of late, at least in conservative quarters, reports have made clear how much of the current financial crisis may be laid at the feet of Democrats and their social engineering policies.

    Jeff Jacoby, the lone conservative columnist at the Boston Globe, wrote Sunday, “Barney Frank’s talking points notwithstanding, mortgage lenders didn’t wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so — or else.”

    Charles Hurt, in his “Inside Washington” column in Monday’s New York Post, wrote, “It’s not that taxpayers refuse to dig deeper to avoid an even bigger catastrophe. It’s that they’re all puking over the notion that it’s the same bums in Washington who caused the mess by allowing it to fester who are now demanding their money to fix it.” Last week, the website Free Republic posted a 1999 story from the New York Times, detailing how the Clinton administration implemented policies at Fannie Mae and Freddie Mac to encourage home loans to people with low credit worthiness. It all came under the rubric of encouraging “minority home ownership” and “ending redlining.”

    Free Republic crashed, whether because of overloading or sabotage. I got the story when a money manager circulated the whole text.

    The next to last paragraph of that story makes clear how the mortgage pool deteriorated, and why it deteriorated so fast:

    “In July [this is 1999, remember], the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.”

    And the last graf makes clear Jeff Jacoby’s “arm-twisting” by the Federal government.

    “The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.”

    In her September 24 column, Ann Coulter cracked, “Threatening lawsuits, Clinton’s Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn’t a joke — it’s a fact.”

    John Lott, the previous week, in an article titled “Analysis: Reckless Mortgages Brought Financial Market to Its Knees,” had actually quoted the Fed regulation: “Did You Know? Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions.”

    If you bring up those facts in political debate, Democrats will say you are “blaming the poor.”

    THAT’S ONE SIDE OF THE STORY. The other side has been told most effectively, and most entertainingly, in a May broadcast of the NPR show “This American Life, titled, “The Giant Pool of Money.”

    First, the global money supply doubled by the early 1990s. That doubling, from $36 trillion to $72 trillion, took place in a mere six years, and signaled the emergence into the world economy of countries like Korea, Taiwan, Thailand, Malaysia, China, and India. That pool of money, much of it under institutional management, sought its classic investment: sovereign debt, the bonds issued by solid, secure countries, chief among them, the United States.

    There wasn’t enough sovereign debt to go around. Institutions around the world clamored for something from the world’s big investment banks. Those banks cast around for some reasonable alternative, something “as good as” — or just about as good as — Treasury bills, bonds, and notes, and municipal bonds, and they came up with the idea of creating securities out of pools of mortgages.

    That’s the second element in the developing crisis: securitization. And here, the really technical aspects of the story come into play. Software boffins employed by the big investment banks found one after another way to fold mortgages into bond-like investments, and those instruments got more and more complicated. There were swaps, strips, mortgage securities exchanged as collateral for other investments, indexes of mortgage securities used as the basis for derivatives, and a whole lot more well beyond my ken or that of any ordinary citizen.

    ON DOWN THE MORTGAGE FOOD CHAIN, lenders of all kinds, from banks to strip malls, were pouring money out the door, into ever weaker housing loans. Eventually, borrowers could get home loans without stating assets or without proving income. The lender didn’t care. His company instantly bundled the loans and sold them up the chain, where they were bundled — securitized — by a giant money center bank on Wall Street. Wall Street sold the securities to eager investors.

    The New York Times story from 1999 contained a warning:

    “…Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.”

    Ultimately, Fannie Mae and Freddie Mac served as buyers and market-makers of last resort in the securitized mortgage market, all the way from strip malls up through Wall Street.

    SO WHAT BROKE FIRST, AND WHAT BROKE WORST? When the “economic downturn” foreseen in the Times did come, where did the fault lie?

    With interest rates steadily being lowered by the Fed, and with housing prices rising, private sector mortgage players could have created a crisis all by themselves. Most significantly, at the Wall Street level, people got fooled by their software. The models all predicted that, even with defaults, mortgage backed securities should pay off just fine. No software envisioned defaults of 50 percent or more.

    And, no mistake, Wall Street can get into trouble all by itself with no help from the government. (See AIG and credit default swaps.)

    Would lenders have made such bad loans without government interference, indeed, without government pressure? Probably not nearly as many of them. When the break came — when defaulting lenders could no longer clear their debts by selling their houses — lenders probably would have tightened up their practices. Some lenders would have gone bust.

    Wall Street would have adjusted their software models, and the whole thing would have pulled back. Some Wall Street firms might have failed.

    But with the government pushing the whole process along, it became the train wreck of today.

    Lawrence Henry writes every week from North Andover, Massachusetts.

    October 7, 2008
  256. Patrick Enders said:

    Peter,
    Could you provide references for your pastings? Larry Henry could be a brilliant Harvard economist, or he could be a monkey with a keyboard. Without some context and measure of his reliability, his commentary is pretty much useless.

    On the flipside, just posting a link – without providing any indication of what’s at the other end of the link – is equally useless. I have no desire to be Rickrolled – or worse.

    October 7, 2008
  257. Peter Millin said:

    Just got this in the email………sounds simple enough to me…LOL
    ——————————————————————-
    The Birk Economic Recovery Plan
    >
    > I’m against the $85,000,000,000.00 bailout of AIG.
    >
    > Instead, I’m in favor of giving $85,000,000,000 to America in a ‘We Deserve It Dividend’.
    >
    > To make the math simple, let’s assume there are 200,000,000 bon-a-fide U.S. Citizens 18+.
    >
    > Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..
    >
    > So divide 200 million adults 18+ into $85 billon that equals $425,000.00.
    >
    > My plan is to give $425,000 to every person 18+ as a ‘We Deserve It Dividend’.
    >
    > Of course, it would NOT be tax free. So let’s assume a tax rate of 30%.
    >
    > Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam.
    >
    > But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife has $595,000.00.
    >
    > What would you do with $297,500.00 to $595,000.00 in your family?
    > Pay off your mortgage – housing crisis solved.
    > Repay college loans – what a great boost to new grads
    > Put away money for college – it’ll be there
    > Save in a bank – create money to loan to entrepreneurs.
    > Buy a new car – create jobs
    > Invest in the market – capital drives growth
    > Pay for your parent’s medical insurance – health care improves
    > Enable Deadbeat Dads to come clean – or else
    >
    > Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back.
    > And of course, for those serving in our Armed Forces.
    >
    > If we’re going to re-distribute wealth let’s really do it…instead of trickling out a puny $1000.00 ( ‘vote buy’ ) economic incentive that is being proposed
    > by one of our candidates for President.
    >
    > If we’re going to do an $85 billion bailout, let’s bail out every adult U S Citizen 18+!
    >
    > As for AIG – liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate.
    > Let the private sector bargain hunters cut it up and clean it up.
    >
    > Here’s my rationale. We deserve it and AIG doesn’t.
    >
    > Sure it’s a crazy idea that can ‘never work.’
    >
    > But can you imagine the Coast-To-Coast Block Party!
    >
    > How do you spell Economic Boom?
    >
    > I trust my fellow adult Americans to know how to use the $85 Billion ‘We Deserve It Dividend’ more than I do the geniuses at AIG or in Washington DC .
    >
    > And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.
    >
    > Ahhh…I feel so much better getting that off my chest.
    >
    > Kindest personal regards,
    >
    > Birk
    >
    > T. J. Birkenmeier, A Creative Guy & Citizen of the Republic
    >
    > PS: Feel free to pass this along to your pals as it’s either good for a laugh or a tear or a very sobering thought on how to best use $85 Billion!!

    October 7, 2008
  258. Paul Fried said:

    The financial crisis is far more related to predatory economic practices than it is to any Clinton efforts to end redlining and make home ownership more accessible to people regardless of race, and even of lower income.

    Regardless of what FactCheck.org and Lawrence Henry have to say, this is smoke-screen hiding the real problems. These Clinton issues are not the reason why sub-prime loans were configured in ways that would make the early payments easy, and then lead to forclosures later. I’m not a huge Clinton fan at all, but there’s no direct relationship.

    This would be like saying Martin Luther King Jr. pushed for integration, so he shares guilt for a race-related murder in an integrated neighborhood. Lay blame where blame is due. The person who pulled the trigger is guilty.

    Here’s one glimpse of how predatory loan practices work, and every bank does this: Say there’s a young couple who just got married; both work, they’re thinking of buying a home and in the near future, starting a family. The bank looks at their income, and tells them how large a loan they can afford. The couple is startled at the size of the loan for which they would qualify, and they go out to look for a home that is priced under that limit the bank has told them they can afford.

    What the bank does not tell the couple is that, if you’re starting a family, and if mom or dad is planning to take some time off to help raise the infant in the home, the loss of one income will mean you may not be able to afford the kind of mortgage the bank said you could; they were calculating based on two incomes, and they’d love to have you keep working and paying the largest possible mortgage you can afford, so you’re sending more of your money their way. They don’t ask you about your reproductive plans. They’d rather sell you a bigger home, and later, when you have a child, lose an income and realize you can’t afford it, they’d be glad to offer you a home-equity loan, as long as you qualify.

    They want to get as much of your money as they can. They are not interested at all in your future plans, or helping you make a responsible decision based on your changing needs. I have applied for mortgages, and never has a banker or loan officer asked if we were planning to have another child or take leave from a job. it just doesn’t happen. Never did they try to sell me on the idea of buying a small home at first, and paying it off fast, so that I could have more equity for a larger home. Doesn’t happen. They are competing with too many other businesses who would like to sell you stuff, so they’d rather you take out the largest mortgage you can afford, even if it makes you house-poor. If you want financial planning services, pay for it. Don’t expect it for free. This is how they view it.

    This doesn’t mean that bankers are not otherwise nice people, kind and considerate neighbors. But at work, their goal is to make money, not to give free financial-planning advice.

    Some less-than-compassionate conservatives might say, “There’s a sucker born every minute; if the young couple was so unwise as to trust the banker and buy a home based on both incomes, when they would soon have a child and wish to rely, for a while, on only one income, then the couple is foolish and stupid, and they deserve to be fleeced. They will learn valuable lessons by suffering the harsh consequences of their own foolish actions, and any money made by the bank is worth every penny, because fools deserve to be fleeced, and fleecers deserve the opportunity to take advantage of them.” Well, we know what those voices are like, and how much we’d trust such folks if they were our neighbors.

    Regarding the sub-prime mess, the goal of lenders was not to end redlining and advance human rights or help the poor. Their goal was to view any and all such initiatives with the following question:
    How can we maximize the money we might make off of this?

    This is how they view their job, not Chrisitan charity or Christian service. If a sub-prime lender makes millions, they can even give $10k to a charity to help their PR image, and they’re still making out like bandits.

    They may rationalize their money-making efforts, saying, “We provide a valuable service to the public.” And to some extent, they do. For people who otherwise have no access to capital for loans, they connect capital with those who need it, and they exact their price.

    But it’s not “service” in the charitable, Christian sense. It’s a business commodity. And they’d rather have as much of your money as you’re willing to give them, foolish or wise, than counsel wisdom when it’s not in the interests of their own profits.

    Any efforts to blame the financial crisis on philandering “slick Willie” Clinton are distractions from the real causes.

    October 7, 2008
  259. Patrick Enders said:

    Peter,
    You doubt scientists’ conclusions about global warming, yet you trust viral email messages?

    Why?

    October 7, 2008
  260. Barry Cipra said:

    In posting #285, Peter Millin passes along the “The Birk Economic Recovery Plan.” I ran across this a couple of weeks ago. It’s quite a charming exercise to spot the flaw.

    October 7, 2008
  261. Patrick Enders said:

    Is anyone else having trouble reading Barry’s last post? I can see the start of it on the right, but I can’t see the rest of it here.

    And yes, I have hit ‘refresh.’

    October 7, 2008
  262. Mike Zenner said:

    Peter, to #285

    The Birk Economic Recovery Plan is off by 1000X! it would work out to 425 dollars per person 18+.

    October 7, 2008
  263. Bonnie Obremski said:

    Curt! To go back to your question regarding the Strib article, below is my interaction so far with St. Olaf:

    I wrote: “One of my readers read in the Strib a few days ago “The president of the Minnesota Private College Council says colleges are on alert, waiting to see whether Congress passes a bill to ease the nation’s financial crisis. President David Laird said earlier this week that some of the group’s 17 members could be in trouble, and might not be able to payroll.”

    That reader wants to know how St. Olaf and Carleton are one of those college’s that are “on alert.” How is the national economy affecting the schools?”

    Reply was:

    “You might do a little more research on the question. MPCC President David Laird did issue a statement of concern about the credit market and urging Congressional action because some schools in Minnesota and nationally had their cash flow held in the CommonFund.

    Because of the credit crunch, CommonFund distributions were frozen for a brief period of time. The Washington Post ran a story no this, as did AP.

    St. Olaf does not have funds in the CommonFund. It has not experienced and does not anticipate any problems with the college’s cash flow situation. Those immediate funds are diversified and well protected accordingly.

    The downturn in the national economy is affecting St. Olaf as you would expect, with diminished returns on investments made in the endowment porfolio and ups and downs on variable interest bonds for past construction projects (not Regents Hall).

    Steve Blodgett

    ————————————————————-
    Steven A. Blodgett
    Director of Marketing and Communications
    St. Olaf College
    1520 St. Olaf Avenue
    Northfield, MN 55057

    Direct: (507) 786-3316
    Fax: (507) 786-3033

    October 7, 2008
  264. Peter Millin said:

    Patrick,

    Relax this was for entertainment purposes only. Unlike others I never did the math either..lighten up.

    October 7, 2008
  265. Peter Millin said:

    More from Clinton

    October 7, 2008
  266. Bonnie Obremski said:

    Holly, regarding Edina Realty, I’ve got one quick and dirty response as of this afternoon. I sent an email to Janet Schwab of Edina Realty in Northfield. I received the following (somewhat confusing) response from someone else at the company.

    What I wrote: “I’m working on stories that have to do with how the national economic situation is affecting Northfield. One of my readers suggested I contact Edina Realty.

    That resident wrote to me: “I’d like someone to investigate at Edina Realty. I was once told that what is happening at their local office was 75% foreclosure related. But I am not sure of the time period, or if I heard that right.”

    The response: “One of your readers is wrong. They may be referring to the business that one of my agents does but it certainly not 75% of what the office is doing. The foreclosure the agent does really doesn’t fit into what the economic situation is in Northfield. The listings this agent gets are everywhere from Rochester to Minnetonka. He just happens to work in my Northfield office. Good luck on your article.

    Annette

    Annette Frandrup-Frie
    Office Manager / Broker
    Edina Realty Northfield and Faribault Offices
    507-645-1178 Northfield
    507-333-4539 Faribault

    Not quite sure what to make of Annette’s response.

    October 7, 2008
  267. Holly Cairns said:

    Thanks Bonnie. I guess we learned foreclosure doesn’t factor in here in Northfield?

    My agent isn’t who she thinks it is… I can discern.

    October 7, 2008
  268. Anne Bretts said:

    Bonnie, I don’t think the answer is confusing. It seems that it means that there is one agent who is doing a lot of foreclosure work, but that doesn’t mean the whole office is focused on foreclosures. Edina is a huge company, and the Northfield office is just one part of it. The offices don’t have specific geographic territories, so agents here work across many communities.
    Once again, Google is your friend. The county doesn’t list foreclosures, but advertises individual cases in the legal ads. There are many sites, however that list foreclosures. Foreclosure.com, for example, lists about two dozen active foreclosures in Northfield and lots for the surrounding area. Another site lists a dozen. I didn’t cross check them, but it wouldn’t take long to get a good picture. You also can go through county records to determine how many houses and condos have sold over the last month, or the last year.
    It would be interesting to see the pattern of the slowdown and how low house values have dropped. I’m sure county officials are keeping track, since they will show up as lost property taxes and lower budgets.

    October 7, 2008
  269. Mike Z, #280, just now came into my email…If there was no value to begin with, nothing is lost. Give back the money that was invested. If not, why not? Who stole it? Richard Fuld and his ilk? What a lot of chutzpah.

    October 7, 2008
  270. Peter Millin said:

    Lets don’t forget that only about 16% of mortgages are in foreclosure. The vast majority of people are still making their payments on time.

    October 7, 2008
  271. Barry Cipra said:

    Peter, where did you get that 16% estimate? The best numbers I could find were all *lower* than that!

    October 7, 2008
  272. Anne Bretts said:

    Wow, just found Trulia.com, which has some cool stats on the local housing market. Seems sale prices are down about 15 percent from a year ago, not as bad as I had feared. Also says about 300 homes are for sale. Doesn’t list foreclosures. Dates of statistics indicate the information is current, though I can’t vouch for how accurate it is. You can check the surrounding communities, the county, anywhere.
    http://www.trulia.com/real_estate/Northfield-Minnesota/

    October 7, 2008
  273. Peter Millin said:

    http://www.nosalestaxincrease.org/

    Moderator,

    The above link deserves it’s own thread. I can’t believe that in times like these somebody actually has the guts to propose more taxes….yikes.

    The amount is not very high, but this is about principle.

    October 8, 2008
  274. Peter Millin said:

    Barry I was adding those that might be on the verge of failure. Actual failures are more in the 6% range.

    Either way it’s not as bad as one might think.

    October 8, 2008
  275. Barry Cipra said:

    Peter,

    Context is everything. Just because a number is arguably small doesn’t automatically make it negligible. During the Great Depression, for example, the unemployment rate never rose above 25%, which means the vast majority of people still had jobs. The current estimate of Americans without health insurance is around 15%, which means the vast majority are covered. The case fatality rate for the 1918 flu pandemic (which people cite when discussing the the prospect of an avian flu pandemic) was only about 2.5%, which means the vast majority of people who came down with that flu survived. One might even note that “only” around 3000 Americans — one thousandth of one percent — died at the hands of terrorists on 9/11.

    I agree, people can easily lapse into a Chicken Little sky-is-falling tizzy. Things are rarely ever as bad as one “might” think. But sometimes they’re every bit as bad as people do think, if not worse.

    October 8, 2008
  276. Holly Cairns said:

    Foreclosure.com lists 26 foreclosures around here? That sounds like a lot to me. 16% of homeowners “on the verge” of foreclosure sounds like a lot, too.

    FYI, Edina Realty just added a new feature “search by foreclosure.” Three out of the four Edina Realty “foreclosure/lender owned” listings aren’t showing on foreclosure.com (which has 26 recent listings in the Northfield area, as I mentioned above.)

    Interesting Trulia link, especially when you compare surrounding cities and price per square feet. Houses on Mayflower Hill are selling for $134/ sq feet. Others for $100/ sq. ft. Compare that to $1414/ sq ft during the summer of 2004. Huge spike in price per sq feet during that summer, I see, if the stats are right. If the link doesn’t work for you, go to Trulia.com and enter Northfield, Mn and click on “more Northfield market trends”. Average price per listing has recently taken a serious dive.

    I wonder what that tells us. Here’s what Annette said:

    The foreclosure the agent does really doesn’t fit into what the economic situation is in Northfield.

    What does that mean, anyway? I don’t get it. Sorry if it sounds clear to you, Anne, but it sounds like she avoided the original question.

    Hopefully someone who can make a difference has the right numbers and will help/plan.

    October 8, 2008
  277. Anne Bretts said:

    Holly, if Edina Northfield has 20 agents and one does 100 percent of his work in foreclosures, and they all work throughout the metro area, it doesn’t follow that 100 percent of Edina’s overall work is in foreclosures in Northfield. In fact, if he’s the only one focused on foreclosures, and he has 10 listings and each of the other agents have 10 regular listings, it means Edina has 5 percent of its work in foreclosures and not all of that is in Northfield. (All above figures are just to demonstrate the math.)
    Edina is a private business and doesn’t need to disclose what it’s doing, but the public records on foreclosures and the various websites can get you pretty close to the situation. Trulia cites 315 homes fore sale, and Foreclosure lists 28 foreclosures, or less than 10 percent of homes for sale. Now get the total number of residential units in town, which is about 5,000 or so, and you can see that 28 foreclosures out of 5,000 units means the percentage of homes with mortgages in foreclosure is pretty small.

    October 8, 2008
  278. Holly Cairns said:

    I’m thinking my original idea to ask a realty office wasn’t a good one. Why ask the realty office? They must benefit from any sale, even those in foreclosure. Anne B said:

    I’m sure county officials are keeping track, since they will show up as lost property taxes and lower budgets.

    Probably is best to ask county officials. Or search using using Beacon on the Rice County
    website. Or maybe not, since we have to search by precinct or ag, and then rearrange the results by date (results go back to ’82 or earlier, I see), and then factor in duplicate addresses… lots of time could be spent figuring out forced sales, alone.

    October 8, 2008
  279. Jennifer Torgrimson said:

    Looks like there have been over 40 foreclosures in Northfield this year alone (and the county is a couple of months behind on their data entry). As someone whose home was just sold in foreclosure (I closed my business last year and lost a few hundred thousand dollars); I can tell you that the Rice County sherriff’s office told me that they’re quite busy delivering foreclosure notices. At least twice as many this year as last year. Not only are they listed in the paper, but they can also be found online at the Rice County Assessor’s office. Click on http://www.rice.minnesotaassessors.com/ and then just search under “residential sale search.” You’ll need to click that you agree, then on the form that pops up, if you check the box next to “Non-usable Transaction Code” and choose 015 (forced sale, legal action, auction, foreclosure) that will pull up all of the Rice County Foreclosures. To narrow your search, you may want to choose just this year, or choose just Northfield addresses. However, remember that they are a few months behind in their data entry…

    October 8, 2008
  280. Barry Cipra said:

    Holly, I suspect that $1414/sq ft spike you found in the market trends for Northfield is some sort of systematic error in the way Trulia collects and/or analyzes and/or reports data. Poking around their website, I found a similar spike last January (2008) in Faribault, and three spikes for the decade in Dundas, the biggest one, last December, topping out at $5049/ sq ft!

    October 8, 2008
  281. Holly Cairns said:

    the spike does seem to be an anomaly. And the graph is too small to see what I might consider important changes per sq ft.

    Hey Barry, maybe you can poke around in Beacon and see what it says for forced sales and perhaps sales of interest to pay off contracts?

    October 8, 2008
  282. Holly Cairns said:

    I guess Anne at ER didn’t avoid the question, BTW, looking back at what Bonnie asked Anne…

    October 8, 2008
  283. Peter Millin said:

    Barry,

    If you listen to the media and our elected officials the sky seems to be falling, when it clearly doesn’t.
    A lot of politicians (and the media) are now using the slogan “bad economy”, which in my opinion is not true.
    The economy is and was in a slowdown which has been made worse by the financial crisis. In comparison to the rest of the world we are still much better off.
    As a result we see a strengthening in the dollar, which means people move to the dollar for safety.

    This downturn angst is also fueled by the fact that we haven’t had a economic related downturn for quiet some time. Historically we should acknowledge and live with a slow down and stop the doomsday machine from driving us in to panic.
    There is a difference with being vigilante and being right out panicked.

    October 8, 2008
  284. Barry Cipra said:

    Holly, you’re right that the spike causes Trulia to use a scale that obscures what might really be going on with square footage costs. But their graph for average listing price is also somewhat deceptive: that “serious dive” you saw is caused by the fact that the vertical axis of the graph only runs from $273k to $278k. The drop is from $277k to $274k — i.e., a little more than one percent. The Median Sales Price graph is probably a better one to look at.

    The Number of Sales graph is also of interest (especially if you’re a realtor). For some reason Trulia uses a logarithmic scale on the vertical axis. But you can still see that for a few years the number of sales ranged between 100 and 200 (per month?), while it’s dropped below 50 for a good part of 2008, something it had never done before (in the current decade). If Trulia had used a linear scale for the graph, the trend really would show up as a serious dive.

    October 8, 2008
  285. Holly Cairns said:

    Hmm, not good. I suggest we figure out what to do, and fast. Something beyond the $700 bailout. I’m waiting for the other help, I guess.

    Thanks for that, Barry.

    October 8, 2008
  286. Peter Millin said:

    Holly,
    Correction!
    The actual price tag of the “bailout” is $870 Billion. This does not include the money already provided to keep some companies liquid. Plus loan guarantees for the Bears and Stearns takeover and monies for the takeover of WaMu and Wachovia.
    $ 5Trillion in mortgage guarantees for Fannie Mae and Freddie Mac and McCain just offered up $300 Billion dollars to buy up bad mortgages directly.

    …but who is counting..?

    October 8, 2008
  287. Holly Cairns said:

    Oh Jen, when did you post? I missed that one.

    Eww, lost a couple of thousand. Eh, like it’s nothing. Wow. Hang in there, girl! Thanks for the search suggestion, too. Time for coffee, I think. Give me a call. My cell is cracked so don’t send any texts. 🙂

    Holly

    October 8, 2008
  288. Barry Cipra said:

    Peter writes:

    “$ 5Trillion in mortgage guarantees for Fannie Mae and Freddie Mac and McCain just offered up $300 Billion dollars to buy up bad mortgages directly.

    …but who is counting..?”

    Peter, I’m not sure what your point here is. Combining these numbers with your amended estimate of 6% foreclosures from posting #304, one gets

    ($5 trillion) x (6%) = $300 billion

    October 8, 2008
  289. Holly Cairns said:

    Eww, lost a couple of thousand.

    I mean lost a few hundred thousand dollars. Ack.

    October 8, 2008
  290. Peter Millin said:

    Barry,

    There is a difference between guaranteeing mortgages versus actually buying them out.
    The government has essentially taking over Fannie Mae and Freddie Mac which puts us on the hook for all of their mortgages held.

