24 September 2008

Back To My More Usual Type Of Post

Some good break-downs of what happened with Fannie and Freddie.




The Gods of the Copybook Headings

by Rudyard Kipling

I PASS through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.

We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."

On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wobbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will bum,
The Gods of the Copybook Headings with terror and slaughter return.

25th-Sep-2008 11:44 am (local)
Holy assballs, I just read through those sites you linked, and the sites they linked, and so on.

They certainly do portray the Democratic party as an organized (and misguided) intentional movement to make Socialism the American way.

Those articles call out some of the major villains and political enablers of the Fannie/Freddie failure, and name them as senator Obama's financial advisers and "inner circle" campaign supporters.

And the people at the top of the financial and mortgage pyramid seem like a collection of villains from a Dan Brown novel. Shady deals in smoke filled rooms, boldfaced lies to bolster public confidence in obviously failing business practices, creative math to make executive bonuses while destroying the foundation of the American financial institution. If we know who they are, and we know where they are, why are they still breathing? These people seem to be the dark heart of evil!

One of the most salient, and least politically charged links I found in my web crawl was this:

Which seems to imply that we common citizens might best prepare for the coming financial storm by learning to grow potatoes in the back yard, getting a second job as a handyman, and learning to live in tin-roofed shacks. Yikes!
25th-Sep-2008 05:23 pm (local)
Your choice of Kipling's verse seems more appropriate every time I read it.

Apart from its blatant political leanings (which I'm neither politically nor historically knowledgeable enough to judge, but have been researching), there's one statement made in the post on smallestminority.blogspot.com (your middle link, above), that really leapt out to me. The author of the post says:

"Ladies and Gentlemen, Boys and Girls, the free market works, if we let it. But when we fuck with it, we do so at our own peril..."

The quoted post rants about how evil Socialists blocked a Bush administration plan to revise and expand government oversight of Fannie and Freddie. Making sure to point out again and again how the glorious Bush administration had foreseen the need for greater oversight in 2003 and again in 2005, and had introduced legislation to that end.

Oversight which, maybe, would have helped. But which certainly isn't a free market force.

The (outer level) post goes on with:

"What happened here wasn't due to a 'lack of federal regulatory oversight,' it happened because of federal regulatory oversight - oversight that set up conditions that a free market would not have. The government required banks to make risky loans, then provided entities to remove much of the risk for the lending institutions."

Ok, well... maybe. Now you're blaming the government for "forcing" private institutions to make poorly considered loans, by which they in turn generated huge profits? That they could get away with making because of a total absence of (rational) oversight? It sounds to me as though some well educated con men devised a way to fleece the American public, and now you're trying to pin it on the government for having created an atmosphere that made it possible. But you don't think a lack of oversight was the problem, because the free market works?

What about the proposed bailout? (from http://www.npr.org/templates/story/story.php?storyId=94950330):

"The Bush administration's plan to bail out the nation's financial institutions represents an unprecedented intervention in free markets. If the Wall Street bailout is adopted, Republican Sen. Jim Bunning of Kentucky said last week, 'The free market for all intents and purposes is dead in America.'

A fundamental principle of free-market capitalism is that investors take on big risks to reap big rewards — but they also assume any losses that occur. The government's plan would radically alter that model, leaving profits private while making losses public.

This is the same "Bush administration" that the quoted poster is so much in defense of?

This seems extremely contradictory with the position that, "Ladies and Gentlemen, Boys and Girls, the free market works, if we let it. But when we fuck with it, we do so at our own peril."
26th-Sep-2008 02:44 am (local)
I quoted him to make sure people could see that even the opponents to a bail-out fail to make sense sometimes.

The increased oversight on Freddie and Fanny that most often seems to come up would not have increased regulation of the market, but would have made certain that the gains in the quasi-government entities were actual and not theoretical. It would seem that the people in charge made the books seem better than they were to get their targeted bonuses, at the expense of the rest of us.

I think the main thrust if the "heroic Bush" thread is that it had become obvious in '03 and '05 that this day was coming and that we needed to do something about Fred and Fan. I think that the more reading I do, the more convinced I am that this day was foretold in 1977 when the CRA was passed.

There's a mixing of speculation and fact going on here.
1st-Oct-2008 04:16 pm (local) - In my own defense. . .
Hi. I'm the author of The Smallest Minority. I think you misunderstand my position.

