Hey!! We all just bought out AIG!!!

[William]

:crap:

Let's hope we get to confiscate the Golden parachutes too. :butt:






William

[Ray]

They're an insurance company right? Does that mean we're all insured now? Damn, I feel safe.

-Ray

[rwsaunders]

I literally just activated a life insurance policy with AIG on 01 Sept. They were very difficult to get a preferred health policy with, but their terms and conditions were worth the effort at the time. It's amazing how you can go from an A+ rated firm, to a government agency in 30 days. I called the broker yesterday and he was stumped.

[Ray]

I literally just activated a life insurance policy with AIG on 01 Sept. They were very difficult to get a preferred health policy with, but their terms and conditions were worth the effort at the time. It's amazing how you can go from an A+ rated firm, to a government agency in 30 days. I called the broker yesterday and he was stumped.
We're gonna all have government health care one way or another. You just got a jump on it...

-Ray

[Tom]

Dang them left wing liberal socialists bailing out....

Oh.


never mind.

[michael white]

Does this mean we'll get another stimulus check? It don't look like we're quite all the way stimulated yet.

I mean, personally, I hardly feel stimulated at all.

[ti_boi]

I love you guys. :banana:














You are Hilarious.

[avalonracing]

Again... Too bad we can't afford universal health care in this country.

[rwsaunders]

From the www.....Why should I care about problems at AIG if I'm not a customer?

AIG is by far the world's largest insurer and its stock is found in many mutual funds, including any S&P 500 index fund. It is also a component of the Dow Jones industrial average. All by itself, it's been responsible for dragging the Dow down more than 400 points so far this year.

AIG is also active in the business of credit default swaps, complicated financial instruments used by investors to protect themselves from bond defaults. Lehman Brothers (LEH, Fortune 500) was another major player in that field. If both go away, it would create a tighter credit market for consumers and businesses trying to get loans.

For this reason, there is a debate about whether the Federal Reserve will agree to lend the company the tens of billions of dollars it needs to cover its short-term funding needs or if the Fed will try and get private firms to assist AIG instead.

[William]

From the www.....Why should I care about problems at AIG if I'm not a customer?

AIG is by far the world's largest insurer and its stock is found in many mutual funds, including any S&P 500 index fund. It is also a component of the Dow Jones industrial average. All by itself, it's been responsible for dragging the Dow down more than 400 points so far this year.

AIG is also active in the business of credit default swaps, complicated financial instruments used by investors to protect themselves from bond defaults. Lehman Brothers (LEH, Fortune 500) was another major player in that field. If both go away, it would create a tighter credit market for consumers and businesses trying to get loans.

For this reason, there is a debate about whether the Federal Reserve will agree to lend the company the tens of billions of dollars it needs to cover its short-term funding needs or if the Fed will try and get private firms to assist AIG instead.


80+ Billion (Yes, with a "B") if I heard correctly on NPR this a.m.




William

[harlond]

Dang them left wing liberal socialists bailing out....

Oh.


never mind.Yep, mighty interesting to see the republicans nationalizing businesses.

[michael white]

Yep, mighty interesting to see the republicans nationalizing businesses.

Well, at least we don't have to worry about USS Cole-type attacks on our emissaries in farflung places like Yemen!

uh, hang on a minute, something's goin' on . . .

[false_Aest]

Does this mean we'll get another stimulus check? It don't look like we're quite all the way stimulated yet.

I mean, personally, I hardly feel stimulated at all.


Hrm. Instead of waiting for the govt. go to your local bait store and grab this:

http://www.okuma.com.au/home/stimulate/product.asp?pid=SGEL-1

[michael white]

Hrm. Instead of waiting for the govt. go to your local bait store and grab this:

http://www.okuma.com.au/home/stimulate/product.asp?pid=SGEL-1


thanks for the suggestion, but I think I'll pass . . . the govt. bails out everyone these days . . .

[znfdl]

The Fedral Regulators are starting to find out that large companies can pose systemic risk to the financial sector. What does Fannie Mae, Freddie Mac and AIG have in common? Simple answer is a tremendous amount of swaps and swaptions, probably close to two trillion notional amount. If either of the three failed we might have seen a worldwide depression. Be thankful that the government stepped in......

