Saturday, September 27, 2008

  1. That is an interesting video and it makes some important points relating to Frank, Obama, etc. that John McCain doesn’t seem to be making himself but should.

    But I’m also not going to go overboard here and assign 100% of the blame to CRA.

    A lot of this mess is also tied into:

    a) Greenspan and Robert Rubin allowing the derivatives markets to expand unchecked in the 1990’s.  Derivatives needed to be regulated and limited and they weren’t.  Derivatives are a DISASTER right now.

    b) The SEC for some reason in 2004 (under Bush) allowed investment banks to ignore the previously put in place 12 to 1 limit on financial leverage.  So now you had Lehman and all the others ramping to 30 or 40 to 1 leverage.

    c) Greenspan (with tacit encouragement/approval from Bush) keeping rates way too low after the tech bubble and 9-11 situations in 2001.  Bush Sr. was forever angry with Greenspan for not lowering rates in 1989-90 and blaming that tight money on the 91-92 recession and his losing the election because of it.

    d) Flat out blindness by everyone in the financial industry and the American public as to what “risk” is.  No one could accept the fact that they might actually only earn a return of 2-5% on their investments rather than the 9-12% they were accustomed to.  So everyone reached for “risk”

    e) Bloated Democrat high benefit government pension programs put in place like we have in the State of Wisconsin and under Tom Ament in Milwaukee County.  Again, those outfits got abnormally high returns during the tech bubble period in the stock market and would collapse like a Ponzi scheme once investment returns went down to a more normal 5-8% level.  So as with “d” above, places like these local School districts (Germantown, etc) and Milwaukee County again reached massively for yield return and got burned.  Such benefits are not affordable unless the pension funds are making 9-15% annually on their investments.  But the governmental entities thought it would continue so they promised ridiculous benefits.

    Posted by (JavaScript must be enabled to view this email address) on September 27, 2008 at 0952 hrs


  2. This is good - too bad such a complex subject doesn’t fit well within YouTube 10-minute limit.

    Glad to see more “connecting the dots” - we did touch on CRA here on Tuesday: comment #17
      http://www.bootsandsabers.com/index.php/weblog/tough_ti mes_call_for_fiscal_discipline/


    In the next few weeks, I look forward to more “connecting of the dots” with “community organzations”, such as ACORN

    http://www.ibdeditorials.com/IBDArticles.aspx?id=307 061229501695

    Regulators didn’t need to do much policing; they let that job fall to radical community groups, such as ACORN and NACA, which siphoned literally billions of dollars from banks and lent the money in poor communities.

    It wasn’t entirely altruistic.

    The community groups booked thousands of dollars in fees for every loan. And loans often required recipients to become active in radical causes — what’s today called “community organizing.”

    If a community group decided a bank was operating in bad faith, it could affect the bank’s “CRA rating” — the scorecard for how well it was doing as a minority lender.

    Posted by (JavaScript must be enabled to view this email address) on September 27, 2008 at 0959 hrs


  3. And I am sure this had nothing to do with it.

    United States

    Dollar amounts are debt owed by each sector (amounts borrowed by each sector)

    Credit market debt

      * 2008/Q1: $49.6 trillion (349% of GDP) [2]

    Household sector

      * 2008/Q1: $13,959.9 trillion (99% of GDP) (% of “households’ gross disposable income”) [3]

    Domestic Financial sectors

      * 2008/Q1: $15.9 trillion (112% of GDP)

    Nonfinancial corporate business

      * 2008/Q1: $6.474 trillion (46% of GDP “Non-financial corporations”)

    Nonfarm noncorporate business

      * 2003: $2.241 trillion

    Farm business

      * 2003: $208 billion

    Government

      * 2008/Q1: $7.470 (52.6% of GDP “Government”)

    Federal government

      * 2008/Q1: $5.244 trillion

    State and local governments

      * 2008/Q1: $2.226 trillion

    http://en.wikipedia.org/wiki/Global_debt

    Posted by (JavaScript must be enabled to view this email address) on September 27, 2008 at 1133 hrs


  4. PJR - looked at that link - my interpretation is that the stated amounts represent “Balance Sheet Liability” - to get a true financial picture - Equity - it needs to be offset by “Assets”.

    Also, looking at the link, it appears this is a measure of money flow - as stated at the beginning, sometimes the debt is paid off within a matter of days.

    My take is that amount really has nothing to do with today’s situation, except that the “assets” (sub-prime mortgage securities) that are supposed of offset the “liabilities” have turned-out to be worthless, thanks to the ineptitude of Fannie Mae & Sallie Mae.

    Posted by (JavaScript must be enabled to view this email address) on September 27, 2008 at 1204 hrs


  5. mht, true enough on the balance sheet aspect.

    My point is that I believe the current economic situation is being caused by to much debt.

    From what I understand it was a freeze up in the commercial paper market last week that triggered Paulson’s sense of urgency for this bailout.

    I am not sure I see the connection in subprime home lending and commercial paper lending that is typically, as you noted, payed off within a matter of days.

    I am not taking the position that subprime mortgages play no part in this as part of the total housing based lending scheme which would include home equity loans and secondary mortgages.

    Just that it is a part of the puzzle. Maybe big, maybe small. I certainly don’t know at this point.

    I have yet to see any hard data that would support the fact that CRA supported loans are the main driver in this.

    Got any?

    Posted by (JavaScript must be enabled to view this email address) on September 27, 2008 at 1316 hrs


  6. One thing that is left out there is the responsibility of the borrowers.  If people had not borrowed beyond their means, this also would not have happened.  Don’t get me wrong, I agree that the pressures from the mandates perverted the market in a way that enabled this behavior, but I don’t like to see any blame deferred in these cases.

