Political Roundtable Cosmic String of Cataclysm - Part V

[Induveca]

The recession and financial crisis were the result of systemic financial corruption. IMO it had several layers; 1. easy money policy of the fed 2. govt. forcing banks to make mortgage loans to people that couldn't afford the payments 3. securitization of risky mortgages by large financial institutions and faulty ratings by in-the-pocket rating agencies 4. nationalization of losses that should have been born by private entities.

The response to the recession is a predictable failure and continues to stymie any recovery. The false recovery we are in now is propped up the the fed's gargantuan stimulus of near 0% percent interest and vacuuming up of mortgage securities (again nationalizing what will become future losses covered by the taxpayer instead of private entities).

The next shoe to drop is also easily predictable. Feds eventually back out of easy money policy and stimulus, the markets tank and interest rates on cars and mortgages skyrocket. Economy shrinks again.

The corruption is deep and wide and until it is reversed the economy will either slink along or tank again.

The future could be bright but only if honest and wise leaders are put in charge.

Uh, a lot of what you say is right and accurate but no one was forcing anyone to do anything. The housing crisis was willful blindness on the part of a lot of people. You know how they normally won't make a loan to you unless your debt payments aren't more than a certain percent of your income? Blew right by that. Afterwards I asked a specialist, well, why did they allow that to happen? How come no one raised any alarm bells? The answer? "Everybody thought the market was different." In other words, everybody knew that something was going to go wrong, and no one wanted to be the one to pull the plug.

No one forced anyone to do anything. It was a willful swindle on the part of everyone involved, from the Fed, Fannie Mae and Freddie Mac, Wall St, everybody. Criminal negligence on a scale so massive we couldn't arrest those culpable without putting all of the Fed and half of Wall St. in jail.

You're right - I should have said the govt. "provided irresistible financial incentives" to make risky loans instead of "forced"

There were hotel service employees purchasing two-three 500k+ condos with no money down in Miami. Same deal in Alexandria, programmers making 50k buying 550k homes.

If that's not a lack of oversight/government encouragement, not sure what constitutes such a description. It of course also points to a frightening inability to formulate/solve simple equations by the general public.

Since the late 90s the level of integrity/intelligence in middle class America has dropped off a cliff.

ePets.com going public? 750k homes with no money down for someone making 60k a year? Extreme waste and no savings.

From stock brokers, real estate agents, title companies, developers, banks, government.....the greed and ignorance displayed since the 90s dot com bubble has been progressively getting worse. Same thing happened in Spain around coastal properties, and has sent them spiraling into forced austerity/35%+ unemployment for those under 25.

The EU is lucky, their members are forcing their irresponsible members into the equivalent of economic "intervention". Meanwhile? The US keeps borrowing and spending with seemingly no desire to police itself.

[popper]

More on the cause of the recession - Fannie and Freddie served as an ATM to funnel vast amounts of cash to prominent Democratic movers and shakers for many years. They also made political contributions to Banking Committee members on both sides of the aisle. When financial irregularities started to become known the ATM was opened up to Republican heavy weights as well (Gingrich and others).

Clinton crony Franklln Raines made off with hundreds of millions before he was forced to resign for manipulating the books. Clinton crony Gorelick pocketed tens of millions as well (story below). Clinton/Obama cronies Emanuel, Donilon, Zoelick, Daley and others made off with some significant cabbage as well.

When the Bush administration started to push for reform of the GSE’s Democrats Barney Frank, Chris Dodd and others put a stop to the effort.

Excerpts from article on Gorelick and subprime loans –

…………Gorelick, who left the Clinton Justice Department in 1997 to work for Fannie Mae CEO Franklin Raines, was paid $26,466,834 in salary, bonuses, performance pay and stock options from 1998 to 2003, according to the Report of the Special Examination of Fannie Mae (2006), conducted by the Office of Federal Housing Enterprise Oversight.
Gorelick served as vice chairman of the Federal National Mortgage Association (Fannie Mae) when the government-sponsored enterprise was bundling subprime loans into securitized financial instruments. Prior to that, she served as deputy attorney general in the Clinton Justice Department under then-Attorney General Janet Reno from 1994 to 1997.

Raines had served as Clinton's budget director before assuming the top post at Fannie Mae.