    The $300 Billion is the direct repurchase of the first wave that is in default. Given our governments track record of running programs I suspect there will be more to come.
    Either way you and I are on the hook for the $5 Trillion

    October 9, 2008
  291. Barry Cipra said:

    Peter, thanks for your reply. I misread your earlier post. I thought you were saying something along the lines of Here’s a really big number ($5 trillion) representing the scope of the problem and here’s a much smaller number ($300 billion) representing a politician’s pandering proposal to solve it — how can the latter possibly cope with the former?

    October 9, 2008
  292. Peter Millin said:

    No problem Barry.

    Despite my 21 year tenure in the US I still sometimes have trouble to express myself clearly on paper….still work in progress.

    October 9, 2008
  293. Holly Cairns said:

    Using Jennifer’s (#309) information, there have been 65 foreclosure sales with a Northfield address since October ’07.

    http://www.rice.minnesotaassessors.com/ and then just search under “residential sale search.” You’ll need to click that you agree, then on the form that pops up, if you check the box next to “Non-usable Transaction Code” and choose 015 (forced sale, legal action, auction, foreclosure) at the bottom of the search page choose date and descending and that will pull up all of the Rice County Foreclosures.

    Who can tell the total sales at that same site? I’m not sure what I am looking for.

    65/? = ?

    October 9, 2008
  294. Anne Bretts said:

    Holly, you wouldn’t compare foreclosures just to sales but to all mortgages and paid off loans.
    There are about 5,000 residences in Northfield. So it would be 65 out of 5,000 or so. Now, the majority of residences are owner occupied, but about 2,000 or so are rentals, as I recall (feel free to correct this, folks). A lot of people bought investment rental properties back in the bull market, and in many places across the U.S., those landlords have walked away from the properties because they were left with no hope of having any equity in the reasonable future.
    People who have paid off homes or older mortgages probably have lost value, which would hurt them if they sell, but their costs are stable as long as they decide to stay put.
    The bottom line is that you have to figure out how many homes/condos there are and how many of the foreclosures represent failed investments and how many are real family tragedies. Good luck.

    October 9, 2008
  295. Paul Fried said:

    Barry & Peter, I think you have it wrong about how much we’re on the hook for, depending on how badly the economy tanks, and if the government recovers costs from renegotiated mortgages, etc. William S. described the depression-era program from which the government actually made a profit. I don’t see how your figure could make sense unless you’re looking at a worst-case scenario of some kind — but in which, even after economies tanking, there is still some kind of economic order in which taxes are still collected, and debts to banks and other nations are still paid.

    October 9, 2008
  296. Peter Millin said:

    Barry,
    # 317

    You obviously forgot the $170 billion in pork passed along with the bailout bill. This was done to buy votes from certain politicians.

    Which brings up the question, if they voted against the bill because it was wrong for us..how did it magically change after adding pork to it?

    Never mind that it is becoming apparent that the bailout achieved nothing….other than covering the tracks of those that created the mess in the first place.

    October 9, 2008
  297. Barry Cipra said:

    Peter, where are you getting the $170 billion figure from?

    My earlier reply was somewhat in jest. I asked myself, where could that number, $870 billion, come from, so I googled “bailout $870 billion” and found a bunch of hits from Australian news sites reporting on the US$700 billion bailout, which they converted to AU$870 billion. When I google now on “bailout pork earmarks” the closest I come are some sites that talk about $112 billion in tax break earmarks. (Googling on “bailout $170 billion” did produce a couple of hits referring to $170 billion in earmark additions, but nothing that check out as the least bit reliable.) So I ask again, where are you getting your numbers from?

    Also, all these earmarks seem to be tax breaks, rather than traditional spending pork. One of them, for example, is some sort of one-year shield against the much-maligned Alternative Minimum Tax for over 20 million taxpayers. Aren’t you generally in favor of lower taxes?

    October 9, 2008
  298. Mike Zenner said:

    Folks,

    Focusing on just the housing issue is missing the bigger picture! The collapse of the housing bubble is the final straw that pulls back the curtain to expose the rotting corpse, also know as the American economy, which is the REAL issue going forward.

    We are beginning the de-leverage of our 350% of debt to GDP, debt, the real driver over the last 30 years. It’s now becoming trendy to “live within our means”. Opraha has people on her show talking how to live on less! For a hyper consumption economy this is BAD trend. I am not advocating going back to spending as usual, but its going to be a long hard grind looking ahead.

    Link below addresses the direness and issues of the future.

    http://seekingalpha.com/article/98769-our-coming-depression?source=front_page_most_popular_articles

    October 9, 2008
  299. Mike: Current events makes me wonder what it would have been like for Ross Perot to have been president. I remember him with his bar graph television commercials telling us how terrible NAFTA would be. Then Clinton won the election and signed the NAFTA agreement. Other free trade agreements followed which, in my opinion, is a big piece of the current problem.

    As you said, the housing issue is just the current event. There’s no way that the housing issue appeared out of no where. It is the consequence of a lot of bad decisions by a lot of economy experts over a lot of years.

    October 9, 2008
  300. Peter Millin said:

    Barry,

    “Taxpayers for common sense” has a breakdown of the pork part of the bailout bill.
    I was trying to post the link, but it doesn’t work.

    October 10, 2008
  301. Barry Cipra said:

    Peter, thanks for trying. It looks like the anti-link glitch has cropped up again. (I also had a link-containing post that didn’t appear.)

    I was able to google to the TCS site, but unable to find the breakdown you alluded to. I think we can agree to drop it — it’s quite clear that, whatever the exact numbers are, they’re really big and likely to get bigger. To update the words attributed to Everett Dirksen (Senator from Illinois, 1951-1969), a hundred billion here, a hundred billion there, and pretty soon you’re talking real money….

    October 10, 2008
  302. Paul Fried said:

    Subprime Scapegoats
    Boston Globe Editorial

    AMID A GLOBAL financial crisis that began with unsustainable loans to people with bad credit, it was only a matter of time before apologists for Wall Street excesses would try to pin the blame on the poor – and on government policies meant to help them.

    Sure enough, the Community Reinvestment Act has emerged in recent weeks as a favorite target of conservatives and others who oppose any government intervention in the market, for it requires banks to lend in neighborhoods they might otherwise avoid.

    And yet the Community Reinvestment Act has nothing whatsoever to do with the subprime mess.

    (The editorial continues — more at the link below– with some other interesting analysis)
    http://www.boston.com/bostonglobe/editorial_opinion/editorials/articles/2008/10/11/subprime_scapegoats/

    October 11, 2008
  303. Peter Millin said:

    Paul,
    Nice opinion piece, unfortunately he is wrong on all fronts. The CRA itself wasn’t at fault in it’s original form. But for political and personal gains it was modified. Was it that alone? No, there is plenty of blame to go around. Either way the amount of blame on each party involved doesn’t really matter when you open your 401K statement.
    The facts are very clear on this.

    October 12, 2008
  304. David Henson said:

    Paul – the true conservative would not blame the poor for not repaying high interest loans. The conservative blames the lender period. Surprisingly myself and the most conservative people I know were actually with Paul Wellstone on the issue of bankruptcy (not much else). Loans involve risk, high interest loans (usury) involve exceptional risk and if these loans are not repaid and the borrower walks then the lender should suffer the loss (and government should readily allow bankruptcy – you can’t take blood) and definitely not step in to bail out lenders. All investment and lending involves “RISK” and the higher the return the higher the risk, if your 401K was climbing fast, if your house was soaring (and you were adding debt), then you should have understood that these investments involved risk (there is no free lunch). The government can bail out everyone and hire millions of regulators and there will still be no free lunch ~ there will also be no economy. When a software company all of a sudden has exceptionally high returns that maybe a result of their adding value to the economy. However if the banking industry has exceptionally high returns then the only possible explaination is money is being put at higher risk (the operative word being risk) and everyone understands this even if they want to pretend otherwise.

    October 12, 2008
  305. Holly Cairns said:

    Here’s msnbc on States try to warn about
    mortgage crisis
    Subtitle: Bush administration, financial industry thwarted efforts to curb greed.

    Kiffi, you’re quick to jump in with Democrats and Republicans better work together to get things done. I think that has resulted in compromise that has hindered the Democrats and helped swing things towards what the Replicans want: Less regulation, less taxes, pull your own self up by the bootstraps, etc. So, maybe it is better if the two parties duke it out over this one.

    Peter Millin: The fundamental difference between Republicans and Democrats lies in how the governing we want. Before these past few weeks, any and all Republicans would have been screaming for deregulation. And Democrats? They are always worried about unregulated power. Your use of facts doesn’t jive with the big picture and what usually happens in American government.

    So, the scene has changed. Deregulation has led us to extremes. We’ve lost power to the government, and this kind of power loss is NOT what the Democrats wanted for the people, by the way. There’s a difference between regulation and total control….

    McCain is doing that fancy trick of “turning on his party” while telling how much better he can do as a … Republican. Strange, isn’t it? Who allows him to vote so Bush and then be “the maverick?” Keating Five, Folks!

    Let’s see, it was Reagan who said: “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.'” I know that because I read a hate blog which attacks our local politicians. This blog also said With
    Democrats in control.  More taxes and no choices.
    \

    And that guy’s a paramedic! My God, I hope I don’t need the paramedics. I’m dead for sure. Killed while Democrat. (Who is that Kevin, anyway. Does he work in Northfield?)

    I disagree with Reagan on this one. I don’t think carefully minding how people make money is scary, as long as the majority has equal chance to make the money.

    Jerold, I think there’s no difference between greed and making a profit.

    As usual Paul, I am glad for your posts.

    October 12, 2008
  306. Holly Cairns said:

    oops, The fundamental difference between Republicans and Democrats lies in how the governing we want.

    I mean how much government we want

    October 12, 2008
  307. Holly: A necessary part of greed is taking an excess of what one needs to the detriment of others. Making a profit addresses neither. Someone can make a profit in order to pay rent, which one needs to survive. Someone can make a profit in a good economy, where no one suffers as a consequence, in order to afford entertainment.

    I don’t think that greed itself needs government to get involved. As I previously described, I think the government should get involved only against gluttonous greed. I’d loosely distinguish these by the degree of harm caused to the public. A greedy merchant may over charge on furniture and he risks bankruptcy depending on market forces. A greedy landlord who over charges rent and leaves a scourge of homeless people is begging for rent control.

    October 12, 2008
  308. David Henson said:

    Holly – Housing is by far and away the most regulated industry. One would have to be in complete denial to not see that “the government” promoted over building this market. This problem is social engineering at its worst – unfortunately both candidates and major parties are offering solutions that will perpetuate the pain.

    October 12, 2008
  309. Holly Cairns said:

    HI Jerold,

    A greedy landlord may end up with a vacancy, too. Depends on demand as well as regulation, I guess.

    You are pretty idealistic, I would say. How does government define “gluttonous” greed? My uncle works on Wall Street– a huge bank. When they do well, America cheers. When does it become gluttonous? We need careful regulating, keeping in mind what’s good for the majority is best for our nation as a whole.

    I think the government should get involved to make sure each and every one of us has a chance.

    October 12, 2008
  310. Ever since we went off the gold standard, it’s all just fluffy air anyway.

    October 12, 2008
  311. Holly Cairns said:

    What was your suggestion again, David H?

    Bright: Reminds me “Silver and Gold…” I can hear Burl Ives, now. Bright, you and I should talk about abortions and saving the woman’s life versus regulating they give birth… ooops, wrong topic.

    October 12, 2008
  312. Holly Cairns said:

    I mean she give birth. Holy cow fast fingers today.

    October 12, 2008
  313. Warning, off topic.

    Hi, Holly. I’ll look up theBurl Ives song later, but right now, let me state very clearly, for me, I have to go with no elective abortions, which comprise 98% of all abortions. I would not personally ever try to make life or death decision for a woman and child who are faced with choosing one over the other. Nor would I demand any procedures that would make a raped woman do something she wouldn’t be able to deal with mentally or emotionally. The Catholic Church makes a very strong statement on those issues and I have to say, that over the long term, if you give life the first consideration, a lot of other evils fade away, imo.

    I stand for the innocent unborns who cannot stand for themselves. Make the decision before you lay down, young women. Make it before you feel you have to commit murder to please some guy who is not gonna be there for you for the long term.

    Make the decision before you burden your parents or grandparents, make the decision, that’s your choice. For the rest of it, your child belongs to all of us, as we all belong to our families and our societies. We take care of our own. No child left to die in this country. There is plenty of room, really.
    It is up to all of us to make the choice, choose to educate, to help and to honor, not scare and freak out and abandon our young ones. Come on, get real.

    Thank you for listening. 50 million murdered is enough already.

    October 12, 2008
  314. Holly Cairns said:

    So, Bright, you aren’t “pro-life”, but you are against abortion. Me too! I think more education would help. I hope no one that I love ever elects to have an abortion. We started at home with that one. I really want them to know how horrible they can be…

    October 12, 2008
  315. Holly, so are you talking about how horrible women are who abort their children for convenience?

    Frankly, I do not like being labeled, because the contents of the labels either change more often and operate under the rule of the day, having not thought through the thing at first, or the labels change and God forbid one should line up behind the wrong one.

    What I said is what I meant, see #345, don’t abort for convience…and for the rest, I leave that up to the Head of the Catholic Church to recommend highly. , as I don’t feel my pay grade qualifies me to make those decisions for other people, but I have to make a stand for the innocents.

    October 12, 2008
  316. David Henson said:

    My suggestion would look at the real underlying problem – social engineering – and recognize that citizens interacting on their own without government coercion is the best direction whenever possible. In this particular mess the government should allow overbuilt banking industries to collapse so those human resources can be redeployed where they are needed. A social engineering collapse is not going to be fixed by more social engineering. If the government has to do something to make up for this massive error then it should buy up the actual excess unfinished housing stock (at a fixed discount of say 50%), pay to complete the work and then finance and liquidate the properties at whatever loss is required.

    Then either enact tough usury laws or enact very easy bankruptcy laws (either will straighten out predatory lending – my vote would be for the latter).

    October 12, 2008
  317. Holly: I am guilty of being idealistic. I am also guilty of helping other idealists achieve mutual goals. Idealism is rarely reached, but when it is…

    There isn’t a governmental nor official definition of gluttonous greed. Again, I look at consequences. If a landlord raises the rent because of greed, and then has a vacancy, that’s none of the government’s business. But if one or several landlords raise rents and therefore cause a scourge of homelessness, that is the government’s business. The court decisions I’ve read on the matter say it pretty much the same way. They don’t attempt to precisely define it, but they say that they know it when they see it.

    I believe that ethics are the first and best defense for a healthy community. Landlords, tenants, everyone should strive to act for everyone’s benefit. Because that mode of idealism never seems to work anymore, I support narrowly tailored regulations to let the market be nearly free, but prevent the runaway capitalism we’re suffering through. Since the government is in control of regulations and is sometimes slow or reluctant to act, the public needs its own ability to keep businesses accountable. For the public, I’d like the corporate veil to be easier to pierce. As I’ve commented already, it would make businesses take fewer risks. That will have some bad effects but it will have a great deal of good effects to go along with it.

    October 12, 2008
  318. john george said:

    Holly- Just wondering what you meant by this statement, “…I think there’s no difference between greed and making a profit…”?

    October 12, 2008
  319. Griff Wigley said:

    I’ve not been following this thread closely, but it’s not about abortion. So no more on that, please.

    October 12, 2008
  320. john george said:

    Jerold- In your statement, “…I believe that ethics are the first and best defense for a healthy community…”, whose ethics do you think would be the best to follow? If it is based on current consensus among a group of like individuals, does this make it ethical? In this specific case, the Wall Street bankers, if their consensus is to make as much money as possible, then does this make it ethical? How does this line up with the values clarification courses being taught in public schools now? Is there, perhaps, a need for a moral foundation that is universal and is not meant to be swayed by popular consensus? Just wondering what you think.

    October 12, 2008
  321. John G.: Ethics seeks to determine or discover the best means for humans to live among each other. There are competing systems of ethics, going back to Aristotle and before, to the considerably more modern ethical systems proposed by Kant, Mill, and others.

    It helps to explain the goal of ethics. In my view (and in some professional ethicists’ views), ethics seek to ameliorate suffering, to resolve conflicts of ethics in just ways, to promote the general well being, etc. I like the concise statement by John Stuart Mill: to maximize happiness.

    It’s up to each of us to find an ethical system that we can identify with. I cannot tell you that Kant’s contribution, the Categorical Imperative, is wrong. I cannot tell you that Mill’s Utilitarianism is right. But I can tell you that if you choose one and I choose the other, we’ll find a lot of common ground and we’ll find it easy to complement each other in creating an ethical society.

    When someone proposes an ethical principle or action, it should be run through a process to determine whether it furthers the goal of ethics. Depending on the system you use, your process may be different. Kant uses seven specific tests. Mill uses one general test. Aristotle uses one even more general test. Whichever system you prefer, you can determine what is ethical by following its process.

    I think that if everyone chose a formal ethical system and lived by it, we would have a vastly more peaceful world. Unfortunately, most people choose either intuition for ethics or irrational ethics. Intuitive ethics are prone to prejudices; irrational ethics have conflicts within themselves. These are perilous, and most often result in causing suffering, causing conflicts of interest, and hurting our well being. Given what I’ve offered above, the Wall Street bankers acted with absent, intuitive or irrational ethics. They did not ameliorate suffering or anything else that ethical conduct requires.

    I do not recognize ethics created by any select group unless they are charged with creating an ethical system, such as those who make doctors’ ethics, lawyers’ ethics, etc. Normative ethics, or the ethics of normal, daily life, are the province of philosophers (including you and me, if we dare), who offer an idea of how humans can best live among each other.

    October 12, 2008
  322. john george said:

    Jerold- Perhaps I am misunderstanding you, but it seems, on the one hand, you are using the term “ethics” and “ethical” to be some universal value system. Then, you state that there are competing systems. Maybe it is too late (too early?) for me to follow your thinking, but I just don’t. In your comment, “…Ethics seeks to determine or discover the best means for humans to live among each other…”, it would appear that ethics is more a process than a standard. Am I interpreting this correctly? Then you make this statement, “…It’s up to each of us to find an ethical system that we can identify with…” Ok, what happens when the systems we each choose conflict with one another in our expression of them? Who or what is used to make a determination between us? Is this the place where governmental laws would interceed? If so, which system are these laws going to be based on? Your example sounds a little like Situation Ethics out of the 60’s. I was heavily into that until it failed me. I found, what has proven to be over the last 36 years, a better system.

    You talk about “ameloriating suffering.” Do you believe that suffering in itself is immoral? Or is it the causing of suffering that crosses your moral line? It would seem there are many ways a person might suffer in his/her life that are not directly human caused. What do you do with these things? Just wondering.

    I think there is one standard, or behavior, if you will, you and I would agree on- selflessness. It seems quite evident to me that many of the Wall Street financiers acted selfishly rather than selflessly. Perhaps this is a character trait that would be profitable to instill in people at an early age. If this ideal were to be a part of every person’s life, rather than an abstract idea, we would not be in many of the messes we are in right now. This is just an opinion of mine, though I tried my best to instill it in my own children. So far, it appears they caught on very well.

    October 13, 2008
  323. Stephanie Henriksen said:

    I suppose this is a diversion, but since you’re on the topic of ethics, did anybody see “60 Minutes” coverage of the prosecution of Alabama Governor Don Siegelman for allegedly taking a bribe? Many are convinced that Karl Rove orchestrated this to bring down a Democrat in a prominent position. House Judiciary Committee subpoenad Rove, but he’s refusing to appear.

    http://www.donsiegelman.org

    October 13, 2008
  324. John G: Normative ethics, opposed to professional ethics (or another subset) that are focused on one topic, have a universal goal. The goal is to determine or discover what is the best way for humans to get along, coexist, live in peace, etc. This universal goal is a bit vague, so some people have endeavored to be more specific, such as to ameliorate suffering, promote the common good, resolve conflicts of interest in just ways, etc. You may note that at this point, the vague goal has become slightly less vague but not perfectly defined. The purpose is to give inspiration and meaning to ethics, not answers.

    Many people have written answers at length about how to live an ethical life. There is the maxim, “Do unto others as you’d want them to do unto you” on one end of simplicity, and perhaps Kant’s “Categorical Imperative” on the other. I do not take an absolutist position to tell you which of several systems is king, or which is right for you.

    In my experience, there are seldom differences in the conclusions of the major ethical systems. The two most widely practiced are varieties of Kant’s Categorical Imperative and Mill’s Utilitarianism. Generally speaking, they both oppose greed and exploitation. They both value honesty. They share a great deal of overlap. As stated originally on this topic, the first and best defense against the “Wall Street bankers” would be people adopting and abiding by an ethical system. Any system. Not intuition, not an irrational system that conflicts with itself, but any system that furthers the universal goal of ethics: for humans to get along.

    Each system carries with it some judgments. While Kant’s and Mill’s systems may disagree with each other, practitioners of either may disagree with themselves. Utilitarianism is especially vulnerable to this because of its relative simplicity, but no system is immune from it. Note that one of the goals of ethics is to resolve conflicts of interest in just ways. Therefore, I believe that a complete ethical system would include a means to discover how to manage inevitable conflicts.

    A code of laws usually takes that place. If Kant concludes apples, Mill concludes oranges, both systems might agree that a published code of laws with hearings, advocates, judges and juries are the ethical way to solve otherwise unsolvable problems. I predict your saying again that the courts are an imperfect means to solve imperfect ethical conflicts and imperfect practitioners of ethics. The field is open to suggest a better way.

    It’s unreasonable to rely on a code of laws to solve all of our problems. It’s not possible to publish a book of every imaginable conflict and then use a court to enforce them. The first level of humans living among each other peacefully has to be appreciation and practice of ethics. Again, I don’t pretend that any ethical system is perfect, but I believe that if everyone would choose an ethical system that is internally consistent, we would not be led to disaster, be it political, financial, or any other disaster.

    You ask about suffering. I’ll liken my response to that of my description of gluttonous greed. Individual suffering may or may not be unethical. An individual who is suffering after a proper surgery has not been wronged by unethical conduct. “Wall Street bankers” who are a substantial cause of a nation’s financial crisis, and therefore cause a scourge of suffering, are acting unethically. In my opinion, an ethical system would address both types of suffering (individual and the scourge), but would only seek to prevent the latter.

    I’m uneasy criticizing selfishness itself. I try to look at scope and context. As I’ve written, in good economic times, I think it is OK to make a profit. If you want to send yourself or your children to college, and to do so, you reduce your charitable donations, I think your selfishness is ethical. If people are homeless, hungry, stricken with disease, it still might be OK for you to be selfish with savings especially if you also work to ameliorate the people’s suffering. If you are selfish with greed and ignore or exacerbate others’ suffering, then I think you’re acting unethically. My point being that selfishness itself is not wrong, but depending on context it may be.

    October 13, 2008
  325. Peter Millin said:

    Holly,

    I guess I have to let this issue go. Despite overwhelming evidence you still believe that the financial crisis was caused by lack of regulation or by some mean wall street executive alone.

    Good Luck.

    October 13, 2008
  326. I’d like to say that these ethics posts are really interesting, but I am afraid I don’t have time to cover all the disclaimers needed to make that statement
    stick, she said wryly.

    October 13, 2008
  327. Bright: Thank you. I hope that if I am unclear on something, that you’ll ask for clarification.

    October 13, 2008
  328. Holly Cairns said:

    Jerold,

    By the way, I think you’d make an excellent council person. It’s not bad to be idealistic and optimistic, and Northfield could use a little of that on the council, I think.

    John G wrote:

    Holly- Just wondering what you meant by this statement, “…I think there’s no difference between greed and making a profit…”?

    I really don’t think there is a clear difference. The only thing that separates the two– making money and doing well as a company, and greed, is regulation against greediness.

    Peter, you said

    I guess I have to let this issue go. Despite overwhelming evidence you still believe that the financial crisis was caused by lack of regulation or by some mean wall street executive alone.

    Good Luck.

    Thanks for the luck. Yes, I believe the financial crisis was caused by lack of regulation. I don’t think it was by some mean wall street executive alone. I think companies just try to make a profit, and need to be regulated so they can remain (mostly) “free market” entities. Otherwise, I’m seeing, lack of regulation leads to chaos, and then take over by the government (which I am against.) I believe when we regulate, we have to keep in mind the good of the majority so everyone is left making money. I believe that is what the Democrats are always wanting. Republicans believe in deregulation and pick yourself up by your bootstraps. So, the little guy isn’t protected, really. More of the same Republican administration worries me.

    October 13, 2008
  329. Scott Oney said:

    For those not scared off by word problems, here’s one that may help to put a different coat of paint on the home mortgage meltdown:

    Jose buys a house for $45,000. Two years later, he sells it to Pedro, who buys it with money he borrows from a bank, for $95,000. Jose takes the profit he made on the sale and returns to his home village, where he builds a new house for his mother and opens a restaurant. Pedro can’t keep up with the mortgage payments, so he walks away, leaving the keys in the door, and moves to Chicago to live with his second cousin. The bank is stuck with a $45,000 house that it paid $95,000 for, give or take. How much money did greedy bankers and Wall Street tycoons make on the deal?

    Show your work.

    October 13, 2008
  330. Holly: Thank you. I am excited at the opportunity to join the City Council and do my share of the work. Given room to make a little success, idealism can be contagious.

    This is the kind of idealism that I like to advocate:

    October 13, 2008
  331. Peter Millin said:

    Holly,

    So in essence you are saying that the government should make sure that everybody makes a fair amount of money?

    Ok, then how much money should everybody make?

    If the money to be made is pre determined, what would be the motivation for people to excel?

