A Memo Found in the Street
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This morning, I have an editorial in Barron’s on "Uncle Sam the enabler."
Its a memo from Wall Street to Washington D.C., discussing how all of the excesses of Wall Street were made possible by the actions in nation’s capital.
I was thrilled to publish this at Barron’s. Here’s an excerpt:
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To: Washington, D.C.
From: Wall Street
Re: Credit CrisisDear D.C.,
WOW, WE’VE MADE QUITE A MESS OF THINGS
here on Wall Street: Fannie and Freddie in conservatorship, investment
banks in the tank, AIG nationalized. Thanks for sending us your new
trillion-dollar bailout.We on Wall Street feel somewhat
compelled to take at least some responsibility. We used excessive
leverage, failed to maintain adequate capital, engaged in reckless
speculation, created new complex derivatives. We focused on short-term
profits at the expense of sustainability. We not only undermined our
own firms, we destabilized the financial sector and roiled the global
economy, to boot. And we got huge bonuses.But here’s a news flash for you,
D.C.: We could not have done it without you. We may be drunks, but you
were our enablers: Your legislative, executive, and administrative
decisions made possible all that we did. Our recklessness would not
have reached its soaring heights but for your governmental incompetence.
The full text is below in PDF format.
It was a pleasure working with Thom Donlan on this, who turned my blunt, meandering scribbles into a razor sharp scalpel.
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Source:
A Memo Found in the Street
Uncle Sam the enabler
By BARRY L. RITHOLTZ
OTHER VOICES
MONDAY, SEPTEMBER 29, 2008
http://online.barrons.com/article/SB122246742997580395.html
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September 27th, 2008 at 9:48 am
Well done Barry! I was looking just yesterday for that single succinct piece which sums up what got us here. And congrats on getting this published in Barron’s.
September 27th, 2008 at 9:51 am
BR and all the informed posters here. Am not much of a talker, but I appreciate all the informed comments/info/opinions.
I can add a couple of more wall street buddies in the list:
# PE firms, who kept the equity demand high during — 2005-07 slow growth boom — and hence kept the equity markets high without any correction for over 3 years
# Hedge Funds, with their easy access to the same easy credit, were in bed with wall street and PE guys during the early part of the boom and now the same hedge funds are having to liquidate their black-box driven quant strategies, and hence forced to dump stock/shit-pile on ordinary investors 401K statement.
CRASH IS HERE (I would give it a few days) — W, W & W — all deserve a bad ending to thier immoral greed and fear campaign.
Dow rallies 100+ on Friday and ^vix still closes above 34. W-S knows it — they are dead regardless of bailouts.
September 27th, 2008 at 9:52 am
How about the financial accounting standards board also and it’s treatment of options in compensating said wall st. executives.
September 27th, 2008 at 9:53 am
And the hundreds of millions of dollars that Wall Street and FNM/FRE spent in Washington on campaign contributions, hosted fund raisers, think tanks, PR campaigns, and below market mortgages for congressmen had nothing to do with the government de-regulation/looking the other way? That money was spent in Washington to bring about that exact result, and now it is not their fault that they were successful. What other favors, future jobs, or outright bribery were also promised for the slack they received, and now the bail-out. More sleaze from the Street.
September 27th, 2008 at 9:56 am
Well done, Barry. I recall Thom Donlan’s libertarian-themed editorials, from the days when I used to subscribe to Barron’s. Yours is in the same vein, and marshalls the facts in an undeniable manner.
It’s sad that the deeper root cause — the fundamentally unsound fiat money system which Goofball Greenspan oftens babbles about — isn’t even on the table for discussion in Washington.
Bailout or no bailout, nothing will restore stability until the Ponzi scheme of creating currency backed by debt is ended. All indications are that it will end with the flames of burning cities lighting the horizon, as millions of internal refugees scour the countryside for food.
It didn’t have to be this way …
September 27th, 2008 at 10:00 am
Well the Street is right about one thing, it is all of our faults for continuing to vote for anybody in the two major political parties, who are totally bought and paid for by the people who want our tax dollars. Both parties stand for more government, more war, and more debt. That is not our future.
September 27th, 2008 at 10:05 am
A few days? How about a few years?
The Fall of RomeThe Great Depression wasn’t built in a day.September 27th, 2008 at 10:15 am
Twenty five years as a broker in several firms. The main thing wrong with the financial end of the economy is, in my opinion, that we brokers continually mislead our client list as to what the chances were of “winning” each and every play. Management used to threaten us if we didn’t produce more, the consensus was always that “they (the government assholes) are too stupid to figure us out” as we pitched complex product after even more complex product to clients that trusted us. I joined the crowd of hundreds of thousands in looting client accounts for the sole purpose of commissions. We all learned to lie within compliance rules and only client poverty would stop us. So why did I quit? I finally looked in the mirror and decided to take a pay cut and leave that part of the business. Most of us finally woke up and stopped and the government finally woke up and fined the companies and executives. The movie “Boiler Room” captures accurately to the last word exactly what we did. Do I feel guilty? Yes. Why don’t I pay everyone back? Get serious, I took several millions and I cannot pay them back in any other way than to never do it again. We have a network of “investments” that were actually speculations of the most risky and the people who bought them had no idea. And it ended up that the people who created these complex “products” also bought them and…then couldn’t make the margin calls.
September 27th, 2008 at 10:16 am
I now see that one of the biggest cheerleaders for Wall Street, Jim Cramer, is now telling us Dow 8000…
I am going to refer to him as “Kite” Cramer because he too, like Paulson, just seems to go whichever way the wind blows…
http://www.cnbc.com/id/26906947
By the way, if you read his ideas, FDIC insurance of 2.5 million for each depositor in each bank…would be a very poor idea, only because with this type of backstop you could easily get subprime lending started again, and that isn’t what is needed…a better idea would be keep FDIC limits where they are but allow rates to rise so that people would want to make deposits to actually make money…(and yes, I see the counterargument to this)…
September 27th, 2008 at 10:23 am
There are lots of feedback loops creating this mess that can be traced to all sectors of society and back decades, if not centuries into the American, western and human psyche. Bubbles do have their uses, as life is a process of bootstrapping itself upward and consuming what comes before in the process. The question is what monetary model can replace this one. Here are my thoughts;
Money is a medium of exchange and store of value. These work at cross purposes because as a medium of exchange, money functions as a public utility, while as a store of value, it is a form of private property. It is as private property that most people think of it, due to its historical origin as an accounting of assets, yet the reality is that modern monetary systems are fundamentally a medium of exchange and only as a function of that are they a store of value, as they have no real backing other than faith in the issuing institution and must be invested for the system to function and maintain value.
