Is Obama different than Bush?

Re: Negative effect of relaxing net capital rule by the SEC on big banks.

Now that this big debate has gone on for some time I have some thoughts...
The first thing I thought about when you two started this back and forth exchange is that how very complicated our lives have probably became over the last 100 years or so?
There is no way this country was that screwed up during the first 100 years.
I thought about how I wanted to go bury my head in the sand and be fat, dumb and happy.
This is just typical of any argument in this country with each side having their information and most of it is based on ones political views.
I really don't think there is any information in this country that isn't tainted from one side or the other.
I can truly understand why people would want to say the hell with politics and politicians and either don't vote or vote for whoever you want for any reason you want.
It seems to me it is a better quality of life staying away from all of this bs.
Maybe the Oprah, Dr. Phil and American Idol crowds have it right?
Back to my music and family where life is happier!

 

It appears the majority of blame for this crisis was put on what happened in 2004 when facts point to the construction of a proverbial house of cards beggining in 1995. What happened in 2004 was just another straw that eventually caused the camels back to break. Maybe the final straw but what happened pre-2004 was what set the foundation for failure.

Greenspan was completely wrong so whatever he says now should be mitigated. Glass Steagall prevented the merger of Securities companies, Holding Companies, Investment Firms, Commercial Bankers, Stock Brokers, etc. As soon as Steagall was repealed it opened the door for these massive mergers that made the regulators job impossble. There should have been revisions to Glass Steagall but it was bascially doing its job for 75 years and should have been preserved for the most part.

Yes is would. The entities that became the big players would not have existed under Steagall. The very nature of these super mergers reduced the footprint of the risk pool. Steagall would have prevented the big boys from becoming what they did and spread the risk over several financial categories. What was it that Clinton said last year while defending the act? Something to the effect of the most diversified survied the crisis and those who werent diversified didnt. Well no shiit captain obvious.

I said it was a series of laws and acts that led to the ultimate demise of our financial markets and the Modernization Act is part of it. The very article you quote has numerous examples of changes in financial practices beginning in 2000.

The time line is very clear and it started with the politically correct CRA crap. Take away Clinton's idiotic attempt to keep 50% of FANNIEMAE's portfolio in high risk loans and we may have averted this entire housing mess. Take away the relaxed mortgage qualifications and we reduce defaults. Take away the 1999 act and we dont have super financial conglomerates. It was the proverbial house of cards built one ****ty card after another. Is the 2004 SEC action part of it, yes of course. It may have been the final card that caused the house to topple but the SEC's action was uniform considering the widespread government deregulation of the 10 years prior to it.

The cluster phuck was built by foolish politicians who wanted to be politically correct (1995 CRA) or bowed to special interests (1999 FSMA). What a steaming pile of crap.

 

Re: Negative effect of relaxing net capital rule by the SEC on big banks.

I dont think this is, or should be, a debate centered around political views even though some theories are political. Im more center and even lean pretty heavy libertarian but that doesnt make it impossible to see the forest through the trees. You cant stay away from it because if you dont recognize the errors in our ways you are bound to repeat them. The damn government sure has and we need to keep reminding them.

The topic here..."Is Obama Different than Bush". Of course the answer is yes. The better question..."Is the Government under Obama different than the Government under Bush". So far the jury is out especially as it concerns financial policies.

I did my grad work during the mid 80's when socialism and communism where breaking and my economic studies concentrated on why. Unfortunately, some of the financial factors that caused socialism to fail seem to be working their way into our society because of this economic crisis. Karl Marx would be proud. :dis:

 

Thanks for acknowledging the role of relaxation of the net capital rule. It occurred late, but extending your leverage from 15:1 to 33 or 40:1 will kill you if the slightest thing goes wrong, and I think it was more than just the final straw. Those five investment banks that went down were all in the program, and they were the only ones in the program, they had a 100% failure rate using excess leverage.

I think you overplay the importance of the CRA. Greenspan, while he had his mistakes, said the main problem came from private industry and the use of exotic derivatives. I agree with Greenspan.

Example:

http://articles.latimes.com/2008/sep/15/business/fi-lehmanexplain15

A fairly implemented CRA would not have produced these results. Corporate predatory practices targeting people who were not sophisticated are what caused this.

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

 

Re: Negative effect of relaxing net capital rule by the SEC on big banks.

SD,

Good post. I don't agree with most of your views, but I trust your sincerity when you express them. I don't think you're looking for a partisan kerfuffle, you're just looking for the truth, and I like that about you.

It does get complicated, all the details. That's how the rich boys and girls obfuscate to make it appear they are taking our money, but its not illegal.