    What you are suggesting is communism and as history has shown..IT HAS NEVER WORKED.

    October 13, 2008
  332. Peter Millin said:

    Jerold,

    Now I finally realized who you are…we actually met in front of my house some time ago.
    You and your wife are really nice people. Welcome to Northfield.

    Unfortunately I completely disagree with your view of the role in government and your support of Mr. Bly (also a very nice guy) puts you at odds with my believe.
    No worries Northfield is a safe place foe liberals being elected. In 2004 Kerry actually carried Rice county.

    Good luck but we won’t be able to vote for you.

    October 13, 2008
  333. Patrick Enders said:

    Peter,
    Could you explain for me the connection between Holly’s words and ‘communism’? I’m not following your thought process here.

    October 13, 2008
  334. Patrick Enders said:

    Peter wrote,

    No worries Northfield is a safe place foe liberals being elected. In 2004 Kerry actually carried Rice county.

    Kerry also carried Minnesota.

    October 13, 2008
  335. Peter Millin said:

    really don’t think there is a clear difference. The only thing that separates the two– making money and doing well as a company, and greed, is regulation against greediness.

    ——————————————————————–
    I believe when we regulate, we have to keep in mind the good of the majority so everyone is left making money.
    ———————————————————————
    I think the government should get involved to make sure each and every one of us has a chance.
    ——————————————————————–

    I don’t think carefully minding how people make money is scary, as long as the majority has equal chance to make the money.
    ——————————————————————

    Some of her quotes, she obviously wants government to intervene in the distribution of wealth.
    There is no other country in the world like the USA where a little guy can do well with hard work and a bit of luck…why can’t you people acknowledge this and be proud of it ??

    October 13, 2008
  336. Patrick Enders said:

    Peter,
    I still don’t follow your leap from regulated capitalism to communism.

    October 13, 2008
  337. Peter Millin said:

    Any attempt of a government to redistribute wealth from one person to another is textbook socialism and or communism.

    protecting society from predatory companies is not the same then taking money away from them and giving it to somebody else.

    October 13, 2008
  338. john george said:

    Jerold-Thanks for the answers. As usual, they are well thought out and articulated. I haven’t had time to read the two contemporary authors you cite, but where you and I probably differ (and I’m making a little bit of an assumption here) is that I believe there is a foundational ethical code that is absolute and applicable to all societies. What I interpret from your disertation is that there are some ethical policies that evolve over time. Am I correct on that? Just wondering. If these codes are not absolutes, then it would seem to make certain ethical codes subject to change at any particular time, depending on contemporary whims or percieved needs of a society. If this is the case, then it would seem there is a possibility for a society to become deceived. I would pose pre-WWII Germany as an example of this. Great discussion so far.

    Holly- I still don’t understand your position on motivations for profit and greed. Here is an example of how I look at it. If a farmer plants 40 acres of corn with 30 bushels, and pays $125.00/ bushel for seed corn, then is he only allowed to reap $3750.00 on the acreage, plus planting/machinery cost, and if he realizes $4750.00 profit, then this is greed? Most of the time, three kernels of corn (and I’m only estimating here based on my memory of farming when I was growing up) will produce about 300 kernels on three stalks. That is a 100 fold increase. Is this considered greed? It would seem to me that to expect an increase on a person’s investment is only natural, and I don’t think the motivation is greed. Where I would see greed entering in is if the farmer chooses to sell his corn to some hapless buyer at twice the going market rate. The buyer may have the ability to pay, and may be naive enough to not check current market rates, but I still would classify this as an exercise in greed.

    It reminds me a little bit of the old religious country store merchant who took advantage of a city slicker horse owner. The weather had turned cold, and the horse owner, taking his horse to a show in a trailer, stopped at the store to buy an extra horse blanket. The store only carried one type of horse blanket, but it came in 3 colors. The going price was $19.95. The horse owner wanted a better quality blanket than that for his horse, so the merchant talked him up to $100.00 with the third color. His comment after the horse owner left was, ” He came to me a stranger, and I took him in!” I don’t think his religion did him very much good.

    One thing to remember when dealing with benevolence is that there can be no benevolence if there is no profit. In this case, I just don’t agree with you if you equate profit and greed as having the same root motivation.

    October 13, 2008
  339. Peter Millin said:

    What is greedy anyway?

    If a publicly traded company maximizes profits in a legal way, that will have a positive effect on my 401K.
    If however profits become regulated to a point where Washington decides on how much is enough profit..it has a direct affect on my ability to retire the way I see fit.

    October 13, 2008
  340. Holly Cairns said:

    Peter said:

    So in essence you are saying that the government should make sure that everybody makes a fair amount of money

    No Peter, that is not what I suggested. I meant that I believe that we should worry about the opportunity to make money and ensure the majority’s interests are taken into account… sorry, but I am definitely against communism, where there is too much government control of the market, in my opinion. I worry about our recent take overs and the loss of power, in fact. I’d rather regulate for the good of the majority.

    Get it? Not communism. Against that.

    And thanks Patrick, to me that was a big jump.

    October 13, 2008
  341. Jerold, you said,

    It’s unreasonable to rely on a code of laws to solve all of our problems. It’s not possible to publish a book of every imaginable conflict and then use a court to enforce them.

    And I thought it was well worth repeating. I have said something similar to people who thought this or that about laws that offended them in some way.
    No one can write a law to cover every instance that will ever come up. Every situation has one or more slight variations…it is all part of the infinite diversity of the universe, imho. The law simply cannot keep up with what is happening on the streets and homes and offices of life.

    This is true of any candidate, or any CEO, any program, or any plan we might make to live our lives better. They can all look good until they don’t. Things change. I was wondering what Bush’s campaign promises were back in 2000…well I read them and he wasn’t able to pull them all off, but he got some of them in.

    I just wonder exactly where the 7 trillion dollar surplus, plus the negative deficit of 11 trillion really went. Where can we look that up? GAO, GBO, godaddygo?

    Holly, here’s how I see the greed thing, though I wish I didn’t. There is this hill, see, and there are these big mean ol gorillas,see, and they wrestle off any body who tries to sit at the thrown at the top of the hill, See? And then, anyone who is littler, they have to do what the big kahuna tells them so.

    “Bring me food, watch for enemies,pick my ticks off.” And the women, they just come and get pregnant by the biggest and baddest, cuz there is strength for their offspring and security in that. It’s not about greed, it’s about survival of the fittest. Then, the king gorilla gets old and weak and a young dude comes along and takes him over, and starts the process all over again, and hopefully the gorilla family as a whole gets stronger over the passing generations, so more gorillas will live stronger.

    See Richard Fuld Was the king gorilla, for forty two years he worked and made it to the top position. Then he got old and dumb and he will be replaced by someone smart and clever and willing to do what it takes to
    stay at the top. He will have all the perks for as long as he stays strong and smart, until he’s gone, gone, gone.

    October 13, 2008
  342. john george said:

    Just a couple of opinions, here.

    Peter- As far as either campaign having any experts on national finances, it seems unrealistic to find any that weren’t some way involved in the build-up of this whole debacle over the last decade or so. There was an interesting article about Alan Greenspan in the Strib last week. This was a supposedly neutral person whom both parties listened to. I think this is an example of putting too much trust on supposed “experts” to come up with the correct answers. I personally would trust someone whose only qualifications are that he was able to raise a family, keep his budget balanced, and keep the family out of debt while doing so rather than an MBA from any Ivy League institution of higher learning. It is ok if he has the MBA, but if he can’t practice this in his own life, I think he should be disqualified. It seems a little like a married person entrusting himself to a counselor to help him sort out his marriage problems when the counselor has been divorced twice. Show me some track record and I will trust your expertise.

    As far as socialism and communism, I think we are stretching the real definitions of these when we equate them with totalitarian government forms. Socialism is alive and well in Sweden, a democratically governed nation. Now, I don’t envy the tax rate there, and I’m sure, as in any system, there are some shortcomings, but it is an example that the system can work in a free society. As far as communism, this is a system of common ownership, rather than private ownership, of real goods. Unfortunately, the only examples any of us have been exposed to have been under totalitarian governments. Actually, this is a Scriptural pattern. In Acts 2, the first church is described as the members having all things in common. This leads me to believe that there is not necessarily a “moral” or an “immoral” economic system. It would seem that the moral responsibility lies with the members of that society. I think this is the inference many here are expressing in their opinions of greed. That is why I think it is hard to legislate this level of morality without there being a fundamental change in the foundational beliefs of individual people.

    October 13, 2008
  343. Peter Millin said:

    Bright,

    Here is a dirty little secret..there never was a real surplus. The whole surplus was nothing more then a projection, based on very optimistic forecasts, in tax revenue and growth.

    Al Gore’s “lock box” was nothing more then an election ploy. Social security always is and always will be a “pay as you go program”, which in essence contains a lot of IOU’s.

    October 13, 2008
  344. Holly Cairns said:

    Interesting thoughts on greed, Bright. Now we could stray into a discussion about survival of the fittest, or evolution… ha ha! But we won’t.

    Peter, redistribution of wealth is not the focus. Ensuring there is opportunity for the masses to buy, earn, etc.– that what I like for governmental regulations.

    If we would have regulated, we probably wouldn’t be in this financial mess. However, we may still be, since the world seems to be struggling and many countries have a terrible overall debt to GDP ratio… which must mean something.

    Did David H post his ideas on how to help the market? I’d like to see us think more about how to fix things.

    October 13, 2008
  345. Peter Millin said:

    John,

    You are correct on the definitions of socialism and communism are different, on paper anyway.

    Both however are based on the notion that a central entity should regulate commerce, the flow of capital and the goods produced.
    They both prefer the nanny state approach from cradle to grave, implying that individuals are incapable of governing themselves.
    They both force a redistribution of wealth, thus smothering incentives to do better.

    The real fallacy of socialism or communism is, that it still doesn’t create a class less society. In communism their are as many rich people as their are in socialism and/or capitalism.

    They are as “greedy” as “rich” and as “powerful.

    The difference is that in capitalism (USA) little people have a much better odds and better incentives to get a piece of the pie, and create a good life for themselves.

    October 13, 2008
  346. Peter Millin said:

    Holly,

    The whole point is that there was regulation. BUT the government decided to throw all common sense rules out of the window, with the intend to get everybody in to a house…regardless of their ability to pay.

    The CRA was a social experiment started by a bunch of socialist oriented people trying to engineer a more just and equal society. Guess what? It backfired, just like socialist housing did and just like wellfare did. And now we are being asked to pay the bill and not just from me, but also from my children.
    I work hard to provide a good life for my family and leave them with something to start with..only to see it engineered away for the “greater good”??
    Sorry Holly the majority is not always right……Years back the majority thought the earth was flat…even killed people for it who believed otherwise….

    People are different we all have our own wants and needs and all of us want something different from live..I don’t understand the constant strive by the left to make everybody equal???

    October 13, 2008
  347. Peter: I don’t understand your drive against socialism and/or communism. If your contention is that historical socialist and communist societies were flawed, so you oppose them, I can only gently point you toward flawed capitalist societies. All of them have flaws “on paper”, and put to practice, more flaws appear because of humans being involved. It doesn’t make sense to me to love or hate them because their societies were poor at implementing them, else you should hate all of them equally.

    I disagree that socialism and communism usurp the desire to excel. My understanding of native American societies show innovation despite there being no profit motive. Or perhaps the profit was the esteem of one’s peers. Or perhaps the profit was the betterment of one’s society. Capitalism has never had a monopoly on inspiring humans to do better. However, capitalism seems to have a monopoly on humans doing better at the expense of their society.

    If it matters, I’ll state again that I prefer a capitalist-leaning society. I agree with Peter that those who work in whatever field should enjoy the fruit of their labor. Though, like a runaway train, runaway capitalism scares me.

    On your second topic, I am not registered nor affiliated with any political party, though the Republicans scare me more often than the Democrats.

    October 13, 2008
  348. Holly Cairns said:

    Peter said:

    The whole point is that there was regulation. BUT the government decided to throw all common sense rules out of the window

    Peter, are you for or against, market regulation? If you are for common sense rules, you must lean towards communism? That’s what you said about me, anyway.

    Peter said:

    I don’t understand the constant strive by the left to make everybody equal???

    Everyone is already equal in this country. It’s about opportunity, I think.

    Peter, once again you bring up the CRA. Peter said:

    The CRA was a social experiment started by a bunch of socialist oriented people trying to engineer a more just and equal society.

    Even you must see that the CRA was not the cause, or the only cause, of all this mess.

    October 13, 2008
  349. John G: You wrote

    I believe there is a foundational ethical code that is absolute and applicable to all societies.

    We differ on the absolutism. I believe that there is a foundational ethical code that applies to all people. Under most circumstances, it’s wrong to murder, but not to save your own life. It’s wrong to steal, but not to feed your starving children. It’s the “but” statements that have me shy away from absolutes.

    If you care to share with me some or all of your absolutes, I’d be happy to find a plausible circumstance when your absolutes should bend. Incidentally, Immanuel Kant was an absolutist, so you might start with his writings on the Categorical Imperative.

    http://en.wikipedia.org/wiki/Categorical_imperative

    What I interpret from your disertation is that there are some ethical policies that evolve over time.

    I take a subtly different approach. Regarding the foundational ethics, I don’t think that they evolve over time. It’s not like one year it’s moral to deny women the vote, and the next year it’s immoral. What actually happened is that the earlier societies had intuitive (women were uneducated, therefore ill-informed, therefore not wise enough to vote) or irrational (women are inferior to men) ethics that resulted in oppressive rules. Over time, the assumptions were proven false and the foundational ethics made an advance. In this way, I don’t believe that the foundational ethics evolve, but society’s acceptance of them evolves.

    It’s always possible for societies to be deceived. This is why it’s important for everyone to discover what ethics are all about, not just be told by a demagogue. You know the line, “When I want your opinion, I’ll give it to you.” Had the pre-WWII German people been more critical about ethics, I pose that 15 million people would not have been killed. It’s important that we not allow our societies — at any level — to become insular from outside ideas, or to be prevented from questioning their own authorities.

    October 13, 2008
  350. john george said:

    Peter- I agree with your statement, “…They are as “greedy” as “rich” and as “powerful…”, in reference to socialistic and communistic based societies. That is why I said, “…It would seem that the moral responsibility lies with the members of that society…” and “…I think it is hard to legislate this level of morality without there being a fundamental change in the foundational beliefs of individual people…” From this I conclude that we don’t need to change our economic system so much as we need authority to govern those involved in it. I agree with Jerold when he talks about a “runaway” system, but I still think the problem is with the people involved in it rather than some inate characteristic of the system itself. I personally prefer the capitalist system, but part of that may just be my having grown up in it. It has given me the freedom to live out my Kingdom principles of giving and recieving, though.

    Jerold- This is a very good observation on your part, “…I don’t believe that the foundational ethics evolve, but society’s acceptance of them evolves…”, and I basically agree with that. There are a couple things that have been accepted by our society over the last few decades that, I don’t believe, are a historical part of foundational ethics. I won’t get involved with them here, as they have been discussed on other threads.

    As far as my absolutes, here are a few of them:
    NAS:Mark
    {12:30} AND YOU SHALL LOVE THE LORD YOUR GOD WITH ALL YOUR HEART, AND WITH ALL YOUR SOUL, AND WITH ALL YOUR MIND, AND WITH ALL YOUR STRENGTH.’
    {12:31} “The second is this, ‘YOU SHALL LOVE YOUR NEIGHBOR AS YOURSELF.’ There is no other commandment greater than these.”
    2002 (C) Bible,
    and
    NAS:Galatians
    {5:22} But the fruit of the Spirit is love, joy, peace, patience, kindness, goodness, faithfulness,
    {5:23} gentleness, self-control; against such things there is no law.
    2002 (C) Bible.
    Getting to know the Author of these has been a life-long pursuit of mine. Having Him produce these qualities in me is my endeavor. It is this character that I believe is lacking in our society right now. If it were pursued, I believe that many of our societal ills would be taken care of. Where we as the Church have failed is in allowing other philosophies to compromise this word in our own lives. If we had not, then the church would be performing its rightful responsibilities in our society. Because we live in a fallen world, I believe, there would still be disease, the poor, natural disasters and the like, but there would be no need for the government to have to step in and take care of these things.

    October 13, 2008
  351. The concept of yin and yang is one to which I often look when considering the sides of a discussion such as we are having about the types of govt that might be better than another. Now, don’t beat on me personally, cuz I am just saying, that’s all, but each system falls prey and raises high as it travels around and through the yin yang, up and down, topsy turvy wheel of life.
    There are only two points of balance, which some would call perfection, and that is precisely when the traveler hits the zenith and the nadir, where black meets white and where white meets black. The only other time we can get a place of real perfection is at the point of enlightenment, where we can rise above the yin and yang concept and see the big big big huge picture that all enlightened beings see. Now, there is enlightenment, the little steps we all come upon and rise up on, if we are doing everything right, and then there is the great Enlightenment, where we see it all before us in a certain LIGHT/DARK sort of way, where we don’t judge, we are only aware. Well, that’s one way of seeing the markets, and the govts, as having ups and downs, pros and cons, each coming in their own time to show us a few things we missed from the last time around. Make sense, or too 60s?

    October 13, 2008
  352. Paul Fried said:

    I hate to stray back to the topic of the financial crisis when folks are having such fun with the thread-drift party, but I owe David H some thanks for comments back in #336, and Scott had a math word-problem in #362 that I want to discuss a bit.

    Scott, the mortgage may have been resold by the bank, which got its money, and bundled by some Wall St. firm into one of these strange entities that finanical wizards are now trying to unravel for auction, or giving up on unraveling in favor of governments just investing capital into banking stocks. So the banker may have gotten its money; the Wall St. firm may have gotten its money and sold the stuff, bundled, to AIG, or to a British or Chinese or German concern of some type. It seems that some companies had very few holdings in such stuff, or passed such stuff off quickly, as in a game of hot potato. Others were left holding lots of the stuff.

    But the example you give seems rigged from the start to imply that Jose and Pedro got off fine, were irresponsible, and the bank suffers. Coming from a guy named Scott, do I detect a racist theme, as well as an anti-immigration theme, in your choice of names, or in the rigging of the situation so that Jose and Pedro come off looking bad? What if the home was worth $45,000, was sold at $95,000 to Alice, who worked most of her life as a church secretary at low pay, then got in an accident and had health problems, had to quit her job, and lost her life savings on surgeries and medications and doctor bills, and could not make the house payments–and has an over-priced house to sell in a sour market?

    What of the fact that some businesses borrow money at rates that are adjustable depending on the value of the property, but average homeowners are left out in the cold when they buy a house and then the property values fall?

    What of the fact that Alice, the former church secretary, might be able to keep her house if she lived in Canada, with their health care system?

    October 14, 2008
  353. Peter Millin said:

    Holly,

    Of course I am for market regulation, but CRA wasn’t market regulation it was an experiment in social engineering. One of which you and I are forced to clean up with our hard earn money.
    The CRA was well intended in it’s original form. It had the goal to make housing more affordable for minorities. In 1999 however it was changed to a point where it didn’t make any sense at all. If a bank didn’t make enough minority loans, they were punished by higher percentage money from the feds and were “black listed”. As a result they relaxed common sense rules so they could fill their quota.
    Back in 1989 when I bought my first house I had to proof income and funds to buy the house. After 1999 most of those rules were relaxed by the amendments to the CRA.
    Do I want regulations…..?? Yes, but only those that makes sense.

    I can’t understand that there is not more outrage at our leadership. It is ironic and silly that those who created the mess are now want to save us??? Raines, Johnson, Dodd, Frank and others created this mess, which you and I (and our children) are now forced to bailout….if that is not silly that I don’t know what is.

    October 14, 2008
  354. Peter Millin said:

    Jerold,

    Unlike you I have lived the results of communism/socialism and there is nothing about those two ideologies that appeal to me.

    Did you ever have to wait in line for bread? Did you ever have to wait for a refrigerator two years? Or have your friends or neighbor disappear in to a basement below the police station?

    My parents risked their lives in 1956 to escape Hungary, because the communists were coming. So, yes I am probably a bit over sensitive to this subject.
    Just as it is wrong for a corporation to have a monopoly in certain areas, it is as wrong to have government gain a monopoly over certain sectors of our lives.
    The promise of socialism is very alluring, but it is a first step of giving powers to government which they should not have.

    October 14, 2008
  355. Peter: You offer a falsehood that all socialism is like the socialism that you experienced, and that the socialism you experienced was practiced as it should have been.

    You should know that socialism is not one formal doctrine, but it’s a principle that different socialist advocates interpret widely. Some consider socialism as a transition to communism. Some prefer centralized government control of the market, others prefer local worker control of businesses. There are many varieties of socialism.

    It would be just as false for me to claim that because the U.S. capitalism has concentrated wealth in relatively few people, is wrecking the middle class, and repeatedly fails to help elevate the lower class, all capitalism is wrong. That’s why I have not made that claim.

    It wrecks my ability to take your opinions seriously when you make large generalizations that have small basis in fact.

    October 14, 2008
  356. Peter Millin said:

    Jerold,

    Name on functioning socialism that can compete with our system in the USA? Despite the lefts best effort to compare us to Sweden’s nirwana I am not convinced.

    Some 30 years ago i marched on the streets in Germany supporting the socialist/green coalition, because the promise of “government support for all” in a green alternative environment sounded great. Mostly because I didn’t know any better.
    Much to my luck I was able to move to the USA and learned the difference between the strength and innovative nature of individualism versus government cheese.
    Despite our shortcomings and despite some of the inequalities that exist, there is absolutely nothing that I miss from Europe.
    Democracy , self rule and self reliance are much harder then having somebody tell you what to do…but in the end it is the only viable choice for me.
    I can certainly understand why ” it wrecks my ability to take your opinions seriously”, because it contradicts everything you read about socialism. It doesn’t conform with the textbooks.

    You might not agree with me, but I am not making this up or do I exaggerate.

    October 14, 2008
  357. John G: I’ll run your stated ethics through the filter of my proposed purpose of ethics, to help people live in peace among each other, especially through the amelioration of suffering, resolving conflicts of interest in just ways, to promote the flourishing of society, and so forth.

    Mark 12:30 tells you how to relate to God, not to other humans. I don’t see that this is an ethical principle, as my understanding is that it’s up to each person to determine how they want to relate to God. That relationship is independent of how people relate to other people.

    Mark 12:31 similarly appears to me to be a principle for happy living, not an ethical rule. If I interpret it as a rule, I don’t agree that it’s an absolute. We cannot pick our neighbors. Some neighbors are good, honest people. Some neighbors are strangers and should be given the benefit of the doubt. Other neighbors can be cruel or nasty people, including unrepentant sex offenders and other plausible extremes. There are categories of people who are condemned in the Bible. Depending on one’s Bible version and interpretation, if your neighbor is wealthy, an adulterer, a homosexual, a cursing child, or a witch, they should not be loved. Another possibility of Mark 12:31 comes if one does not particularly like oneself. If I do not love myself and I should love my neighbor as I love myself, then I should not love my neighbor. Because under some circumstances I should not love my neighbor, and under other circumstances I should love my neighbor more than myself, I do not think that Mark 12:31 is an absolute.

    Galatians 5:22, like Mark 12:30, does not appear to me to be an ethical rule. Ethical rules normally come in the form of what one “should” or “must” do. Instead, it describes the fruit of the Spirit.

    Galatians 5:23 is an ethical rule. If I may restate it, “One should be gentle; one should have self-control.” Here’s my contrary position. I grew up believing that violence is always wrong. I was already developing a wry sense of humor in grade school and I innocently teased another student beyond his tolerance. He ambushed me on my walk home. No injuries came other than the emotional trauma of being attacked. As a young teenager, I worked selling newspaper subscriptions with other teenagers. One of them was upset at how a homeowner refused to buy from him so he vandalized her house. I reported him to the supervisor and he was fired. Later, he threatened me and I became very afraid of him. These two were the worst of several fights and near fights in my youth. Coming into college, I took a class in self-defense that happened to be taught by a Wing Chun Gung Fu instructor (Wing Chun is southern Chinese, so it’s spelled Gung Fu rather than Kung Fu). I enjoyed the class and enrolled in the instructor’s martial arts studio. For weeks, I could not reconcile my deep commitment to pacifism with wanting to be able to protect myself. Finally, I rejected pacifism — but not for myself. I could remain a pacifist if I was the only victim. But I imagined that if I came upon someone else being attacked, that I would fail in an important ethical duty, to protect the innocent, if I was to preserve my love of pacifism. I would fail if I was gentle and exercised self-control. My pacifism changed to a philosophy of violence as a last resort. This change also brought other values in line, because even as a pacifist I still supported war to defend the innocent, e.g. WWII. Therefore, contrary to Gal. 5:23, if violence is the only available means at protecting someone who is innocent, then one should not be gentle and one should not have self-control.

    October 14, 2008
  358. john george said:

    Paul- I think your suggestion of racism on Scott’s part because he used the names Pedro and Jose is maybe a little inacurate. I have a Hispanic son-in-law whose name is Marvin. I also have a cousin by that name who has no Hispanic roots in his ancestry. I also think your allusion to the “fact” that Alice would not have a problem if she lived in Canada is not a fact at all. It is just an opinion. I know the race card has been dealt in a couple of comments, but I personally don’t think it applies to our present situation.