In 2001, Gorelick announced that Fannie was buying subprime loans encouraged by the Community Reinvestment Act (CRA) and bundling them as securitized financial instruments. Securities made from bundles of guaranteed mortgages were to contribute to the banking crisis later in the decade.

“Fannie Mae will buy CRA loans from lenders' portfolios; we'll package them into securities; we'll purchase CRA mortgages at the point of origination; and we'll create customized CRA-targeted securities,” she said in 2001. “This expanded approach has improved liquidity in the secondary market for CRA product, and has helped our lenders leverage even more CRA lending. Lenders now have the flexibility to use their own, customized loan products.”

In remarks before the American Bankers Association on Oct. 30, 2000, Gorelick explicitly stated how the process would work and what Fannie Mae would do to make it feasible for banks to lend to low-income applicants.

“We will take CRA loans off your hands--we will buy them from your portfolios, or package them into securities--so you have fresh cash to make more CRA loans,” she said. “Some people have assumed we don't buy tough loans. Let me correct that misimpression right now. We want your CRA loans because they help us meet our housing goals.” ………

http://cnsnews.com/news/article/former- ... -shortlist

[nate33]

Popper is right here. You can't dismiss the amount of corruption that was taking place with so many Democrats intertwined with Fannie Mae.

Surely, there is plenty of Republican corruption in other areas of government (military spending, etc.). I'm not trying to say that one party is better than the other. But in the case of the GSE's and the financial bubble that they caused, Democrats played a big role.

[sfam]

Popper is right here. You can't dismiss the amount of corruption that was taking place with so many Democrats intertwined with Fannie Mae.

Surely, there is plenty of Republican corruption in other areas of government (military spending, etc.). I'm not trying to say that one party is better than the other. But in the case of the GSE's and the financial bubble that they caused, Democrats played a big role.

Both parties played a big role. Bush pretty much castrated the oversight agencies in the financial sector (and environmental sector). This let those who had gamed the system get away with it with impunity. The Republicans in congress are continuing this by not allowing a secretary for the Consumer Financial Protection Bureau.

But again, this level of criminal behavior is very different from the endemic corruption we see in failed and fragile states.

[sfam]

The gun issue, when speaking of the tragedies at schools etc is misplaced. The real issue is the horrid financial situation in the US, and the role those guns could eventually play if things don't improve in DC.

When excessive austerity measures are implemented and people have trouble feeding their kids.....I doubt they'll be pawned for cash for those unhappy with DC leadership.

Induveca, anyone who has read your posts on this thread knows how little you think of America's leaders and the state of our economy (Personally, I think you're a little jealous of us.) But this scenario of blind-with-economic-rage Americans pulling out their guns and turning on its leadership and each other in an almost cannabilistic fashion is downright insulting. You underestimate both the resiliency and the character of the American people.

I'm merely stating facts. Greek friends told me the same in the 90s, Spanish as well (admittedly I dislike Spain).

What you may find interesting is I am an American citizen. My wife is American, as is my newly born child.

I've learned many times in my life to not ignore major trends, when most are in convenient denial. It's a great way to recognize opportunities, and protect yourself.

If you don't think Greece's violent protests over austerity and economic depression would have been exceedingly violent if they had the firearm ratio similar to the US you are fooling yourself.

You're missing the point and becoming emotional/flag waving. I likely have far more riding on the economic success of the US than you. Politics in DC are gridlocked at the worst financial moment since the Great Depression.

Yet Americans continue to pile on debt, and will remain largely ignorant of the dire financial straits until austerity measures are enacted, or a Cyprus like initiative is proposed *initially* against the "rich".

It honestly saddens me that when a fellow financially responsible/successful US citizen speaks of fast-approaching dangers, based in fact and historical precedent I receive blind patriotic responses.

Let me put it more simply, learn to be financially responsible for your family and take all precautions necessary to protect those you love. Investing in other currencies and foreign stock markets is a wise move in times of uncertainty.

Its not a blind patriotic response to say your perceptions of a future state where citizens with guns start raging shooting fests of government officials where society breaks down simply have no evidentiary support. We aren't Greece, or Spain. Perhaps you haven't heard, but the gold market is in steep decline. Those cool "buy gold for the coming apocalypse" ads may have been great for business, but they bore no resemblance to realty.

