March 08, 2009

American Zombie


Maybe you didn't catch the news but three major financial institutions were renamed recently, or at least they should have been. From now on, until the administration comes up with a real solution for the banking crisis, the new names of these institutions will be:

Citi Zombie Group
American International Zombie Group
Zombie Bank of America

The banking crisis is the circumstance that is the cause and in fact the crux of this entire problem, but almost every other ancillary subject is being addressed first by team Obama. Somehow we have time to address the funding of manure odor control but haven't yet lifted a finger to arrest the free fall of the stock market. As a leading indicator of where the economy is heading, the stock market at this moment sees no upside in the policies that team Obama has promulgated thus far.

Starting with President Bush and now continuing with Obama, the government has been pursuing an ad hock, piece meal solution to the banking crisis. Drips and drabs of government bailouts going in every direction with seemingly little to no rhyme or reason. Bush didn't have a choice really, he had to at least hand Obama a banking industry on life support rather than handing him a dead banking system. But at this point the government is simply propping up these institutions that have long since stopped being viable as money making businesses. Welcome to the world of zombie banks. Remember Japan in the nineties? Well, we're basically there now. No use in denying it.

Another fact that there is no use in denying is that we have now advanced into the territory of socialism. This country has been slowly marching towards European style democratic socialism for a while. Now Obama is sprinting towards it with all this spending and proposed wealth redistribution. But for political reasons, Obama and his supporters have to deny that their policies even vaguely resemble socialism. I'm not sure what the big deal is, if it walks like a duck, quacks like a duck...

It's socialism, so what. Maybe in this time of crisis we don't have a choice when it comes to resolving the problems caused in the banking sector because these institutions were allowed to become 'too big to fail'. So while Obama figures out a way to solve the banking crisis while not appearing to be socialist because he's afraid to be called that, I have the solution. Since I'm not a self-hating self denying socialist like Obama, I don't care if you call the plan I'm advocating socialist.

The only remaining solution to the banking crisis is temporary nationalization of the biggest most troubled banks. The share holders won't like it, but right now the entire market is in a free fall because there is no clear policy emanating from the White House. Is there any disputing that the lack of clarity is causing massive uncertainty in the markets? This should be elementary, but because team Obama has to play political games, they haven't embraced this obvious strategy yet.

This is what they will eventually do of course, just as soon as they devise a clever way of not letting it be called socialism somehow. So while America collectively watches their retirement funds evaporate into the ether, team Obama is busy calculating their own political appearance and concocting childish controversies about Rush Limbaugh.

Until Obama gets over his fears regarding what his detractors will be able to say about him, we will live in this new American Zombie economy.

20 comments:

Kent said...

Exactly. If McCain were president the temporary nationalization of the banks would be the game. He'd shout it from every mountaintop and every street corner.

I think this is the obvious path to follow, but, the key difference is that Obama is not thinking 'temporary.' He's thinking about laying the groundwork for the permanent nanny state.

That's why this is so scary.

It's the nearly identical debate Chris and I are having over @ RFL. He blames Bush for our current predicament but has no qualms about Obama spending even more. More than 43 other presidents combined.

It's quite riculous. As is his continued talking down of the economy. I think he wants to drive it down really low. That way the Dems can blame Bush. And then BO will take all the credit when the Dow begins it's inevitable gain.

Chris said...

Not much to disagree with here Jaz. Including our discussion on beer, I think this is like the third time in a row I have agreed with you.

The current financial crisis seems to be more involved with the housing sector than necessarily the banking sector, at least in my opinion. It was the collapse of the housing bubble that put the banking industry in so much trouble. In other words, when home prices started falling and new home construction came to a halt, the banks realized they had thousands of home loans out there that were not worth what was owed on the note. The crux of the problem is housing, which spills over to the banks no doubt—just a distinction I would like to make.

Then we also have a market problem, which has been in freefall since Oct. 2007. Of course that’s another discussion.