    I have a real life example of a foreclosure loss in one of my daughter and son-in-law’s experience in a home purchase. They purchased a forclosed home for about $100,000 less than its market value. The bank had loaned $100,000 more for the home than it was able to realize out of the sale of that home. There were also several thousand dollars tied up in repairs to damage done by the previous owners. Seems there are a lot of sore losers out there. If you multiply this loss by the number of foreclosures across the nation (some would be more, some less, but I’m just using the $100,000 figure as an example), then this amounts to a huge amount of money. In simplistic terms, this is what has happened in the real estate market when banks loaned out money to those unable to pay. Someone somewhere has to eat that $100,000. Who is doing so are the investors that bought securities based on the hope of these payments and us taxpayers who, through government intervention, are stepping in to pay this off. It seems an unending circle, but I think the adjustment is necessary to get real values back where they should be.

    Now, in moving forward, I think it is prudent to have meaningful regulations to prevent these types of transactions in the future, be they are motivated by greed or just plain stupidity. It may be that not everyone in our country is entitled to own a home. It may just be that only those who can afford to do so may be entitled to own one. Wouldn’t that be a revolutionary idea.

    October 14, 2008
  359. Peter: If you consider democratic socialism, India and Iran have Democratic Socialist parties who are trying to come to power in their respective countries. Several countries in Europe (especially the U.K.) and the U.S. have had Democratic Socialist parties who never became the party in control.

    Based on my readings, a democratic socialist economy would serve its people better than the socialism that you presented. Again, there are many types of socialism. I think that it’s irresponsible to condemn all of them because of your experience with one.

    October 14, 2008
  360. Peter Millin said:

    Jerold,

    Not one…three Hungary, Germany and Canada.

    October 14, 2008
  361. Holly Cairns said:

    Peter, I agree with you that communism isn’t good. Jerold, you might admit that, too. We’ve seen that a communistic economy doesn’t work.

    It seems like people are arguing over the various types of socialism, etc. Why? We’re Capitalistic. Right? Or did that change recently? Or will it change with the nationalization of some banks? What is the point of your argument?

    I still say the big picture is that we want to protect the majority, which I hope is called the “middle class.” We want to ensure opportunity. We are already considered equal here in America.

    Peter, you keep talking about the CRA, over and over:

    In 1999 however it was changed to a point where it didn’t make any sense at all. If a bank didn’t make enough minority loans, they were punished by higher percentage money from the feds and were “black listed”.

    Here: Google “did minorities cause financial” and look for
    moneycentral.msn.com
    article, or follow the link.

    Here’s a synopsis of the above article:

    The campaign to racialize a global financial meltdown operates in a fact-free zone. A national study of the performance of banks covered by the Community Reinvestment Act (CRA), enacted by Congress in 1977, shows that these government-backed banks were much less likely than other lenders to make the kinds of risky, high-cost home purchase loans that helped fuel the foreclosure crisis. The average interest rate for CRA loans was much lower than other lenders. CRA banks were more than twice as likely as other lenders to keep the loans they write instead of selling them off to the highest bidder.

    Sick. Quite blaming minorities on my watch (who are the minority, anyway?). It is not productive and that kind of thinking truly did cause WWII. There was economic struggle, and blame was placed on a group of people. Combine that with hatred and a lack of ability to see the big picture, and a lowly WWI soldier/ rejected artist was allowed to run the whole show. Please, be responsible. Don’t spread hatred.

    There are other sites which go into depth about
    credit default swaps
    being a major cause of our financial crisis, and I am leaning towards this being a huge factor in our mess:

    Regardless, it seems the regulators are exactly crying out to enforce insider-trading laws against the traders in the credit default market either. Right now no US regulatory agency claims oversight jurisdiction for credit-default swaps. Not the SEC. Not the Commodity Futures Trading Commission. Not the Treasury Department. Not the Federal Reserve.

    and another site

    Congress exempted credit default swaps from regulation when it amended the Commodity Exchange Act in 2000. Credit default swaps were the central factor requiring AIG’s bailout.

    I’m worried about what to do next. It would be nice to point the finger at the right source of the problem, so we can begin to fix the problem.

    I worry the banks/ stock holders will now get their money, but in the end the grief will be worse. Plus I don’t like nationalization. Maybe working together on the global scene is best. Good idea, Einstein.

    I wonder what we can do– I like help for main street. How can we go about that so good people are rewarded for hard work. The problem is that good people are now in trouble, too, and so it is hard to see who was “bad.”

    October 14, 2008
  362. john george said:

    Jerold- In your comment above, you said, “… Depending on one’s Bible version and interpretation, if your neighbor is wealthy, an adulterer, a homosexual, a cursing child, or a witch, they should not be loved…”. I’m not sure whom you are refering to here, but if you take the Scripture as a whole, Luke 6:20 and Rom. 12:14 seem to refute this idea. If you don’t consider the Scriptures as the inspired word of God, then it really doesn’t matter, anyway. Your arguments about how to get around really obeying God sound very familiar to me. I have lived them in years past. As far as loving God, He says that if you love Him, you will keep His commandments. What I am trying to deal with here are basic motivations. That is what Jesus dealt with when He was on earth, so I assume they are important. My Christianity is not a list of do’s and don’ts. It is best summed up in a relationship. It is the lack of this in our society that, in my opinion, is a root cause for our societal ills. I assume you do not believe this, and that is your perogative. I am just suggesting that to impose moral or ethical boundaries in a person’s life without having an inner change of heart only suppresses the acting out of these unethical behaviors. Somewhere I read that true character is exemplified in what a person does when no one else is looking. It will be interesting to see what developes in these next few weeks and months as far as anyone stepping up and taking responsibility for this whole mess.

    October 14, 2008
  363. John G: The context of my response was to determine if there are exceptions to ethical rules that you consider absolutes. Like my prior example of stealing being OK to feed one’s starving children, I don’t propose that exceptions are common, only that there are exceptions to almost every rule out there. This is the same for the ethical rules you offered. We should love our neighbor, we should be gentle and self-controlled, but not absolutely.

    Your response has taken an entirely religious fork, so I’ll hold my response to an appropriate thread.

    Nonetheless, I recommend that you read what Kant wrote about in his Categorical Imperative. While I don’t accept a great deal of Kant’s analysis, I find plenty of common ground in his conclusions. This is why I believe that people with different methods to determine right vs. wrong often end up with the same answer.

    October 14, 2008
  364. Holly Cairns said:

    Ok, back to talk about religion.

    October 14, 2008
  365. Scott Oney said:

    Paul: Most of your “answer” to my word problem seems like gibberish (at least I can’t follow it), but I don’t think you actually ever answered the question. You may have more or less got the point though, when you said:

    But the example you give seems rigged from the start to imply that Jose and Pedro got off fine, were irresponsible, and the bank suffers.

    Before you took off on your free association about Alice and the Canadian health care system, though, you said something that’s not only wacky but mean-spirited:

    Coming from a guy named Scott, do I detect a racist theme, as well as an anti-immigration theme, in your choice of names, or in the rigging of the situation so that Jose and Pedro come off looking bad?

    Dude, what are you talking about! I was aiming for the style of a typical word problem from a math book. And one of the distinguishing features of math books of the past 15 years or so is their use of names typical of diverse cultures. It’s a feature that jumps out at anyone whose first experience with math books was back at midcentury. Is there a single elementary or middle school math book being used in Northfield this year that doesn’t use these names, probably in the same chapter? I don’t know if you’d call it a sign or a signifier (and frankly, literary criticism is above my pay grade), but it was supposed to say that “this is a real word problem” (which it wasn’t).

    October 14, 2008
  366. Mike Zenner said:

    If the American People ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers occupied.

    Thomas Jefferson , 1815

    Mr Jefferson must be rolling in his grave watching Hank P getting his banking friends in bed with the US government buying bank shares. 100 more Fannie and Freddies? Can you say Fascism!

    October 14, 2008
  367. john george said:

    Jerold- I think I am connecting with your intent in your comments now. Sometimes it takes me a while- Sorry. As far as any set of ethics, there is always the exception to the rule. One simply can choose not to obey them. I think that actually might be applicable to the current economic meltdown. Where I would differ with you is whether the variant actions are justified. Understood, yes. Justified? I’m not convinced they can be without an eventual breakdown of the rule of law.

    By the way, Holly, I’m always a little reluctant to reveal where I am coming from. It seems it is often looked down upon as unprogressive. I don’t mean to offend you or anyone else by “religious” discussion. It is just that that is where I come from. I don’t always fit the preconceived mold, though, so I appreciate your willingness to at least allow me to discuss some issues.

    October 14, 2008
  368. Mike Zenner said:

    There is no morality in Capitalism!

    Pure Capitalism is an unstable economic system that jumps between the limits of GREED and FEAR! This should be evident to all after the events of the last couple of years. Thoughtful and minimal Government regulations should be placed to only mitigate the extreme swings in the Capitalist system.

    The ONLY focus of Capitalism is the bottom line! No ethics, No equality, No Morality.

    As far as morality goes America has displaced over the years the virtues of honesty, integrity, and hard work, with the 7 deadly sins.
    (Lust, Gluttony, Greed, Sloth, Wrath, Envy, Pride)

    If one needs to find where to lay blame for their current crisis, one need only find the closest mirror!

    October 14, 2008
  369. John G: The exceptions I offered should be viewed as justified exceptions, again, like stealing to feed one’s starving children. I don’t think that laws with room for exceptions breaks down any facet of society. On the contrary, I think it humanizes society. If you would forgive my use of the term, ethics and laws that act like commandments overlook the infinity of human transactions, hence the probability that there would eventually be a justifiable exception.

    You are right, that if exceptions were as easy to find as a sale at Sears, ethics would be meaningless. For this reason, I favor precise rules whenever possible, and an open mind to consider the rare exception. In sum, I think we now agree on this point.

    I enjoy discussing theology and religion, but I don’t want to stray too far from this thread’s subject. Another time?

    October 14, 2008
  370. Paul Fried said:

    Scott and JohnG: In math books, the stories are about Pedro and Maria going to the corner to buy fruit, and having to figure out how much they can afford with the money their parents gave them.

    This is not like your example at all. It was racist. Let’s just face the music and call it what it was. We all make mistakes. I’m racist sometimes too, not proud of it though, and when people point it out, I don’t say I was just reading a Greenvale math book. Don’t hide behind those little kids. It’s a cowardly thing. Be a man. Both of you. Pa-leaze.

    Now regarding the word problem, it’s not just a neutral hypothetical. It is a gesture toward the task of describing the root of the economic crisis, and it failed miserably.

    But here’s the word problem:

    Financial Group A decides it wants to make more money, selling mortgages to people with bad credit. It studies the laws and regulations, and finds that it can sell Pedro or Mack or Helen or Suzie a home they can almost afford today, and then the interest rates will go so high they’ll probably lose the home; but by then Financial Group A will have sold the mortgage to some other group, which sold it to AIG, or some other company, so Financial Group A will make off like a bandit. And if a few Pedros or Macks or Helens or Suzies lose their homes, it will just be more turnaround, more business when those foreclosed homes get sold again, right, and then Financial Group A will have more opportunity to get rich, right? But oops, there were too many foreclosures, and too many other companies like Financial Group B and Financial Group C, so things fell apart.

    Now who shall we blame: Pedro or Mack or Helen or Suzie? Or the sub-prime economic predators, Financial Groups A, B, C, etc? Or both?

    (I didn’t say it would be a word-MATH problem….)

    Scott, you want to blame Jose and Pedro (or was it just one of the two?). You want to paint the sub-prime crisis as a victimization of the banks by the Hispanics, and tie it all to the immigration issue subliminally (like the popcorn smell being vented into the movie theatre, we know what you were really thinking with those name-examples).

    Scott, you are most clever in this, and maybe you pass on lots of emails about ACORN and voter fraud too. Mabye you once had a job working for Karl Rove.

    But do you really believe this stuff?

    Or is this just practice so you can make money someday as a Republican political campaign consultant? And maybe Obama’s pastor had something to do with causing the economic crisis? Will that come next? Yikes! Somebody pinch me!

    October 15, 2008
  371. Peter Millin said:

    Mike,
    Again Jefferson turns out to be a genius.

    Paul,
    I was waiting for the “racist” defense and accusation. It is a handy little word used by the left when questioning some of their motives.
    Successfully applied several times in this campaign by Rangel, Jackson and others on the extreme left.
    Like it or not a vast % of the mortgages in default were made to minorities.

    Here is a question to the left?
    When Obama becomes POTUS will the race relations in this country be healed? Or do we whites still have to feel guilty?
    Does the election proof that the white man has gotten over his fears and a elected a black man for POTUS?
    Or do we have to listen to more whining from the rainbow push coalition?

    October 15, 2008
  372. Peter Millin said:

    Will Obama’s election close the chapter of black grievances linked to memories of slavery? The reverend takes a deep breath and waits a long time before responding.

    “No, that chapter won’t be closed,” he says. “However, Obama’s victory will be a huge step in the direction we have wanted America to take for decades.”
    —————————————————————

    I answered my own question…above is a snippet from an interview with Jesse Jackson.

    October 15, 2008
  373. William Siemers said:

    Maybe the government has mitigated the credit crisis by investing 250 billion in the banking system. Or are we just buying preferred shares in corporations that will ultimately fail under the weight of those ‘toxic’ mortgage instruments that many still hold? At least the gov. forced the more stable of the big banks (WF and Citi) to be involved in the plan, so there is some dilution of risk. But the underlying economy is still in pretty bad shape…some analysts suggest that 2009 will be the worst year since the depression. Hold on to your hat, we haven’t seen the bottom of this market yet.

    As to the arguments here about who is responsible…I’ll agree with everyone and say everyone is responsible. Borrowers, lenders, republicans, democrats, regulators, de-regulators. As to who is the ‘most’ responsible? Good luck on figuring that one out. For every sound bite one party puts out, there is another sound bite from the other side. What is important is who (or what poitical position) will best serve us in getting out of the deep recession we are facing. Personally I think the trickle down philosophy of republicans needs to get a rest. Let’s try direct investment in building America from the bottom up. More help for those who need it most and less help for those who have the most.

    I guess that can be called ‘socialism’, or ‘class warfare’, or ‘redistribution of wealth’, but that talk is over the top…does anyone expect the democratic party to initiate any of those concepts? All I can realisticly hope for is a little more for those at the bottom and some concern for those in the middle. Democrats hold the best hope for doing something in that regard.

    October 15, 2008
  374. This weekend 100 foreclosed homes go on
    the auction block in Minneapolis , with buyers needing to come up with $2500 down payment. Let’s see how many of those get purchased.

    October 15, 2008
  375. john george said:

    Jerold- Just like I said earlier, you and I are probably closer than either one of us realize. Within my understanding of Christianity, there is the concept of mery. I have a precept in my faith that mercy triumphs over judgement. if you search the Scriptures, I think you will find that this exemplifies the heart of God. I’m really open top another time. I’m usually around on Mondays & Tuesdays.

    Paul F.- I forgive you.

    Just an observation on this bank buy-out. I think Paul Harvey’s discription of the American economy is appropose here. We are like 12 guys standing in a circle. Each of us has our hand in the pockets of the ones next to us, and we all think we are getting rich. If we are governed by the people and for the people, yet we don’t have enough sense to not loan out money to those who can’t pay, then how is this action going to get us out of our mess? I’m finding it more and more difficult to trust any experts right now.

    October 15, 2008
  376. Scott Oney said:

    Paul: Now I get it. You really didn’t read my pseudo-math problem, at least not carefully; you’re just using it as an excuse to blast us with more of your canned talking points.

    If you had been paying attention, you would have noticed that Jose was the only one who made out OK.
    Actually, he made out very well. He walked away with approximately $50,000 more than he started out with. Pedro, on the other hand, ended up with ruined credit, although he at least got to live rent-free for a few months before he abandoned the property. And the last investor to buy the mortgage ended up holding bad paper. Other than that, a few paper shufflers along the way may have gotten a fraction of a percentage point, but not enough to matter much.

    As for your other points about voter registration drives and Obama’s pastor, you’re right, it has nothing to do with this discussion. But you’re the one who brought them up, not me. I’m all for divergent thinking, but what exactly is your point? Do you know something about the home mortgage mess that I don’t?

    October 15, 2008
  377. Holly Cairns said:

    John G: There are many “progressives” or “liberals” who are religious, or think that God is very important in their life.

    Scott O. and Paul F: I thought the same thing that Paul F. thought when he read Scott’s math story in #361. In context, others around Scott were blaming minorities for this economic struggle we’re now in… (see Peter’s comments above) and it seemed Scot chose Latino names for the guy that took his money and ran to his village, and also for the guy that had his house foreclosed and went to live with his cousin in Chicago.

    But I think Scot was just using names, I guess, and not using hidden meaning.

    My thoughts were that the money flow in that situation wasn’t exactly as described– Jose probably had a loan he had to pay off before he could run to his village and so he probably ran home with $5.00.

    Also, Pedro didn’t get $45,000 from the bank for his house (in theory, maybe, but in reality, no bucks in Pedro’s hands). And Pedro probably paid some to the bank and lost it all in foreclosure. SO, now Pedro can’t borrow money and life will be interesting.

    And, the bank ends up with property worth 45,000 and some of Pedro’s money. The problem is, now, if that house were in Northfield, it would probably be “worth” less than 45,000 because it couldn’t be sold for that, original, price. Maybe it would go for 30,000 or less.

    Scot, it’s mean to say “canned talking points” about Paul’s thoughts. I can’t believe you didn’t just say “Hey, that’s not what I meant when I used those names. Sorry.” Both of you are good people, it seems.

    October 15, 2008
  378. Holly Cairns said:

    Oops, I meant
    And, the bank ends up with property worth 95,000 and some of Pedro’s money. The problem is, now, if that house were in Northfield, it would probably be “worth” less than 95,000 because it couldn’t be sold for that, original, price. Maybe it would go for 30,000 or less.

    October 15, 2008
  379. Peter Millin said:

    Bright,

    Where is that auction?

    October 15, 2008
  380. Here is the one I heard about. Bring $2500 downpayment per home.
    http://www.earthtimes.org/articles/
    show/deals-await-buyers-at-auction-of-nearly-
    100-minneapolis-foreclosures,
    574095.shtml

    There are others throughout the state.
    I searched minneapolis foreclosures Oct. 2008 100 homes

    October 15, 2008
  381. David Henson said:

    Scott – I think you need to add that while Pedro and Juan were making payments on the high interest loan that inventment banker Clark who bought and bundled the loan was touting up the stock value of his “safe” high yield offering. And Blair who thought her 401K was off to the races was taking world cruises and buying the kids expensive Chinese made tennis shoes. And Peter at the city was figuring out employee raises based on the increases in property taxes. And …..

    October 15, 2008
  382. Paul Fried said:

    David H: I love the part about Clark, Blair and Peter. It’s only fair to add them to the script.

    Holly: You’re too kind. Scott, I’m sure, is a good person, but don’t assume about me ( 0 ;

    Now believe it or not, they may have sounded like talking points, but I was just making that stuff up. Oh, I read some analysis. Well, skimmed. So then I was improvising. I’m a musician, for crying out loud. But eventually many jazz musicians start to sound alike, hence my liberal-progressive talking-points jazz on the source of the economic crisis.

    I have read absolutely no analysis that says the financial crisis was caused when Jose sold his house to Pedro for an inflated price, went back to his villiage (in what country) and opened a restaurant and built a house for his mother, and Pedro lost same house, and now the bank is the victim, while the money went south. Or to that villiage in Canada. Right.

    But I suppose Scott meant to say that Jose’s villiage is in “The Villiage” in NYC. Right.

    There’s this tendency on the part of some conservatives to accuse others of what they’re guilty of, so as to distract attention from their crimes. So I’m guessing that Scott got the Jose-Pedro story from some talking points, but was trying to accuse me of talking-point-ditto-heading before he was found out.

    So here’s the deal: I’ll admit that I was using talking points (would that make you happy?), if you admit the Jose-Pedro thing was racist-revisionist propaganda, and we’ll keep it a secret, Scott, that you were using talking points. We know that’s in the Karl Rove playbook: Strike first to distract attention from your own crimes. Frame the debate.

    I’ll admit it kind of worked on me for a second, as I felt sort of nostalgic for all that money, wishing I’d sold my own house and built a new one for my mother, and opened a restaurant. You really know how to weave that old black magic spell with that propaganda stuff. You’re good. You know you are.

    But then I snapped out of it. So it’s time to fess up: It was racist.

    If you’re unable to admit it, then just say so. We’ll forgive you even if you can’t admit it. JohnG and I both. John already forgave you in advance, and John gave me enough forgiveness that I have extra to spread around: “Love is something like a magic penny; give it away or you won’t have any….”

    And John, I forgive you too.

    October 15, 2008
  383. Peter Millin said:

    If that is not the kettle calling the pot black then I don’t know what is?

    October 15, 2008
  384. David Henson said:

    Paul – Scott is right a whole lot of people were dipping into this 700 billion dollar plus cookie jar. I know you are deeply offended that Obama’s funder walked away with $60 million but in truth the big money was pouring out at the ground level while the top bankers were having their penthouses fitted for drapes.

    October 15, 2008
  385. Paul Fried said:

    …and is still pouring out at ground level, DavidH, as the bubble deflates and home values shrink. And yes, any Jose, Thomasina, Dick or Henrietta who sold when it was at its peak made some profit, for what it might be worth as the dollar deflates. And sure, I’m as offended and concerned with Obama’s funders as I am about McCain’s ties to lobbyists, one for Saddam Hussein. It’s certainly not the black-and-white, for-us-or-against-us world Bush painted for us. But Jose, who made a profit, and Pedro, who lost his home, multiplied many times over, are not primarily responsible for the crisis, tho’ they may be responsible to pay and pay to save Wall Street.

    On the other hand, as a nation, we let the people come to power who pushed deregulation (including, at times, Clinton). We did this with sadly low voter turnout rates. We can blame it on deregulation, but if we were duped, or asleep at the wheel as a citizenry, then of course, at that level, we are certainly responsible.

    Here’s a piece by Nomi Prins, a former “managing director for Goldman Sachs,” commenting on the apparent switch from buying up bad assets to purchasing non-voting shares:
    http://www.thenation.com/doc/20081027/prins

    October 15, 2008
  386. Scott Oney said:

    Paul: I don’t think you could do much with $50,000 in New York City anymore. I lived on the Lower East Side for many years, and I can remember when they started selling co-ops in the Village; you could get a one-bedroom for about $50,000 back in the early eighties, which seemed ridiculously high, but by now they’re probably going for about a billion. (Not really, but a million wouldn’t surprise me.)

    Now that I think of it, there may not be villages in Minnesota, but we do have them in New York. I never could retain the exact definition, but they’re some kind of self-governing unit within something bigger, perhaps a town. And to confuse matters even more, Greenwich Village isn’t really a village.

    As for your “racist-revisionist” rant, I still don’t know what you’re talking about. Do you know something I don’t about who benefited? My point was that whoever “cashed out,” that is, whoever took the money and left, rather than buying an even more expensive house in the same locality before the bubble burst, came out ahead, and everyone else lost. The money didn’t just evaporate.

    October 16, 2008
  387. Paul Fried said:

    Scott: If some of it went to the village, we should go ask them to give it back. I’m fine with that. If some went to the golden parachutes, we should go look for those with our empty bowls outstretched, and like a young Dickens character in a workhouse for orphans, politely say, “Please, sir, I want some more.”

    But as for going nowhere, yes, some did and will go nowhere. If you didn’t sell your house that was worth 200k or 300k, and if it’s worth less now, no one pocketted the money and took off. Same thing as the dollar deflates. That’s what bubbles are all about.

    October 16, 2008
  388. john george said:

    Paul F.- Thanks for the forgiveness. I think there is a place to be sensitive to how names are used, from both sides. Too much PC in our society? Perhaps, but I won’t pass it off on that. We all do need to take responsibility for our own motives. Sometimes, in trying to be sensitive to everyone, there is no room left for commentary. Perhaps person A and person B, banker C, investor D?

    October 17, 2008
  389. Scott Oney said:

    Paul: Now you’re not talking about just one house, but a whole neighborhood. But if your neighbor has a house identical to yours and sells it for $200,000, that doesn’t mean that your house is worth $200,000 too. Your house is only worth what the second buyer in line would be willing to pay, which might be $195,000, or perhaps less. So your house was never really “worth” $200,000, and therefore there was no “value” to disappear. You might feel envious of your neighbor for having moved faster than you did, but that doesn’t mean you lost anything; your house just wasn’t worth as much as you thought it was.

    October 17, 2008
  390. Stephanie Henriksen said:

    Sorry to intrude, but LWV forum on Dundas races, county commissioner races (Docken/Piper and Gillen/Drevlow), 25B (Bly/Rud) and 36A (Topp/Garofalo) races are tomorrow morning!

    What
    Saturday Forum at City Hall
    When
    Sat Oct 18 9:30am – Sat Oct 18 11:30am
    Wheremap
    City Council Chambers
    Created By
    League
    Description
    Co-sponsored by the Northfield News
    * Rice County Commissioners District 1 and 5,
    * Dundas City Council and Mayor,
    * Dakota County Commissioners District 1, and
    * House Rep 25B and 36B.

    To be televised for replay on NTV. Video will also be posted online at lwvnorthfieldmn.org.

    October 17, 2008
  391. Norman Butler said:

    From The Guardian:
    Financial workers at Wall Street’s top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year – despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

    Anybody surprised by this?

    October 18, 2008
  392. As a dignified person, having faith in justice for everyone, I am shocked and surprised. As a cynic about the way some people take more than their deserved share, I am not surprised.

    October 18, 2008
  393. Paul Fried said:

    Norman: One way to look at it is that those bonuses to the top execs will trickle down: They won’t fire the gardener, they’ll keep buying the luxury cars that will keep someone employed in Bavaria, and which will help the car salesman in Edina or Minnetonka, which will have a ripple effect, etc. The myth of supply-side and trickle-down.