    Posted by Mike Gallo on September 27, 2008 at 1632 hrs


  7. So they couldn’t find the time in the entire 10 minute video to give us the vote of the McCain in 1995, when he was in the majority?  And despite holding both houses and the White House the poor Republicans just couldn’t figure out how to get regulatory changes in 2003 and 2005?

    Clinton shares plenty of blame here, but this woe us, we are never to blame line from the GOP gets tired.  You’ve controlled the White House for the vast majority of 4 decades, the most powerful office in the world, yet it is never your fault.

    Posted by (JavaScript must be enabled to view this email address) on September 27, 2008 at 2113 hrs


  8. Steve Austin - Thank you for your take on this.  The meltdown is many faceted but it’s clear it started with Bill Clinton.  You’re summary fills in the successive moves in the game that lead up to today’s situation.

    I only know one thing.  It would be insane for us, the taxpayers to give $700,000,000,000,000 to the same a-holes that put themselves (and us) in this situation with out a whole lotta’ strings attached.

    And millions of unwashed masses still think Hillary would be good for this country.

    Posted by (JavaScript must be enabled to view this email address) on September 27, 2008 at 2344 hrs


  9. And the tools in the press keep feeding us shit sandwiches…

    Posted by (JavaScript must be enabled to view this email address) on September 27, 2008 at 2348 hrs


  10. One to many sets of zeros there Terry.

    It is unfortunate that the media doesn’t report that there are alternate proposals on the table or that there is even other options from people outside the government.

    Posted by (JavaScript must be enabled to view this email address) on September 28, 2008 at 0921 hrs


  11. See http://en.wikipedia.org/wiki/Trillion for an explanation on one trillion.

    Posted by (JavaScript must be enabled to view this email address) on September 28, 2008 at 0952 hrs


  12. Whoops… The Bailout is 700 Billion.  Old age creeping up I guess.

    Posted by (JavaScript must be enabled to view this email address) on September 28, 2008 at 1006 hrs


  13. The Bailout is 700 Billion.  Old age creeping up I guess

    Then again, goverment numbers have a way of “creeping up” too, so one trillion might not be that out of whack.

    Posted by (JavaScript must be enabled to view this email address) on September 28, 2008 at 1045 hrs


  14. Just to point out again that CRA has nothing to do with the housing crisis, I’ll refer you to Stephen Bainbridge.

    Posted by (JavaScript must be enabled to view this email address) on September 28, 2008 at 1652 hrs


  15. Steve-O, quick question.  Are we to ignore the linked post that says the Democrats “bear an awful lot of the blame for the current financial mess”?  Or should we just pay attention to the part that lines up with your talking points about CRA?

    Posted by (JavaScript must be enabled to view this email address) on September 28, 2008 at 1740 hrs


  16. Actually, this is what Stephen Bainbridge has to say about CRA:

    http://www.stephenbainbridge.com/punditry/comments/s hould_we_blame_the_gop_or_the_democrats/

    (

    4) It was Jimmy Carter and the Democratic-controlled Congress that imposed the Community Reinvestment Act on banks. Again, the WSJ:

    This 1977 law compels banks to make loans to poor borrowers who often cannot repay them. Banks that failed to make enough of these loans were often held hostage by activists when they next sought some regulatory approval.

    Robert Litan, an economist at the Brookings Institution, told the Washington Post this year that banks “had to show they were making a conscious effort to make loans to subprime borrowers.” The much-maligned Phil Gramm fought to limit these CRA requirements in the 1990s, albeit to little effect and much political jeering.

    In this post, he is making the point that affirmative action in hiring practices (i.e,, at WaMu) & illegal immigrants getting mortgages has nothing to do with the current crisis, as implied by some conservatives:

    http://www.stephenbainbridge.com/index.php/punditry/ they_make_you_embarrassed_to_be_a_conservative/

    As Bill said to Monica, “close but no cigar”.

    Posted by (JavaScript must be enabled to view this email address) on September 28, 2008 at 1742 hrs


  17. Didn’t mean to step on you, Tony - I was distracted following the links to see where exactly Stephen Brainbridge declared that CRA has nothing to do with teh housing crisis & got busy doing the cut & paste.  Glad to see there are others who follow the links.

    Posted by (JavaScript must be enabled to view this email address) on September 28, 2008 at 1826 hrs


  18. Did you look at the data he presented in the post I linked to?

    Posted by (JavaScript must be enabled to view this email address) on September 28, 2008 at 1835 hrs


  19. This data?

    It says absolutely nothing about Community Reinvestment Act & the impact caused by extending credit to low-income people via no downpayments, relaxed underwriting standards, etc.  Again, he is refuting the opinions of those who link affirmative action & immigration policies to the housing crisis.  Note that the CRA mandates extended to all low-income people (regardless of race), including whites, and CRA has nothing to do with affirmative action - it is not an affirmative action program.

    When you look at the data, it’s true that minorities are slightly over-represented in the sub-prime mortgage market. Yet, whites (non-minorities) received 72.5% of subprime mortgages. Blacks got 16.2% of subprime mortgages, which isn’t all that different from the 12.4% of the general population that blacks comprise. The Hispanics about whom Malkin is so hysterical got only 6.2% of subprime mortgages, significantly less than their 14.8% of the general population

    The only possible “link” I can think of between immigration & lending practices was some provision that WI Housing & Economic Development (WHEDA) enacted whereby borrowers could not be denied their loans if they did not have a Social Security # - I think that topic was even posted here by Owen, but I’m not sure if I can search that far back.

    Posted by (JavaScript must be enabled to view this email address) on September 28, 2008 at 1920 hrs


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