I also don’t think Obama is denying his policies as socialism. Just curious though, what policy of Obama’s could be called socialism that has him so scared? What bank has he nationalized? What private industry has he completely taken control over and redistributed its wealth to the people? It’s my understanding that President Obama has not used a single tax dollar to bailout a bank or insurance agency. All of that came under our previous president. The only thing the Obama administration has done is allowed AIG to transfer government stock, a move that didn’t cost a single tax dollar. And provided AIG with another $30 billion in funds but those funds came from TARP, again something left over from the previous president. No new government tax money has been used. It seems it’s just the premise that Obama might do something that exhilarates the right to call him a socialist. Their excitement was less than lacking (or one might say scared) when the last president actually instituted policy that very well could be called socialism.

Jaz said...

Chris,

The housing market was the cause of the financial crisis yes, but the immediate problem to be solved first is in the financial sector.

Well intentioned liberal policies of government that started with Jimmy Carter and continued though Clinton and Bush are the root cause of this all. The notion that every American should be entitled to own a home is the cause of our undoing. The Community Reinvestment Act is the original culprit.

The federal government decided to get in the business of issuing loans to questionable prospects. Through Freddi Mac and Fannie May and through legislation, the net result of the government's well intentioned attempt at social engineering was the creation of countless loans issued by banks that were, shall we say, unlikely to be paid back.

The problem then was exacerbated ten fold when the "geniuses" in the financial sector found ways around the regulations and found ways to get the ratings agencies to rate questionable investments well by creating CDO's, collatoralized debt obligations or credit default swaps.

Companies like AIG were the primary scourge here by selling essentially insurance polices on these shaky loans. AIG is basically a massive hedge fund, hedging against the possibility of the housing market going south, which of course has happened.

So because the financial sector is awash with all of this bad paper, they aren't really in the mood to lend money. When banks don't lend money the entire economy grinds to a halt, forget just housing.

So while I agree that this overall problem originated in the housing market, which still has problems that need to be addressed, the bulk of the problem now exists in the financial sector.

If Obama can figure out how to resolve all of this bad paper, the bad mortgages and the CDO's that mirror them, then he can un-freeze the credit market, banks start to lend normally and we can begin to recover.

Until that happens there will be no recovery in sight, as indicated by the stock market which, like it or not, is one of the best barometers we have to indicate if Wall Street believes we're heading in the right direction.

As far as socialism, you're making my point. As an Obama supporter you seem to want to deny that Obama's policies even vaguely resemble anything socialist. As far as evidence of Obama's socialism the debate begins and ends with the fact that Obama is a fan of wealth redistribution, a fundamentally socialist tenet.

I'm not sure what the big deal is though. Do you think it hurts your brand to be called socialist somehow? It shouldn't matter what your opposition can or can't call you, your in power now.

Obama has four years to do what he wants, and even though he hasn't yet he's going to nationalize the banks in my opinion. When he does, I'm not gonna say "aha, socialism!" because I won't be very surprised given what I already believe about Obama and given that he doesn't have any other option really.

So rather than denying even the vaguest whiff of socialism in Obama, as I've pointed out to you before, maybe you should begin to shift your argument to a defense of socialism when its needed to solve major impending crises.

No one is saying that Obama wants to turn us into Soviet Russia so relax, we're gonna be more like Sweden.

Mark said...

This is really very good. Keep writing my friend, you have a real talent!

Chris said...

Without getting too off topic, or too carried away, in regards to the financial crisis, I think we agree the housing market is the culprit that spread to the financial sector. Is that fair to say? But the CRA did not cause the banks to give loans to people who couldn’t afford them and thus caused this crisis.

In fact, Federal Reserve chairman Ben Bernanke even stated that the CRA did not force banks or the government to ‘over-lend’: “Our own experience with CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties.”

In addition, only 20 percent of lending institutions are even governed by CRA.

Meaning the majority of loans being issued have nothing to do with CRA or any law that opens lending to minorities, or well intentioned liberal policies as you say. Less than 20% of loans did not cause this crisis. And justly so, the CRA is not the cause. The cause stems from a housing bubble that is now under valued for the loans issued.

I would not deny an Obama policy resembling socialism if in fact the policy did. Again, I’ll ask, what policy of Obama is socialist? He hasn’t nationalized a single bank. He hasn’t nationalized a single insurance company. He hasn’t spread an ounce of wealth. What policy is socialism? If your point is there first must be a policy put into effect before it can be labeled something as serious as underpinning our entire economic system, then yes I’m making your point perfectly. But your point seems to be to just excitedly label Obama’s policies as socialist even though he has not one policy I can think of that fits the definition. Any socialist overtures currently in our economic/financial system stem entirely from the previous administration, not from Obama.