I manage my own portfolio, and I am much less interested in whose side is right, than what really went down. That knowledge is very useful in making your next investment decision. I've found that you can't put it on auto pilot. CEO's with huge stock option plans and outright grants of free stock are aligned with the shareholders right up until they become rock star rich, and they don't care if they drive the company off a cliff doing it, as long as they cash out before it goes over the cliff. I try to diagnose the scam so I can avoid it next time if possible.

Anyhow, I hope you're enjoying the discussion!

 

I discount comments by parties involved in the legislation. They have a vested interest in showing their actions didnt result in this mess. The FDIC, Federal Reserve, Greenspan, Clinton and all the politicians attempting to be politically correct are the very ones who passed the legislation. Of course they are going to defend it.

Its far better to look at academia research and uninterested 3rd party reports when determining what did and did not impact the current crisis. Harvards center for housing has dozens of studies and working papers on the issue. Comments by the players should be taken with a grain of salt.

The CRA is clearly part of the problem and the foundation for this epic failure. CRA sponsored lending was approx 18 Billion per year in 1995. In 2002 that number rose to 140 Billion per year. Home ownership rates only increased 5% during that time but CRA lending increased 700%. If that isnt a huge red flag I dont know what is.

Greenspan is partially right in saying private industry is also at fault but when you follow the governments example who can blame them? The government started this ride down a slippery slope and it led to all kinds of non-conforming, non-traditional banking practices because they changed the rules.

Lehman is guilty as hell for predatory lending but they wouldn't have been in the mortgage business if it wasnt for the 1999 act.

 

http://www.jchs.harvard.edu/publications/governmentprograms/n08-2_park.pdf

This is the first paper I read at the Harvard Joint Center for Housing Studies, and it says about the same thing that the Fed governors said, CRA was not a primary cause of the housing debacle of financial collapses of the banks. The majority was caused by private industry.

 

That is a 5 page snippet absent of scope with almost no substantive statistics to back up one individuals conclusions.

The point I originally made about the CRA, and subsequent lending and banking laws, is that it started a series of misguided and risky government policies that ultimately led to the demise of the mortgage market. Lets try to summarize with facts.

- 1993: CRA mandates lending to low and moderate income families in low and moderate income communities (CRA TARGET ZONES).

That's a fact we can agree on. As a result of this law lenders increased their activities in this demographic at record numbers.

From a 2002 study by the Board of Governors at the Federal Reserve concerning CRA and lending activity. Linky HERE

- 1998: Clinton pressures Fannie Mae to reduce credit requirements for borrowers AND directs Fannie Mae and Freddie Mac to maintain 50% of their mortgage inventory in low and moderate income loans.

I think we can agree that low and moderate income loans in low and moderate income areas are generally higher risk. I think we can also agree that reduced credit requirements (lower credit score) create riskier loans.
​

- 1999: Modernization Act overturns Stegall.

I think we can agree that conglomerates like Citigroup would not have existed under Stegall and companies like Lehman would not have been in the mortgage business under Stegall. ​

I think we can agree that lending practices were more at fault then lending mandated by the government but I would contend that the government set the table for relaxed lending requirements across the board. They didnt say make bad loans but they did encourage loans in risky areas to risky people through legislation even though that legislation didnt require foolish loan practices.

Todays foreclosure rate in geographical areas covered by the CRA are the highest in the country. Inner City REO inventory is 30% higher in urban areas (CRA Zones) then anywhere else.

From the data located HERE

Unfortunately, this data paints a troubling picture of the incidence of foreclosures in America’s inner cities.

Data from the 100 largest US cities show the REO rate in inner
city neighborhoods was twice as high (0.63% versus 0.31%) as in the rest of the United States.

This data underscore two important aspects of the current crisis. The
first is that urban areas have been disproportionately affected by the crisis: Second, within urban areas, lower-income neighborhoods (i.e.,
inner city neighborhoods) have suffered much higher foreclosure rates than their higher income counterparts.

The data suggest that there is an urban component to the foreclosure crisis.​

It should come as no surprise that foreclosures in urban areas out pace those in other areas. I think we can agree on that.

I think we can also agree that beginning in 1993 profound changes have occurred in the financial industry. I would contend that each piece of legislation, each change in mandated lending requirements and each revision of financial policy were building blocks in the house of cards. What I have stated all along is the totality and comprehensive combined effect of these laws is what caused the financial crisis. While the CRA may not be the primary reason, it was the first step down a slippery slope that was compounded by subsequent laws and changes which set in motion, directly and indirectly, the mortgage and banking failures.

 

Re: Negative effect of relaxing net capital rule by the SEC on big banks.

From CNN.