[Viper]

"There's something out there waiting for us and it ain't no man. We're all gonna die" said Billy. I always felt Predator was, in many ways, Jaws in the jungle*:

http://www.youtube.com/watch?v=8XfH1G1j5qs&feature=related

http://www.youtube.com/watch?v=4-cu9eEie3E

The economy is in the jungle, deep. But hey, it's cross season, get to da choppa!

* = William, do you agree that Quint would've been Mac, this guy:

http://www.youtube.com/watch?v=qIjmsKvwDqg&feature=related

Chief Brody was Poncho, Mayor Vaughn was Dillon, Hooper was Hawkins.

[William]

"
* = William, do you agree that Quint would've been Mac, this guy:

http://www.youtube.com/watch?v=qIjmsKvwDqg&feature=related

.


Except for his impulsive need to constantly shave.....You're on to something.





William

[Sandy]

We're gonna all have government health care one way or another. You just got a jump on it...

-Ray

So how is going to be paid for? More government debt?


Sandy

[goonster]

If either of the three failed we might have seen a worldwide depression. Be thankful that the government stepped in......

I understand and agree, but:

What are the lessons learned, who is accountable, and how do we avoid a repeat of this fiasco in twenty or thirty years' time?

[William]

The Fedral Regulators are starting to find out that large companies can pose systemic risk to the financial sector. What does Fannie Mae, Freddie Mac and AIG have in common? Simple answer is a tremendous amount of swaps and swaptions, probably close to two trillion notional amount. If either of the three failed we might have seen a worldwide depression. Be thankful that the government stepped in......



You may be right. But what allowed it to get to that place? Who is accountable? The taxpayers need a good explanation...and maybe some heads as well.




William

[johnnymossville]

A loan at 11% interest doesn't sound like much of a bail-out to me. Of course, they should've waited a few more days until someone from Dubai stepped in.

[michael white]

The Fedral Regulators are starting to find out that large companies can pose systemic risk to the financial sector...

you're telling me this is news? Can you please tell me the name of one person who was so pathetically stupid they just figured this out? Also, please tell me who was dumb enough to give this first moron responsibility over my money? Because this is stupid on top of stupid.

thanks,
mw

[Sandy]

A loan at 11% interest doesn't sound like much of a bail-out to me. Of course, they should've waited a few more days until someone from Dubai stepped in.

The loan allows an orderly sale of assets of a reasonable time frame.


Sandy

[1centaur]

znfdl is right and lots of comments here are way off base. This is not about Republican or Democrat or bailing out fat cats (managers and owners are the big losers in this deal), it's about the whole financial system. AIG going down would have meant massive losses at other financial institutions who then would have been short the capital their regulators say they need, so we could have had a domino of bank failures, maybe insurance company failures, etc. Would anybody here or in Washington say that such an outcome is acceptable?

We got here because the world created all sorts of derivative contracts to reduce risk (ironic) through hedging. The strongest financial institutions in the world said, "pay me some money and I'll make sure you don't lose more than X on your investment." They used their supposedly superior understanding of risk and their ability to lay off that risk at other top financial institutions to build that business of insuring against financial downside. With such assurances in place, it was easier for some investors to build up bigger investment positions, often with lots of leverage, newly available via global liquidity that was not around 25 years ago. Then the US real estate bubble burst, cratering AAA-rated structured product built on that real estate, and suddenly the risk assumptions underlying all those derivative contracts were kaput. That created a chain reaction of losses that required thinly capitalized financial giants to scramble for billions of dollars until the normal sources for such capital dried up. Hello Fed.

Books will be written that tell this story over hundreds of pages, but you got a synopsis on the Serotta forum years in advance :)

The way to prevent it in the future (other than saying no derivatives): lending standards will have to be more conservative (no more social imperative to get poor people into houses) and rating agencies will have to be more conservative. The combination means less economic growth, but more sustainability of growth. Slow growth means less tax income for the government and all the implications that follow.