The monetary system, with its broad connectivity, is similar to a road system. You own your car, house, business, etc., but not the roads connecting them. That the money in your pocket is interchangeable with what is in others pockets is what makes it a function of exchange. Money is not private property, since you cannot print what you want, as the government retains copyrights, but effectively leases it out to the private banking system. Its value is based entirely on public faith in the institution issuing it, so the taxpayer is ultimately responsible for guaranteeing its value. The result being private gains and public responsibility.
snip
September 27th, 2008 at 10:26 am
“Well the Street is right about one thing, it is all of our faults for continuing to vote for anybody in the two major political parties, who are totally bought and paid for by the people who want our tax dollars. Both parties stand for more government, more war, and more debt. That is not our future.”
capt dave,
I hear you, brother. The breathless back and forth about which party is at fault is pathetic and laughable. Look at the way the rats from both parties are fighting to get their little piece of this bailout mess without having to absorb any blame when it inevitably fails, like everything else they lay their greedy fingers on.
As long as the myth exists that we have a “choice” and that either major party holds any solutions that don’t involve lining their own pockets and getting reelected, our decline into Third-Worldism will only become swifter.
September 27th, 2008 at 10:27 am
Must See
http://www.youtube.com/watch?v=S27yitK32ds
September 27th, 2008 at 10:31 am
BR, excellent article! What are your views on the Final GDP #s & the 1.1% price deflator? When are the birth/death employment seasonal adjustments going to be reported?
September 27th, 2008 at 10:38 am
;-D
AIG Farm :
You’ve got two huge cows, and you sell them to the butcher. A few days after the butcher comes back with your cows for a refund because they’re too big to die.
Citigroup Farm :
You’ve got two huge cows, and you are confident they’re too big to die. The farm is on fire, but nobody notices because it’s burning off-balance.
Washington Mutual farm :
You’ve got two huge cows, you’d like to sell them to the butcher, and you know he won’t take them because they’re too big to die. So you split them in two, and your four newly attractive cows are immediately bailed out.
Alan Greenspan Farm :
You have two cows. You feed them with hormones, and sell their milk to all your neighbours. Then you retire and warn everybody about breast cancer.
Treasury Bond Farm :
You didn’t breed any cow, so you lend two from your chinese neighbour. Then you explain him you ain’t no land neither and he has to open his pasture for the cows he lent you, otherwise they would die, geddit?
Bald & Beard Farm Bailout plan :
You’ve got two cows, you put the farm on fire to get the insurance premium, and you explain on tv that everybody in the neighbourhood has to come fight the fire with their milk.
Short-Selling Ban Farm :
You thought you had two cows, but those are calves. Your wife calls them calves and she tells you to immediately run to town, and exchange them against a proper cow. Bitch. You point your gun at her and shout her to milk those two calves as if they were two cows, right?
Lehman Brothers farm [...]
Cows and banking, continued :
http://www.lacrisepourlesnuls.com
September 27th, 2008 at 10:40 am
He left out the Community Reinvestment Act. The subprime loans enabler.
Without this act and Fannie and Freddie’s help, banks would not be lending to the “poor”.
~~~
BR: No, I elected to keep it to the actual facts that mattered, and avoided wingnut theories and urban myths.
September 27th, 2008 at 10:52 am
Hey Bar, you tell them!
I must say, the morning after the debate, I feel deflated. Yes, by most accounts, Obama won. But the problem is how much the unprecedented $700 billion bailout might hamstring an Obama Presidency, even before it starts. Listening to Obama begin to backtrack last night on his promises of clean energy investment made me realize the true cost of Paulson’s gambit, and Congressional Democrats’ fearful complicity in it. Today, I put my old Republican hat on again (I am a registered Republican, after all) and will be cheering Shelby, Bunning, etc. on CSPAN as they fight this bailout.
Let the credit spreads rise, I say, let the credit markets freeze. Let the violent bursts and catastrophes of true Schumpeterian capitalism take its toll. Let the chips fall where they may. Let freedom reign.
September 27th, 2008 at 10:59 am
Barry,
Amen! The Dotcom bubble isn’t that different from the housing bubble in the sense of the role the Fed played in each. In each case the increased demand for investment would have driven interest rates higher to moderate that demand except for the Fed’s loose money policy. The Fed bares blame in both cases. Capitalists respond to distortions. Distortion is what the Fed continually does by lending money that has never been saved.
September 27th, 2008 at 11:04 am
I’ve said this once, and I’ll say it again, in the current state of our dismal economy, we need scape goats to take the fall, to protect the “elites”. By blaming uncle Sam, or saying the Fed were enablers is only a portion of the blame. Lets not forget we’re sitting on nearly $6.9 Further Reading
Trillion in trade deficit, I personally believe that their should also be fingers pointing at the credit agencies. The S&P’s and Moody’s of the bond rating agency. If we had done a correct job, in indicating the true creditworthiness of a company we would have been able to avoid the majority of the contagion that occurred. Or perhaps it was the greedy mortgage lenders who increased loans to a “particular group of citizens” from comprising of 2% of the total issued loans in 2004 to 30% in 2007. Numbers talk, and it would have been impossible for the FED to have predicated the outcomes with accuracy. However, it would have been obvious that SOMETHING would have occurred. The proper prevention should have been implemented, and now, we simply suffer the repercussion.
September 27th, 2008 at 11:08 am
Is anyone going to mention the Community Reinvestment Act??
September 27th, 2008 at 11:13 am
“Without this act and Fannie and Freddie’s help, banks would not be lending to the “poor.”
You’re an idiot. There was no “act” prodding the mortgage industry to lend to the “poor.” They BEGGED people with horrible credit histories to take out loans because those loans were making bucketfuls of money for everyone in the pipeline.
September 27th, 2008 at 11:40 am
I just hoped you haven’t shamed D.C. into doing something about it. We need to stop this bailout plan. Then focus on fixing what went wrong after the mess is cleaned up.
September 27th, 2008 at 11:43 am
Howard, that was very honest and open. You needn’t feel so guilty, I’m sure you helped a lot of people, too.
John, that was a great comment. I see money much as you do, as a tool for growth and not as an end in itself. I hope others will come to share our viewpoint.
Barry, great piece. I’m generally a libertarian in my viewpoints, but have come to understand that there are simply greedy bastards in the world that need to be reined in, and others who simply can’t take care of themselves and need help. It’s sad to me that the damage from the greed couldn’t be contained and has now infected our entire economy. Those of us who have lived within our means, not taking on more debt than we could handle or buying more than we needed for the sake of driving a fancy car or living in a big empty house are simply left shaking our heads these days, the “we told you so” constantly behind our sad half smiles… knowing we will be the ones to pay for cleaning up the mess, yet again.