Furthermore, most of the huge debt hit was caused by a shrinkage in the economy and a massive drop in tax dollars. The solution to get out of this is to restart growth, not shrink the economy further. Yes, we blew mony on unpaid wars we didn't need to fight, unpaid growth in social benefits and unpaid tax cuts (just reinstituted by Obama). But some govt spending is helpful to growth. Infrastructure spending, science and tech investment and education assistance should all be massively increased. Instead, we allow crumbling bridges, huge education cost increases and significant reductions in R&D investments.

[dobrojim]

The recession and financial crisis were the result of systemic financial corruption. IMO it had several layers; 1. easy money policy of the fed 2. govt. forcing banks to make mortgage loans to people that couldn't afford the payments 3. securitization of risky mortgages by large financial institutions and faulty ratings by in-the-pocket rating agencies 4. nationalization of losses that should have been born by private entities.

The response to the recession is a predictable failure and continues to stymie any recovery. The false recovery we are in now is propped up the the fed's gargantuan stimulus of near 0% percent interest and vacuuming up of mortgage securities (again nationalizing what will become future losses covered by the taxpayer instead of private entities).

The next shoe to drop is also easily predictable. Feds eventually back out of easy money policy and stimulus, the markets tank and interest rates on cars and mortgages skyrocket. Economy shrinks again.

The corruption is deep and wide and until it is reversed the economy will either slink along or tank again.

The future could be bright but only if honest and wise leaders are put in charge.

I have a somewhat but not completely different take on the causes of the meltdown.

I would disagree that banks were 'forced' to loan money to people that couldn't afford
it. They were greedy and encouraged liar loans knowing that they themselves wouldn't
be holding the paper when the excrement hit the fan. They committed fraud in bundling
securitizing the paper with the knowledge and support of the credit rating services who
were operating with a HUGE conflict of interest. They supported the elimination of regs
and rules which made the markets completely opaque. Nobody really knew where anyone
else stood. And in further fraud, once having created these horribly risky mortgage bundles,
they were allowed to sell them in one office and bet against them out of another office
of the same company. One of my biggest complaints against BHO is that his DoJ has
basically concluded they're not going to bother to attempt to prosecute anyone because
it's too hard and they might lose. On the who's to blame scale, I put people who took
out loans they couldn't afford relatively low on the list, especially since so many were
encouraged by the lenders to commit fraud.

huge crimes but no criminals!?!?? or as Bob Dylan penned, steal a little and they throw
you in jail, steal a lot and they make you a King. Or as Randi Rhodes has said
over and over, private gain, public risk/cost.

re current economic policy - to those who believe austerity is necessary, however
painful, I know you hate Krugman but I believe he knows more about it than most
on this board and he says the indicators for their being a problem with excessive
debt are simply not there. We're not Greece/Spain/Italy and not likely to become
any of them either. There are a number of really good reasons why this is true
which he has laid out repeatedly.

Where is a plan from either party to address lack of jobs, wage stagnation (or deflation)
and a 3rd world level of wealth inequality?

[sfam]

The recession and financial crisis were the result of systemic financial corruption. IMO it had several layers; 1. easy money policy of the fed 2. govt. forcing banks to make mortgage loans to people that couldn't afford the payments 3. securitization of risky mortgages by large financial institutions and faulty ratings by in-the-pocket rating agencies 4. nationalization of losses that should have been born by private entities.

The response to the recession is a predictable failure and continues to stymie any recovery. The false recovery we are in now is propped up the the fed's gargantuan stimulus of near 0% percent interest and vacuuming up of mortgage securities (again nationalizing what will become future losses covered by the taxpayer instead of private entities).

The next shoe to drop is also easily predictable. Feds eventually back out of easy money policy and stimulus, the markets tank and interest rates on cars and mortgages skyrocket. Economy shrinks again.

The corruption is deep and wide and until it is reversed the economy will either slink along or tank again.

The future could be bright but only if honest and wise leaders are put in charge.

I have a somewhat but not completely different take on the causes of the meltdown.