My position is that the Free Market works. I've never said that the mortgage industry was a free market. It's heavily regulated - and when you regulate (fuck with the market) you do so at your own risk.

We've had "Federal regulatory oversight" of the mortgage industry from the beginning - but the Social Planners weren't getting the "fair" results they thought should be generated by their oversight,so they changed the rules.

And the unintended consequences are our current crisis.

The basic background behind that post is an ongoing argument with a Leftist that the CAUSE of the crisis was lack of regulation. No it wasn't. It was LOUSY regulation put in place for utopian reasons, on top of OTHER regulation.

The Free Market WORKS.

Perhaps some day we might actually TRY IT.

Kevin Baker, proprietor, The Smallest Minority
26th-Sep-2008 03:19 am (local) - Good additional reading
26th-Sep-2008 10:29 am (local) - Re: Good additional reading
That's a very interesting article. I like the clear, simple, logical explanation of the timeline of this crisis.

From the wikipedia article on the CRA law (linked by your link)

"Some economists have claimed that the CRA encouraged risky lending[13][14] and contributed to the development of the subprime debacle.[citation needed] However, this is disputed, as Robert Gordon has pointed out that approximately half of the loans were made by independent mortgage companies that were not regulated by the CRA, and thus had no government obligation to offer credit to minorities. In the later part of the crisis, these mortgage companies made subprime loans at twice the rate of CRA banks. Another third of the major subprime lenders were regulated, but had very little CRA involvement.[15][16] Gordon also makes the argument that the weakening of the CRA in 2004 was followed by intensified subprime lending.[15] Austrian economist Thomas DiLorenzo counters Gordon's statistic by arguing that even if half of the subprime loans were made by non-CRA companies, the CRA had still caused tens of billions in defaults on mortgages by unqualified borrowers. He also argues against Gordon's three main propositions stating that Gordon's first two propositions flatly contradict each other, whereas the third is unequivocally false.[17]

Congressman and 2008 Republican presidential candidate Ron Paul has partially attributed the ongoing subprime mortgage crisis to legislation such as the CRA.[18] Economist Stan Liebowitz has also expressed his opinion that banks were forced to loan to un-credit worthy consumers with "no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment." However, the chief executive of Countrywide Financial, the nation's largest mortgage lender, is said to have "bragged" that to approve minority applications "lenders have had to stretch the rules a bit", suggesting that Countrywide was responsible for relaxing its standards rather than the other way around.[19]

Ellen Seidman, the former director of the US Office of Thrift Supervision,[1] has stated that the CRA did not have an effect on the United States housing bubble. She observes that CRA banks were particularly warned to make responsible investments, citing a speech by herself as an example.[2] She notes that if unregulated independent mortgage companies do make subprime loans, affiliated CRA banks should not be able to count them for CRA purposes, although she does not indicate whether this practice currently occurs. An analysis by attorneys Traiger and Hinckley concluded that CRA banks were less likely to sell risky mortgages onto the secondary market, and likely mitigated the effect of the subprime crisis.[20]

Sounds to me like the effect (if any) of the CRA law on the current crisis is disputed. Now I'm going to go learn how many people defending the law were involved int its conception and passage, and how many people attacking it are obviously politically motivated.
Lord, why can't people stop trying to turn shit like this to their Party's advantage, and just intelligently discuss the facts? I mean honestly, several quoted banking experts can't even agree if the CRA law caused the sub-prime crisis, or if it helped to mitigate it!
26th-Sep-2008 02:10 pm (local) - Re: Good additional reading
The independent companies making the same loans as the CRA controlled entities is an easy one to explain.

If they didn't offer the same loans as the CRA places, they would have been making few to little loans and been driven from the marketplace.
30th-Sep-2008 06:24 pm (local)
18 informative answers


Holy cow, read the comments on this blog entry! They make a very clear picture of who opposed the bill, and why.
1st-Oct-2008 09:54 am (local)
There's supposed to be another link there, the blog entry that I'm referencing the comments on.

1st-Oct-2008 12:40 pm (local)
Public Opinion and Reaction to events of the past week.


I especially liked:

"A lot of people keep mentioning "The evil banking industry gets screwed, but it's not going to effect ME!" You're wrong. In the worst case scenario, incorrectly mitigating this crisis could easily lead to you needing to wait in line for soup just to survive. More realistically, you're going to see a consolidation companies, a significant decrease in your buying power, and you'll have a hell of a time getting a home/car/student/small business loan. It's not fun to talk about that though, so lets discuss WORST CASE SCENARIOS!