    I’m with WilliamS (and Joe Biden) that we should give “trickle up” a chance. The recovery from the Great Depression, begun humbly with the New Deal and continued with jobs via military spending, proved that when there is a strong middle class (consumer class), the rich benefit. It’s in their own best long-term interests. The myth of trickle-down and “Free Market” via deregulation is self-destructing. We should give it a rest for at least a few decades–until the United States of Amnesia forgets the lessons of history again.

    October 18, 2008
  394. Holly Cairns said:

    Paul said:

    I’m with WilliamS (and Joe Biden) that we should give “trickle up” a chance. The recovery from the Great Depression, begun humbly with the New Deal and continued with jobs

    Yes, but what will the salary be? This is a good idea.

    October 18, 2008
  395. Paul Fried said:

    Here’s Joseph E. Stiglitz, 2001 Nobel Prizewinner, in The New Statesman, from his last two paragraphs (clip):
    ………………………….
    This crisis is a turning point, not only in the economy, but in our thinking about economics. Adam Smith, the father of modern economists, argued that the pursuit of self-interest (profit-making by competitive firms) would lead, as if by an invisible hand, to general well-being. But for over a quarter of a century, we have known that Smith’s conclusions do not hold when there is imperfect information – and all markets, especially financial markets, are characterised by information imperfections. The reason the invisible hand often seems invisible is that it is not there. The pursuit of self-interest by Enron and WorldCom did not lead to societal well-being; and the pursuit of self-interest by those in the financial industry has brought our economy to the brink of the abyss.

    No modern economy can function well without the government playing an important role. Even free marketeers are now turning to the government. But would it not have been better to have taken action to prevent this meltdown? This is a new kind of public-private partnership – the financial sector walked off with the profits, the public was left with the losses. We need a new balance between market and government.

    http://www.newstatesman.com/business/2008/10/economy-world-crisis-financial

    Holly: I think William S and Joe Biden should get at least a living wage. You and me, too, as long as we work and contribute.

    And just as some businesses get loans that are adjustable based on the market value of what is purchased, mortgages should be adjustable to compensate for the deflation of the bubble.

    And instead of everyone going out to shop, we should all have victory gardens.

    October 18, 2008
  396. Holly Cairns said:

    I finally listened to Leonard Witt’s suggested source of information This
    American Life

    Jane and others, jump right in if I incorrectly stated any of this. Also, I notice Freddie and Fannie aren’t factored in.

    Long program about the Giant Pool of Money, which you might want to listen to, yourself. Otherwise, here’s my notes:

    There’s 70 trillion dollars (subset of fixed income securities?) in our global economy. In 2000, there was 36 trillion. So, it doubled. Some countries put their money in the bank (China, which has a + of a trillion or so, for example)

    Investers were looking for places to invest. Greenspan made a usual investment option less attractive by keeping the US Treasury bonds at 1%, and so the giant pool of money/ investors looked to the residential mortgage market (return rate of 5%- 9%).

    The investors didn’t want the hassle and risk of dealing with individual mortgages. Banks used to keep mortgages, or sell them to some other company who held them, but something new started happening:

    Brokers would sell to small banks, small banks would sell to Wall Street Big banks, Wall Street banks sold the shares of the income as pools. These are Mortgage backed securities and it’s now hard to see who is directly tied to the homeowner.

    There was more demand for these mortgage backed securities than mortgages being sold, so back down the chain there began to be a movement to get more people to buy houses or refinance. More mortgages.

    Standards started to relax– it used to be verified income, verified assets. The lender checked to see how much you made and your asset totals, etc. Over time it relaxed to “stated” income and “stated” assets.

    The lenders didn’t have to check your salary but could just call an attorney to see what you might possibly make in your job, and no one checked your assets. These are the NINA loans– no income, no asset verification. For example, 23 dead people obtained loans in Ohio.

    This was all done assuming housing prices would always go up or at least remain steady. Also, the software being used to evaluate these NINA loans wasn’t using correct data, but was looking at historical loans, and so the data was showing that three years later, the default rate was 3% instead of what used to be 1%, which wasn’t bad. (When in reality, there are mortgage pools which will have a 50% default rate.)

    Toxic waste mortgages were being combined with really safe mortgages, so the overall packaged deal was still looking nice. This Collateral Debt Obligation pooling system had the Risk assessment firms like Standard & Poor thinking things were great, and so they were still telling the Wall Street banks to buy mortgages, etc. It all looked okay on paper, and these mortgage pools were considered Triple A investments (really good investments, same as cash).

    In fact, the NINA loans did perform. Home Equity loans were booming, etc.

    The small companies out there with 5 million were borrowing from big banks 20 million to buy and then sell these mortgages.

    However, eventually, Wall Street noticed 6,7, 8 month old securities were performing poorly, and housing values were dropping. So, they turned around and said, effective immediately, they weren’t buying certain mortgages at all anymore.

    So the companies that were borrowing 20 million were stuck with the mortgages, and then they defaulted on loans taken out from the big banks.

    Now, the giant pool of money investors are afraid to take any risks. Lending has come to a halt because of fear of risk. Etc. Credit freeze.

    How to help the foreclosure rate? There is a problem renegociating with the bank, since who owns the mortgage if the income is sold in shares? Etc.

    This financial mess is now called a “credit crisis” (instead of making reference to sub-prime mortgages).

    October 18, 2008
  397. Jane Moline said:

    Holly:

    Good summary–unfortunately the real problems were even more complex. There were derivitive financial instruments–because they were derivitives they became even more removed from the underlying collateral.

    A large part of the problem was the inability of market makers and investment banks to quantify the risk. As they became alarmed by the economic forecasts, they started shutting down the faucets of money–nobody wanted to lend anybody money ’cause nobody knew what risk anybody else was taking. It is a true crisis of confidence.

    Hopefully the influx of funds–bailouts around the world, will help the “bankers” banks get back in the game so banks can restore liquidity.

    I am loathe to blame bad people who lied on their applications and bought more than they could afford–I believe there is only a tiny amount of that. There is more “bad lenders” who falsified loan documents with or without the borrowers knowledge.

    The biggest problem is the sad stories–people who thought they would be able to afford the ARM after adjustment, and people who have had bad luck–lost jobs, health problems, children and parent problems.

    I think the best way to help Main Street with the bail out is to drill down to the mortgage level and, where possible, help lenders and the borrowers come to terms they can live with. Keeping a lid on kicking people out on the street will help eveyone. There is always a loan servicer–with the bundled loans, getting down to that level is not that complicated–but right now the nation-wide lenders, like CountryWide, are overwhelmed. I think that some of the bailout money could go to “work out specialists” who would be a central clearing house for helping in these cases. With a central office, they could bill to each mortgage company when they work on those mortgages.

    I also would like to see special investigations so that those connected with fraud are prosecuted. I just think we turn a blind eye to white-collar crime, and I think this is one time we need to not drop that ball.

    That includes fat-cats at any bank or financial institution receiving federal funds–there should be an automatic stop to bonuses and special pay–if we have to pay, they have to pay.

    October 18, 2008
  398. Holly Cairns said:

    Hey Thanks, Jane! I’m following you, I think.

    Jane said:

    There is more “bad lenders” who falsified loan documents with or without the borrowers knowledge.

    I think that, too. Unfortunately, with NINA, who can be held for a white collar? Lack of regulation led to anything goes. Perhaps we can narrow down who allowed the process…

    I like the centralized banking idea. Unfortunately that won’t help me, even though we’re struggling. We bought and fixed up houses. That worked for the first house. Now we’re in a beautiful house, but I’d better find a great job and pronto. Anyone looking to hire an outspoken 40 year old? I’d better change my outlook and communicating skills fast… and lose weight, etc. 🙂 Quick!

    October 18, 2008
  399. Anne Bretts said:

    Actually, some of the nonprofit agencies trying to help homeowners renegotiate their loans to avoid bankruptcy and foreclosure are finding it impossible to close deals because the loan bundles are so complicated there is no single lender to sign off on a deal.
    Sadly, that also means that many foreclosed properties are falling into ruin for the same reason, that there is no single lender willing or able to manage a foreclosed property. Add in the thieves stealing everything out of abandoned houses and the angry people trashing houses when they are evicted and the situation gets uglier and uglier.
    It’s even worse in southern California, where housing prices doubled and now are worth less than before the spike started.
    It will be a couple of years before home prices stabilize, and I’m afraid that they’ll stabilize well below the prices of two years ago. The next wave of hardship will be among all the seniors who bought townhomes and condos, only to have their health fail and force them to sell at a huge loss, even as their stock portfolios collapse.
    The only good new is that frugal people who waited out the market are able to buy at bargain prices, and eventually housing will turn out to be a good investment.

    October 19, 2008
  400. Holly Cairns said:

    Good points, Anne. Jane was thinking a centralized office would help. Maybe we should call someone, Jane, and offer your idea.

    I noticed the foreclosed hobbyfarm near us is trashed. Someone even dumped a building in the drive and the garage door is smashed… etc. Pretty sad looking. It’s a mess.

    And, I hear that some agencies claiming to help avoid foreclosure aren’t really out to help the homeowner. Another example of fraud…

    Let’s see, Harding had a hard presidency (graft, corruption, etc.) and ended up dying in office. Heart attack. Coolidge had a cool presidency, increase in wealth and happieness, etc. On to Hoover, who did nothing to avoid the GD. Sucked the money out of our pockets.

    I hope we’re not repeating. I hear this won’t be a GD but will instead be like the economy and struggle that Carter inherited.

    October 19, 2008
  401. Peter Millin said:

    The Fannie Mae-Freddie Mac crisis may have been the most avoidable financial crisis in history. Economists have long complained that the risks posed by the government-sponsored enterprises were large relative to any social benefits.

    We now realize that the overall policy of promoting home ownership was carried to excess. Even taking as given the goal of expanding home ownership, the public policy case for subsidizing mortgage finance was weak. The case for using the GSEs as a vehicle to subsidize mortgage finance was weaker still. The GSE structure serves to privatize profits and socialize losses. And even if one thought that home ownership was worth encouraging, mortgage debt was worth subsidizing, and the GSE structure was viable, allowing the GSEs to assume a dominant role in mortgage finance was a mistake. The larger they grew, the more precarious our financial markets became.

    Arnold Kling is an adjunct scholar with the Cato Institute. After receiving his Ph.D. in economics from the Massachusetts Institute of Technology, he worked as an economist at the Federal Reserve Board for six years and then at Freddie Mac for about 10 years in the 1980s and 1990s. He blogs at econlog.econlib.org.

    More by Arnold Kling
    Regulators should contemplate freezing the mortgage purchase activities of the GSEs while at the same time loosening the capital requirements for banks to hold low-risk mortgages. The result would almost surely be an industry much less concentrated than the current duopoly. A housing finance system that does not rely so heavily on Freddie Mac and Fannie Mae will be more robust.

    We have to assume that sooner or later some of the institutions involved in mortgage finance will fail. The policy should be to promote a housing finance system where mortgage risk is spread among dozens of institutions. That way, the failure of some firms can be resolved through mergers and orderly restructuring, without exposing the financial system to the sort of catastrophic risk that is represented by Fannie Mae and Freddie Mac.

    Full Text of Briefing Paper no. 106

    (PDF, 108 KB | HTML)

    http://www.cato.org/pubs/bp/bp106.pdf

    October 19, 2008
  402. Peter Millin said:

    Who Are the Villains of the Mortgage Mess?
    by Daniel J. Mitchell

    Daniel J. Mitchell is a senior fellow specializing in tax issues and author of The Flat Tax: Freedom, Fairness, Jobs, and Growth.

    Added to cato.org on October 14, 2008

    This article appeared in the Los Angeles Times on October 14, 2008.

    PRINT PAGE E-MAIL PAGE Sans Serif Serif In this current mess, one problem is identifying the heroes and villains in Congress. Many analysts conveniently dodge this question and instead make the rather novel claim that the turmoil in financial markets somehow is the result of deregulation. Yet the financial services industry is probably the most heavily regulated sector of the American economy, saddled with hundreds of laws, thousands of regulations and a plethora of government agencies. If red tape were the answer, this problem never would have happened.

    Many lawmakers want more rules and regulation governing disclosure, ostensibly to protect consumers. But the existing policies already have created a jumble of legalese that even highly sophisticated borrowers have trouble grasping, so it is far from apparent how this would help. A far better approach would be sweeping deregulation, replacing all the current clutter with a simple, easy-to-understand disclosure form, such as the one proposed by Alex Pollock of the American Enterprise Institute (PDF).

    Back to identifying the heroes and villains. To assign blame, it is first necessary to understand what caused the problem. At the risk of oversimplification, let’s touch on three main causes of the financial turmoil and identify the culprits in the political world:

    Daniel J. Mitchell is a senior fellow specializing in tax issues and author of The Flat Tax: Freedom, Fairness, Jobs, and Growth.

    More by Daniel J. MitchellProblem No. 1– easy-money policy from the Federal Reserve: In an ideal world, the Federal Reserve provides the liquidity needed to enable commerce but avoids excess liquidity to avoid either rising prices (which happens when excess money bids up consumer prices) or bubbles (which happens when excess money bids up asset prices). The Fed clearly failed in this regard, as evidenced by unsustainably low interest rates earlier this decade.

    Culprits: Almost every single politician deserves a share of the blame. The political class likes easy money. In the early stages, inflation feels good. Voters feel like they have more money in their pockets and borrowers (who always outnumber lenders) like the artificially low interest rates. And that is why very few voices were raised against the Federal Reserve’s policy.

    Problem No. 2 — corrupt subsidies from Fannie Mae and Freddie Mac: These government-sponsored enterprises were created explicitly to distort the flow of capital and encourage over-investment in residential real estate. Responding in part to campaign contributions (a clear conflict of interest), politicians dramatically expanded the power of Fannie and Freddie in recent years, thus creating widespread systemic risk because of the implicit (now explicit) government guarantee.

    Culprits: Many politicians from both parties were recipients of campaign contributions from the Fannie and Freddie slush funds, though Democrats had their hands much deeper in the cookie jar. The Bush administration has a very dismal economic record, but the White House does deserve some credit for having tried to rein in Fannie and Freddie earlier this decade. Opponents, led by Democrats Barney Frank in the House and Chris Dodd in the Senate, blocked reforms that would have saved huge amounts of money for taxpayers.

    Problem No. 3 — the Community Reinvestment Act: Politicians imposed numerous regulatory burdens on financial institutions, but “affordable lending” requirements such as those imposed as a result of the Community Reinvestment Act were among the most perverse. In effect, banks were extorted into making loans to people who were not credit worthy. This added to the bubble and expanded systemic risk. It’s also worth noting that poor people were victimized by this government policy, because many of them were lured into houses they could not afford.

    Culprits: President Carter presumably deserves some of the blame because many of these policies were first imposed during his dismal reign, primarily with support from Democrats. But the so-called affordable-lending requirements were expanded during the Clinton and the current Bush administrations, so the GOP is not without blame.

    October 19, 2008
  403. Mike Zenner said:

    “It’s hot in here, Suzy… and why are we in a handbasket?”
    -Joe Sixpack, October 2008

    October 19, 2008
  404. Paul Fried said:

    The Community Reinvestment act, like the GI bill and low-interest GI loans, were great ideas. If you have a strong middle class (and a secure lower class, as homeowners, with affordable housing and health care), they are more likely to be consumers participating in a vibrant economy, and the rich will benefit from the economic health of the poor.

    It wasn’t the idea, but the implimentation, and the sub-prime lending, that led to the trouble.

    October 21, 2008
  405. David Henson said:

    This is an outrage – “But questions have been raised about whether the huge infusion of government money will actually spur more lending, especially after several banks have said they planned to employ the new capital to help finance purchases of weaker rivals.”
    http://biz.yahoo.com/ap/081023/financial_meltdown.html

    The government should be purchasing the actual properties at real values and then financing sales to get people living in the properties. Turning over the largest bailout funding in history to the institutions that caused the problem is CRAZY.

    October 23, 2008
  406. Peter Millin said:

    The whole bailout is like putting an arsonist in charge of a fire…..
    The sad part is that both candidates actually supported this nonsense.

    The next ticking time bomb is the credit card crunch….

    October 23, 2008
  407. Barry Cipra said:

    In another thread, Peter Millin posted an article on proposed changes to the 401(k) retirement savings system. http://www.workforce.com/section/00/article/25/83/58.php

    A somewhat more succinct summary can be found in an Associate Press article at http://ap.google.com/article/ALeqM5ig1MqvB_lNO0gPYetlKbBwn8p0hwD93VQ58G1

    Here’s the relevant snippet of the AP article, which has a Q&A format:

    Q: Is there any chance the federal government might take over private pension plans to protect retirees, as Argentina is considering?

    A: Some in Congress have begun discussions about how U.S. workers could be guaranteed more security but still see some growth in their retirement funds. The House Committee on Education and Labor is holding hearings on the issue.

    On Oct. 7, they heard testimony from Teresa Ghilarducci, an economics professor from The New School for Social Research in New York. She proposed a radical, short-term fix, where 401(k) plans would be turned over to a guaranteed retirement account composed of government bonds earning a 3 percent annual return, adjusted for inflation.

    When workers begin collecting Social Security, the account would pay them an inflation-adjusted annuity, based on the accumulated funds. For example, a 55-year-old worker with $50,000 in a 401(k) account in August would swap out the $50,000 for a guarantee of $500 per month in retirement.

    Q: What about a long-term solution?

    A: Chilarducci proposed the creation of universal guaranteed retirement accounts in which the federal government invests $600 for every worker. Workers would put 5 percent of their pay in and the account would earn a guaranteed 3 percent rate of return, plus inflation. The cost of this plan would be offset by doing away with most tax breaks currently offered on 401(k) accounts, so the government wouldn’t have to pay any more than it does now. The accounts would be safer and guarantee all workers an income during retirement.

    Q: What are the chances one of these proposals will be implemented?

    A: That’s probably not very likely right now — but if they get backed by enough political will, who knows? There certainly is a groundswell of concern over the current system, considering that many workers have lost half of their retirement funds in the stock market.

    Something to keep in mind, though: In the current system, trillions of dollars are invested in accounts managed by some very large companies — and they’ll fight any attempt to take away their retirement fund business.

    —–(end of snippet)—–

    Offhand, I don’t much care for the Ghilarducci proposal. It seems little more than a stealth way to increase the Social Security payroll tax from 12.4% to 17.4%. I’m not averse to tinkering with the 401(k) system, nor am I necessarily averse to increasing the payroll tax (sorry, Peter!), but this proposal, on the face of it, doesn’t strike me as the way to go.

    October 23, 2008
  408. Paul Fried said:

    Here’s a great story (some clips):
    ……
    Predatory Scapegoating
    by Patricia J. Williams

    Some three weeks before New York Governor Eliot Spitzer was forced to resign his office in disgrace (sex! scandal! floozies!), he published an op-ed in the Washington Post. Titled “Predatory Lenders’ Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers,” the piece expressed Spitzer’s concern that for several years there had been a marked increase in predatory lending practices, including distortion of terms, surprise balloon payments, hidden fees and deceptive “teaser” rates. These practices, he wrote, were having a “devastating effect on home buyers.” In addition, the sheer number of such transactions, “if left unchecked, threaten…our financial markets.” To those in the know (OK, those few egghead “elites” not enthralled by the birth of the Brangelina twins), the situation loomed so egregious that the attorneys general of all fifty states, both Democrats and Republicans, lodged suits against the worst predatory subprime lenders. A number of states, including New York, passed laws to rein in such practices.

    The response was shocking, and not nearly wellpublicized enough: the Bush administration employed a little-used 1863 law to annul all state antipredatory-lending laws and, if that wasn’t enough, to block states from enforcing their own consumer protection laws in suits against national banks. Thus, when Spitzer tried to open an investigation into discriminatory mortgage lending in New York, the administration actually filed a federal lawsuit to block it. These interventions were so extreme and so unprecedented that the attorneys general and the banking superintendents of all fifty states came together to oppose the rulings unanimously. But to no avail.

    It is worth quoting the last paragraph of Spitzer’s op-ed in its entirety: “When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.”

    …….
    (End clip)
    …….
    From The Nation, Oct. 23, 2008

    October 23, 2008
  409. William Siemers said:

    The ‘short term fix’ to turn over a 401k plan (or maybe an IRA that was rolled over from a 401k???) in return for monthly guaranteed government annunity seems pretty attractive right now. Particularly if the annuity was inflation protected.

    The payout ratio is quite a bit better (about 40% better!) than one could get from a private company for a lifetime annuity, with no beneficiary, purchased at age 66. And that is for a private plan with no inflation protection. Something doesn’t add up here. I don’t see how even the government could offer such a generous plan.

    There is also a question regarding if that govt. annuity would pay a benefit to heirs in the case of a premature death. Right now my IRA (from a rolled over 401k) is part of my estate. At death what’s left of it will go to my designated beneficiaries. Somehow I don’t think the government will honor that designation. I bet it would just be a social security type payout that an individual can fund all at once. At 66 turn in $50,000 for $500 a month. If you die the next day the government keeps the money.

    All things (mostly) considered, this ‘short term fix’ doesn’t stand much of a chance of being adopted. Of couse the printing presses at the treasury are working overtime…so who knows.

    October 24, 2008
  410. Paul Fried said:

    Peter, it seems you’re spreading right-wing lies about the CRA as the cause of the economic crisis. I don’t know if you do this intentionally or inadvertently, but it concerns me.

    Readers of this thread, I’d ask you to go to the link at the bottom of this comment and read the article that unravels the lies of conservative bloggers and commentators on this point.

    Peter, you’ve blamed Carter, Clinton and the CRA for the financial crisis, but here are some clips from an article that shows otherwise (link at bottom):
    …………………………..(Clips below)

    A 31-year-old law designed to put an end to “redlining” and other restrictive practices that effectively shut poor and minority families out of home-ownership and neighbourhood development is being attacked by conservative commentators as a major cause of today’s sub-prime mortgage mess.

    The charge is being incessantly repeated by some of the so-called mainstream media as well as by right-wing bloggers.

    […]those who champion the CRA point out that the default rate on CRA mortgages is far below the national average and many times lower than the sub-prime mortgages written by unsupervised lenders.

    Federal housing data shows it was the unregulated private sector — not the government or government-backed companies — that was responsible for the explosion of subprime lending at the core of the crisis. According to the Federal Reserve Board, more than 84 percent of the subprime mortgages in 2006 were issued by private unregulated lending institutions and private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
    [….]
    Ellen Seidman, who successfully presided over the thrift crisis in the 1980s and 1990s — the failure of 2412 savings and loan associations — testified to Congress that “Billions, perhaps trillions, of dollars of credit and investment has come into these communities spurred, incented, or directed by the Act and collateral laws such as the Home Mortgage Disclosure Act (HMDA), various anti-discrimination statutes, and obligations placed on Fannie Mae and Freddie Mac. And while there was a time when those subject to CRA complained bitterly about it, in general that time has passed.”

    But despite a substantial body of evidence to the contrary, conservative critics of the CRA continue to blame it for the nation’s economic woes.
    [….]
    (End Clips)

    From
    It’s Not the “Greedy Poor People”
    by William Fisher

    http://www.ipsnews.net/news.asp?idnews=44419

    October 25, 2008
  411. Paul Fried said:

    Alan Greenspan realizes Ayn Rand and deregulation was wrong:
    (Some clips below, URL at bottom)
    ……………………………………..
    In a congressional hearing room on Thursday, former Fed Chairman Alan Greenspan, one of the most influential civil servants of the past century, saw his stock plummet—and his entire career lose its moorings. More important, the ideological battle over economic theory and the role of government in markets—a fight that has played out in the current presidential campaign—took a historic turn.

    With members of the House oversight and government reform committee blasting Greenspan for his past decisions that helped pave the way for the current financial crisis, he acknowledged that his libertarian view of markets and the financial world had not worked out so well. “You know,” he told the legislators, “that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.” While Greenspan did defend his various decisions, he admitted that his faith in the ability of free and loosely-regulated markets to produce the best outcomes had been shaken: “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.”

    In other words, whoops—there goes decades of Ayn Rand down the drain.
    [….]
    Back then, Feinstein was pushing for regulating financial instruments known as derivatives—particularly those called swaps. In 2000, Republican Senator Phil Gramm, then the chairman of the Senate banking committee, had used a sly legislative maneuver to pass a bill keeping swaps free from federal regulation. (Lobbyists for financial firms had helped to write the bill.) The swaps market subsequently exploded, as financial firms bought and sold swaps as insurance to cover their trading in subprime securities and other freewheeling financial products. In a nutshell: the rise of unregulated swaps enabled the growth of the shaky subprime securities at the heart of the current financial crisis. Greenspan was an ardent supporter of keeping swaps virtually unregulated.
    [….]
    In 2001, Enron, having gone crazy with energy derivatives, collapsed [….]
    In September 2002, Greenspan, Treasury Secretary Paul O’Neill, Securities and Exchange Commission chairman Harvey Pitt, and Commodity Futures Trading Commission chairman James Newsome wrote a letter to members of Congress to note their opposition to legislation that would regulate derivatives. They wrote:

    We believe that the [over-the-counter] derivatives markets in question have been a major contributor to our economy’s ability to respond to the stresses and challenges of the last two years. This proposal would limit this contribution, thereby increasing the vulnerability of our economy to potential future stresses….
    We do not believe a public policy case exists to justify this governmental intervention. The OTC markets trade a wide variety of instruments. Many of these are idiosyncratic in nature….
    While the derivatives markets may seem far removed from the interests and concerns of consumers, the efficiency gains that these markets have fostered are enormously important to consumers and to our economy.
    Greenspan and the others urged Congress “to be aware of the potential unintended consequences” of legislation to regulate derivatives.