Nor do I think the socialist label hurts my brand. Obama won an overwhelming victory being called a terrorist, a socialist, a communist and routinely anti-American. People, especially the right, can call Obama and the Dems socialists all day long. Where that goes astray is when Republicans and so-called conservatives jump with joy to call Obama a socialist but never dare to actually realize George Bush did more to socialize this country than anyone and yet is not treated with the same label. I think I’ll leave the defense of socialism to you and the Republicans; you’ll need it way more than me.

Jaz said...

So let's see here, the CRA had nothing to do with causing problems in the banking sector, rather it's all brought about because of the housing "bubble"?

What, I wonder, do you imagine caused the bubble? Do you really think the fact that the government was bringing more strata of people into the housing market than ever before had no effect on driving up house prices? When massive amounts of people are getting loans that normally would never have been able to and the cost of money is cheap because foreign countries like China and India want some where where to park their money what we have is an increase in demand facilitated by the cheapness of money.

Demand for housing and the ease of getting financed increased dramatically over a few years. An increase in demand drove prices further up to artificially high levels. Artificial because many of the people getting loans should never have been issued them in the first place. But banks were under pressure from the government to make these loans.

So as the first waves of loan defaults were realized, the downturn was already here. loans were no longer being issued to just anybody and demand dried up over night. Now there is too much supply, not enough demand.

Bernanke must be splitting hairs about what is fairly to be ascribed to the CRA. He probably has very narrow definitions of stuff to back up this bit of sophistry. If you concede that the net effect of CRA was to increase the amount of people who would be able to purchase homes, you can then surely see how that at least contributed to the problem by contributing to the increase in demand for homes.

I don't care what facts and figures Bernanke wants to point that help him make the argument that attempts to get the government off the hook. He can't categorically calculate what the intangible net effect of government intervention in the mortgage industry may or may not have had.

On socialism, this phobia that you and Obama share as to being labeled socialist is what's standing in the way of Obama adopting the appropriate course of action. In this case, the temporary nationalization of the banks. Yes he hasn't done it yet, but that's only because he hasn't devised a clever way of having it not be called socialism because you and he have this phobia where being called a socialist is tantamount to being called a terrorist somehow.

If he wants to raise taxes on the rich, he's for wealth redistribution. Please don't quibble over the time line or the fact that he actually has yet to do it yet. We're talking political philosophy here, not timetables.

Chris said...

I'll take the advice from the chairman of the federal reserve that CRA did not contribute to the current crises over yours any day. Did a bubble cause the crisis? More so than CRA did.

I love how when links and actual testimony from people who are in charge of and are experts in the field of markets and economics describe what is currently happening you immediately disregard it as splitting hairs or sophistry because it doesn't go along with your version of reality. It's sad because I think we were really making ground on agreeing.

This is the best comment of all: "He can't categorically calculate what the intangible net effect of government intervention in the mortgage industry may or may not have had." Are you kidding me? That's his job. That's what the chairman does. He calculates the tangible and intangible effects government intervention has on the markets. This is totally unbelievable that someone would say the chairman of the federal reserve can't possibly calculate the net effect of government intervention.

As far as socialism goes, I said earlier and I'll say again, I do not think the socialist label hurts my Party one bit. Use it all you want. I have no phobia about it whatsoever. Raising taxes is not income redistribution, after all Reagan raised taxes but then again you think the chairman of the federal reserve can't calculate government intervention on the market, so I wouldn't expect you to know the difference between tax increases and income redistribution.

Jaz said...

"The CRA empowers the FDIC and other banking regulators to punish those banks which do not lend to the poor and minorities at the level that Obama’s fellow community organizers would like. Among other things, mergers and acquisitions can be blocked if CRA inquisitors are not satisfied that their demands — which are political demands — have been met. There is a name for loans made to people who do not have the credit, assets, income, or down payment to qualify for a normal mortgage: subprime.

The bankers cannot blame CRA entirely; they made a lot of bad bets on rising home prices. But CRA did influence lending standards across the banking industry, even in those institutions that are not strictly liable to its jurisdiction. The subprime debacle is in no trivial part the result of lending decisions in which political extortion trumped businesses’ normal bottom-line concerns.