As for AIG, this loan is designed to get AIG to sell off its assets in an orderly basis, repay the government loans (that are being made at a very high interest rate by the way), and not blow up the world along the way. Sounds good to me.

[Ray]

So how is going to be paid for? More government debt?


Sandy
It was a joke. RW bought healthcare from what he THOUGHT was a private insurer and then a couple weeks later, it was essentially acquired by the government so now he has govt healthcare. Hey, we socialists are sneaky people. If we can't get you to agree to agree to govt healthcare through the front door, we'll get there through the back door.

And, yeah, in this case its surely govt debt because when you're however many hundreds of billions in the red just THIS YEAR, another $85 billion is only written in red ink. Of course, if they pay it back with the required interest, it ends up MAKING the govt money. If we could do this with all private health care insurers, we'd end up with public health care and it would MAKE money! Brilliant! Better than a perpetual motion machine. (This too, is a joke - we may as well try to find something to laugh at in the midst of this evolving clusterf*%k).

-Ray

[News Man]

I like the deal and I think it was necessary.

[Joellogicman]

As for AIG, this loan is designed to get AIG to sell off its assets in an orderly basis, repay the government loans (that are being made at a very high interest rate by the way), and not blow up the world along the way. Sounds good to me.

Agree to an extent. Disagree with your confidence the loans will be repaid 100 cents on the dollar with interest. The Resolution Trust Corporation set up to deal with the Savings and Loan collapse lost billions. If anything, the exposure, and ultimate chance of recovery here is worse.

I also disagree to an extent your assertion this is not a Democrat and Republican issue. GW early on pressured Congress to reduce tax rates for US tax payers who make most of their money from inheritance and investments rather than wages. McCain until now has said he intends to reduce the tax rates even further.

The people who lead AIG, Lehman, and the others to this disaster certainly benefited from the tax cuts. The federal money to pay for the bail out is coming out of my (and yours unless you are a trust baby or big time investor) income taxes. Not being said at all is what impact this diversion of of federal assets combined with the tremendous war related deficits will have on the looming social security and medicaid crisis.

Republican leadership even before the financial crisis has federal coffers at historically low levels. Now what little there is has to be pumped into saving the fat cats. This will impact the average tax payer for decades, unless someone has the courage to ask those with the most to pay more of the bill.

[News Man]

Agree to an extent. Disagree with your confidence the loans will be repaid 100 cents on the dollar with interest. The Resolution Trust Corporation set up to deal with the Savings and Loan collapse lost billions. If anything, the exposure, and ultimate chance of recovery here is worse.

I also disagree to an extent your assertion this is not a Democrat and Republican issue. GW early on pressured Congress to reduce tax rates for US tax payers who make most of their money from inheritance and investments rather than wages. McCain until now has said he intends to reduce the tax rates even further.

The people who lead AIG, Lehman, and the others to this disaster certainly benefited from the tax cuts. The federal money to pay for the bail out is coming out of my (and yours unless you are a trust baby or big time investor) income taxes. Not being said at all is what impact this diversion of of federal assets combined with the tremendous war related deficits will have on the looming social security and medicaid crisis.

Republican leadership even before the financial crisis has federal coffers at historically low levels. Now what little there is has to be pumped into saving the fat cats. This will impact the average tax payer for decades, unless someone has the courage to ask those with the most to pay more of the bill.

Fat Cats is such a tired, class warfare term. If you think tax cuts for Fat Cats is why this happened, you don't know much.

[Joellogicman]

Fat Cats is such a tired, class warfare term. If you think tax cuts for Fat Cats is why this happened, you don't know much.

I kind of like the way Jack Nicholson used Fat Cat to describe what Jake became in 'The Two Jakes.' In any event, I take pains to explain which category of tax payers have enjoyed the benefit of tax cuts, do I not?

I don't want to violate forum rules and get in a forum fight. However, it is amply clear no logical reading of my statement could lead to a conclusion that I blame the breakdown on tax cuts.

Rather, I am saying the people most responsible for the breakdown have benefitted more from tax cuts than regular wage earning tax payers.

