Political Roundtable Quasar of Mayhem part III

[fugop]

http://www.mcclatchydc.com/2008/10/12/5 ... annie.html

Private sector loans, not Fannie or Freddie, triggered crisis
Posted on Sunday, October 12, 2008

By David Goldstein and Kevin G. Hall | McClatchy Newspapers

WASHINGTON — As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.

Federal Reserve Board data show that:

• More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
  
  
• Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
  
  
• Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday.

[dobrojim]

seems to me that the idea to encourage home-ownership is a reasonable
and both parties at various times tried to claim the mantle of being
the most for that idea.

I've also heard - but not actually read the law - that the Com Reinvestment
act has an explicit statement saying that nothing in the act should
be interpreted to over-ride sound lending practices. The purpose
of the act was to eliminate redlining where lenders would not
consider loans - no matter how credit-worthy the applicants -
to potential buyers in specific neighborhoods, a practice which ended
up resulting in highly disparate impacts on different racial/ethnic groups.

banks/mortgage brokers actively encouraged people to lie about income.
The originators knew they were selling the loan within weeks of
its origination. Then mega-banks and other types of banksters
bought the loans, bundled the worst ones they could, sold them
and then bet HEAVILY against the loans knowing they were garbage.

http://www.thisamericanlife.org/radio-a ... inside-job

people at multiple levels definitely should have gone to jail for this.
Which is the worse crime though, lying on your mortgage app or
bundling the worst garbage you can put together and pretending
it's not garbage?

in the words of Bob Dylan (iirc) steal a little and they throw you in jail,
steal a lot and they make you a king.

[dobrojim]

Regarding the jobs and unemployment issue. We desperately need an industrial policy that will bring manufacturing back to the US. Employment levels will remain anemic until we do so.

What, aren't you the resident libertarian? That's communism/socialism!!!!

[popper]

Regarding the jobs and unemployment issue. We desperately need an industrial policy that will bring manufacturing back to the US. Employment levels will remain anemic until we do so.

What, aren't you the resident libertarian? That's communism/socialism!!!!

dobrojim - I'm sure you're kidding but in case you're not --- One can easily design an incentive-based industrial policy within a free market economy that has absolutely nothing to do with tenets of communism/socialism.

[dobrojim]

I was joking but now I'm confused

I would think that as soon as you talk about incentives, other than profit,
incentive that is presumably coming from govt, that would be a serious no-no to
a libertarian. It would appear that I have incomplete knowledge on this
topic.

[montestewart]

^
A libertarian leaning industrial policy's "incentives" could consist merely of reducing, suspending, or eliminating taxes, environmental and workplace regulations, and other laws viewed as hinderances to industrial growth. From a libertarian perspective, that's likely not viewed as socialism.

[fugop]

I don't know -- regulatory and tax favoritism are a no-no to most self-respecting libertarians, as it muddies the information communicated by the pricing mechanism, distorting preferences expressed through market behavior.

Libertarian theory tends toward a flat tax with no politically-motivated variation. A case can be made for that position, however poor, but it's not compatible with any understanding of industrial policy, at least as the phrase has historically been used.

If a libertarian opens the door to "correcting market failures" etc., they've left the metaphysical realm and are stuck debating empirical reality, something they tend to struggle with.

[popper]

I was joking but now I'm confused

I would think that as soon as you talk about incentives, other than profit,
incentive that is presumably coming from govt, that would be a serious no-no to
a libertarian. It would appear that I have incomplete knowledge on this
topic.

Montestewarts response to your post is exactly what I had in mind. I wouldn't consider myself a libertarian however. I consider myself a free-thinker, more in line with a conservative philosophy than liberal but not entirely so.

dobrojim - In my opinion, nothing comes from government. In the U.S., every penny that government takes in originates and is taxed away from the private sector (loans from Saudi Arabia notwithstanding). Therefore a reduction in corporate tax rates would not be something that government gives but rather something the government decides to take less of.

[popper]

I don't know -- regulatory and tax favoritism are a no-no to most self-respecting libertarians, as it muddies the information communicated by the pricing mechanism, distorting preferences expressed through market behavior.

Libertarian theory tends toward a flat tax with no politically-motivated variation. A case can be made for that position, however poor, but it's not compatible with any understanding of industrial policy, at least as the phrase has historically been used.

If a libertarian opens the door to "correcting market failures" etc., they've left the metaphysical realm and are stuck debating empirical reality, something they tend to struggle with.

Again, I am not nor have I ever been a member of the libertarian party. I was probably thrown out of the metaphysical realm years ago but I do believe there is an empircal need to create millions of jobs. I think an incentive-based industrial policy is one possible solution.