I would disagree that banks were 'forced' to loan money to people that couldn't afford
it. They were greedy and encouraged liar loans knowing that they themselves wouldn't
be holding the paper when the excrement hit the fan. They committed fraud in bundling
securitizing the paper with the knowledge and support of the credit rating services who
were operating with a HUGE conflict of interest. They supported the elimination of regs
and rules which made the markets completely opaque. Nobody really knew where anyone
else stood. And in further fraud, once having created these horribly risky mortgage bundles,
they were allowed to sell them in one office and bet against them out of another office
of the same company. One of my biggest complaints against BHO is that his DoJ has
basically concluded they're not going to bother to attempt to prosecute anyone because
it's too hard and they might lose. On the who's to blame scale, I put people who took
out loans they couldn't afford relatively low on the list, especially since so many were
encouraged by the lenders to commit fraud.

huge crimes but no criminals!?!?? or as Bob Dylan penned, steal a little and they throw
you in jail, steal a lot and they make you a King. Or as Randi Rhodes has said
over and over, private gain, public risk/cost.

re current economic policy - to those who believe austerity is necessary, however
painful, I know you hate Krugman but I believe he knows more about it than most
on this board and he says the indicators for their being a problem with excessive
debt are simply not there. We're not Greece/Spain/Italy and not likely to become
any of them either. There are a number of really good reasons why this is true
which he has laid out repeatedly.

Where is a plan from either party to address lack of jobs, wage stagnation (or deflation)
and a 3rd world level of wealth inequality?

+1 on everything.

Too big to fail shouldn't mean too big to prosecute. The Obama Adminstration even did this with HSBC when it was clear they were fully engaged in supporting money laundering, drug running and the rest. This approach yields long term problems for very little short term gain.

[popper]

The recession and financial crisis were the result of systemic financial corruption. IMO it had several layers; 1. easy money policy of the fed 2. govt. forcing banks to make mortgage loans to people that couldn't afford the payments 3. securitization of risky mortgages by large financial institutions and faulty ratings by in-the-pocket rating agencies 4. nationalization of losses that should have been born by private entities.

The response to the recession is a predictable failure and continues to stymie any recovery. The false recovery we are in now is propped up the the fed's gargantuan stimulus of near 0% percent interest and vacuuming up of mortgage securities (again nationalizing what will become future losses covered by the taxpayer instead of private entities).

The next shoe to drop is also easily predictable. Feds eventually back out of easy money policy and stimulus, the markets tank and interest rates on cars and mortgages skyrocket. Economy shrinks again.

The corruption is deep and wide and until it is reversed the economy will either slink along or tank again.

The future could be bright but only if honest and wise leaders are put in charge.

I have a somewhat but not completely different take on the causes of the meltdown.

I would disagree that banks were 'forced' to loan money to people that couldn't afford
it. They were greedy and encouraged liar loans knowing that they themselves wouldn't
be holding the paper when the excrement hit the fan. They committed fraud in bundling
securitizing the paper with the knowledge and support of the credit rating services who
were operating with a HUGE conflict of interest. They supported the elimination of regs
and rules which made the markets completely opaque. Nobody really knew where anyone
else stood. And in further fraud, once having created these horribly risky mortgage bundles,
they were allowed to sell them in one office and bet against them out of another office
of the same company. One of my biggest complaints against BHO is that his DoJ has
basically concluded they're not going to bother to attempt to prosecute anyone because
it's too hard and they might lose. On the who's to blame scale, I put people who took
out loans they couldn't afford relatively low on the list, especially since so many were
encouraged by the lenders to commit fraud.

huge crimes but no criminals!?!?? or as Bob Dylan penned, steal a little and they throw
you in jail, steal a lot and they make you a King. Or as Randi Rhodes has said
over and over, private gain, public risk/cost.

re current economic policy - to those who believe austerity is necessary, however
painful, I know you hate Krugman but I believe he knows more about it than most
on this board and he says the indicators for their being a problem with excessive
debt are simply not there. We're not Greece/Spain/Italy and not likely to become
any of them either. There are a number of really good reasons why this is true
which he has laid out repeatedly.

Where is a plan from either party to address lack of jobs, wage stagnation (or deflation)
and a 3rd world level of wealth inequality?

Not sure if you read my post about the D's and GSE's earlier Jim. D's are up to their ears in causing much, but not all, of the corruption that was a major contributor to the financial crises. If I'm not mistaken, in 2008, Obama collected a lot more money from Wall Street than did his R opponent. Maybe it was a quid pro quo situation - Wall Street finances his campaign and he looks the other way.

