SD, a good post basically, I agree with you on "both sides suck". I do not agree that what is needed right now is fiscal discipline. I am a Keynesian at the end of the day. I am for fiscal responsibility when times are good, and my problems with Bush and the repubs the last 8 years was times were reasonably good and they ran the highest deficits in history. That was bad. Now is not the time for govt. fiscal discipline. Times are bad, and the govt. is the spender of last resort when times are really bad. Individuals were dumb the last 8 years and took equity loans against their fraud driven home appreciation, and bought BMW's and swimming pools. Fools. Now, they see the error of their ways and they are living on their income and saving. They are 70% of GDP. Business is laying off people and dropping capital projects, so they're not spending. State and local govt. tax revenue is falling and they are laying off people, and they can't print money like the fed. govt. That just leaves the fed. govt. to print money and halt the down spiral. Business and govt. have different objectives, and they should manage their finances differently. Business has a profit motive, so when business is booming they borrow and spend to expand. They do the opposite when business is bad, they cut spending and contract. Govt. does not have a profit objective. They provide services to people for the common good. We elect our leaders to decide what is in the common good, and how much we should spend on it. If the economy is in near free fall, and nobody else can spend, businesses are cutting workers, those workers stop spending, more businesses get in trouble, so they lay off some more workers, they lose their houses, so they put their houses up for sale, now there are too many houses for sale, so house prices fall precipitously, and many folks net worth is destroyed, so they get depressed and they quit spending, well I could go on, but this has to be stopped. I don't expect growth to return soon, what I hope is that the down spiral can be stopped, first. That is in the common good. The govt. is the only entity that can come up with enough money right now to spend it for the common good and not to make a buck. For that set of reasons, I believe that Bush's fiscal irresponsibility during good times was reprehensible, and Obama's big spending is correct policy during a depression, just like FDR's CCC and WPA programs "stopped the fall" in the great depression. There is no economic policy that is correct all the time. You have to know what the conditions are at a particular point in time and apply the policy that will work best in those conditions. That is true for business and govt., but the appropriate policies at a given time are different, because their objectives are different.
Think of the money we could have saved just by letting Sadaam continue to thumb his nose at US and UN imposed sanctions and allowed him to continue killing Kurds by the tens of thousands. And just imagine how impressive his stockpile of biological weapons would be by now. Ahhh, for the good ole days.
Probably the biggest fallacy out there. Our financial well being was doomed for failure beginning in the 90's. We developed critical financial policies more for political correctness than financial prudence. We started living on borrowed time and it all came home to roost on Bush's watch and there is little he could have done about it. The mortgage meltdown is largely responsible for our current economic crisis and the cause is traced to policies developed and passed during Clintons watch. Revisions to the Community Reinvestment Act were aimed at increasing lending to low income families and marginal borrowers. Fannie Mae and Freddie Mac guidelines were changed so investment in affordable housing assets were required. The situation was further compounded by the The Financial Services Modernization Act signed into law by Clinton in 1999 that undid 75 years of checks and balances. We created a set of financial laws doomed for failure trying to be politically correct. It sounds great to increase home ownership, offer low income loans and expand the peoples buying power but you cant expect unworthy credit risks to pay their loans back and we've learned a hard lesson. Make no mistake, plenty of republicans are to blame for this mess because they went along with the charade in the 90's. They either didnt see or ignored the signs during the last 8 years. Much of it could have been corrected but it would have resulted in political suicide. How do you stand up and say we are tightening mortgage standards when the uproar would have been deafening? I think its ignorant to say Bush is responsible for all our problems. Bush made mistakes just like Clinton and every other President. Lets not be gullible fools and let media driven rhetoric distort the truth. President Bush's legacy will be judged years from now. Harry Truman, like George W. Bush, left office as the most unpopular President of all time. Just like Bush, he experienced the highest of highs and lowest of lows in public approval. Despite his unpopular rating many scholars and historians now rate Harry Truman as one of the best Presidents in history.
We have technical monitoring capability, we didn't have to invade. Scott Ritter, former UNSCOM head from the 91-98 inspection team said Iraq had no WMD, I saw him on the Today show in the fall of 02. I've read a lot of his articles, he was a 12 year Marine vet, trained by the CIA on WMD. he knows his stuff. He said he knew Iraq had no WMD because of the monitoring capability we have. He said if you were "in the trade" you know the key words used by the govt. that mean "we know he has it" and he never heard those words from the administration. He has said he knew Iraq was not refining uranium to weapons grade, because there is no way to hide it from our thermal imaging satellites, it put out a heat signature that cannot be hidden (so I suppose we know what Iran and N. Korea are doing on uranium). Heck, we put inspectors back in in 2002, Hans Blix and another team. They found nothing, although we said we knew he had WMD. Colin Powell told the UN we had pictures of chemical weapon hazardous waste disposal sites, wouldn't we have told Blix and wouldn't he have gone to check it out? But he found nothing. We had Iraq under control, and we could have tightened the controls at a tiny fraction of what it has cost us. Iraq had no WMD, no collaborative relationship with Al Qaeda, and nothing to do with 9/11. That has all come out in the Kay report, the Duelfer report, and the 9/11 commission report. Let's not beat that dead horse. Most Americans believe it was a mistake, and I see nothing to justify it, except hypotheticals that turned out wrong.