[gesa2]

dobrojim - In my opinion, nothing comes from government. In the U.S., every penny that government takes in originates and is taxed away from the private sector (loans from Saudi Arabia notwithstanding). Therefore a reduction in corporate tax rates would not be something that government gives but rather something the government decides to take less of.

But assuming that the government needs a certain fixed amount of revenue, any reduction in taxes requires an equivalent increase in revenue from somewhere else. If the government takes less from manufacturing, it has to take more from someone else. Isn't that kind of picking of winners and losers anathema to libertarians? If the manufacturing sector is not succeeding, and we take money from a more successful sector of the economy so we can stimulate manufacturing, aren't we punishing their success?

edited to add -- popper, I missed your reply above where you stated you're not a libertarian.

[popper]

dobrojim - In my opinion, nothing comes from government. In the U.S., every penny that government takes in originates and is taxed away from the private sector (loans from Saudi Arabia notwithstanding). Therefore a reduction in corporate tax rates would not be something that government gives but rather something the government decides to take less of.

But assuming that the government needs a certain fixed amount of revenue, any reduction in taxes requires an equivalent increase in revenue from somewhere else. If the government takes less from manufacturing, it has to take more from someone else. Isn't that kind of picking of winners and losers anathema to libertarians? If the manufacturing sector is not succeeding, and we take money from a more successful sector of the economy so we can stimulate manufacturing, aren't we punishing their success?

Not necessarily. If we put several million people back to work in manufacturing or some other sector then we save paying out unemployment benefits, unemployment insurance payments by employers are reduced, and downstream vendors and service providers earn more (and therefore pay more taxes on their increased earnings) thus creating equal or greater revenues to the government. There are other benefits as well. Less families break apart. Less foreclosures, less in Medicaid, etc.

Edit - Also tax revenue from the millions of new hires

[montestewart]

I don't know -- regulatory and tax favoritism are a no-no to most self-respecting libertarians, as it muddies the information communicated by the pricing mechanism, distorting preferences expressed through market behavior.

Libertarian theory tends toward a flat tax with no politically-motivated variation. A case can be made for that position, however poor, but it's not compatible with any understanding of industrial policy, at least as the phrase has historically been used.

If a libertarian opens the door to "correcting market failures" etc., they've left the metaphysical realm and are stuck debating empirical reality, something they tend to struggle with.

I didn't get the impression that Popper was suggesting favoritism, and I wasn't suggesting it. There are no "self-respecting libertarians" (that I know of) in positions of power to implement policies, merely libertarian views that occasionally inform those in power, thus, "a libertarian leaning industrial policy" that reduces "impediments" across the board.

Whether that would work, I haven't a clue. I leave that to the smart people.

[hands11]

http://www.washingtonpost.com/business/ ... story.html

Steven Pearlstein: You bet it’s another bubble

Next up. Commodities. And that is going to hit even more people. I just paid over $5 for a quart of regular oil. Meanwhile, Exxon keeps posting world record profits.

As for the housing bubble, I called that after the internet boom happened. I just never thought it would last as long as it did.

Delaware Attorney General, Sues Big Banks' Mortgage Registry

http://www.huffingtonpost.com/2011/10/2 ... 62635.html

Major mortgage industry players -- including Bank of America, Wells Fargo, Fannie Mae and Freddie Mac -- formed MERS in 1995 to bypass county records offices and facilitate the then-booming mortgage-backed securities market. That market's collapse helped bring about the 2008 Wall Street meltdown that sparked the Great Recession.

http://www.bloomberg.com/news/2011-02-1 ... -says.html

[fishercob]

President Clinton on Morning Joe today: http://www.msnbc.msn.com/id/3036789/ns/ ... /#45205500

He's still smart.

[fugop]

I don't know -- regulatory and tax favoritism are a no-no to most self-respecting libertarians, as it muddies the information communicated by the pricing mechanism, distorting preferences expressed through market behavior.

Libertarian theory tends toward a flat tax with no politically-motivated variation. A case can be made for that position, however poor, but it's not compatible with any understanding of industrial policy, at least as the phrase has historically been used.

If a libertarian opens the door to "correcting market failures" etc., they've left the metaphysical realm and are stuck debating empirical reality, something they tend to struggle with.

I didn't get the impression that Popper was suggesting favoritism, and I wasn't suggesting it. There are no "self-respecting libertarians" (that I know of) in positions of power to implement policies, merely libertarian views that occasionally inform those in power, thus, "a libertarian leaning industrial policy" that reduces "impediments" across the board.

Whether that would work, I haven't a clue. I leave that to the smart people.

"Industrial policy" is favoritism. The concept resurfaced in the 80s because people like Robert Reich wanted to strengthen government incentives for some manufacturing sectors because, frankly, he thought America was placing too much of its economic future in finance. You have to play favorites -- you pick some industries and invest in them, to the exclusion of others.