Regarding your mention of austerity. We have been practicing the opposite of austerity for the last 12 years. Bush put 2 wars on the credit card and Obama runs a perpetual deficit of a trillion plus. The Fed is printing money and pushing it out the door at 0% interest, while also spending tens of billions a month to buy mortgage securities. There is nothing austere about what we have been doing for a long time. It is not working and never will work. It is simply trying to buy time to get through the next election cycle before the American people finally wake up and realize that they have been sold down the river.

Regarding plans. Simpson Bowles was a plan. Romney had a plan. Paul Ryan had a plan. Instead, the only plan we have been following of late is Obama's plan. Increase taxes (which to some degree is appropriate) and fight any spending cut tooth and nail (which will continue to prevent a real recovery when combined with a regulatory environment that stifles growth). It is not working and has no chance of working in the future.

I don't like sounding so negative but it is the reality of our situation IMO.

[Induveca]

Popper, agree 100%.

[Zonkerbl]

$1000 tax on each gun sold -- $2.2 trillion over ten years.
$26/ton tax on carbon emissions -- $1.8 trillion.

These taxes would make us better off (by addressing market failures) AND reduce the deficit.

No brainer.

[Induveca]

$1000 tax on each gun sold -- $2.2 trillion over ten years.
$26/ton tax on carbon emissions -- $1.8 trillion.

These taxes would make us better off (by addressing market failures) AND reduce the deficit.

No brainer.

Sad reality, while the 1k tax makes sense gun manufacturers will never let occur without a decade fight. They realize the US public/politicians don't have that long of an attention span.

[dobrojim]

I disagree that we've been doing the opposite of austerity for a decade,
especially with respect to the last 3 years.

Also what you point to only spotlights the reality that It matters what you spend money on.
What benefit to the average citizen did the vast majority of Dubya's profligacy have?

re the financial collapse I refer you again to Griftopia by Matt Taibi.

[Induveca]

Griftopia, yes the "bankers are responsible" line. I think anyone who followed the meltdown realizes the banking industry played a large role in an economic disaster. Instead of identifying who helped cause the problem to a large degree.....DC needs to take back control and fix the problem.

I tend to trust a partner of mine who heads up one of the largest global banks as Vice Chairman. One of the people you insist caused the problems to begin with....his take is more forward-looking as well.

He routineley expresses frustration with the US for continuing to print money, and a refusal to pay down national debt. More and more of their holdings have been moved to China over the past 10 years for this reason.

This isn't a philosophical debate. It's simple mathematics, and an ability to pay invoices without worry.

Anyone here who has held a credit card at a high balance when younger/less flush with cash knows the impact of that excessive debt on daily expenditures.

The US, as a whole, is feeling that same impact due to the national debt. There is manageable, and unmanageable debt. The US right now clearly falls in the latter category.

How it happened, or who to blame is educational but irrelevant. If the government continually agrees to print money to pay bills it's economic suicide.

[dobrojim]

what is your response to Krugman's arguments that the indicators
of excessive debt are lacking ie that we should not compare ourselves
to any of the european basketcases?

You say that we CLEARLY fall into the unmanageable debt side of
the equation. What economic indicators drive you to that conclusion?

PS - Griftopia goes a bit beyond your simplistic description.
Matt Taibi knows of what he writes.

[Induveca]

Krugman is the same fellow who declared the "service economy" had arrived and shipping menial blue-collar jobs overseas to be of the most benefit to the US back in the 80s.

That exact policy has been a huge factor in the current US dire situation. Of course now he largely ignores macroeconomics and slams anyone demanding paying down national debt.

He has slowly backed away from his disastrous proclamations that low wage immigration and outsourced manufacturing would result in LESS debt, and more wealth for the average citizen.

The guy has a flair for debate, but his predictions haven't just been wrong they've been disastrous. Choosing to believe this guy is much like handing over the department of defense to Donald Rumsfeld in 2013.

[dobrojim]

maybe he slams people calling for paydown of debt because debt isn't
our worst or biggest problem.

edit to add -

and focusing too heavily on debt will make the problems that are bigger problems
worse yet

[Zonkerbl]

Comparing the national debt to a household budget is a common fallacy. The two are not at all alike. Unless you are about 250 years old and expect to live several thousand years (although discounting makes only the next 100 years relevant). And people pay you to borrow their money. And you expect your income to grow by about 2% a year, net of inflation, for several thousand years.