September 27th, 2008 at 11:51 am
@Jasper: Don’t waste your time or energy arguing your valid points regarding CRA. There will always be ignorant assclowns who will blame everything on the poor. It’s the oldest scapegoating trick in the book. It’s what the real “elitists” do. They can’t help themselves. It’s embedded in their DNA.
These are the same folks who claim to be “good Christians” and who tell others how they should live. They should be ignored.
September 27th, 2008 at 11:55 am
‘Idiot’? Check your facts. The CRA coerced some fed supervised banks into making loans for social engineering purposes. Traditional lending standards were discarded in the name of expanded home ownership among fairly specific classes of ‘borrowers’. Some estimates are as high as a trillion $ of such loans over an 8 year period.
[BR: What does that mean, "coerced" fed supervised banks? What facts show this? Any links to something authoritative? I've researched this, and I cannot find anything that said -- "LOAN $6 TRILLION TO PEOPLE WHO CANNOT AFFORD TO PAY IT BACK]
Fees and commissions were doled out to groups like acorn for finding ‘underserved’ borrowers which may be as high as a billion $. Cuomo’s record at HUD, recently highlighted in a Village Voice article, spells out the politicization of mortgage lending practices during that period in the name of social engineering and vote buying. Countrywide, among others, was happy to participate due to the larger fees and rates permitted under the new regime. No party is without blame, however, since this sytem of twisted incentives continued to play out under both parties, until the music stopped.
September 27th, 2008 at 11:56 am
Fabulous Barry, Way to Go. In case you don’t already know this you stand out as a reasonable voice, saying the most important things, maybe of anyone with a national level voice. We are all really glad you are here.
September 27th, 2008 at 12:05 pm
Barry, how about railing (and warning)against the REAL culprit here…
At this juncture, anyone who still supports the republican party or it’s ideology, standing in witness of what the result of the near complete implementation and execution of that ideology BY republicans in near total control of the government has resulted in cannot, in my estimation, be considered a fully sane, rational person. EVERYTHING that has occurred in the last 8 years, up to and including Paulson’s attempt to become financial dictator of America, points to an all out attempt to implement an oligarchic dictatorship. EVERYTHING they have done is in ALIGNMENT with that goal and FURTHERS that goal. If that is what you choose to support, they you most surely do not support ‘America’, it’s core principles and values, it’s constitution, the rule of law, the declaration of independence or habeas corpus. Nor are you a patriot or patriotic.
I DETEST how spineless and ineffectual the democrats have become, but it’s at least partly explicable after 9-11. Who could have anticipated the utter lawless ruthless efficiency of Bush and Cheney and minions in steamrolling and bludgeoning them into submission.
The Bottom Line remains, this is a REPUBLICAN ideology and long term plan and it is the REPUBLICANS driving it’s implementation.
The evidence is clear, empirical and overwhelming. The plan is implementation of a fully operational oligarchy backed by the most efficient police state (the Total Information Awareness Program – look it up) the world has ever seen followed by the full out militarization of this country (already far advanced) for use in the coming worldwide wars for fossil fuel, mineral and other resources.
That there was entirely different and incomparably more sane and rational path that could have been taken, the path Al Gore would have put this country on, makes that Supreme Court decision truly tragic.
I was pretty much non political until 2000. Now, while I’m not particularly enamored with the democratic party, I am DEAD SET against the republican party. And if YOU aren’t WTF is WRONG with you? Unless you LIKE where this is going I suppose.
September 27th, 2008 at 12:05 pm
Barry, how about railing (and warning)against the REAL culprit here…
At this juncture, anyone who still supports the republican party or it’s ideology, standing in witness of what the result of the near complete implementation and execution of that ideology BY republicans in near total control of the government has resulted in cannot, in my estimation, be considered a fully sane, rational person. EVERYTHING that has occurred in the last 8 years, up to and including Paulson’s attempt to become financial dictator of America, points to an all out attempt to implement an oligarchic dictatorship. EVERYTHING they have done is in ALIGNMENT with that goal and FURTHERS that goal. If that is what you choose to support, they you most surely do not support ‘America’, it’s core principles and values, it’s constitution, the rule of law, the declaration of independence or habeas corpus. Nor are you a patriot or patriotic.
I DETEST how spineless and ineffectual the democrats have become, but it’s at least partly explicable after 9-11. Who could have anticipated the utter lawless ruthless efficiency of Bush and Cheney and minions in steamrolling and bludgeoning them into submission.
The Bottom Line remains, this is a REPUBLICAN ideology and long term plan and it is the REPUBLICANS driving it’s implementation.
The evidence is clear, empirical and overwhelming. The plan is implementation of a fully operational oligarchy backed by the most efficient police state (the Total Information Awareness Program – look it up) the world has ever seen followed by the full out militarization of this country (already far advanced) for use in the coming worldwide wars for fossil fuel, mineral and other resources.
That there was entirely different and incomparably more sane and rational path that could have been taken, the path Al Gore would have put this country on, makes that Supreme Court decision truly tragic.
I was pretty much non political until 2000. Now, while I’m not particularly enamored with the democratic party, I am DEAD SET against the republican party. And if YOU aren’t WTF is WRONG with you? Unless you LIKE where this is going I suppose.
September 27th, 2008 at 12:12 pm
I consider myself very lucky to be able to read this blog every day. For a short while my friends and family all wondered how I came about all my knowledge of the economy. But now the word is out. Good solid work – thanks!
September 27th, 2008 at 12:13 pm
Here’s why the CRA meme is nonsense:
• Did the 1977 CRA require banks to not verify income or payment history?
• Loan to value — what in the Act sent mortgage writers to the same corrupt appraisers that managed to come in at exactly the purchase price, no matter what?
• Developed automated underwriting (AU) systems that were designed more for speed than accuracy in process mortgage apps as fast as possible.
• What about piggy back loans? Were banks required by the act to lend the first mortgage and do a HELOC for the down payment?
• What about 0% downpayments, or No money down mortgages?
• Circulated internal bank memos that showed how to cheat the system to get mortgages approved that shouldn’t be: How to Get an “Iffy” loan approved at JPM Chase. (Was that CRA required?)
• Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages — was that a CRA requirement too — or just bad banking?
• What was it in the Act that forced banks to make “interest only” loans? And I suppose the Neg Am loans were part of the legislation requirements also?
• Did the CRA require banks to not check credit scores? Assets?
I have to put something out on this soon, as the wingnuts are getting all excited about the wrong thing. The CRA is not remotely one of the proximate causes of the current credit crunch.
As I detail above, there is plenty to be pissed about that DC did wrong. This ain’t one of them.