Along with these bad loans, the underlying problem is that there was a bubble in the price of housing — a bubble caused in no small part by politics, in the form of an easy-money/easy-credit policy from the Fed.

It was politics, too, that created Fannie Mae and Freddie Mac, enabled them to dominate the mortgage market, and implicitly took upon American taxpayers the risks of those business while the rewards were enjoyed, to the tune of hundreds of millions of dollars, by largely Democratic political opportunists, who then gave generously to Democrats, the top recipients of their largesse being: Chris Dodd, Hillary Rodham Clinton, John Kerry, and Barack Obama. And it was politics that unwisely nationalized Fannie and Freddie without resolving the underlying moral hazard — private profit, public risk — that makes those institutions problematic. From this Senator Obama takes away the lesson that there has been a failure of the market, and that what is needed is more politics. In this analysis Obama is as wrong as it is possible to be." -National Review editors September 2008

"For years, ACORN had combined manipulation of the CRA with intimidation-protest tactics to force banks to lower credit standards. Its crusade, with help from Democrats in Congress, to push these high-risk "subprime" loans on banks is at the root of today's economic meltdown.

When the role of ACORN and congressional Democrats in the mortgage crisis is pointed out, Democrats reply that banks subject to the CRA represent only about a quarter of the loans that led to our current troubles. In fact, the problem goes way beyond the CRA.

As ACORN ran its campaigns against local banks, it quickly hit a roadblock. Banks would tell ACORN they could afford to reduce their credit standards by only a little - since Fannie Mae and Freddie Mac, the federal mortgage giants, refused to buy up those risky loans for sale on the "secondary market."

That is, the CRA wasn't enough. Unless Fannie and Freddie were willing to relax their credit standards as well, local banks would never make home loans to customers with bad credit histories or with too little money for a downpayment.

So ACORN's Democratic friends in Congress moved to force Fannie Mae and Freddie Mac to dispense with normal credit standards. Throughout the early '90s, they imposed ever-increasing subprime-lending quotas on Fannie and Freddie.

But then the Republicans won control of Congress - and Rep. Roukema scheduled her hearing. ACORN went into action to protect its golden goose.

IT struck as Roukema aired her concerns at that hearing. Pro testers, led by ACORN President Maud Hurd, stood up and began chanting, "CRA has got to stay!" and "Banks for greed, not for need!" The protesters then demanded the microphone.

With the hearing interrupted and the demonstrators refusing to leave, Roukema called the Capital Police, who arrested Hurd and four others for "disorderly conduct in a Capital building" - a charge carrying a penalty of a $500 fine, six months in prison or both. As the police arrived, two of the protesters menacingly approached Roukema's desk, still demanding the hearing microphone.

Requests to the Capital Police to release the activists from Sen. Ted Kennedy (D-Mass.) and Rep. Joe Kennedy (D-Mass,) failed. Then Rep. Maxine Waters (D-Calif.) showed up at the jail and refused to leave until the protesters were released; the Capital Police relented.

Meanwhile, instead of repudiating ACORN's intimidation tactics, Rep. Kennedy berated Roukema for arresting one of his constituents and accused the Republicans of preparing for "an all-out attack on CRA." He also promised to introduce legislation to expand the CRA's coverage to mortgage bankers and large credit unions.

THIS little slice of political life from 1995 had a variety of ripple effects. Above all, ACORN's intimidation tactics, and its alliance with Democrats in Congress, triumphed. Despite their 1994 takeover of Congress, Republicans' attempts to pare back the CRA were stymied.

Instead, Democrats like Rep. Barney Frank (D-Mass.) and Reps. Kennedy and Waters allied with the Clinton administration to broaden the acceptability of risky subprime loans throughout the financial system, thus precipitating our current crisis.

ACORN had come to Congress not only to protect the CRA from GOP reforms but also to expand the reach of quota-based lending to Fannie, Freddie and beyond. By steamrolling the GOP that March, it had crushed the last potential barrier to "change."

Three months later, the Clinton administration announced a comprehensive strategy to push homeownership in America to new heights - regardless of the compromise in credit standards that the task would require. Fannie and Freddie were assigned massive subprime lending quotas, which would rise to about half of their total business by the end of the decade.