    They got it exactly wrong. Swaps and derivatives ended up undermining, not bolstering, the economy.

    [….]Greenspan continued to resist. In a June 11, 2003 letter—[…]Greenspan praised derivatives and called them an essential part of the economy:
    [….]But as events have demonstrated, unregulated swaps did not protect Big Finance firms; they weakened the entire financial industry in the United States and overseas.
    [….]
    But not everyone got it wrong. In the late 1990s, regulators at the CFTC wanted to regulate swaps. Gramm, Greenspan and others—including senior members of the Clinton administration—did not. Following the Enron debacle, Feinstein took a run at this. But Greenspan and Bush administration officials said no. And it was not an issue of smarts; it was a matter of ideology.

    In fact, it was always a matter of ideology for Greenspan, a libertarian champion. In 1963, writing in Rand’s “Objectivist” newsletter, he noted, “It is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.” Regulation, he maintained, undermines this “superlatively moral system.” Self-governance by choice, he said, would be more effective than governance through government. Regulation, Greenspan maintained, was the enemy of freedom: “At the bottom of the endless pile of paper work which characterizes all regulation lies a gun.”

    Well, it turns out that at the bottom of the system that Greenspan oversaw for years, there was nothing but a pile of bad paper. And testifying to the House oversight committee, Greenspan, one of the more ideological Washington players of the past few decades, essentially said that Ayn Randism had let him—and the entire world—down. It was truly a God that failed.
    ………………………………………………..
    Article:
    Alan Shrugged: Greenspan, Ayn Rand and Their God That Failed
    In a historic moment, former Fed chair Alan Greenspan acknowledged he had been wrong for years to assume that government regulation was bad for markets. Whoops—there goes decades of Ayn Rand down the drain.
    (published in Mother Jones, 10-25-08)
    by David Corn

    October 25, 2008
  412. David Henson said:

    Paul – none of these guys believes in regulation, they are just trying to “sell” America on GIVING Wall Street 100s of billions and they know the term “regulation” plays well with Democrats (Barney Frank probably told them).

    I can assure you that giving money to distressed and irresponsible companies is a really bad way to regulate responsible behavior.

    To see the meltdown holistically as having it’s root cause as anything other than government intrusion into the markets to promote an altruistic ideal of home ownership is to deny reality.

    October 25, 2008
  413. Jane Moline said:

    From my first reading of Ayn Rand (“Atlas Shrugged”) I was captivated–but it was also one of my earliest “criticism” of literature–I thought hard about what she was promoting–and decided it was a bunch of hooey. It became a beginning point for me to realize that selfish behavior was to be avoided–and that continually striving to be a better person meant many times subverting selfish instincts.

    I read all of Ayn Rand before making my conclusions–and I have been somewhat mystified by Alan Greenspan’s worship at the Rand altar. Now we know. Selfish behavior results in greed–and then results in a sub-prime meltdown that damages the economies of the world.

    October 25, 2008
  414. A lot of economic ideologies work great in fiction.

    October 26, 2008
  415. Peter Millin said:

    Paul,
    You seem like a smart guy I don’t understand why you chose to ignore the obvious.

    Most people have realized that (even Obama and McCain) that this crisis is a culmination of bad decisisons.
    The most annoying thing for me here is a denial by the political elite in this country to take PARTIALLY responsibility for this mess.
    Instead the political propaganda machime, supported by the mass media, hammers away on Wall street greed alone. This is done to protect the establishment in Washington.
    I don’t need any news outlet telling me what I should think it is common sense economics 101.

    If a bank makes mortgages to people who can’t pay them back what do you think happens to the bank???? They usually go out of business sooner or later. A bank makes money by providing banking services and make money on interest on loans made…DUH.
    Why did the banks make bad loans???? Enter “CRA” which after 1999 threatened banks that if they don’t make enough loans in ” economically depressed” areas, they would be punished.
    Banks makes bad loans.

    Banks realized they made bad loans and they repackage them in to derivatives.

    Enter “the federal government” they create a semi private entity called Freddie Mac and Fannie Mae, which then buys those derivatives nder the watchful eyes??? of our elected officials.

    Housing prices drop due to an over supply of houses. The bad loans cost more then they worth now..ooops.
    To make things worse the holders of the bad debt had insured them against failure with some unregulated junk.
    The feds are panicked on how to fix this double whammy. Enter ” taxpayers”. Under the disguise of saving the economy they spend over $ 1 trillion of dollars in hastly newly printed money that doesn’t really exist anyway to “save the economy”?

    So we print new money without creating more goods, which equals inflation, to throw after bad money??

    What am I missing here PAUL??

    Culprits:

    Federal government for turbo charging the CRA, which used to be a good thing, but we lost common sense in 1999. For throwing “good monopoly money” after bad “monoploy money”.
    For now proposing more monoply money as a bailout.
    For running Fannie Mae and Freddie Mac.

    Banks
    For making bad loans and trying to capitalize on them.

    Wallstreet
    For taking advantage of the situation. Which btw (if you own a 401K) made nice gains in mutual funds and stocks for all.

    We the people
    For buying the smoke and mirrors, being uninformed and vote on buzz words not on reality.

    Paul,
    It will get worse I am afraid. We have created so much personal debt that was backed by house values that will make the current crisis look like pocket change.
    Stay tuned.

    In short. We all got greedy. Most of us took advantage of it and now we have to pay the piper.
    It’s time to put partisan hackery away on this issue and face the facts.

    October 26, 2008
  416. Jane Moline said:

    Peter: What you are missing is that the banks that made mortgages did not go out of business and are not the culprits in this financial crisis. The banks that originate loans, including CRA loans, are not the problem. The banks were and are subject to regulations that include a discipline that prevented them from dabbling in such risky subprime loans–except where they could package them out quickly due to investment banks’ appetites where they requested the banks use lesser standards–but in most cases these bad loans came from “strip mall” originators that were unregulated or barely regulated–and those are not the CRA loans. So Peter, learn a bit more about this problem before you jump on the conservative, right-wing media band wagon and blame poor black people. This is a way for Republicans who continually want to blame anyone else instead of taking any responsibility for their continual mantra “deregulate.” Republicans have long subscribed to the “repeat the lie until everyone believes it” school-of-thought. Just quit delivering their lies for them. CRA loans are not the basis nor main cause of this credit crisis. CRA loans are not “nothing down” loans. CRA loans are not teaser rate loans without verification of borrowers ability to pay.

    Unfortunately, the banks that have practiced good lending policies are adversely affected by the credit crisis and may have also invested in bonds that were incorrectly and misleadingly rated as triple A–that is the fault of the rating facility–which should have recognized subprime loans as subprime investment collateral.

    October 26, 2008
  417. Peter Millin said:

    Jane,
    Why didn’t the banks go out of business?? Because you and me bailed them out.

    BTW…..I am a conservative not a neocon..I didn’t support Bush on the last election and I won’t vote for McCain either…stop assuming.

    October 26, 2008
  418. Peter Millin said:

    …OOHH and could you point out where I blamed black people?
    Bad loans were mad to poor people who really couldn’t afford them and those include all shades of color including white.

    October 26, 2008
  419. Holly Cairns said:

    Peter, you are blaming minorities. Maybe give it up, Jane. Hopefully people will see where Peter’s is at in all of this:

    Peter said:

    Like it or not a vast % of the mortgages in default were made to minorities.

    Peter said:

    In order to get mortgages to lower income people and minorities the existing standards of loan qualifications were lowered. Standard income, down payment and collateral checks were abandoned.

    Peter said:

    The CRA was based on the premise that banks didn’t make enough loans to minorities and the poor.

    Peter said:

    From 1995 to 2005, a Harvard study shows, minorities made up 49% of the 12.5 million new homeowners.
    The problem is that many of those loans have now gone bad, and minority homeownership rates are shrinking fast.

    Peter said:

    Clinton saw homeownership as a way to open the door for blacks and other minorities to enter the middle class.

    Peter said

    Economists have long complained that the risks posed by the government-sponsored enterprises were large relative to any social benefits.

    Holly said, which Peter ignored and chose to still blame minorities, which he himself separates from the “poor” :

    The campaign to racialize a global financial meltdown operates in a fact-free zone. A national study of the performance of banks covered by the Community Reinvestment Act (CRA), enacted by Congress in 1977, shows that these government-backed banks were much less likely than other lenders to make the kinds of risky, high-cost home purchase loans that helped fuel the foreclosure crisis. The average interest rate for CRA loans was much lower than other lenders. CRA banks were more than twice as likely as other lenders to keep the loans they write instead of selling them off to the highest bidder.

    I repeat:
    A national study of the performance of banks covered by the Community Reinvestment Act (CRA), enacted by Congress in 1977, shows that these government-backed banks were much less likely than other lenders to make the kinds of risky, high-cost home purchase loans that helped fuel the foreclosure crisis.

    October 26, 2008
  420. Jane Moline said:

    Thanks, Holly.
    Peter, the bailout didn’t go to the hundreds of “main street” banks. The bailout went to several large banks that had to give up an equity interest in return for a set amount that was a capital infusion. The rest is buying “bad” assets of investment banks–the bad assets that politicians are claiming we will make money on. (Ha) The majority of the money is not going to banks with bad mortgages–it is going to financial institution with bad paper–it is a little more complex than somebody defaulted on a loan and the bank had to foreclose–it is the packaged loan instruments that are bad–and how bad we cannot yet know–but they are NOT CRA loans–they are sub-prime loans. The bailout was to help shore-up credit confidence, and it isn’t working as smoothly as planned.

    And Peter, I am not “assuming” I am inferring from your postings–you are jumping on the Neocon band wagon–you are using misleading and slanted sources–you may think you are a conservative, but you are using the propaganda approach that the fascist-wing of the Republican Party has been hammering down our throats for 8 years. Good for you for not voting for McBUSHCain–too bad you can’t articulate being FOR something constructive.

    October 26, 2008
  421. David Henson said:

    Freddie and Fannie did not initiate or purchase sub prime loans but they did invest substantially in sub prime derivatives. But the larger issue is through broad guarantees and tax deduct-ability government policy hyper inflated housing pricing. If tomorrow the City of Northfield decided to promote the purchase of used books through guaranteed loans and a property tax credit then by next week Monkey Read would up their prices. These market distortions seem like a great and moral idea until the market inevitably hits a brick wall. Then you end up with mass layoffs, wiped out businesses and maybe worst of all lost opportunity for markets that would have developed had tax based programs not been used to alter people’s economic behavior. The brick wall would have been hit 8 years ago but the sub prime lending just delayed the inevitable fallout by creating a new class of buyer. This mess is a case study in why we need free markets.

    October 26, 2008
  422. Peter Millin said:

    Maybe there is a mix up in words here…but doesn’t minorities include all people of color and poor people? Aren’t those all minorities???
    Now I am confused……

    October 27, 2008
  423. peter Millin said:

    Jane,
    Are you saying that bad loans based on CRA guidelines had nothing to do with this crisis at all? Are you also saying that almost 16 years of easy money form the Feds had no impact on this?
    If you think that than you a minority ( NO you are not black), because most experts disagree with you.

    We can argue over the details and how much of the blame we want to assign to who.
    In the end it doesn’t change the outcome. Washington has decided to throw more printed money after bad money. Which evidently hasn’t done anything so far and it won’t.
    If you have a maxed out credit card at home and you can’t make your payment from your own money. Because of this you take another credit card and pay your first card….did you help your situation?? of course not.
    This is exactly what we did with the bailout. Our national debt has doubled and it will go even higher. Sooner or later we got to pay off our debt.
    Which unfortunately won’t happen with either candidate in office. Because neither of the candidate has said the magic word yet that would stop all this nonsense CUT SPENDING.
    Jane what do you do at home when your money runs low and your credit cards are maxed out. You stop spending right?

    When are we going to tell Washington that enough is enough.

    Sorry, but this is as constructive as I can get.

    Here is a source that helps explain some of this…
    I wouldn’t consider it right wing.

    http://www.factcheck.org/elections-2008/who_caused_the_economic_crisis.html

    October 27, 2008
  424. Peter Millin said:

    The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.[1][2][3] The Act was intended to reduce discriminatory credit practices against such neighborhoods, a practice known as ‘redlining’.[4] The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation. (See full text of Act and current regulations.[5]) To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions.[6]

    October 27, 2008
  425. Holly Cairns said:

    Peter said:

    In order to get mortgages to lower income people and minorities the existing standards of loan qualifications were lowered. Standard income, down payment and collateral checks were abandoned.

    lower income people…. AND minorities. You separated the two groups yourself, Peter. Plus, you keep repeating an irresponsible message. Quit blaming the wrong “group.”

    Because Peter refuses to listen, we’re repeating his terrible accusation over and over again, and so that is not good on many levels…

    October 27, 2008
  426. Peter Millin said:

    Holly,

    Aren’t the majority of low income people minorities?

    I DON”T BLAME MINORITIES I BLAME THE POLITICIANS FOR OPENING THE DOORS TO MAKE BAD LOANS.

    Which part don’t you understand?

    October 27, 2008
  427. Patrick Enders said:

    Peter,
    The largest group of persons in poverty is whites, who constitute 58% of those in poverty as of 2007 (or 46% if you exclude Hispanic whites).

    African Americans are 23%. Hispanic persons of any race are 29% (that includes the white Hispanic persons mentioned above). The rest is divvied up amongst everyone else.

    http://www.census.gov/prod/2008pubs/acs-09.pdf (page 26 of the PDF)

    October 27, 2008
  428. Peter Millin said:

    Thank you for the link Patrick.

    I considered Hispanics to be part of a “minority” as well.
    I was wrong on the breakout of poor people.

    October 27, 2008
  429. Peter Millin said:

    I was trying to link this but it doesn’t work. It’s part of an article from the timesonline.uk
    ————————————————————————————————————
    Nouriel Roubini: I fear the worst is yet to come
    When this man predicted a global financial crisis more than a year ago, people laughed. Not any more…
    Dominic Rushe
    As stock markets headed off a cliff again last week, closely followed by currencies, and as meltdown threatened entire countries such as Hungary and Iceland, one voice was in demand above all others to steer us through the gloom: that of Dr Doom.

    For years Dr Doom toiled in relative obscurity as a New York University economics professor under his alias, Nouriel Roubini. But after making a series of uncannily accurate predictions about the global meltdown, Roubini has become the prophet of his age, jetting around the world dispensing his advice and latest prognostications to politicians and businessmen desperate to know what happens next – and for any answer to the crisis.

    While the economic sun was shining, most other economists scoffed at Roubini and his predictions of imminent disaster. They dismissed his warnings that the sub-prime mortgage disaster would trigger a financial meltdown. They could not quite believe his view that the US mortgage giants Fannie Mae and Freddie Mac would collapse, and that the investment banks would be crushed as the world headed for a long recession.

    Yet all these predictions and more came true. Few are laughing now.

    October 27, 2008
  430. Anne Bretts said:

    Peter, you may have good intentions, but if your words are being so misunderstood, you may want to think about reworking your comments about minorities.
    As for the economic mess, there are many, many pieces of the collapse. The Federal Reserve and other sources indicate that the amazing success of mortgage derivatives created a demand that ‘encouraged’ lenders to produce more and more, which drove the loosening of credit. I wrote about the condo market in the cities when the fever was high, and those puppies weren’t going to low-income folks.
    The same crazy thinking about soaring property values hit the commercial market. Southdale Center changed hands four times in about six years, each time for a higher price — even as the ownership changes meant that needed renovations weren’t made and tenants were leaving and revenue and rents stagnated. Now it is half empty and buried in debt while smaller, better capitalized developments surrounding it are thriving.
    The same craziness happened on all kinds of properties, fueled by pension funds and other big investors who needed places to park all the money they had from people who had invested in IRAs and 401ks and from all the pension accounts full of Baby Boomer contributions.
    The poor played a role in this, but the big players are always the big players, in good times and bad.

    October 27, 2008
  431. Bright Spencer said:

    Peter, a lot of people have been predicting this for at least two years. I myself came to recognizing problem was looming instinctively.

    Furthermore, the stock market is not a guaranteed or sure thing, it is a place for speculation and risk. “Neither a borrower or a lender be.” from a wise fellow we know as Shakespeare.

    If the banks hadn’t tried to pad the risks, there wouldn’t be so many speculators trying to make their fortunes off a basically shaky situation.

    October 27, 2008
  432. Holly Cairns said:

    See my post #457, Peter. Thanks

    It’s like you say “the flowers smell good and therefore there was a crisis. But later you say “I’m not blaming the good smelling flowers.”

    Why bring up minorities when you talk about this crisis? It’s fine to talk about politicians without talking about minorities, because the CRA loans weren’t what caused this problem, and the regulation surrounding the CRA loans didn’t cause the problem. It was a slow relaxing, over time, and a failure to regulate when things were getting out of hand.

    October 27, 2008
  433. Anne Bretts said:

    Bright, I don’t understand your question at all. This thread is about the financial crisis, not abortion, and abortion has nothing to do with race…in any event, I don’t think the comment belonged here.

    October 27, 2008
  434. Holly Cairns said:

    Bright, I’m thinking “racism” has to do with race. What does that have to do with abortions, again? Wait, I’ll get my chair.

    Plus, what/ who is pro-Abortion? Is there anybody who is more for abortion than life… ?

    Financial crisis… must talk financial crisis or Griff will appear.

    October 27, 2008
  435. Griff Wigley said:

    Bright, I’ve removed your comment. I’ve already asked that people keep stay on topic here.

    October 27, 2008
  436. Paul Fried said:

    Peter, thanks for admitting you were wrong about the demographics of poverty. Jane and Holly, thanks for trying to reason with Peter. David H., I don’t get how you see all this as reinforcing the need for free markets.

    Peter, what you do in your explanation is like a shell game (trying to track the movement of the pea under the walnut shell).

    I posted a source that explained how CRA was not responsible, and the banks that stopped redlining and gave mortgages to minorities and to others living in poverty-stricken areas were not the source of the problem.

    Watch the pea:

    Rather, the problem of sub-prime mortgages didn’t originate with banks, but with sub-prime mortgage companies that preyed on MANY people, poor or not, often with the promise of reducing monthly payments (followed by a later change in rates and payments–creative ARM financing with a time-bomb effect to kick you in the rear at some future point).

    It has been shown that many of these companies were not especially good at explaining the terms, so many consumers who took out these kinds of loans complained. I confess that I did not read all the fine print when I bought a home or refinanced at various points, with various homes.

    It seems that these companies were great at signing people up for these mortgages and then selling them off. They took most of the money and ran.

    Watch the pea. No CRA yet.

    Now due in part to the nasty idol of deregulation (promoted not only by Republicans, but by some Republicrat sometime-fans like Clinton), banks got exposed to some of the derivatives related to the sub-prime mortgages.

    This could have been avoided if the banks and markets had been regulated better, but Greenspan and others were too much fans of Ayn Rand and “Let’s run the sheriff out of Dodge” free-market capitalism.

    Watch the pea: No CRA yet.

    Now once the markets start to crumble, and companies start laying off workers, then whether we have a standard mortgage, or a sub-prime mortgage, or a mortgage obtained in part due to the ending of redlining and the CRA, MANY people ACROSS THE BOARD start to be at risk for not being able to make their mortgage payments, and then many more may be defaulting.

    Watch the pea: CRA -related mortgages might be involved at this point, but not strictly AS SUCH — only inasmuch as WE’RE ALL at risk at this point.

    So Peter, it seems to me that in your account of the story, the CRA-related mortgages, given by banks, are the cause of the whole mess from very early on.

    Your narrative is simply at odds with the narrative above, and I think the facts show that you’re just not right on this. You’re listening to the right-wing propaganda, and you’re passing it on uncritically. You seem a bit reactionary in this way; you find some article that makes a claim that fits your ideological views, and you quickly pass it (and many others like it) on here to us.

    I appreciate that you’re willing to admit your mistake regarding the demographics of poverty, but you seem to be clinging to your claim that Carter and Clinton and CRA is responsible, when that’s not the case.

    The great thing about America is that you have a right to cling to any idea you want, even if its proven to be untrue. If you’re a Frisbitarian and believe that, when you die, your soul gets stuck on the roof, you can believe that. If you and others want to think Obama is a Muslim plant, or getting the Sheriff out of town so Jessie James can rob the bank is best, or pork rinds are good for you, you can believe all of this, because this is America, and you have freedom of speech and religion and all that.

    God Bless America. And God Bless the CRA.

    And God Bless the Sheriffs, who, when they’re doing their jobs, protect us from thievery.

    October 28, 2008
  437. Paul Fried said:

    David H (Posted October 25, 2008 at 10:07 pm):

    This one’s about drugs (read to the last line).

    But first:

    You write, “giving money to distressed and irresponsible companies is a really bad way to regulate responsible behavior.”

    It’s a bit late, but in hindsight, how might we have dealt differently with the companies that engaged in the bad practices?

    Let them fail? Would the repercussions then result in more failures, and hurt even responsible investors, homeowners, and financial institutions?

    Or have the government step in, take over conservatorship of the failed companies, kick out, fine and imprison the irresponsible executives, and sell their assets and estates to pay some of the debts? This would not sell well to the half-hearted Ayn Rand fans, who are free-market when it serves them, but want temporary socialism for the rich when their house of cards is tumbling.

    Why do we assume that Dodge City (or any other city) needs a legislature, judges and a police force to enforce laws that restrict drug dealers from benefitting from the free market, but Wall Street should somehow be trusted to regulate itself?

    If the financial crisis is a demonstration of the need for free markets, then why don’t we view the alleged drug “problem” in Northfield as simply a manifestation of the free market doing its job, allowing for people to make a living, and even get rich if they can, by selling in an unregulated economic climate?

    October 28, 2008
  438. Paul Fried said:

    Barry and Patrick: Thanks to you guys too. I didn’t mean to leave you out. It was only the unregulated free market that made me forget you guys. If only there had been regulations, I would have remembered.

    October 28, 2008
  439. David Henson said:

    Paul – banking will always have to be regulated otherwise you would just set up a printing press in your garage and starting handing money out to the needy :). I think you are selectively choosing to ignore that this mortgage crisis is the end result of using tax policy to effect markets (promoting home ownership). In the end “freedom” and “free markets” are one and the same. The genius of the nations founders was a belief in the general good of mankind – I wish democrats could share their belief. People make the best economic choices when left to their own devices. Why should some with balding tires be forced to purchase auto insurance rather than repair their tires ? When the government intrudes into markets and globally alters natural choices the results are generally awful.

    Addictive substances that damage users are a tricky issue – but I see no correlation to the above.

    October 28, 2008
  440. Peter Millin said:

    Paul,

    I don’t agree with your opinion on the financial mess.Let’s just leave it at that.
    The very near future will tell if the gamble we took to “fix” this mess will work. Let’s hope it does, but I hold very little of hope on this.
    Because those who are PARTIALLY responsible for this have now the cure?

    This is the second time that you have acussed me of being some blind follower of the right wing propaganda. I wish you would stop.

    Based on your sources I could easily accuse you of being a fringe leftist. Quoting comondreams.org and the dailykos.com doesn’t put you exactly in to the mainstream either.

    Respecting someones opinion doesn’t oblige you to agree with him. But it doesn’t give you permission to call people names either.

    You believe that Americas reputation is hurt I don’t. You believe that America is the source of evil I don’t.

    In any case you should be celebrating because the savior is upon us and all that is bad about America will soon get better.

    October 28, 2008
  441. john george said:

    Paul- Was this your analogy or did you pull it from another post, “…If the financial crisis is a demonstration of the need for free markets, then why don’t we view the alleged drug “problem” in Northfield as simply a manifestation of the free market doing its job, allowing for people to make a living, and even get rich if they can, by selling in an unregulated economic climate?…” The problem with drugs is that people die from their use. I haven’t heard of someone’s death being attributed to an overdose of banking. Now, I have heard the expressioin of being taxed to death, but I’m not sure that is accurate either.

    The seeming reason I have heard expressed here for increased regulation of banking, or most other social institutions, is to combat greed. It seems that this malady has been exposed as the underlyibg reason for much of the financial collapse. Jerold F. and I had a lengthy discussion on the merits of how greed is best handled. I still contend that regulations per se do nothing to change the the moral compasses of those people being regulated. I liken it to trying to eradicate mole runs from your yard. Unless you get at the problem, moles, and remove them, they will just emege somewhere else. One of the requirements for minimal regulation to work is for there to be a uniformly taught moral base against greed. This is what I contend is lacking in our present society simply because it has been forsaken over the last 30 or so years. I still think we are seeing the evidence of a generation that has been taught that there is no universal moral truth and that they can determine their own destiny without having any effect upon those around them. They can also live as they please without having to pay any consequences for their actions. This is just my opinion, though.

    October 28, 2008
  442. Jane Moline said:

    Peter: The problem is that you are arguing against the facts by claiming they are opinions–in #480 you say that Paul is stating his opinion on the financial crisis and that he is unfairly critical of your sources. Paul is stating facts–but you just don’t want to concede them. Your sources are not facts–and they are usually highly-suspect. I would much rather read something where you lay out something concrete about why you think you actually have the facts–instead of a link to some other website.

    This is a fact: The source of the economic crisis is not CRA loans. Period.

    For one, it is just way too more complicated–if we just had a bunch of loans being foreclosed on, we would be dealing with that, not buying up bad paper and infusing capital into banks while completely dismantling the investment banking system.

    This is a fact: The companies that were failing were not the primary source of the problem–(but in some cases they did contribute to the problem.)