September 27th, 2008 at 12:19 pm
Its all the minorities fault. Go read Carpe Diem, he’ll show ya
http://mjperry.blogspot.com/2008/09/mind-numbing-effects-of-political.html
(I am being sarcastic)
September 27th, 2008 at 12:22 pm
Thanks Barry, but don’t you know by now that these wingnuts don’t pay any attention to “FACTS”. They create their own “facts”. Please do post something but I’m not sure it will matter. I have these arguments all the time with delusional people like this (including my own brother) and it’s a total waste of time. They only watch FAUX news (and maybe read the bible). That’s where they get their talking points. Everything else is ignored.
Appreciate the efforts though. Your blog is the best.
September 27th, 2008 at 12:29 pm
Fannie’s Perilous Pursuit of Subprime Loans
Discussing the company’s successes, Mudd said one of Fannie Mae’s achievements in 2006 was expanding its involvement in the market for subprime and other nontraditional mortgages. He called it a step “toward optimizing our business.”
A month later, Fannie Mae outlined plans to further expand its activities in the subprime market. The company recognized the already weak performance of subprime loans but predicted that they would get better in 2007, according to another Fannie Mae document.
Internal documents show that even late in the housing bubble, Fannie Mae was drawn to risky loans by a variety of temptations, including the desire to increase its market share and fulfill government quotas for the support of low-income borrowers.
Since then, Fannie Mae’s exposure to loosely underwritten mortgages has produced billions of dollars of losses and sent its stock price plummeting, prompting the federal government to prepare for a potential taxpayer bailout of the company. This month, Fannie Mae reported that loans from 2006 and 2007 accounted for almost 60 percent of its second-quarter credit losses.
Fannie’s Perilous Pursuit of Subprime Loans
David S. Hilzenrath
Washington Post, August 19, 2008; Page D01
http://www.washingtonpost.com/wp-dyn/content/article/2008/08/18/AR2008081802111.html
September 27th, 2008 at 12:39 pm
Nihilism: “DOW rallies 100+ on Friday and ^vix still closes above 34. W-S knows it — they are dead regardless of bailouts.”
Wall Street is not “dead.” There needs to be a stock market. Thousands of companies are still in business, generating earnings (or not). Shares will be traded, earnings will be announced, speculation will occur. Business as usual, albeit with some reforms. When the s*** hits the fan, sooner or later, someone announces the invention of a new, better, s***-proof fan.
Taking the long view, Fear will be replaced with Greed at some point. The cycle will repeat.
September 27th, 2008 at 12:40 pm
Be proud, Barry!!!!!!!!!!
September 27th, 2008 at 12:42 pm
BULLSEYE, BARRY!
I’m sitting here with my paper copy of barron’s, too. :)
Special thanks for beginning at the beginning with the 1996-1997 missed opportunity to raise margin requirements… my personal favorite.
September 27th, 2008 at 12:54 pm
This is a unique opportunity to watch the methods of propaganda and spinmeistering at work. From what I can tell, various “trial balloons” are floated and the final result is the one that has the most complex refutaion.(The one that cannot be immediately discredited in a sound byte.)
Hence, the CRA Trojan horse. The “commoners” are unfamiliar with it and it takes more than 10 seconds to refute the claim that it is to blame.
This is guaranteed to be talking point of Rush Limbaugh et al over the next few days – real Reaganomics destroyed by the liberal evildoers who wanted the poor to have houses.
September 27th, 2008 at 12:58 pm
CRA has its problems, but its has nothing to do with the present credit or housing crisis.
The statute requires financial institutions to REINVEST DEPOSIT funds back into the communities in which they are located. Whoever cited my 1994 paper misunderstood my criticism. This is a very small amount of money, especially relative to the entire mortgage market.
As to Fannie & Freddie, I have long argued they should be privatizied. They were a mess, and they certainly contributed to our present situation.
September 27th, 2008 at 1:32 pm
someone, in an earlier thread, not too long ago, might have been Jeff, or lb, was wondering about ‘News stand’ sales of the financial papes, as an indicator of ~’fear on the streets’…
Earlier this year, those Papers were lying on the Racks like a pile of unwanted liabilities…over the last couple of weeks, they’ve been ‘Sold Out’ by Noon, latest. Today, I went looking for a copy of Barron’s–LSS, I had to travel to a different Zip Code to find a copy, all the local ‘Gas n’ Go’s were bare of them (yes, they came in) I’m thinkin’, based on this local ex., people are getting nervous about what’s left of their 200.5(k) accounts, et al.
Anyways, past that, that’s a fine article BR, I’m fixin’ to go re-read the paper ed. of it..
September 27th, 2008 at 1:40 pm
So the question now is, do we want to continue being the enablers, as Paulson is asking us to do?
September 27th, 2008 at 1:46 pm
This had to be a misprint – it is too honest to have been news.
From an AP story today:
Quote:
“The bailout is intended to rescue bankers from the bad loans that threaten to derail the economy and plunge the country into a long depression. With talks set to resume, negotiators sought a deal before Asian markets open Monday.”
End Quote.
The true bailout triumverate:
1) Rescue bankers
2) Avoid depression
3) Before Asian markets open
September 27th, 2008 at 1:47 pm
Outstanding job. Will bookmark this one as a reference.
September 27th, 2008 at 1:52 pm
In the debate last night, McCain said, in reference to the bailout, that we are “not at the beginning of the end, but the end of the beginning”.
Translation: the $700B is just a down payment.
September 27th, 2008 at 1:56 pm
Winston Munn @ 1:46:10 PM
Strange bedfellows have been created. Nancy Pelosi is in bed with the “fat cats” on Wall Street; and on the other side, we have Newt Gingrich, the House Republicans, and Bernie Sanders.
Strange indeed.
September 27th, 2008 at 2:06 pm
and perhaps let’s put a little responsibility on the voters who put this ship of fools into office.
September 27th, 2008 at 2:18 pm
I would quibble with the word “powers” Government doesn’t normally “grant” powers, it can only delegate its powers that the people grant it.
What happened 2003-2006 is why I am a left-libertarian and not a right-libertarian. Pure minarchy, like pure communism, cannot survive long in the real world, for similar reasons, the corruptibility of man.
A synthesis of public power derived from democratic and egalitarian is a crucial check on the centrifugal forces that the free market creates.
In 1789 the Founding Fathers did not sit down to create the perfect Libertarian State. They understood that government and business thrives best when they are equals.
September 27th, 2008 at 2:46 pm
People here claim to be interested in the facts about how CRA and other government intervention helped inflate the housing bubble. I’m here to help.
Wash Post link:
HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.
…
The agency neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending.
…
In 1995, President Bill Clinton’s HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans.
September 27th, 2008 at 2:47 pm
Here’s a press release from 1997:
CHARLOTTE – First Union Capital Markets Corp. and Bear, Stearns & Co. Inc. have priced a $384.6 million offering of securities backed by Community Reinvestment Act (CRA) loans – marking the industry’s first public securitization of CRA loans.