WHEN the ACORN-Democrat alliance finally succeeded in blocking Republicans from restoring fiscal sanity in 1995, the way was open to virtually unlimited lending quotas - and to a whole new way of thinking about credit standards.

Urged on by ACORN, congressional Democrats and the Clinton administration helped push tolerance for high-risk loans through every sector of the banking system - far beyond the sort of banks originally subject to the CRA.

So it was the efforts of ACORN and its Democratic allies that first spread the subprime virus from the CRA to Fannie and Freddie and thence to the entire financial system.

Soon, Democratic politicians and regulators actually began to take pride in lowered credit standards as a sign of "fairness" - and the contagion spread.

And when financial institutions across the board saw that they could make money by trading what would once have been considered junk loans, the profit motive kicked in. But the bad seed that started it all was ACORN."

-Stanley Kurtz New York Post October 2008.

Chris said...

Stanley Kurtz? You can't be serious. He is not an economist. He's Republican/neoconservative from the National Review. You're rebutting the chairman of the federal reserve and direct testimony to Congress with a political hack? This is worse than I thought. Typical how when reality doesn't flow with with the Republican Fantasy World, you burrow yourself even deeper into make-believe world. Stanley Kurtz, I'm still laughing. Oh here let me quote Glenn Greenwald to make my case. This is sad Jaz. Extremely sad.

Jaz said...

Yes, rather unfortunate that all you have left is ad hominem attacks.

An ad hominem argument, also known as argumentum ad hominem (Latin: "argument to the man", "argument against the man") consists of replying to an argument or factual claim by attacking or appealing to a characteristic or belief of the source making the argument or claim, rather than by addressing the substance of the argument or producing evidence against the claim.

The process of proving or disproving the claim is thereby subverted, and the argumentum ad hominem works to change the subject.

Chris said...

You have no idea what you are even saying. Stan Kurtz is a political hack. He is not an economist. He is a Republican/neoconservative writer for the most neoconservative magazine in publication. Ben Bernanke is a bona fide economist. His expertise is in economics. He is also a Bush holdover, which makes him Republican. So here we have the highest ranking Republican economist telling us that CRA didn't cause the crisis. And yet you choose to place Stan Kurtz in the same paradigm (whose expertise is in Republican talking points) just because Kurtz fits in to what Sean Hannity and Rush Limbaugh have been telling you. It's that simple.

Am I attacking your source? Absolutely. It would be the equivalent of me linking to Glenn Greenwald, a left wing pundit. Kurtz is wrong, dead wrong. I wouldn't expect anything else from him other than an article that blames everything on Democrats.

Jaz said...

"The CRA empowers the FDIC and other banking regulators to punish those banks which do not lend to the poor and minorities at the level that Obama’s fellow community organizers would like. Among other things, mergers and acquisitions can be blocked if CRA inquisitors are not satisfied that their demands — which are political demands — have been met. There is a name for loans made to people who do not have the credit, assets, income, or down payment to qualify for a normal mortgage: subprime.

The bankers cannot blame CRA entirely; they made a lot of bad bets on rising home prices. But CRA did influence lending standards across the banking industry, even in those institutions that are not strictly liable to its jurisdiction. The subprime debacle is in no trivial part the result of lending decisions in which political extortion trumped businesses’ normal bottom-line concerns.

Along with these bad loans, the underlying problem is that there was a bubble in the price of housing — a bubble caused in no small part by politics, in the form of an easy-money/easy-credit policy from the Fed.

It was politics, too, that created Fannie Mae and Freddie Mac, enabled them to dominate the mortgage market, and implicitly took upon American taxpayers the risks of those business while the rewards were enjoyed, to the tune of hundreds of millions of dollars, by largely Democratic political opportunists, who then gave generously to Democrats, the top recipients of their largesse being: Chris Dodd, Hillary Rodham Clinton, John Kerry, and Barack Obama. And it was politics that unwisely nationalized Fannie and Freddie without resolving the underlying moral hazard — private profit, public risk — that makes those institutions problematic. From this Senator Obama takes away the lesson that there has been a failure of the market, and that what is needed is more politics. In this analysis Obama is as wrong as it is possible to be."