I disagree. CRI never told banks to go out and take on so many bad loans that you will go bankrupt. It didn't do that. One of the biggest problems out there, and nobody talks about it much, was the deregulation at the SEC that relaxed the capital requirements at the 5 biggest investment firms, and effectively outsourced the compliance to the 5 banks themselves. http://www.nytimes.com/2008/10/03/business/03sec.html?_r=1 This is why we had to bail out the banks. The SEC let them take on too much debt (a control mechanism added after the great depression, and the old limit was 15:1, and it was relaxed to 45:1), and then did not follow through under Bush's appointee, Chris Cox (repub). The CRI allowed Fannie and Freddie to lend to people that were marginal, but they did require checking of income. The egregious offenses in lending were by Countrywide, New Century, Diteck, etc., and that was all private sector. Have you seen "house of cards" on CNBC, catch it, its good. Most of the problem was in the private sector, and the failure by the govt. to regulate and monitor the private sector. Wall St. got multilple times the bailout money that went to Fannie/Freddie. By allowing the big banks to get over leveraged, it did not take much in the way of defaults for them to run out of capital and become insolvent. If you don't think this had an affect on subprime issuance, or that the big 5 created the demand, go look at the graph on this page, titled: "A credit cloud", and see the affect: http://bigpicture.typepad.com/comments/2007/02/subprime_market.html It was also the banks "new" ability to take on so much more toxic debt that created the demand for the liar loan mortgages, so they could wash them at the ratings agencies, make garbage into AAA, and sell it to unsuspecting folks like it was safe. Cox said he was surprised the banks didn't regulate themselves and put themselves into such a precarious spot that they went out of business. It shows that these excessive compensation packages for the officers of the company incent the wrong behavior. They will make themselves rich if at all possible, even if it means destroying the company, their industry, and throwing the country into a depression. All they care about is the 4 years required to become rock star rich, and that's it.
A play on words at best. The CRA absolutely required that lenders make loans in low and moderate income areas and to low and moderate income borrowers. The legislation required a bank to meet a certain ratio of loans in low and moderate income areas. The legislation specifically calls for "the use of innovative or flexible lending practices to address credit needs in low and moderate income communities." LINKY HERE AND HERE Of course it didnt say they had to take on bad loans but, by default, having to keep a certain percentage of their lending portfolio in low and moderate income areas by using so called "innovative and flexible lending practices" made the loans high risk which resulted in high default. If banks didnt meet they requirement they would be violating the "performance standards" set out by CRA. This is one part of a puzzle that began in 1995. Who can blame the SEC for reckless financial practices when the government began enacting ridiculous financial laws 10 years earlier. They were on board and getting with the foolish program that was designed for failure. No one thing led to the collapse of housing and the markets but there is a starting point of reckless behavior followed over and over again by supposedly smart people. Ya right...:insane:
Where was most of the problem, state and local banks who needed to comply with CRA, or with the BIG banks who got their capital requirements reduced so they could dangerously leverage themselves. Let's see, big banks, Bear Stearns, yes, Merrill Lynch, yes, Lehman Bros., yes; Citigroup, yes, and they were all over the old leverage limit. So, ALL of the biggest banks that went too high on the leverage limit FAILED. On the smaller local and regional banks, even if they complied with CRA, they are almost ALL STILL IN BUSINESS. The problem was leverage. Those depression era limits were removed in 2004 and subprime lending exploded with it. The problem was not local banks making reasonable loans to local customers, it was the BIG banks demanding more subprime from unscrupulous lenders like Countrywide and New Century. Almost all those "liar loans", where you just had to have a pulse to qualify went bad and the BIG banks that bought them went bankrupt. CRA did not mandate that you had to give a loan to somebody based on a 60 second approval without verification of income. CRA did not specify that people be offered adjustable rate mortgages with 2% teaser rates for 2 years, that would explode to 6% rates or higher after 2 years and that everyone except the borrower knew he could not handle at 6-8%, no CRA DID NOT DO THAT. The problem was not CRA, it was the perversion of CRA by Countrywide, New Century, Ditech etc. and their horrible mortgage contract terms, and the DEMAND from Wall St. for more and more garbage they could get the rating agencies to wash for them into AAA CMOs and CDOs they could dump on unsuspecting customers. And the repubs are looking for a scape goat so they don't have to fess up to their miserable lack of regulation that allowed those practices to explode starting in 2004. They don't want to accept accountability is all, so they're trying to put it off on someone else. Again, look where the explosion of subprime lending occurred, its in 2004, right after the leverage limits were raised: http://bigpicture.typepad.com/comments/2007/02/subprime_market.html