The affordable mortgages were originated or acquired by First Union Corporation and subsidiaries. Customers will experience no impact – they will continue to make payments to and be serviced by First Union Mortgage Corp. CRA loans are loans targeted to low and moderate income borrowers and neighborhoods under the Community Reinvestment Act of 1977.
“The securitization of these affordable mortgages allows us to redeploy capital back into our communities and to expand our ability to provide credit to low and moderate income individuals,” said Jane Henderson, managing director of First Union’s Community Reinvestment and Fair Lending Programs.
…
The $384.6 million in senior certificates are guaranteed by Freddie Mac and have an implied “AAA” rating. First Union Capital Markets Corp. is the investment banking subsidiary of First Union Corporation.
September 27th, 2008 at 2:48 pm
Or how about this article from 2000 which details how the CRA changed during the Clinton administration (remember that house prices started their acceleration in the 1990s):
The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation’s banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages…
September 27th, 2008 at 2:51 pm
Here’s a press release from HUD on how Fannie and Freddie performed vs their affordability goals:
HUD established home purchase subgoals in 2004 to encourage the GSEs to facilitate greater financing and homeownership opportunities for families and neighborhoods targeted by the housing goals, especially first-time homebuyers.
…
In terms of dollars, the GSEs’ purchases under the housing goals totaled $431 billion for low- and moderate-income loans, $154 billion for special affordable loans, and $388 billion for underserved area loans.
(open this one up to see the figures and tables)
September 27th, 2008 at 2:53 pm
Wash Post, 2004:
In another development, the Department of Housing and Urban Development announced yesterday that Fannie Mae and Freddie Mac met federal quotas last year requiring them to aid low- and moderate-income families. In reviewing Freddie Mac’s past performance, however, HUD found that the McLean-based company counted some of the same loans in 2001 and 2002.
After eliminating the double-counting, Freddie fell short of the goal in 2002, HUD said. But the margin was so slight the department imposed no penalty.
(commentor’s note: SEE! they faced the threat of penalty for not meeting goals set by HUD for low income mortgages)
There’s lots more here.
September 27th, 2008 at 2:54 pm
In addition to Barry’s excellent editorial, Karl Denninger was quite succinct in his Friday night post:
http://market-ticker.denninger.net/
(I also learned the difference between Rick Santelli and Mike Santoli, finally! I blame my ignorance on not having television.)
September 27th, 2008 at 3:03 pm
Bravo. Excellent! This is the best piece (snark) I ever read.
September 27th, 2008 at 3:07 pm
Howard,
Thank you for your honesty. There are many who succumb to peer and boss pressure to “do what is neccesary” to be a “success”. Everybody else is doing it so it’s okay. At least you shared the way it really is with us. We have turned into a society of snarling, spitting, argumentative, opinionated assholes where kiss up, kick down is demanded of everyone on any position on the totem pole in order to move up economically. This formula is destructive. No one wants to be the first CEO that changes the rules. So we end up with two types: the wealthy inside the system and the poor who get by without debts and eschew the greed and the benefits of luxury. I say fuck the luxury, cars, yachts and 500 acre horse ranches. Stick them in your ear, richies. I’d rather die poor than be a social parasite in cahoots with the congressional parasites which rob the poor to give to the rich. So enjoy all those lackeys around you who are watching and waiting for you to slip up so they can cut your nuts off. You DA MAN!
September 27th, 2008 at 3:21 pm
Barry, I think you’re right about CRA not having a DIRECT impact. But I do think it had an indirect impact, which is why the wingnuts can make a convincing case that there is a relationship between CRA and the housing bubble.
1. CRA endorsed the idea that loaning to people who couldn’t pay it back was okay. It eliminated the stigma and validated the idea.
2. It changed the competitive landscape. Subprime lenders profits got squeezed. In order to prop up earnings that were getting squeezed, they had to originate more crappy loans on worse terms.
Those are a couple of things off the top of my head. Give me a little time and I’ll think of more.
I do think that people are searching for a scapegoat. It’s easy to find “the cause” in just about anything that was done in business the past decade. The CRA is an easy target because there is a numerical correlation between it and the housing bubble. But it’s correlation, not causation.
I do have a quibble with your understating of the ratings agencies’ responsibility here. You didn’t even devote an entire sentence to the outsourcing of risk assessment which was codified into by the morons in Washington back in 1975 — the low point of another financial crisis.
Bottom line, the real culprit in all of this is greed, stupidity, and laziness.
September 27th, 2008 at 3:29 pm
Posted by: karen | Sep 27, 2008 2:54:28 PM
karen,
as you know, there’s a grand gulf between Ignorance, and Stupidity. One’s, readily, Curable, the Other, an insidious Disease.
if you see the truth in Denninger’s post, worry not about either.
AGG,
just a minor point, the totem pole these peep believe in, is, but, a reed. Thereby, they may gain Financially, but their actions accrue to their, net, Economic detriment–hence, the loud snarls, and vociferous Threats we hear– through their Organs– when the Wind threatens to Blow..
September 27th, 2008 at 3:40 pm
The 1992 study of the Boston Federal Reserve Bank led toward putting the CRA on steroids by purporting to find racism in lending practices. Shortly thereafter a ‘mortage manual’ was issued with a recomendation to overlook ‘outdated criteria’ in determining credit worthiness. Fannie mae was more than willing to buy and securitize loans made under those ‘new and improved’ standards. What was the peak leverage ration of FNM? BTW, non cooperation with CRA standards was an expensive option to take. Why fight city hall when you can sell the loans off, avoid costly litigation while housing prices only go up? CRA didn’t cause the problem by itself. It needed help from Fannie and Freddie.
September 27th, 2008 at 3:54 pm
“Blaming the poor” is the exact same argument that you hear on the left, “All our money comes from the third world”.
Regardless of the method of calculation used (if any), just step back and think of the numbers. I’ve spent 10 years in the third world, and indeed they do get screwed on occasion, but there just isn’t that much money there to be taken. Unemployment is everywhere, and literacy/advancement is very difficult to come by. That is why they are called poor. You could have all the money in a shanty town, and you wouldn’t be rich.
Same with this whole CRA garbage. Look at the actual amount of money lent to ‘the poor’. Look at a real problem areas, like say North County San Diego – that is poor? Poor people were flipping houses? Wake up.
And that is all before coming to the real problems here, which happened after the mortgages were sold and packaged. If the problem was just people of modest income struggling in the one small house they own, there wouldn’t even be a problem.