    For example, Wells Fargo Bank is one of the 8 banks that received the capital infusion. Wells Fargo had some “bad loans” and some “bad paper” but they were not on the verge of collapse. Most of the bad paper was AAA rated bonds based on sub-prime loans. The vast majority of the underlying loans for these bonds were NOT originated at Wells Fargo.

    So, you can claim that Wells Fargo used bad judgement in buying AAA rated bonds–somehow they should have known that the bonds were overrated? Somehow, they should have known not to buy bonds that their regulators endorsed as prudent investments?

    Unfortunately, when Wells Fargo needed overnight money so that it could go on with its business of lending out money, their sources were in a crisis because a majority of the sources’ assets were in subprime mortgages–and they didn’t know how much of their cash would be needed to bail themselves out–and they didn’t know if Wells Fargo had lots of subprime loans or just a little subprime loans–so they didn’t make any money available for credit–and all the banks in all the country ran into the same problem–nobody knew who had the bad assets–and everyone became afraid of runnng out of capital–and they all shut down the credit market.

    When banks could no longer get normal money for normal business, the Fed finally stepped in–you may disagree with their solution of an infusion of cash–but the alternative was to have the ENTIRE banking system collapse–it would have taken a few months, but they would have fallen like dominos–“good” banks (that had never made a subprime loan) and “bad” banks alike. Everybody would have run on the banks and pulled their money and we would all be running around with cash stashed away (if we could get it out) and panicking and etc. etc use your imagination.

    Meanwhile, small businesses that rely on banking for working capital would have to close, setting off further shock waves of unemployment and loss of GDP.

    This problem may have been avoided simply by keeping the Treasury rate higher–and keeping federal securities attractive for investment.

    Instead, the derivitive market was spawned to provide investments for world-wide investors–and to keep up with that appetite investments banks continually demanded more and more loans.

    Loan originators made the terms ever more ridiculous with “teaser rates” and no-principal payments and no down payments in order to attract current borrowers to switch from their safe, 30-year fixed-rate loan–they provided incentives and attracted borrowers who didn’t even want to buy homes, and regular people who, because of the low rates, thought that speculating in the housing money was smart investment.

    Another part of this problem that is not fully discussed is that the economic crisis has been brewing for some time–it has increasingly been difficult for middle-income taxpayers to continue to meet their debt obligations-partly because of abuse of credit, but more importantly, because of economic constriction–people have been losing traction in an economy where their paycheck is not keeping up with inflation, they may have a health crisis–in the US we pay an unfair, unweildy and unstainable portion of our income for health care–or a family crisis, aging parents, etc.

    This economic crisis has made itself worse–as people lose their jobs, lose their homes–businesses suffer as retail sales decrease, wholesale sales decrease–businesse close, people lose their job–blaming the borrowers does not help or make it better.

    I know of very few people who could pay cash for their house–most people need a loan, and most relied on the idea that they would have a job and good health and be able to pay their mortgages.

    Tough times are still coming–we need to have some compassion and real solutions to this crisis, not run around trying to pin the blame on the political party.

    October 28, 2008
  443. Peter Millin said:

    Jane,

    So the FACT that initially banks made mortgages to people who could not afford them AND relaxed basic requirements for getting a loan( proof of income) and NO down payment had nothing to do with the current crisis????? WoW you are in direct opposition with just about anybody on this.

    I suggest you go to the NPR Marketplace website and get a primer as to the causes of this.
    They have a great analogy of how it happened and this is hardly a right wing site.

    Even Obama and McCain said in their second debate “There is certainly enough blame to go around on this”. Why do you think we haven’t heard much as to the causes of this from our elected officials? Pretty simple, they know they messed up.

    From giving houses to people who can’t afford them to not providing oversight this all sits squarely in our politicians corner.

    I am a little perplexed why you don’t hold them responsible too.

    I am sorry but I don’t have much compassion for people that don’t bother to read the fine print on the largest purchase they make in their lives. Why should I have to bail out people for their own negligence ?

    If as you say there was fraud, then I believe there is laws on the books to deal with it. No need to use this as a political issue in an election year.

    Yes you are right,, it will get a lot of worse then it is now. The real credit crunch will come when people start to default on their credit cards.

    I do have compassion if you are down and out and I am the first to step up when help is needed.
    But I rather teach a person how to fish then just give him a fish.

    October 28, 2008
  444. john george said:

    Peter & Jane- There is an interesting article at this site- http://mises.org/story/1243, by Frank Shostak, a noted economist. I think he has a good observation in this statement, “…This is however, not so as far as government is concerned. For government is not a wealth generator, it only consumes wealth.[3] So how then can the government as a borrower, which produces no real wealth, ever repay the debt? The only way it can do this is by borrowing it again from the same lender—the wealth-generating private sector. In short, it amounts to a process wherein government borrows from you in order to repay to you.

    It is therefore not possible to have an effective tax cut without a cut in government outlays. A so called tax cut while government spending continues to increase is just an illusion…”

    I think this pretty much describes how government involvement with the private sector can affect the ecomony. This leads me back to a question I asked on the presidential campaign thread, who is advocting for the reduction in the size of the government? I don’t see how we can have economic growth in the private sector as long as there is unbridled growth in the Federal Government.

    October 28, 2008
  445. Mike Zenner said:

    John G, your right on the money!

    Folk’s the overriding question is why is the FEDERAL government involved in any of this(CRA, Fannie,Freddie, Medicare, SS ect)! If the founding father’s were alive today they would be appalled. A gigantic all powerful CENTRAL government! We were established as a Republic, the United STATES of America.

    If helping people with mortgage problems is the right thing to do then why do we need to turn to the Federal Gov? Can’t we do it locally or with State assistance?

    Peter is right when it comes to this current Mortgage crisis, it would never have happened if there was no secondary mortgage market (FANNIE,FREDDIE), to spin off badly originated mortgages. If the originators of the loans also keep and serviced these mortgages the problems would not be nearly as big of a problem I feel.

    There would be no need to trade or get involved in mortgage derivatives for insurance if you did your job originating a mortgage properly.

    The Federal Governments only PURPOSE is to 1) Protect your Constitutional Rights, 2) Protect private Property, and 3) Provide a national DEFENSE (not the current Imperial Offense)

    The Federal Government’s tinkering trying to dampen the Bust, or extending the Boom of the natural Boom/Bust cycles of Capitalism, only prolongs the cycle and causes economic malinvestment (eg excessively high housing prices due to unreasonably low interest rates and Fed guarantees of mortgages at Fannie/Freddie)

    Both our Big Gov candidates for Pres say nothing of rolling back the FEDERAL Gov. Borrow and spend, or Tax and Spend, your choice. When all Government take up 51% of GDP do we call ourselves socialists or communists?

    October 28, 2008
  446. Jane Moline said:

    Peter: Banks made many loans to people. Loan originators made many loans to people. Many people could afford the loans when they were made. Some of them could not. The main problem was NOT the CRA loans.

    It was a whole bunch of loans made by less-than-conscientious lenders who were focused on feeding a demand and rewarding themselves with fees–while not being responsible for the fallout–which led to fraud on the part of some lenders–who are not banks (for the most part), and who have since closed their strip-mall offices–meanwhile their unfettered practices led to a ballooning of housing costs, especially in Florida and California, where regular people were having a difficult time competing with speculators who were driving prices up–so people who might have been able to afford a mortgage were now seeking sub-prime loans so they could afford a home, with the hope that their future income would allow them to refinance–except they couldn’t because now the credit crunch arrived–and it is a vicious circle with everyone blaming everyone else–and yes, there is plenty of blame to go around.

    Just quit claiming it was CRA, because it wasn’t. That is a convenient scape goat Republican politicians are pointing to so they can distract from the blame they deserve. And I absolutely blame the politicians–of both parties–who were in a position to do something last year or the year before or five years ago–but they never thought people would act out of greed.

    John, of course we should not have tax cuts without spending cuts. Please explain that to President Bush. He doesn’t seem to get it. And even though McCain was originally against the Bush tax cuts, he has since gone over to the “dark side.” You are absolutely right that we need to shrink the federal government in order to improve the economy.

    There was no “shrinking” involved in the bailout. If we do not demand it, it will not happen (and even if we do demand it, we may not get it.)

    The bailout was a stop-gap to prevent a total economic depression. It may have slowed things down, but if we do not come up with some economic stimulus, we may slide off the edge anyway.

    I think we better all go back to the history books and figure out what worked best during the depression–and even if it means we have a bunch of new “alphabet soup” government agencies–we better get cracking so we can get to eliminating them sooner rather than later.

    October 28, 2008
  447. john george said:

    Jane- Did you read the link I cited? How is creating more gov. agancies (alphabet soup!?) going to create any wealth? I just believe this concept does not hold water. If you can show out of history where this actually occured, I would appreciate it. The WPA was successful simply because it put unemployed people to work and increased the infrastructure. What is a current area of infrastructural need on this scale? Is anyone ready to clean up all the garbage floating around for something to eat and a place to sleep?

    October 28, 2008
  448. Jane Moline said:

    John: Unfortunately, I think we are going to have hoardes of unemployed people where it will be better to put them to work than to try to support them not working. I am saying we are in a bad spot to shrink the government when we have employed policies that are driving people out of business and out of work.

    Maybe I am wrong, and everything will be hunky-dorry tomorrow–but I am predicting that things will get much worse before they get better–we will see record unemployment. Then what? Layoff all the government workers too, to stimulate the economy?

    I do believe we can greatly shrink defense spending by ending the war in Iraq, and that might help–or it might be too late.

    SO–I am for shrinking the government, but I think it will be growing before it is shrinking.

    October 28, 2008
  449. Mike Zenner said:

    John G,

    I’ve always been intrigued by WPA built structures. They are always way overbuilt and Massive(probably because the Government was funding the Project to keep people working, no hurry to complete project on time or under budget,and also the architecture of the times) The Northfield Post Office is an example.

    Perhaps our new 2010 WPA/REA will be a Massive Alternative Energy program! How this is funded is another matter!

    October 28, 2008
  450. john george said:

    Jane- I don’t want to throw out the baby with the bath water, either. Putting people to work rather than supporting them not working is a great idea. From my perspective, though, that has not been the pattern of the Democratic welfare system over the last 30 years. I think it is interesting that in 1987, Reagan proposed moving the jurisdiction of welfare back to the states. There is an interesting article here, http://query.nytimes.com/gst/fullpage.html?res=9B0DE7D8143FF93BA25751C0A961948260, in the NY Times about requiring welfare recipients to work. This plan was actually proposed by the State Governors’ Convention. The whole concept of entitlement dependency has been an arguing point in welfare administration for years. I think we will always have the poor with us. How we help them in their situation is up for debate.

    October 28, 2008
  451. Holly Cairns said:

    Good points, John G. Especially about the poor being with us (must have poor to have rich.) It’s the middle class that makes us special, I guess.

    Mike said:

    Folk’s the overriding question is why is the FEDERAL government involved in any of this(CRA, Fannie,Freddie, Medicare, SS ect)! If the founding father’s were alive today they would be appalled. A gigantic all powerful CENTRAL government! We were established as a Republic, the United STATES of America.

    Early on, there was great debate about the central govn’t and its involvement. The first articles we put together didn’t give the central gov enough power and so we threw that out and wrote the US Constitution, which was the federal (central govn’t on top, rest below in power) system we needed, I think.

    Hamilton and
    Jefferson
    are two guys who argued about power. I think they’re both turning in their graves. They both would be appalled– probably at the lack of foresight and ability to fix problems before they get too large.

    We have a precious situation here in the US. Democracy. We take too much for granted, I think. Best not to point fingers, now, but to get on with it.

    October 29, 2008
  452. Holly Cairns said:

    Oh, and thanks for the info, Jane and Paul.

    October 29, 2008
  453. john george said:

    Mike- I have been ruminating on your proposal, “…Perhaps our new 2010 WPA/REA will be a Massive Alternative Energy program! How this is funded is another matter!…” I’m not sure this is feasable in the alternative energy industry because of the technology involved. The WPA projects of the ’30’s were pretty low tech in comparison. It would be great if we could accomplish this without a huge outlay in training. Perhaps there is a way out there if there is a will to do it, and if there is a cost benefit to private industry to fund it. That is still where the money has to come from.

    October 29, 2008
  454. Peter Millin said:

    http://www.cbo.gov/ftpdocs/69xx/doc6982/12-15-LongTermOutlook.pdf

    Here are the CBO numbers in regards to the long term outlook for entitlement spending.

    None of the current candidates has offered a plan on how to address this.Quiet the opposite is true, they offer more tax cuts and more spending.

    Simple question: How can we afford a bailout, tax cuts and more spending given the future shortfall of entitlement spending?

    October 29, 2008
  455. Paul Fried said:

    David H: You wrote, “In the end ‘freedom’ and ‘free markets’ are one and the same.”

    Maybe in some ideal world. But in the real world, not so. The price of oil fluctuates, the price of gas goes up and down, people with power and wealth can seek supplies at the lowest price and sell at the highest the market will bear. Large corporations can borrow money at rates that are adjusted when the value of the property goes down; but the average homeowner cannot. When the price of gas goes up, teachers and janitors don’t all go on strike and demand a cost of living increase to match rising costs. Unions that organized to counter the power of exploitations by wealthy corporations are increasingly impotent. In this real world, free markets and freedom are not the same thing, in part because the rich and powerful players are the greatest beneficiaries of the freedom of free markets; laborers and lower-paid workers simply do not have anywhere near the freedom of the unregulated freedom that the rich and powerful players seek.

    The freedom of the free market you describe is, in reality freedom mostly for an elite, wealthy few. It simply is not freedom for all; and it is certainly not freedom for people in certain jobs.

    You might reply: well, everyone’s free to quit their job, start a business, or trade stocks. In other words, it’s freedom for only those who participate in certain endeavors.

    Those on the left say: Free markets equal freedom of the rich to exploit the poor. Those on the left say, well, if you’re poor, you are always free to figure out a way to become an exploiter like the other exploiters, and maybe you can get rich too.

    This is not freedom. John G (by way of his personal relationship with Jesus) knows more of real freedom than this faux freedom via the market and the golden calf.

    JohnG: Yes, the above paragraph amounts to a compliment. Or else I’m using you for rhetorical effect. But I think it’s as much the former as the later. And no, I was not borrowing the drug analogy from any published source, although I would never make a foolish, prideful claim that no one else might have thought of the same analogy. Why do you ask? Have you seen the same analogy in print, used for free markets? We could Google it, but it’s getting near my curfew. Others have used the idea of a casino as a metaphor for America before it became a metaphor for the economy. “Drunkenness” and “whoring” worked as metaphors in the Hebrew scriptures, for a variety of writers and figures. Some metaphors naturally suggest themselves. But let me know if you find any of my kindred spirits on the free-market legalized drug-trade analogy.

    Peter: You said I quoted from DailyKos. When did I do this? Once in a blue moon, if that. Find just two of my quotes from DailyKos here at LoGroNo. If you mean to stereotype me this way, you really have to show it’s a trend, or else you’re just making stuff up, like your stuff on ACORN and CRA.

    I admit I’ve quoted Huffpost, and certain British newspapers, as well as CommonDreams (which usually republishes from other sources), and San Francisco and Seattle papers. The WashPost. Even the NYTimes. Once I think I quoted from a French paper. But Daily Kos? How long ago? How often? More than once?

    I would like to think I’d remember this if it were true, and am not having a massive senior moment. If you’re going to make up stuff, you’ll get a reputation as a foul fictionalizer. And it’s not even good fiction. It’s bad fiction. You may owe your readers a retraction on this one, or you’d lose your credibility as a person running for public office. Really. I’d be more careful if I were in your shoes. In fact, I might launch a late write-in campaign against you if you don’t retract. I’m considering it as I type this. Don’t test me.

    October 29, 2008
  456. Paul Fried said:

    I meant to say, “Those on the *right* might say, well, if you’re poor, you are always free to figure out a way to become an exploiter like the other exploiters, and maybe you can get rich too.” Oops. Time to turn in.

    October 29, 2008
  457. Paul Fried said:

    Peter: You quote the CBO on “numbers in regards to the long term outlook for entitlement spending.” But you don’t recognize the military-industrial-private-security budget (more than the rest of the world) as the larger entitlement spending category, which vastly dwarfs the rest of the entitlement spending.

    October 29, 2008
  458. Mike Zenner said:

    John G,

    Actually, most of the Renewable energy Technologies today(wind, solar,biomass) are pretty low tech also. The biggest issue with renewables is their in intermittent operation (eg solar only works when there is sunlight, wind only works when there is wind). To replace a 24/7 hydrocarbon driven system the renewable systems will need to be built at 3-4X (lots of construction) times the capacity of the current hydrocarbon system (actually a 60million year old biomass/solar energy storage), so that when it is operating one part can be consumed and 2 or 3 parts will need to be stored.

    STORAGE is the key, and the current missing link to the renewable energy solution. Need to develop and build massive energy storage systems that can store 1000’s of MWatts for Days, not just a few minutes or hours. These storage system’s will need to be low maintenance and semi low tech to maintain the system viability.

    Many of these systems like wind and solar,and biomass will need to be built in combination to support each other.

    One issue that comes up is do we build this new renewable energy system into upgrading the current CENTRALIZED power grid system(originally much of it built by WPA and REA), or do we opt for a multitude of many many small localized systems with local control?

    The last key issue is that it takes energy to make energy! This is where corn ethanol fails miserably! it takes more energy to make then what you get out when you deduct the corn meal byproduct usage. as conventional oil and natural gas continue to deplete, it will take more and more energy to extract the harder to get at hydrocarbons (eg offshore drilling, Tar sands ect). This lowers your energy return on energy input(EROEI).

    The longer we wait to start an alternative system the more difficult it will be to achieve due to EROEI.

    October 29, 2008
  459. john george said:

    Mike- I’m still not convinced that renewable energy is low tech comparable to cutting and laying granite to build a bridge, or a building, for that matter.

    October 30, 2008
  460. john george said:

    Paul F.- Thanks for the compliment in (at this point in time) your post 496.

    October 30, 2008
  461. Paul Fried said:

    JohnG: You write, ‘Frank Shostak…noted economist….observation in this statement, “…This is however, not so as far as government is concerned. For government is not a wealth generator, it only consumes wealth.” So how then can the government as a borrower, which produces no real wealth, ever repay the debt?’

    They say that during the Great Depression, the New Deal started to put people back to work, but the real thing that employed people in the US and helped us recover was the militarization for WWII.

    In other words, public spending–to redistribute wealth by taxation and employing people in the defense industry–helped us recover from the Great Depression. And consider that this kind of spending, on uniforms, boots, rations, bombs and bombers, bullets, fighter planes, aircraft carriers–is only necessary if you use it to fight or to “carry a big stick”–the “sword does not contribute things of value the same way the ploughshare does. Build a school, or build houses so homeless living in Hoovervilles can have a place to live, and this is of a different value.

    But in general, by spreading wealth around, by getting more people employed, by creating a confident consumer class, and by educating them so they can be better equipped to go out and generate even more things of value — all this helps create wealth.

    If a depression hits, and all the private wealth and capital is hoarded while people are losing their jobs and homes, this is counter-productive for creating wealth. If a government taxes those with private wealth so that you rebuild roads and schools, and insullate homes better, etc., then more people are creating things of value, so it generates wealth.

    FDR was (and sometimes still is) called a socialist for the New Deal, but he was more socialist for war spending, if that’s socialism. Rather, he used government to save capitalism from its own worst impulses: The tendency of the wealthy to hoard wealth at the very time when its movement through society is most needed.

    This is not to say FDR was a saint. He knew about Pearl Harbor in advance (see Robert B. Stinnet’s book, “Day of Deceit”), his military had broken the Japanese codes and, with the Dutch and British, were provoking an attack from Japan. He promised no foreign wars to an isolationist-leaning nation, and then he tricked them into war because he thought he knew better what they needed, and felt he had to use lies to achieve his ends instead of honesty. Some think he was right anyway. Maybe not.

    But as an economist, he saved the rich from themselves. Some of them tried to use Marine General Smedley Butler to lead a military coup against him with the help of the Bonus Army, and install a government more like Fascism in Italy at the time. Butler refused and reported the crime, which was briefly investigated, but then dropped.

    October 30, 2008
  462. Peter Millin said:

    Paul,

    I didn’t quote it because I am of the opinion that we need to maintain our military. Recent events have clearly illustrated the need for it.

    We can chose to weaken our position just like Europe did, but then we would be subject to the tyranny of the Russians.
    I do agree that we should scrutinize on what we spend defense dollars and if necessary stop or delay certain projects. But this vastly different then following Frank’s suggestion of a 25% cut in spending.

    One way I could see us save big dollars, is to discontinue our presence in Europe, Korea, Iraq and other places.
    I think we are past the point now, where we need to baby sit the rest of the world.

    These savings however I wouldn’t want to see wasted financing more failed government programs like social security.

    October 30, 2008
  463. john george said:

    Paul F.- The WPA programs added to the infrastructure. The war industries produced munitions for defense. The money for both did not come out of anything the government produced. It came from sales of war bonds and taxes on profits collected from the private sector. This is still coerced distribution of wealth. Aside from the war bonds, it was not voluntarily given away by those who posessed it. I still look at Bill Gates as a contemporary example of voluntary distribution of accumulated wealth.

    October 30, 2008
  464. Paul Fried said:

    JohnG: When a traffic policeman stops someone who is speeding, it is often for their own safety as well as the safety of others. It’s a form of coersion for the common good. Same as taxes to pay for military, or social security, or sewers and clean water, and garbage collection. The New Deal and WPA (and higher taxes on the rich) stopped the speeding of those who were hoarding wealth instead of keeping it moving, and yes, by keeping the wealth moving, behold, it benefitted the rich greatly. When the whole system was improved in its economic health, the rich benefitted the most.

    Instead of spending a little on a new, New Deal, and a lot on militarization, we could make HUGE cuts in spending, and still spend more on our military than, say, our top three potential enemies. As it is, we spend more than ALL other nations, our allies and enemies, combined. So to some extent I agree with you, JohnG: Coerce less, and beat more of the swords into ploughshares. We could still be without peer in terms of military, but we need not be poised to impose global empire (and set ourselves up to collapse like Rome) by having too much invested in the military. The savings could be invested in better-insullated homes, more renewable energy, better city planning where people could live closer to where they work, shop, study and play.

    October 30, 2008
  465. Paul Fried said:

    There was a nice little commentary today (before 3:30?) on NPR/MPR about Credit Default Swaps (CDS), explaining how, instead of allowing only those who actually owned a bond to “insure” it with a CDS, there was something like 10 times the number of people who owned a bond, on average, purchasing a credit default swap, betting in case that bond (which they did not own) failed. I knew that some of this was happening, but I hadn’t heard it was that bad.

    It would seem that the financial troubles were perhaps even more due to the CDS’s than due to the sub-prime crisis.

    Also, consider that while sub-prime mortgages may have had teaser rates, they were not normally offered by banks that would have more restrictive requirements regarding appraisals, income, etc. So you start with a teaser rate that the person can afford, you include a rate change later to compensate for the higher risk with some individuals who had bad credit history, and you’re almost building in failure: by changing to the higher interest rate later (that the consumer can’t afford) because of the higher risk, you actually help cause the economic conditions that would lead to the default.

    How regulations might have helped:

    1. Regulate so that you require appraisals and proof of income, and so that jumps in interest rates would not exceed the consumer’s ability to pay. This might result in people buying homes that are more within their means, instead of homes they can only afford at the teaser introductory rate.

    2. Regulate the credit industry in general, so that people can’t have so many credit cards, can’t go so far into debt, and even if they do, they won’t be charged such exorbitant rates. When consumers are allowed to have too much credit card debt, and when the interest rates are so high, it creates the conditions that lead to economic failures in the overall system, and as we now see, this affects more than the individual consumer who defaults.

    3. Regulate the Credit Default Swap market, so that only those who own the bond can buy and hold the CDS “insurance.” This should not have become a new market for “short-selling” bonds.

    October 30, 2008
  466. john george said:

    Paul F.- Ah! The great secret to success in life- balance. I agree that much of the Federal spending over the last couple decades has definitely been mis-guided. We still have to get ourselves out of this mess, and there will always be differing ideologies as to what is the best way to do this. I think the aproaching election will be an indication of what ideology the general public trusts to be able to do this. I think this whole thing is beyond any one man’s ability to solve.

    Your example of the traffic cop is interesting, but I’m not sure how you are applying it to taxation. The result of exceeding the safe speed to traverse a stretch of road, possibly death, is a little different than just working to make a living. I’m sure all of us would prefer to keep as much of what we make as we possibly can. The question is what is appropriate public application of what we make privately. This is pretty foundational to much of the discussion here. Who makes the decision about how much is spent where and for why.

    October 30, 2008
  467. David Koenig said:

    Griff, going back to my post #2(!):

    “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 thought that I read a sign painted on the FNB window downtown that they are doing just this…hosting an event at the Grand to talk about the financial situation sometime in November.

    Did anybody else see this?

    October 30, 2008
  468. Tracy Davis said:

    I saw the sign painter today (the event is for Nov. 11) but I didn’t note further details or speak with anyone about it. Let’s try to find out more.

    October 30, 2008
  469. Paul Fried said:

    Tracy: Was the sign-painter helping, or hurting the economy?

    October 31, 2008
  470. john george said:

    Paul F.- If he was hurting the economy, I hope he was canned.