All this rational does is peal off the first layer of a complex labyrinth of acts, laws and revisions that ultimately led to these companies being in that position. Its extremely narrow and short sighted to think one specific change in SEC regulation in 2004 caused the entire economy to fail as it has. It was well on its way before that and I doubt anyone contends that one action resulted in the epic failures. The reason these big banks were in that position in the first place is because of the "Financial Services Modernization Act" signed into law by Clinton. This undid 75 years of checks and balances and led to these companies being able to consolidate, mix and muddle up the balance sheet so much that regulators had no way of fully uncovering the effect of these complicated mergers. You cant even blame this on Clinton because it was a bi-partisan bill that passed with little opposition. The only thing Clinton demanded is that no changes would effect the CRA. Your partially confused. The Financial Services Modernization Act is what undid the depression era law. The Glass-Steagall Act of 1933 prohibited holding companies from owning other financial companies. In 1999 this was all undone and led to the massive expansion of Citigroup, Starnes, etc. It was the biggest banking deregulation we had seen in 100 years. and led to things like the SEC reducing the requirements for leveraged debt ratio. Why would the SEC even question it? The federal government had already paved the way to reduced regulation by the 1999 act. the SEC was just following along like stupid sheep. Ironically, the two repeals from this act have resulted in catastrophic financial crisis. In 1982, Savings and Loans were removed from the regulation and look what happened. In 1999, the holding companies were removed and look what happened. It seems our government has difficulty remember the ramifications of their actions and gave the same path to failure with the holding companies as they did S&L's. The table had already been set by 2004. In 1999, the Clinton administration put pressure on HUD to relax credit requirements and increase FANNIEMAE's portfolio of low and moderate income mortgages. What exploded in 2004 was ARM subprime. Subprime was considered safe because of the boom in housing appreciation so subprime lenders relaxed requirements just like the government had. Its easy to blame the subprime mess on our collapse but it was only the first sign, not the cause. A recent Harvard study accurately articulates this HERE Despite all the attention that subprime and so-called affordability loans have gotten for fueling the housing boom, the national homeownership rate had already peaked by the time these products took off in 2004. Indeed, the homeownership rate began to retreat in 2005 and 2006 and then dropped more sharply in 2007, to 67.8 percent in the fourth quarter. Thus, it appears that these mortgage innovations did less to lift homeownership than to enable homebuyers to chase prices higher, investors to borrow money to speculate, and owners to borrow against home equity. The "perversion of CRA" is a precise description of this misguided legislation. The government led by example and the private sector followed right along into the abyss. Almost laughable is the 60 second approval process because it was instituted by FANNIEMAEin the late 1990's for prime lending, not subprime lending. One again, the private sector followed the governments lead. Incidentally, there was no actual loan approval given. It was still subject to documentation requirements. If the Republicans want to find an escape goat they need to grab a mirror, find Clinton...the entire senate body from 1999, the entire house from 1995 and all stand in front of it while holding the reckless laws they passed. That is where the true blame lies. To think one event in 2004 caused our financial mess is not only foolish, its obtuse.
I never said one change in SEC regulation caused our economy to fail. This is what I said: That would imply that I believe it was one of the biggest, and there would have been other big problems that are also among the biggest ones out there. Don't stretch what I say. A fair comment. Just how did the repeal of Glass Steagall contribute to the meltdown? I don't see it. Bear Stearns was just an investment bank, Merrill Lynch was also, with retail brokerage. As part of the solution, Bear was acquired by JP Morgan, and Merrill was acquired by B of A. So, the fed is still SEEKING these mergers of different types of banks. The loan originators like Countrywide were totally independent companies, with contracts to sell mortgages to Bear and Merrill. That was never a violation of Glass Steagall. Here we have Alan Greenspan before congress testifying: http://www.nytimes.com/2008/10/24/business/economy/24panel.html?_r=1&hp I just don't see Glass Steagall violations as the culprit. Wall St. wanted the mortgages to bundle, the loan originators got them, Wall St. invented derivatives that even they didn't seem to understand how much leverage they were taking on, and they took on too much leverage even with the instruments that they did understand. If Bear wasn't leveraged 33:1, it could have sustained a couple of defaults without going insolvent. Greenspan never mentioned Glass Steagall. How would it have helped? What would have been prevented? The big players went insolvent because they were over levered. That was a result of the SEC changing the capitalization rules in early 04. I think that was more important to the bust in banking than the repeal of Glass Steagall. If you want to make the case it was Glass Steagall, then show what regulation that were dropped, if they had been left in effect they would have saved the day. Would they have prevented exotic derivatives, securitization of uncreditworthy mortgages, or excess leverage in the big banks?
Negative effect of relaxing net capital rule by the SEC on big banks. http://www.law.com/jsp/ihc/PubArticleIHC.jsp?id=1202426495544 Now, go find me an article explaining a substantial link between repeal of Glass Steagall and the insolvency of the 5 free standing investment banks. So again we see that the solution to the problem was to MERGE the stand alone investment bank WITH a commercial bank. If that is the solution, how is repeal of Glass Steagall the problem? Relaxing the net capital rule by the SEC in 2004 was one of the biggest contributors to the failures we have been cleaning up since last year. Every one of the big 5 was in the CSE program.