September 27th, 2008 at 4:17 pm
debreuil: Remember that market prices are set on the margin, and the CRA and HUD certainly contributed to increasing demand by an unnatural increase of who was able bid on houses (see my comments above). All it took was an acceleration in home prices to change buyer psychology and to entice the speculators who were flipping houses to enter. No one is claiming that the CRA is solely to blame for the entire mess, but it seems clear to me that it helped get the housing bubble under way. Barry ignored the impact of government intervention made in the name of “affordable housing” with regard to the housing bubble.
September 27th, 2008 at 4:23 pm
Barry i love the peice you wrote, it is well written, informative and serious yet with a comedic tone. I was listening to Byron Dorgan talking on the senate floor the other day, and he really got into depth on the removal of the glass-steagall and how it helped cause alot of this.
http://www.c-spanarchives.org/library/index.php?main_page=product_video_info&products_id=281384-101 he starts off right away on that link.
September 27th, 2008 at 4:26 pm
On another note:
Looking more and more like the AIG “loan” bailout was really a bailout of Goldman, Paulson’s former firm. Amazing that nobody is investigating this. Paulson should name the big bailout that’s coming, “The Goldman Sachs Executive Welfare Plan”………
After all, he made over $500 million at Goldman doing some of the very shady dealings that we’ve seen come to light now. Don’t think his hands are entirely clean here. FBI should be investigating he and his cronies over that at Goldman.
http://www.nytimes.com/2008/09/28/business/28melt.html?hp
Why do I get the sense there could/should be several perp walks coming over the next few years? The attorneys and courts should be very busy. Some enterprising individual should put the proceedings on pay-per-view.
September 27th, 2008 at 4:29 pm
ATTENTION READERS: I deleted what looked like a spam attack — it was my mistake, and at Barry’s direction, I have since manually republished all of those.
There were several duplicates (a few from Dave Decker, especially the Washington Post comments, and a few others) — these have also been republished (but not the repeats).
Please be patient in terms of waiting for the comment to show up. For those of you having a hard time getting past the filters — go easy on the all caps, and the links, and try not to post the same thing repeatedly.
Also, avoid any terms relating to Las Vegas.
September 27th, 2008 at 5:04 pm
Just a hint. Some people actually do look at evidence and facts and check sources and don’t blindly accept talking points. I looked at the Wash Post article.
It had zero to do with CRA, but it did talk about Fannie/Freddie and the Bush HUD.
“That year, President Bush’s HUD ratcheted up the main affordable-housing goal over the next four years, from 50 percent to 56 percent. John C. Weicher, then an assistant HUD secretary, said the institutions lagged behind even the private market and “must do more.”
For Wall Street, high profits could be made from securities backed by subprime loans. Fannie and Freddie targeted the least-risky loans. Still, their purchases provided more cash for a larger subprime market.”
The Cuomo article had these gems:
“But Cuomo was closer to the GSEs’ most formidable opponents—namely, the Mortgage Bankers Association (MBA)… a new coalition of heavyweights from Chase to AIG…. Their goal was the same as Cuomo’s: to push Fannie and Freddie deeper into low-end mortgages, consistent with the mission statement in their charters.”
“To the MBA, bigger FHA guarantees on the loans that MBA members granted, combined with easier terms, was a recipe for greater profits.”
The entire article was how an alliance between the MBA and Cuomo to put risky loans onto the GSEs and FHA allowed riskier loans to be PROFITABLE to mainline banks. Not ONE WORD about the CRA. Just how a bunch of big time bankers lobbied successfully to have their risks pawned off onto taxpayers.
I can’t believe you even read the articles then blamed it on the CRA (and the “left wing community organizers” too I’m sure). Living in an alternate reality is the one excuse I can come up with.
September 27th, 2008 at 5:14 pm
Haven’t heard anyone “blame it on the cra”. It’s only a great example of regulations being implimented with the best of intentions blowing up in the taxpayers faces. Read the Boston Federal Reserve Bank’s 1992 report on lending discrimination and ‘outdated standards’ and maybe you’ll begin to put the pieces together. Political correctness and finance are a toxic mix.
September 27th, 2008 at 5:34 pm
Read your own articles. They are a litany of the MBA (big boy profit seeking bankers) using rules LENDERS lobbied for to increase banking profits and dump risk onto taxpayers.
That is the OPPOSITE of government mandates pushed by left wing anti-poverty advocates such as the CRA being the cause of the crisis.
The right wingers are blaming this on the “liberals” and the “minorities” when they were TOOLS for Wall Street to maximize profits. To me what the articles show is the toxic relationship between banks and the regulatory agencies which were supposed to provide a check on abusive lending practices. At every turn, steps that could have SLOWED the number of loans going to unqualified borrowers were torpedoed by the lending industry. And it’s no wonder, because they were making money hand over fist.
September 27th, 2008 at 6:15 pm
Mark E Hoffer,
Brushing insult aside, I find Denninger interesting despite his fear mongering; and I find a gain more than I loose by skimming his rants. (Specifically, I don’t trust Paulson or Bernanke, nor do I hold them in the same esteem in which they regard themselves.)
What I do find incredulous, is that anyone would buy swaps on federal debt. Some people can sell anything, I guess, and some people have more money than sense. In the event of a Federal default, your remuneration would be worthless anyway.
September 27th, 2008 at 6:26 pm
O, hey, karen,
I meant no insult. sorry if I was obtuse. that’s why I started w/ ‘as you know’.
I was, really, trying to tell you: don’t apologize for not the diff. between two minor players. and, if you can, and you must, or wouldn’t have posted it the way you did, see the truth of Denninger’s post–worry, not, about either.
and, Yes, CDS on USTres Are flippin’ ridiculous. The purchasers, of such, are in breach of any sense, and sense of fiduciary responsibility.
September 27th, 2008 at 6:27 pm
LENDERS lobbied for to increase banking profits and dump risk onto taxpayers.
So because there was lobbying, the government was left with no choice but to distort the housing market in the name of “affordable housing?” Interesting logic.
The articles and press releases I linked to above are merely meant to show that there were unintended consequences from the result of housing legislation and regulation (not just CRA). The lobbyists are irrelevant because they do not have a vote in Congress. If Congress’s excuse is, “The lobbyists made us do it…” then I guess we have no hope.
Articles may have slants to them, but you can still pick facts from them. I’m not trying to blame this on one party or the other – it was a bipartisan effort during the last two administrations that helped set the housing bubble in motion. Barry makes some other excellent points about who is to blame. But those who do not see how government intervention in housing helped create the bubble choose not to see it.
September 27th, 2008 at 6:42 pm
Terrific!! Now why don’t you send it to every member of the House and Senate like I did mine, yesterday….