Investing in green energy is part of an industrial policy, for instance. It gets you things like Solyndra, no doubt. There is plenty of opportunity for corruption and incompetence in the execution of the plan.

But a democratically-driven (or at least explicitly acknolwegded) industrial policy is far better than what we have now, which is a pseudo-industrial policy driven by defense contracts. The only reason a dozen states retain any manufacturing capacity at all is because DOD spreads its supplier contracts around the country, to ensure the widest possible parochial support in congress.

Again, this is hard to square with any approach to libertarianism.

[fugop]

I was joking but now I'm confused

I would think that as soon as you talk about incentives, other than profit,
incentive that is presumably coming from govt, that would be a serious no-no to
a libertarian. It would appear that I have incomplete knowledge on this
topic.

Montestewarts response to your post is exactly what I had in mind. I wouldn't consider myself a libertarian however. I consider myself a free-thinker, more in line with a conservative philosophy than liberal but not entirely so.

dobrojim - In my opinion, nothing comes from government. In the U.S., every penny that government takes in originates and is taxed away from the private sector (loans from Saudi Arabia notwithstanding). Therefore a reduction in corporate tax rates would not be something that government gives but rather something the government decides to take less of.

You're engaged in a metaphysical debate about "causation" when you make this statement, whether you want to be or not.

Using "but for" causation, you're simply wrong. The private sector would be capable of little to nothing without the government, as a simple matter of fact -- if the relatively decent operation of government is a necessary precondition or private economic activity, government can be considered a "cause" in some theories.

There are other types of causation, of course, and merely identifying something as a cause doesn't carry any meaning.

If you want to read a relatively recent critique of your position, try The Myth of Ownership by Liam Murphy and Thomas Nagel.

http://www.amazon.com/Myth-Ownership-Ta ... 0195150163

[pancakes3]

President Clinton on Morning Joe today: http://www.msnbc.msn.com/id/3036789/ns/ ... /#45205500

He's still smart.

great link. great interview. great talking points.

[dobrojim]

President Clinton on Morning Joe today: http://www.msnbc.msn.com/id/3036789/ns/ ... /#45205500

He's still smart.

agreed, but so is BHO. BHO was simply slow to realize that the GOP
was more interested in destroying him than in doing anything that
would help the country. That's what they said when he took
office. That is how they have acted in the nearly 3 years since then.

speaking of the GOP, why don't they come up with ideas
that would garner them the non-white support they
have failed to get instead of pretending there is a
voter fraud crisis - there isn't - with their solution being to
attempt to disenfranchise those who don't support them?

[fugop]

BHO was simply slow to realize that the GOP was more interested in destroying him than in doing anything that would help the country. That's what they said when he took office. That is how they have acted in the nearly 3 years since then.

There's nothing smart about this. The obvious dissonance between what an apparently intelligent man should have realized before he even took office and the behavior of the administration is what has lead so many people to doubt Obama's sincerity and conviction.

I worked on the Employee Free Choice Act campaign and on the public option aspect of the health care fight. At no point were representatives from the administration supportive behind the scenes, much less actually helpful. Most of my cohort came to the conclusion, fairly early in the Summer of 2009, that Obama and the administration was just lying when they articulated public support for those issues.

It's rather dispiriting; I hate needing to speculate about "secret motives" in order to understand elected officials' incentives and positions. It's unfortunately necessary with the administration.

For instance:

speaking of the GOP, why don't they come up with ideas that would garner them the non-white support they have failed to get instead of pretending there is a voter fraud crisis - there isn't - with their solution being to attempt to disenfranchise those who don't support them?

Because they don't want that support, and don't think they need it to be successful politically.

[DCZards]

I worked on the Employee Free Choice Act campaign and on the public option aspect of the health care fight. At no point were representatives from the administration supportive behind the scenes, much less actually helpful. Most of my cohort came to the conclusion, fairly early in the Summer of 2009, that Obama and the administration was just lying when they articulated public support for those issues.

I also worked on and supported EFCA and the public option...both of which were strongly supported by organized labor, which I'm proud to be a part of. (We're going to have a BIG win in Ohio today.)

You're right when you say the Obama Administration never came out strongly in favor of either EFCA or the public option. However, I disagree with you when you say that the administration was "lying" when it said it supported those measures. I believe the Obama administration supported both EFCA and the public option in principal but decided that neither was going to be able to get through Congress and decided against wasting any political chits on them.

Because they don't want that support, and don't think they need it to be successful politically.

Not only do the Repubs believe they don't need non-whites to win elections, I'm guessing that they fear losing some white support if they embraced what might be considered "liberal" positions in order to win over more blacks or Hispanics.