-National Review editors September 2008

I know it's difficult, but perhaps you could focus on the substance of what's being said.

"But CRA did influence lending standards across the banking industry, even in those institutions that are not strictly liable to its jurisdiction."

Like I said, Bernanke is looking only at those loans directly under the jurisdiction of CRA. His pronouncement doesn't address the intangible effects of the government engendering this kind of risky loan behavior. His job is to cover the ass of the government, not to theorize about what possible effects all of the shenanigans surrounding and relating to CRA, ACORN, Freddie, and Fannie had on the economy.

And just to be clear, is it your position that temporary bank nationalization is the right course of action but you disagree with my theory as to why it hasn't been done yet?

Chris said...

Huffington Post:

"There's a meme going around the right wing blogs. Deregulation has nothing to do with the current problems in the market. The real culprit is the Community Reinvestment Act signed into law by President Carter in 1977. Nothing could be further from the truth as a reading of the facts of the matter reveal.

Let's look at a root cause of this garbage. John Hawkins at Right Wing News has a classic analysis:..."

Keep reading...same difference as to what you are trying to get me to read. I know it's difficult but perhaps you could focus on the substance of what is being said. Or would a Daily Kos article suffice?

Jaz said...

Sure, I'll check it out. Anything's better than reflexively rejecting something out of partisanship.

Stanley Kurtz and the National Review editors could conclude that the sky is blue and you'd disagree.

Also, is it your position that temporary bank nationalization is the right course of action but you disagree with my theory as to why it hasn't been done yet?

Chris said...

You used it as a source to prove my comment incorrect. In other words, you're not asking me to give it a read. You're asking me to believe it as true and accept it as a source simply because in Republican la la land National Review is the intellectual concept of reality. Rich Lowry majored in English studies and now he's writing an editorial about our economic crisis (and surprisingly blames it all on the Dems) and the whole world is supposed to believe it word for word. Despite the fact that another Republican who is actually in charge of the federal reserve and a long time expert and economist says something vastly different. It's really not that hard to figure out. Rejecting it out of partisanship is only one of many ways to reject NR.

Jaz said...

From the article you linked to:

"The first one alone should dismiss this claim as a farce. The CRA was signed into law in 1977 -- almost 30 years ago. So, what do you think the possibilities of a law passed 30 years ago causing the lending problems now? That's one heck of a law to have that kind of effect."

I've encountered this not very compelling argument many times elsewhere on the internet while looking into this. The essential supposition being that because a law is old, therefor it can't be the cause of anything realized now. They miss the point of calling it a root cause. To identify the origins of something you have to go back to very inception, not just conveniently start the time line when George W Bush took office as the CRA apologists are want to do.

These arguments are easy to defeat. I don't have to dismiss them like you do mine. Here's another from the HP article.

"Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA."

So like Bernanke, they're playing this game of looking only at the loans directly under the jurisdiction of CRA. Even Bernanke had to qualify his remark by using the word "substantively". "...CRA did not substantively contribute to the financial crisis." In other words, CRA did contribute, but not really that much. If he could have said that CRA had no influence whatsoever, he would have said that with no qualifiers. And like Bernanke, this HP article makes no mention of any other possible repercussions that this ill advised legislation may or may not have had on the overall economy.

I'll even take this one at face value:

"Note, too, that Fannie and Freddie have nonpareil lobbying operations and formidable political strength, owing to their hefty donations and penchant for hiring former political operatives. Besides, the agencies claim they've landed in their current predicament through no fault of their own. As Freddie Mac Chairman and CEO Richard Syron recently put it, the GSEs have been hit by a 100-year storm in the housing market, accentuated by some higher-risk mortgages that they were forced to buy to meet government affordable-housing targets.

The latter contention is more than disingenuous. A substantial portion of Fannie's and Freddie's credit losses comes from $337 billion and $237 billion, respectively, of Alt-A mortgages that the agencies imprudently bought or guaranteed in recent years to boost their market share. These are mortgages for which little or no attempt was made to verify the borrowers' income or net worth. The principal balances were much higher than those of mortgages typically made to low-income borrowers. In short, Alt-A mortgages were a hallmark of real-estate speculation in the ex-urbs of Las Vegas or Los Angeles, not predatory lending to low-income folks in the inner cities."