    October 31, 2008
  471. Paul Fried said:

    JohnG: Sorry if my application of the analogy wasn’t clear. The person speeding, warned or stopped by the traffic cop, reminded and slowed down by the speed limit signs, and paced by the stop lights, is like the person who is taxed for the common good. The person who speeds and is stopped is not the person simply trying to make a living–not the person simply trying to pay for necessities–but the rich person who is hoarding wealth, while it would be better for the whole society, and for the neighbor (who is my neighbor?) to keep the wealth circulating as much as possible in the society, like the wise steward who does not bury the coins left in his care.

    Unfortunately, when there is an economic crisis, the speeders (the rich who hoard their wealth) sometimes grip it more tightly, or remove it from banks and bury it like the foolish steward.

    So to complete the analogy, the policeman helps both the society and the speeding driver by enforcing speed limitsl he saves both the driver from his own foolishness, and potential victims. Likewise, the taxing authority (in an ideal world) might save the hoarding rich from themselves by keeping wealth moving, and by restoring the confident working class and consumer class, from which even the wealthy benefit.

    This is not like socialism where the state owns everything and decides what people get paid; but as has long been the case, it is a government that taxes citizens to help provide for the common good.

    You said that the government does not produce anything of value, but this is not true: The government may not directly manufacture goods, but the government helps keep the peace and social order through laws, and this is of value. What would you pay to live in a society that has roads, schools, bridges, police and fire departments, garbage collection, waste water treatment, clean water to drink, etc.? All these things are of value; we get what we pay for, even when we sometimes pay for the wrong things (here insert again my complaint that our military budget is as large as all other countries, friend and foe, combined).

    November 1, 2008
  472. john george said:

    Paul- I understand the concept you are trying to illustrate, but I don’t think the analogy is very good. Sorry. In disecting the analogy, the speeder is breaking the law by exceeding the posted speed limit (the law). The officer stops him because he has the authority to do so (law enforcement). The last I looked, there are no laws on the books that outlaw hoarding. The practice is not wise, but it is not illegal, at least not right now. A hoarder does not necessarily have to be rich, just as a lover of money does not have to be rich. Paul wrote to Timothy that the LOVE of money is the root of all evil, not the money itself. A person can burn with the love of money and not have two nickels to rub together. A person who is free from the love of money does not have to be coerced to share his wealth.

    I don’t see a moral situation with taxes. They are necessary to maintain our society. I agree with you that they must be collected to provide the necessary needs of our society that cannot be provided on an individual basis, hence defense, infrastructure, education, etc. In providing these needs, the government is not providing something that can be resold for a profit or to even recoup the cost. Want to buy a mile of Hwy 3? Have I got a deal for you. Slightly used, but solid as a piece of concrete, and a bargin at just the replacement cost- $1+ million. Do these things have value? Yes, but not in the same way a bushel of wheat or corn has. In fact, it will take quite a few bushels of wheat or corn to pay for that mile. Then, it has no other use than a road to provide safe, smooth (hopefully) travel from one city to another. And I haven’t even touched on maintainence. See what I mean?

    November 1, 2008
  473. john george said:

    Here’s a good example of the Democrats’ approach to redistributing wealth:

    Today on my way to lunch I passed a homeless guy with a sign that read “Vote Obama, I need the money.” I laughed.

    Once in the restaurant my server had on a “Obama 08” tie. Again I laughed as he, too, had divulged his political preference–just imagine the coincidence.

    When the bill came I decided not to tip the server and explained to him that I was exploring Obama’s redistribution of wealth concept. He stood there in disbelief while I told him that I was going to redistribute his tip to someone I deemed more in need – the homeless guy outside. The server angrily stormed from my sight.

    I went outside, gave the homeless guy five bucks and told him to thank the server inside. The homeless guy was grateful.

    At the end of my redistribution experiment I realized the homeless guy was grateful for money he didn’t earn, but the waiter was pretty ticked that I gave away the money he earned even though the actual recipient deserved money more.

    I guess redistribution of wealth is easier to swallow in concept than in reality..

    November 1, 2008
  474. David Henson said:

    John – the server doesn’t want to take care of the homeless, he wants people making over $250,000 a year to take of the homeless. This is the essence of liberal thought, ‘I see a problem – now I want everyone else to pay to take care of the problem.’

    John – you should video these exchanges and become an instant celeb. Like the guy in NY who follows around police & metermaids and exposes their parking habits.

    November 1, 2008
  475. john george said:

    David H.- Great expansion on the theory!

    November 1, 2008
  476. Jane Moline said:

    John–you should have asked for another server if you were going to stiff one with an Obama tie. Or told him before he worked for you that you planned not to tip him because of his tie. He might have said that was fine, as I bet he was getting better tips with the tie than without.

    Next time go without lunch if you want to give your money to the poor– instead of stiffing your waiter (who, by the way, earns less than $250,000 and probably 6 bucks an hour before tips.) Way to go John–punish the working guy to make your point to the LoGroNo crowd.

    David Henson-wrong. The Democrats feel that society is responsible for people who have less of a voice and less of an ability–the weak and the poor. Mostly, federal and state governments agree. The disagreement is at what point and how much should society help?

    Bush policy, endorsed by McCain, is that giving tax cuts to people making more than $250,000 will help because these high-income people will then use the taxes they save to give to charity and “create new jobs.” Obama is saying that we have tried that, and it obviously isn’t working–look at the financial crisis we are in–we are overspending, and we can’t keep up-so lets cancel the tax cuts for the wealthy.

    November 1, 2008
  477. John: Did you do anything to help the ‘homeless’ guy no longer depend on your welfare? My understanding of Democratic principles is to help others in need and motivate them toward self-sufficiency. If you’re giving money out of sympathy or pity, that’s commendable on some levels, but it’s not the Democratic platform.

    Otherwise, I agree with Jane that waiters are not the super-wealthy who will pay more in taxes under Obama’s plan. You have misrepresented Obama’s politics by your anecdote. Assuming your anecdote was for argument’s sake, not a true story, try this one instead:

    I went to the Hilton Minneapolis and stayed a week in a $300/night suite. As an actuarian, I determined the profit was making on my $2100 stay — about $1600. I paid $700 of the hotel bill (costs plus a little profit) and took the $1400 balance to Minneapolis community shelters, schools, and hospitals to improve the quality of life of people who struggle to make ends meet.

    I don’t think that my example is a perfect representation of the Democrat’s platform nor Obama’s plan, but it is a more faithful representation than yours. It takes from the super-wealthy, not waiters, and gives to programs designed to give sustained help rather than a momentary $5 gift.

    We can go back and forth, trying to make a more perfect example. Perhaps someone intimately familiar with Obama’s plan would do that. Suffice to say that your example of taking from a waiter and giving to a homeless guy is far from Obama’s plan.

    November 1, 2008
  478. David Henson said:

    Let’s be honest – a whole lot of taxes are extracted from the waiter (under both plans). And almost zero of the money finds it’s past salaries of government employees and into the hands of the poor. Fixing the plight of the poor is easy, give them money, but the current system wants to employ millions to manage every aspect of people’s lives. This would be a totally unsustainable system except for our having almost every manufactured item we use produced in non-democratic ultra low wage nations. These nations are tired of the deal and pulling their capital out of the system – thus deflation.

    November 1, 2008
  479. john george said:

    Jane & Jerold- This was just a story. It was not an actual event. Sorry I did not make that clear. I always tip my servers disproportionatey, especially if they struggle with the service or don’t do an entirely professional job. I want them to know that someone appreciates them and their efforts just for who they are. I believe a person’s value is not tied to their accomplishments. I know it affects only one person, but I think that is better than not affecting anyone.

    What I would actually do with the homeless person is invite him (her) into my home. I have plenty of room, and frequently share it in this way. I try to live out my Christian convictions with deeds, not just words. You can check with Sean about his solar panel project if you want some verification.

    As far as the system weaning people off welfare, I have worked with many people that have a real struggle financially making the switch. It seems to me that there is too wide a gap between where welfare payments leave off and wages become viable. I don’t know whose fault this is, or if it is anyones’ fault. It may just be a pitfall of our present system. I have no problem with the ideals, but I’m not convinced on the execution of them.

    As far as Obama’s plan, I haven’t been able to quite understand what his plan actually is by reading his materials. I can only reflect back what I have read here and in the media. Perhaps these are not good sources, but I did come away with the impression I used in the example.

    November 1, 2008
  480. Paul Fried said:

    So John, you were hoarding a secret about your analogy, and speeding away. I’m glad your inner policeman (conscience) caught up to you and required you to do the right thing.

    Gosh, there goes my analogy again….

    And of course, John, all analogies are flawed. They compare two things that are alike in some ways, but not alike in others, in order to deliver an insight.

    I agree with what Jane seems to imply–that your analogy seems to depict conservatives taking out their feelings about Obama on the waiter unfairly, so your analogy is really a study in unfairness?

    If the audience for the analogy is not interested in the insight, they’ll hoard their observations about the differences between the things compared instead of considering the insight. Jesus used the analogy of blindness for this practice….

    Jesus’ economics also advised that hoarding, and in favor of generosity toward those in need. Is it fair? Not in human terms. But Jesus would say his heavenly Father is the source of all gifts, so we’re all in debt; to care for the poor generously is a way of repaying the debt. Christians are often fine with this, but Ayn Rand and “Teach a Man to Fish” have been giving Jesus a lot of competition.

    When government gets in the business of caring for the poor, suddenly certain Christians take offense: Some of these would like charity for the poor to be a “pure” spiritual exercise, engaged in only by individuals, not by the state. It doesn’t matter to some of them that the poor are being cared for; they’d rather we let them starve or freeze, and require individual Christians to care for them somehow instead of the state.

    Reagan complained about “failed social experiments” but didn’t want people to think about the dramatic reductions in poverty that those social experiments actually accomplished.

    I think there’s another agenda at work here: It’s Satan, as Rosannne Rosannadana used to say…..

    November 2, 2008
  481. john george said:

    Paul- It wasn’t my conscience at all. I was puzzled at the intensity of some of the reactions, so when I reread my post, I saw the error I had made in my haste. There are times that my mind runs far ahead of my keyboard prowess. I certainly did not want to give the impression that this story was something that I had done myself, but I missed it in the first post.

    Actually, this was probably not a realistic analogy of the “tax” plan at all. The diner at least had a choice in how he distributed his largess. When we are taxed, we have no choice, aside from trying to elect those representatives that we believe will best carry out our desires. As far as caring for the poor, I believe we, the organized church, have failed miserably at our task. There is little wonder that the government has had to step in. When I take a look around at the various edifices erected for the denominations, I really wonder if this is a wise application of Kingdom resources. We will all give acount for how we used the gifts God gives us.

    Paul (the Apostle) wrote this to the Thessalonicans- NAS:1 Thessalonians
    {4:11} and to make it your ambition to lead a quiet life and attend to your own business and work with your hands, just as we commanded you,
    {4:12} so that you will behave properly toward outsiders and not be in any need.
    2002 (C) Bible
    NAS:2 Thessalonians
    {3:7} For you yourselves know how you ought to follow our example, because we did not act in an undisciplined manner among you,
    {3:8} nor did we eat anyone’s bread without paying for it, but with labor and hardship we kept working night and day so that we would not be a burden to any of you;
    {3:9} not because we do not have the right to this, but in order to offer ourselves as a model for you, so that you would follow our example.
    {3:10} For even when we were with you, we used to give you this order: if anyone is not willing to work, then he is not to eat, either.
    2002 (C) Bible
    I think there is precedent to also be able to give where there is need. This goes back to my favorite quote from Francis Schaefer.

    November 2, 2008
  482. Paul Fried said:

    Thread drift ahead:
    JohnG: Yes, St. Paul’s approach was certainly remarkable, and yet there were other disciples and apostles who spread the word, and who might have had their own way of meeting what seemed to be a perceived need. Paul traveled around a lot, and his decision to continue to support himself as a tentmaker was probably wise as far as evangelists (to the Gentiles, especially?) might go. But what if a disciple went to spread the word and minister to folks, and found a community that had a special need for the minister to stay? To help bury the dead after an earthquake or plague? Or, once the seeds of community had been planted, there were needs for ministers to do more to nurture the community? I know of priests who work very hard, and who deserve the income they get from the communities they serve. Their path is not the same as St. Paul’s, but no two paths are exactly the same, even if they seek the same goal.

    St. Paul’s admonition that those who don’t work should not eat may have been practical, given his circumstances, but I’m sure he wasn’t thinking the same for children of — ahem — welfare queens? Should children of poverty starve if their parents are lazy, just because St. Paul said this?

    Even if one believes in St. Paul’s letters (or those in the New Testament attributed to him, but not written by him) as the inerrant word of God, one might ponder whether his advice to a certain community was meant to be a manifestation of wisdom applied to a specific situation, or if it should be applied to all situations. He didn’t write letters to the whole church; he wrote to specific groups, and some of his message was focused for a certain time and place and audience.

    On the other hand, what do we make of Jesus’ admonitions that those with two shirts should give to those with none, and that it’s harder for a rich man to enter the kingdom than for a camel to pass through the eye of the needle (either literal, or analogy for the famed short gate to the city)? Jesus’ advice seems to conflict potentially with that of Paul.

    On whose chapter and verse should we base our economic policies: Jesus’ saying, or Paul’s? It seems Jesus was the bleeding-heart liberal (no pun intended), and Paul was the “pull yourself up by your own bootstraps” conservative, if we use tunnel-vision and view only certain passages.

    And that form of Bible-study is quite popular: Take a verse out of context and see how far it takes you.

    November 3, 2008
  483. john george said:

    Paul F.- While we are adrift, here is one for your theology. When Jesus taught the parable in Luke 19, this is what He said at the end of it-NAS:Luke
    {19:26} “I tell you that to everyone who has, more shall be given, but from the one who does not have, even what he does have shall be taken away.
    2002 (C) Bible
    Is this an example of our current tax system? And if so, does it make it Biblical? (Just a little tongue in cheek, here.) It is also written that whomever gives to the poor lends to God, and He will repay them. You have to consider the whole counsel of the sciptures. I will still trust the Holy Spirit to teach me all the things I need as I need to know them, just as He promised to do. I don’t have to figure it all out ahead of time, nor look to anyone else to tell me how to figure it out.

    November 3, 2008
  484. Paul Fried said:

    More thread drift:
    JohnG: Of course, I think you understand that Jesus was not using the parable of the stewards strictly as an economic analogy, although there are possible applications. His point was not that the poor will have what little they have taken away, and the rich will be rewarded. That kind of literalism totally misses the point. But of course, some economic conservatives would like to take the parable that literally (like Nicodemus taking Jesus too literally about being born again).

    Jesus’ analogy is, first and foremost, about a kind of attitude of generosity and risk-taking, a full spiritual life that is not fearful and timid, but willing to use, share and invest one’s talents or gifts of any kind. Not about the literal rich getting literally richer.

    If you say you take the whole gospel, that’s a fine approach. Jesus says the most important laws are to love God and to love neighbor as self; this includes the neighbor without health care.

    Jesus says, as you note, that generosity toward the hungry, the prisoner, the thirsty, is an act of communion with God. Some folks would rather hoard their money and stuff, walk away, and say something about how the hungry should just learn to fish so they’re fed for the rest of their lives.

    But I know a lot of teachers who are trying to teach kids to read, and write, and do math, so that eventually they can fish and feed themselves.

    So why is it that most of the teachers I know (not like conservatives who walk away and quote the “teach a man to fish” saying) are not conservative in their politics or economics?

    Most conservatives are not interested in investing in education, but in cutting funding, getting rid of teacher unions and/or privatizing it.

    There’s plenty of waste and need for reform in public education, but this is true of much private education (and private business) as well. Many of the problems in public education are not merely with the teachers but social problems the kids bring with them from home.

    A few years back, some politician in Chicago had the bright idea to close certain problematic public schools and have the Catholic sisters run the school for them. The Catholic sisters said no, because they understood part of the source of their success: Kids who go to church with their parents feel more accountable to each other and to the church-based school, and they receive more support from parents with homework. Transplanting children of poverty into a Catholic private school would simply not be the same, and the students would bring many of poverty’s problems with them.

    It’s a shame. It ain’t easy bein’ Christian when it comes to economics.

    November 4, 2008
  485. john george said:

    Pasul F.- You got my point about applying a specific scripture out of context and not in conjunction with the rest of the scriptures. That is what can happen when we rely on our unregenerate intellect to try to apply spiritual truths.

    You asked this question, “…So why is it that most of the teachers I know (not like conservatives who walk away and quote the “teach a man to fish” saying) are not conservative in their politics or economics?…” I don’t know, but it is possibly just whom you associate with. I know some conservative educators, and I’m assuming that is because of who I associate with. I do know that the teachers unions have a stranglehold on many of the school systems across the country, and they tend to be liberal. There is a big flap in North Dakota right now about the teacher chosen to be the teacher of the year. The teachers’ union puts on the awards banquet for this honor, but, unfortunately, the teacher is not a member of the union. She drove all the way to Bismark to receive the award, but was met at the door of the banquet hall by the prisident of the union and refused entrance because she is not a member of the union. Talk about stupidity! It is this type of devisive ideology that divides our country rather than uniting it. And it is in both the liberal and conservative camps.

    The info about the ND teacher, I got from my daughter-in-law, so I give it some credibility. She teaches in Grand Forks. The teacher was from Fargo.

    I like your evaluation, “…Many of the problems in public education are not merely with the teachers but social problems the kids bring with them from home…” I believe it is true, also. That is why I believe there is a great need in this country for change that is not possible through political means. After this election, we will be the same people we were beforehand, unless we take indivudual steps to change ourselves.

    November 4, 2008
  486. Stephanie Henriksen said:

    John G, hostility toward teacher unions seems to be common among conservatives. As a former teacher, I am very aware of the need for unions. Without them, we’d be light years behind on everything you can name from teacher pay to class size.

    I am looking at a 2008 Presidential Candidate Comparison from NEAtoday magazine (May). Hillary and Obama are quite close on most issues. By contrast, McCain opposes increasing the minimum wage, opposes universal healthcare coverage, supports privatizing social security, opposes increased student aid for college, supports paying teachers based on test scores.

    In other words, McCain has a poor report card on issues important to many teachers.

    I recall we were not forced to join the union but would have felt guilty about receiving the benefits without paying the dues. And expecting a union award without being a member is a silly idea.

    November 4, 2008
  487. Paul Fried said:

    JohnG: I’ve been reading a book Holly Cairns loaned me about political rhetoric. It talks about how smooth-talking Reagan started his first presidential campaign by trying to ingratiate himself to white southerners by talking about “states rights,” often read at the time as code for racist exclusivity being tolerated at the federal level, and left for states to decide.

    The book describes how Reagan claimed that he was not interested in the “failed social experiments” of the Democrats (such as the New Deal, or Johnson’s war on poverty, or Carter’s attempts to deal with redlining related to home loans).

    And yet those social experiments may not have been “failed” at all. He suggests that poverty was reduced from 20% to 10% in the US due to such programs, and if Johnson had not been distracted by the Vietnam war, desegregation and the war on poverty might have done even more.

    I don’t see how you can accomplish progress in this area without unions. You can’t simply point to a successful entrepreneur and claim that any poor person should pull themselves up by their bootstraps and do the same.

    John, we have many stories in our culture of people who were so single-minded in their pursuit of the golden calf that they sold their souls to the devil in the process. Some may have become successful entrepreneurs, but this does not mean that they help their children with their homework any more than the single parent on welfare who values family.

    Some who sell their souls to the devil in this way later find it very difficult to get them back, to get to know their children again, to be forgiven by their family for their selfish pursuits. Some never get their souls back, and their children are raised by the TV, and video games, as electronic babysitters.

    It seems to me that the so-called conservative vision is often rife with contradictions, as well as running against the grain of Christian compassion.

    November 4, 2008
  488. john george said:

    Stephanie & Paul- Take a look at “Stone Soup” in the 11/03 Strib. I think it is a very appropriate commentary on how people in general think. I think it is interesting that my relating the story on the union episode in ND is considered hostility. In fact, I and Peter and David H. all get lumped into the same vat just because we question the general liberal way of thinking. I have said it before and will say it again, critical thinking is popular with everyone, unless it is your thinking that is being criticized.

    As far as progress in an area without unions, I would postulate that the unions have taken over the throne of oppression, just as industry giants in the ’20’s and ’30’s oppressed their workers. The problem does not lie in the union itself or industry itself. It lies in the nature of man. When a person gets a taste of power, it is like an opiate. It can never be satisfied, and it will crowd out every other area of a person’s life. What is that old axiom, power corrupts and absolute power corrupts absolutely? Something like that. I just question the validity of some union practices in this day and age. Having a collective voice in a large organization is one thing. Weilding that power to shut down an industry or a school just to get someone’s way is, I believe, a misuse of that power. It is unfortunate that some of the corruption has entered into the workforce through unscrupulous people placed in positions of power. Balance and understanding is what we need.

    November 4, 2008
  489. Peter Millin said:

    Here is an experience that doesn’t come from a book. This is real life.

    I arrived here with two suitcases and enough money for a ticket back home.
    I have no college degree and any other pedigree. I just came here and started working. Working hard sometimes 6 or 7 days a week.

    I started my first business two years after I came here. Got married and had my first child right after. My first business kept me away from home for too long, so I sold it.
    I went back to work for somebody. Money was tight and without my wife working we couldn’t have made it.
    After two more children and we needed two incomes and we certainly didn’t live high on the hog.

    Did we always spend “enough” times doing home work with them I don’t know. Did the TV and video games sometimes took over family time…probably.

    But both my wife and I struggled just to keep thins going. At times we had to look for money in the sofa cushions.
    We NEVER asked for a hand out. We just worked hard and did the best we could at the time.

    Finally my hard work payed off and I got a good paying job, that allowed my wife to stay home after five years of juggling daycare, work and children.

    Again i became an entrepreneur and worked my butt enough, because if I don’t my kids have to struggle the same I had to.

    Today things are much easier then they used to be. I am sure my absence and constant moving around has made things not picture perfect.

    But it makes me mad when some ” snobbish academic do gooder” wants to lecture me on the blessings of government.

    And comments like the one below:
    ——————————————————–
    John, we have many stories in our culture of people who were so single-minded in their pursuit of the golden calf that they sold their souls to the devil in the process. Some may have become successful entrepreneurs, but this does not mean that they help their children with their homework any more than the single parent on welfare who values family.
    ——————————————————-
    Are just as narrow minded and prejudice then those who say “The rapture is coming”.

    Paul. Your story sounds like a new age version of the scrooge and don’t reside in reality. Are they some who belong there? Yes, but the vast majority of people that HAVE to work hard are doing this not for their own gain. We are doing because we love of our children.

    And since you are versed in the bible here is one for you:
    ” The one without fault shall throw the first stone”

    November 4, 2008
  490. Jane Moline said:

    Peter: I don’t think Paul was thinking of you when he put in the “golden calf” story–I think you might have a little parental guilt–don’t we all—because we have always had to work more than we wanted when our young families needed us. I don’t believe that was what Paul was referring to.

    You would probably not be able to get a visa to come to the USA to work today–although you are the preferred race and origination–white European. Republican policies have made legal immigration difficult to impossible, with working VISA waits of years and citizenship applications of up to 18 years regularly. So, if you had come in the last 10 years you would not be voting in this election. (Although it certainly would have helped if you married a citizen.)

    However, please try to understand the Democrats frustration with being lectured by Republicans who have decimated our economy, spent wildly on an unneccesary and illegal war, enriched their friends and corporations of their choice, gutted the constitution by spying on Americans, gutted the rule of law by “signing statements” and gutted our reputation throughout the world by bad to worse policies, including torturing captivies and suspending habeas corpus. All the while lecturing Democrats on how Republicans are fiscally responsible.

    The last time we saw the deficit shrink was during a Democrat’s administration. Every Republican has claimed fiscal responsibility while practicing something quite awful–because of their hypocrisy or corruption? we don’t know, but meanwhile using all forms of propaganda to convince voters to vote for them–and against their own best interests.

    This financial crisis is the fault of failed Republican policies. For years, Democrats have been saying that these policies are not working, that they will lead to financial ruin, that we are “cruisin’ for a bruisin'” and when it finally comes to a head, the Republicans claim it is Clinton’s or Jimmy Carter’s fault and certainly doesn’t have anything to do with the fact that we have had 7 out of 10 Republican administrations in the last 40 years–and when you keep feeding from the government trough-as Republicans have figured out how to do for so any years–eventually we just can’t keep it full for you.

    So, you may be the minority–educated, knowledgeable Republican voters who are real fiscal conservatives–but that is not what we have had to face, especially in the last 8 years. We have seen Republican leaders who are only corrupt and selfish, and an electorate who is uninformed, ignorant, uncurious–and willing to be led by the nose by these corrupt leaders.

    And the Republicans continual mantra that Democrats will RAISE TAXES!, SPEND LIKE CRAZY! TAKE AWAY YOUR HEALTH CARE! WANT BIG GOVERNMENT!.

    There is no discussion or engagement or attempt to find middle ground. I am a left-wing leaner from the left-wing of the Democrat Party–I am not a socialist or a Marxist, and I do not want to raise taxes, increase spending, make government bigger, or take away your health care. Funny–I bet I want what you want. I just think that the Democrats are more trustworthy to get me there than the Republicans-who have proven themselves untrustworthy and fiscally irresponsible.

    November 4, 2008
  491. Holly Cairns said:

    Hi Paul,

    The Westen book– I see you didn’t start on page 147 like I suggested! 🙂 I didn’t find the first part so helpful, but it gets good around page 147.

    And no, I don’t have your Lakoff. I have my own of that one…

    It’s like yin and yang, unions and bosses, Democrats and Republicans, etc. Absolute power corrupts absolutely. Better to have opposing groups.

    November 4, 2008
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