We can carry more debt than other countries because we are at the top of the economic food chain. However, the global economic impact of us having too much debt is much greater than any other country. Look at the problems Greece's debt issues are causing everybody and multiply that by 1000.

Hard to tell how much debt is too much. At what point do you think it's a genuine possibility that we won't be able to pay back our loans? I think it's safe to say 150% of GDP is too much and that I'd feel much more comfortable at 75%. Can we carry 100% of GDP safely? Probably. Should we? I don't think so.

[sfam]

Krugman is the same fellow who declared the "service economy" had arrived and shipping menial blue-collar jobs overseas to be of the most benefit to the US back in the 80s.

That exact policy has been a huge factor in the current US dire situation. Of course now he largely ignores macroeconomics and slams anyone demanding paying down national debt.

He has slowly backed away from his disastrous proclamations that low wage immigration and outsourced manufacturing would result in LESS debt, and more wealth for the average citizen.

The guy has a flair for debate, but his predictions haven't just been wrong they've been disastrous. Choosing to believe this guy is much like handing over the department of defense to Donald Rumsfeld in 2013.

I could've sworn Krugman was the same fellow who got a Nobel prize for his work in Economics. Perhaps I was wrong about that?

Dismissing Krugman and many many others' arguments who say the same thing - the critical problem is restarting growth now, not worrying about long term debt - as akin to putting Donald Rumsfeld in charge isn't much of a response.

[Induveca]

Krugman is the same fellow who declared the "service economy" had arrived and shipping menial blue-collar jobs overseas to be of the most benefit to the US back in the 80s.

That exact policy has been a huge factor in the current US dire situation. Of course now he largely ignores macroeconomics and slams anyone demanding paying down national debt.

He has slowly backed away from his disastrous proclamations that low wage immigration and outsourced manufacturing would result in LESS debt, and more wealth for the average citizen.

The guy has a flair for debate, but his predictions haven't just been wrong they've been disastrous. Choosing to believe this guy is much like handing over the department of defense to Donald Rumsfeld in 2013.

I could've sworn Krugman was the same fellow who got a Nobel prize for his work in Economics. Perhaps I was wrong about that?

Dismissing Krugman and many many others' arguments who say the same thing - the critical problem is restarting growth now, not worrying about long term debt - as akin to putting Donald Rumsfeld in charge isn't much of a response.

Point was trusting a guy who is responsible, in large part, for the situation to begin with (he of service economy/globalization hype to Presidents in the 80s) likely isn't the best idea.

He is a known egomaniac, and fiercely protects his previous predictions in mind-numbing ways. Can't really trust him when he blows off an 18 trillion dollar debt, mostly due to what reads like an aversion to multitasking the financial crisis.

[Induveca]

Krugman is the same fellow who declared the "service economy" had arrived and shipping menial blue-collar jobs overseas to be of the most benefit to the US back in the 80s.

That exact policy has been a huge factor in the current US dire situation. Of course now he largely ignores macroeconomics and slams anyone demanding paying down national debt.

He has slowly backed away from his disastrous proclamations that low wage immigration and outsourced manufacturing would result in LESS debt, and more wealth for the average citizen.

The guy has a flair for debate, but his predictions haven't just been wrong they've been disastrous. Choosing to believe this guy is much like handing over the department of defense to Donald Rumsfeld in 2013.

I could've sworn Krugman was the same fellow who got a Nobel prize for his work in Economics. Perhaps I was wrong about that?

Dismissing Krugman and many many others' arguments who say the same thing - the critical problem is restarting growth now, not worrying about long term debt - as akin to putting Donald Rumsfeld in charge isn't much of a response.

Point was trusting a guy who is responsible, in large part, for the situation to begin with (he of service economy/globalization hype to Presidents in the 80s) likely isn't the best idea.

He is a known egomaniac, and fiercely protects his previous predictions in mind-numbing ways. Can't really trust him when he blows off an 18 trillion dollar debt, mostly due to what reads like an aversion to multitasking the financial crisis.

Also the "many many others" you mention, there are obviously "many many others" who disagree with the approach....or non-approach.