So in other words, CRA didn't force Freddie and Fannie to buy bad loans rather they quite independently of CRA helped to contribute to the sub prime mortgage crisis. Fine. But we're missing the point of identifying CRA and Freddie and Fannie at the heart of this mess. Not necessarily in conjunction maybe but the sum total of all of this is that the federal government, in one way or another, was involved up to its eyeballs in the sub prime mortgage mess.

So this Huffington Post article concedes that 25% of sub prime loans originated from institution "fully governed" by the CRA. Add that 25% to what ever percentages of sub prime loans eventually were bought up by Freddie and Fannie and we have a significant portion of sup prime loans either originating from or being managed by the federal government.

To assume that all of this government activity had no net effect on the overall economy, which is your position if you insist that CRA "has nothing to do" with our current woes, strikes me as a silly position.

But hey, at least I addressed the substance of these Huffington post claims. In the end the article concludes:

"The entire financial system is under tremendous stress on the Republican's watch. It's their policies that are under the microscope right now."

Now that Obama is president, let's update this one. It should now read, "The entire financial system is under stress on the Democrats' watch. It's their policies that are under the microscope right now."

Chris said...

Jaz, you haven't defeated anything, much less addressed anything at face value. Your entire basis for Fannie and Freddie is that National Review says they are to blame. That's what you believe and that's the only thing you have substantiated here in this comments section. If tomorrow National Review came out and said that we should do away with all forms of money just to make certain another financial crisis doesn't happen, you would then believe that too.

My point in linking to Huffington Post was not to have you wash it clean with right wing doctrine. It was to demonstrate how farcical it is to use wing nuts as proof of your ideological views. You linking to NR is the same as me linking to HuffPo. No doubt about it.

Chris said...

"Also, is it your position that temporary bank nationalization is the right course of action but you disagree with my theory as to why it hasn't been done yet?"

Not exactly. I absolutely do not trust the government with anything temporary. In 2003 I wrote a bill for Illinois that called for a 9 month gasoline surcharge of 5 cents. Six years later it's still there. There's nothing temporary when it comes to government. I don't trust the government, yes even Obama's government, to temporarily take over anything. You know as well as I do that once the government takes over very seldom does it give back.

So if there are precautions set before hand that the government has to either return the banks back to private hands or relinquish all ownership of them after a certain time then yes I can see how a temporary government socialization of some banks can help. But I'm very iffy on that.

I'm also under the belief that if you are going to do something then do it. If we are going to socialize then do it. No more of this half-ass billion here and billion there. Just do it. So if socialization is the answer then do it full-throttle and do it right. Come in, take over all operations including profits and losses, do away with shareholders, make the people (tax payers) the new shareholders, spread the profits to the people and call it socialism. So if we do proceed in the course that George Bush has put us on, which is most definitely a socialistic one, then we should do it 100% or none at all.

Though I'm not completely convinced that we have to socialize banking and lending to get out of this. More oversight of the financial industry is definitely needed to make sure people like Madoff don't happen again, but, to me, getting private business back up and going again would do more than a government take over.

Just some of my thoughts.

Jaz said...

It took some give and take, but now we agree again. If you're going to do something, then do it. I love that!

I agree with everything you just wrote.

Under the right execution, since we really have no better alternatives, the government takes over these banks and then immediately sells off the assets in an auction essentially.

Its not much different form a bankruptcy really. The share holders get zeroed out and the assets get sold off to the private sector.

All of the bad paper gets absorbed by the federal government and then sold off later. They toyed with this idea of creating "bad banks", which is the government holding onto the riskiest stuff until the financial storm passes and normalcy is restored.

There is an implicit risk to the tax payer of course, but the only entity big enough absorb this stuff and ride it out is the federal government.

There really isn't any better option remaining unfortunately, that I'm aware of.

Maybe strictly on this we agree?

Chris said...

Strictly on that we do agree. At least if the government takeover is only for the banks that are pretty much worthless at the moment. There's no need to takeover the entire industry. Another thing that would have to happen if the government does takeover the "bad banks" is it would have to guarantee the value of the "good banks." If it doesn't guarantee the good ones, it will devalue them because essentially the "bad banks" just became guaranteed by the richest country in the world. I'm not sure if I made that make any sense, however.