September 27th, 2008 at 6:57 pm
BR,
Please explain to us all the graphs shown between about 3:11 to 3:42 of this video on You Tube.
http://www.youtube.com/watch?v=H5tZc8oH–o
as well as why the legislation the US Senate Dems blocked wouldn’t have averted this mess.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0
September 27th, 2008 at 6:59 pm
Don’t blame the voters. We vote but clearly the lobbyists/corporations/Wall Street runs the show. Why vote for politicians when you can own them???? Like the gilded age, everything in DC is for sale. and it is not a public auction…
September 27th, 2008 at 7:27 pm
PS. Here’s another couple references shoring up the “nutwing” perspective. I’d be happy to read any refutation you may have of these articles.
http://www.nypost.com/seven/02052008/postopinion/opedcolumnists/the_real_scandal_243911.htm
http://mises.org/story/2963
September 27th, 2008 at 7:37 pm
We can still stop these people in Congress.
http://seekingalpha.com/article/97517-on-board-the-u-s-s-titanic?source=front_page_most_popular_articles
September 27th, 2008 at 7:38 pm
Man those poor minorities buying their first house must be more powerful than I thought. A few loans and it causes the whole financial industry to stick its head up its ass and chew until it reaches its mouth.
Amazing where the real power is in this country.
September 27th, 2008 at 8:01 pm
Very well written, Barry. Good for you.
At this time,in all that is unfolding in
washington and on Wall street, your article
nails it on the head I think,and I hope this will be read by many who will take a
moment and reflect on the fact that their
actions, for what ever reason,(greed)have landed us as a country in this mess.There is alot of irony to go a round, and many who are seeking to lay blame, only need to look into a mirror.
September 27th, 2008 at 8:58 pm
Nice work. Add the fact that the Treasury through OTS, FDIC, and OCC codified off-balance sheet leverage for the commercial banks, also in 2004 (June). The resulting explosion of ABCP in 2004 – 2007 was the first to experience a run last fall when the SIVs and ABCP Conduits imploded. The fourth graph in this Federal Reserve release shows the result – ABCP is in yellow.
September 27th, 2008 at 9:02 pm
Of course CRA played a role. The original law was an effort to end redlining, which is the refusal to grant loans by neighborhood, regardless of the credit worthiness of the applicant. Twenty years later, its modifications and extensions, by whatever title, ended up requiring that loans be granted regardless of the credit worthiness of the applicant.
An especially sad consequence of this that I have yet to see mentioned here is the damage this has done to cities. By turning high-quality tenants into low-quality homeowners lending to marginal purchasers simultaneously harmed both the owned and rental housing stock.
Among the major beneficiaries, by the way, along with all the commission jobbers who took a cut as they passed the crummy paper along, were middle-class city residents who found their flight to the suburbs subsidized.
My question is: Barry Ritholtz why do you keep denying what is obviously true?
September 27th, 2008 at 10:16 pm
Dont blame the voters? The voters who elected GW not once but twice? You gotta be kidding.
September 27th, 2008 at 10:24 pm
>> BR: No, I elected to keep it to the actual facts that mattered, and avoided wingnut theories and urban myths.
Barry,
Wow, thanks for the response. Also, sorry that I used “he”, I didn’t know you wrote the article.
Anyway, as for me being a wingnut, you’re probably right. I must be at that age where I am transforming from a young, passonate, bleeding liberal to now a crazy, red-neck wingnut. In a couple of more decades, I guess I’ll join you and be an old-fart, angry liberal, don’t touch my social security and medicare…jk ;-)…not by much though…
BTW, here’s Janet Reno taking credits for “nudging” banks to make loans or else we get our Justice Dept. lawyers to say hello…
The new Community Reinvestment Act regulations enable lenders to develop customized strategic plans for meeting their obligations under the Act, and many have been developed in partnership with your local organizations. In this way you are not only helping to rebuild your communities, but you are showing bankers how to be responsible corporate citizens. In short, you can’t do it just with capital, you can’t do it just with people who care; we can do it together.
(Applause.)
It has been my experience in these five years in office that most bankers want to be good and responsible corporate citizens, or they’re willing to be if they’re nudged in the right direction by vocal, knowledgeable, constructive groups such as the NCRC members and by Justice Department lawyers who care and want to do the right thing.
I have found, and I think and I hope that you have found, that lenders have listened and learned. Bank commitments, as we have noted, have increased within the last four years. The figures are staggering: an 86 percent increase of all bank commitments under the Act since it went into effect more than 20 years ago.
You can take so much credit for this. I’m pleased to say that I think we’ve done something, too. Too often –
http://www.usdoj.gov/archive/ag/speeches/1998/0320_agcom.htm
September 27th, 2008 at 10:44 pm
The basic question is simple.
Were Countrywide and the entire rest of the mortgage lending pipeline, including the largest banks and Wall Street firms, who spent hundreds of $millions buying Congress and the regulators the VICTIMS of a bunch of liberals like ACORN who shoved loose lending standards on a reluctant industry, leading to the collapse of everyone involved?
OR, did the big boys seeking maximum profits lobby and effectively buy the Congressmen and regulators necessary to get exactly the set of regulations or lack of regulations that very deliberately and successfully resulted in the biggest players, like Angelo, making $hundreds of MILLIONS of in personal gains, collectively hundreds of $billions in personal gains?
It’s not even a close call. The entire pipeline got what they wanted.
To say the DiLorenzo article was disappointing is an understatement. He’s usually better than that. I’ll be more skeptical next time his name comes up. It sure as hell wasn’t a “market” failure, but it seems obvious the failure resulted from the cooperation between regulators and industry to privatize profits and socialize risk onto Frannie and FHA and ultimately taxpayers. The poor and CRA and “affordable housing” etc. were just tools to hide the real purpose behind non-existent lending standards which, by no accident, allowed the likes of Angelo to make money off of every warm body who could sign his name. The $700 billion bailout going to Goldman Sachs and Friends is just the last step in the process.
September 27th, 2008 at 11:32 pm
Jasper, do you absolve Congress of their responsibilities because they were lobbied? Do you not agree that CRA and HUD encouraged and provided financial incentives for lending to risky borrowers? Please note I’m not trying to solely blame the government. I’m simply making the case that the CRA and HUD (not to mention the captial gains tax exemption for housing) helped enable the housing bubble.
I don’t see this as liberal vs conservative. Both sides are guilty. The government’s willingness to meddle in the housing market contributed to our current troubles.
September 27th, 2008 at 11:47 pm
Dave,
maybe you’d be so kind to begin closer to the beginning, and explain how, exactly, the Mechanics of a ‘Mortgage’ works? including, often overlooked, items like who actually funds the transaction…
September 27th, 2008 at 11:48 pm
Put a smile on my face. However, one ‘connect the dot’ that was missing (likely the most important in explaining why all the regulatory changes happened): contribution amounts of Wall Street beneficiaries to political parties for those years… now how will past years contributions compare to 2008? Also, might be a little informative to understand how many key people on the political side of things (who lead the charge to change things to the benefit of Wall Street) are now working (i.e. consulting) and collecting large (although somewhat smaller these days) paychecks from Wall Street. What is the old line… follow the money!