The biggest danger comes in the form of Credit default swaps. It isn't insurance, but you can functionally think of it as though it were reverse insurance. Basically, somebody else takes 10 million dollars of your debt, and you agree to pay them around $200,000 a year for the assumption of that debt. A risky company like an internet startup pays more, like $500k a year or more, while a very stable company like Freddie Mac would pay significantly less. Now, when the company goes down and leaves millions in debt, the company that assumed the debt has to pay off the creditors. This is how companies are able to occasionally go out of business without completely fleecing the lending companies every time. It is what makes safe corporate lending possible. This is completely normal and the market can handle it.

However, take something like Freddie Mac and Fannie Mae going out at the same time. They've got billions in debt, as in they've got more money in debt than almost every other nation. And they were considered some of the most stable companies in the US. This means that they had absurdly low rates that they needed to pay out, and thus were able to spread their debt to tons of different companies. While the giants were still in business, this worked out fine. They'd get a stream of revenue from their investments and pay out to other companies for assuming their debt. However, if these companies collapse, and I mean completely go belly up, then you have a problem. Now you've got dozens of companies posting tens of billion+ dollar losses. Then they go down, and surprise surprise, they've got CDSs with other companies who now owe billions. This keeps on going down the chain, destroying every company involved. The entire economic system crashes down like dominoes.

How much outstanding credit derivatives are there? $60 trillion. As in, more than the entire GDP of the world. In the world I see - you are stalking elk through the damp canyon forests around the ruins of Rockefeller Center. You'll wear leather clothes that will last you the rest of your life. You'll climb the wrist-thick kudzu vines that wrap the Sears Tower. And when you look down, you'll see tiny figures pounding corn, laying strips of venison on the empty car pool lane of some abandoned superhighway. Granted, the government will step in far before anything like that happens (and actually has already stepped in some places), but you better believe we need some type of intervention or this time next year you'll be fighting in Thunderdome.

Wachovia has already been bought out. Last weekend WaMu was the largest bank failure in American history. A number of smaller banks are also folding or getting so weakened that they'll easily be bought up. So yes, this concerns everybody. We need some kind of bailout, even though I wasn't fully pleased with all the terms of the failed one today. But something needs to happen."
1st-Oct-2008 01:39 pm (local)


Apparently sound reasons to vote "no" on a "bailout" plan.

I was going to post some links to well-reasoned arguments to vote "yes". But all I can find are demands to "do something now to stop the bleeding", assertions that if we don't do something immediate it's only going to get worse, statements that people who don't support the "bailout" don't know what they're talking about, and predictions of the end of the world.
None of which does much in the way of convincing me to vote for something.

I seem to be forming a strong "no" opinion on any legislation that doesn't 1) Directly address the problems, including restructuring the way mortgages are sold, repackaged, and traded, and 2) Remove those involved in the policies that led to this failure (including legislators, corporate leaders, and federal employees) from power.

I'd also like to see 3) Alternate strategies for stabilizing the credit market that don't involve the government purchasing hundreds of billions of dollars worth of "toxic assets." For instance, what happens if the government simply pays off every defaulted mortgage in the country? I'm not saying that would be fair (people who should never have gotten loans would suddenly own houses), but what would the effect be? Would it be less fair than handing out seven hundred thousand million dollars to Wall Street firms in exchange for trash?

And lastly, I'm likely to feel negatively about any bill proposed to solve this crisis that can't clearly and logically explain how it will do so. Or one which is padded with additional legislative "fluff" to make it more palatable to one party or another.
The first bill fails the first test. No one has yet explained how buying these bad debts fixes insolvency in the credit markets or increases confidence in debt exchange. Except in that it sets a precedent that the government will step in again in the future.
The second bill fails both tests. It's a rehash of the first bill, plus some additional deregulation of bank accounting rules, and a few other items like AMT relief (which was going to pass anyway).
1st-Oct-2008 10:05 pm (local)
Everyone keeps telling me if I researched things I would understand why Oboma is so great. I've read and I don't understand, guess I like being free. Besides he doesn't like to vote for the things that effect me I read these links and I start thinking about our history and how things got started and trust me when I comes to history I do not know shit. But I know enough, so it makes me wonder what the people that are peaching to me really know?

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