September 28th, 2008 at 12:22 am
Excellent article!!! This demonstrates that we clearly had a very large number of enablers, and a large number of culprits.
But – that fact immediately implies that the fault is not based in one particular party, or one particular group of people. The fault isn’t even in the structure of the government or regulatory systems. Scapegoating is pointless and counterproductive. This was NOT (solely) the fault of any one group. There is blame to go everywhere. We all need to take a look in the mirror. Where were we when we should have been marching in the streets, protesting the self-evident corruption of our economic and political system? Flipping stocks, flipping houses, chasing yield, watching TV, going ape over trivial things when the fuel for the fire was piling up all around…
Truly, the fault is national. We got the government we deserved, we got the laws we deserved, and as a nation (with a few shining exceptions) we did this all to ourselves. Too many chased yield, or home-price appreciation, or home-equity hits. Too few stood up to expose the fraudulent, unsustainable nature of the system we had unleashed. Indeed – it wasn’t just a housing bubble, it was a full-out credit bubble of historic proportions.
But it isn’t even national. No, this mess is global. The United States was not alone, and it seems quite likely that nations representing at least half of global economic output fell into this latest credit bubble in various ways. The other half will feel the consequences as well; there will not be much “decoupling”.
While there’s no point in scapegoating, there is certainly merit in understanding the failure points in order to prevent a reoccurrence for as long as possible. Seeing that EVERY point of resistance built up after the Great Depression was breached, it becomes clear that the failure is with the mindset of the population as a whole.
The sooner we recognize that our collective attitude toward credit and debt has become fatally flawed, the quicker we can pull out of this. Credit is temptation; debt is voluntary slavery. The free peoples of the world should shun debt and reaffirm their pursuit of financial freedom! The four most important words of the next decade will be “I don’t need that”.
September 28th, 2008 at 3:41 am
All this talk of bailouts and regulation of financial entities and instruments is a Dilbert’s cartoon in action.
What ever happened to people being creative and actually making something. The idea that moving money and debt around to try and take one persons money and put it in another persons pocket constitutes a valuable industry is laughable. It’s like saying we should make the tax code more complicated so the tax accounting industry grows.
The actually amount of real, inventive, progressive work being done is getting smaller and smaller. There are statistics on this that prove it.
One day we will look back and wonder why we spent so much effort to make absolutely nothing.
September 28th, 2008 at 5:28 am
Another scapegoat..? The Canadian PM recently opined that the US tax system encourages over borrowing:
“Some of it may be regulation, some of it may be, and this would be something not popular to say if I were an American politician, mortgage interest deductibility,” Harper said. “There is an inherent bias in the tax code for people over-leveraging.”
September 28th, 2008 at 7:08 am
Barry, full marks for this succint piece. If this is any indication of what to expect from “Bailout Nation”, it is bound to be a bestseller of note. My order is in!
Regards, Prieur du Plessis
September 28th, 2008 at 9:15 am
great article. a succinct description of how wall street got into such a big mess. passed it on to many friends to read.
September 28th, 2008 at 10:47 am
Truly brilliant with awesome conclusion in the last paragraph ! You have hit the nail right in the head as to the reasons of the “crisis”, it is a must read for every citizen, economist and politician.
September 28th, 2008 at 12:21 pm
I think it would be a great idea for a facts-based person like Barry to make a piece on the CRA. It is true that this blame the CRA thing is a standard wingnut distraction and that they will not be convinced by Barry putting up the facts. However, it is good to have the facts so you can expose the wingnuts for the clowns they are rather than allowing them to look like they have a legitimate point of view.
Lets se what the CRA actually demanded banks to do, and have some solid numbers behind the argument that it had no substantial effect on what happened. If it demanded that a certain amount of money was invested in poor peoples housing, how many billions did it actually demand be spend and how does that compare to the trillions of subprime that the banks gave to poor people. If the act is responsible for all the subslime lets se how much subslime was created in 2000 and how much was created in 2006 – and lets hear about those changes in the CRA that must have been enacted by the republican president and congress to force the banks to explode their subslime in a way they presumably would never have done if not for those changes in CRA?.
What you need to fight people like Rush and his army of neoconmen is simple arguments backed by simple numbers and facts that are easy to back up. If the the subslime exploded from 2000 to 2006 and the CRA was the same as it always was and democrats were more powerless than ever, then you cannot hang the subslime mess on the democrats or the CRA.
September 28th, 2008 at 12:36 pm
I’m sorry if I am naive, but isn’t all this discussion of politics a little indirect considering the issue at hand? I mean, the politicians did change the rules and push loans for people with bad credit, but in the end, it was the bankers and brokers that did the deeds.
Not all of the banks did it, either. Wells Fargo seems to be doing just fine as do many of the smaller, regional banks. It seems to me that if lenders had just held on to the loans they had originated and been forced to make their money from those instead of exotic securities, none of this would have happened.
September 28th, 2008 at 12:49 pm
This belongs in the Barney Frank forces Angelo to loan to deadbeats file. As has been said a million times here by BR and others this near collapse of the financial system comes down to four basic causes: cheap money, greedy reckless behavior on the street, lax regulatory oversight by the appointed agencies, and deficit spending. That’s it basically. Now there are a hundred side alleys and failures including some by congress but they all grew out of these four core causes. As for Barrons, they have been in the forefront of the argument for free markets and less regulation for years so whatever they have to say has to be regarded with some scepticism.
September 28th, 2008 at 5:16 pm
Angelo was all for lending to deadbeats at high rates and 2 points upfront. The gse’s were thrilled to begin buying the paper. Congressional regulators were shocked, shocked that anyone would question the management at these institutions. Every penny counts when raising campaign funds. Like Franklin Raines famously said, “These are not risky assets, residential real estate is as close to riskless as investments get”. Hey, lever up, it’not my money!
September 28th, 2008 at 6:03 pm
Great article Barry. Thanks!
September 28th, 2008 at 6:36 pm
Barry,
You’ve been “dead on” on all of this.
How many people out of ten do you think understands that this heroic bailout has suspended mark to market pricing and that means the taxpayer will be buying assets from banks at prices no one else in the world is willing to pay. And when the social mood of the nation continues lower as part of the new trend, when that number finally get to five (or so) out of ten, do you think the sound bites of those politicians saying we might make money from this will be prosecuted alongside Angelo M? Rushing this past Americans without really explaining it in the middle of elections is bad enough. How will they explain it to us when they need another $700 billion, because they will.
Stay on em!
September 29th, 2008 at 9:46 am
Two drunks at a bar complain about their ex-wives…