[rwsaunders]

It was a joke. RW bought healthcare from what he THOUGHT was a private insurer and then a couple weeks later, it was essentially acquired by the government so now he has govt healthcare. Hey, we socialists are sneaky people. If we can't get you to agree to agree to govt healthcare through the front door, we'll get there through the back door.

And, yeah, in this case its surely govt debt because when you're however many hundreds of billions in the red just THIS YEAR, another $85 billion is only written in red ink. Of course, if they pay it back with the required interest, it ends up MAKING the govt money. If we could do this with all private health care insurers, we'd end up with public health care and it would MAKE money! Brilliant! Better than a perpetual motion machine. (This too, is a joke - we may as well try to find something to laugh at in the midst of this evolving clusterf*%k).

-Ray

Ray...it was life insurance, and if I kill myself in the next two years (whether sane or insane reads the policy) my wife can only recoup the premiums that have been paid to date. I might have to pull a Steve Fossett, get lost in an experimental plane, and collect the moola before the system goes down.....

[News Man]

I kind of like the way Jack Nicholson used Fat Cat to describe what Jake became in 'The Two Jakes.' In any event, I take pains to explain which category of tax payers have enjoyed the benefit of tax cuts, do I not?

I don't want to violate forum rules and get in a forum fight. However, it is amply clear no logical reading of my statement could lead to a conclusion that I blame the breakdown on tax cuts.

Rather, I am saying the people most responsible for the breakdown have benefitted more from tax cuts than regular wage earning tax payers.

That is quite a news flash. So you are telling me the group that pays the majority of taxes in this country benefits more from a tax cut than others. Wow, I had no idea.

[goonster]

lending standards will have to be more conservative (no more social imperative to get poor people into houses)

Just to be clear:

The housing bubble was not driven by a social imperative to have poor people buy homes. Sure, there was a lot of speculation on the demand side--hair stylists quitting their day jobs to flip houses, but the lax lending standards were also driven in a very large part by the supply side, i.e. global capital looking for a place to go and everyone who stood to earn a commission on those deals.

An interesting list of who is to blame is here (http://www.npr.org/blogs/money/2008/09/who_can_i_blame.html#more), and some of the most obvious scapegoats are not on it.

[znfdl]

znfdl is right and lots of comments here are way off base. This is not about Republican or Democrat or bailing out fat cats (managers and owners are the big losers in this deal), it's about the whole financial system. AIG going down would have meant massive losses at other financial institutions who then would have been short the capital their regulators say they need, so we could have had a domino of bank failures, maybe insurance company failures, etc. Would anybody here or in Washington say that such an outcome is acceptable?

We got here because the world created all sorts of derivative contracts to reduce risk (ironic) through hedging. The strongest financial institutions in the world said, "pay me some money and I'll make sure you don't lose more than X on your investment." They used their supposedly superior understanding of risk and their ability to lay off that risk at other top financial institutions to build that business of insuring against financial downside. With such assurances in place, it was easier for some investors to build up bigger investment positions, often with lots of leverage, newly available via global liquidity that was not around 25 years ago. Then the US real estate bubble burst, cratering AAA-rated structured product built on that real estate, and suddenly the risk assumptions underlying all those derivative contracts were kaput. That created a chain reaction of losses that required thinly capitalized financial giants to scramble for billions of dollars until the normal sources for such capital dried up. Hello Fed.

Books will be written that tell this story over hundreds of pages, but you got a synopsis on the Serotta forum years in advance :)

The way to prevent it in the future (other than saying no derivatives): lending standards will have to be more conservative (no more social imperative to get poor people into houses) and rating agencies will have to be more conservative. The combination means less economic growth, but more sustainability of growth. Slow growth means less tax income for the government and all the implications that follow.

As for AIG, this loan is designed to get AIG to sell off its assets in an orderly basis, repay the government loans (that are being made at a very high interest rate by the way), and not blow up the world along the way. Sounds good to me.

+1,000

[Joellogicman]

That is quite a news flash. So you are telling me the group that pays the majority of taxes in this country benefits more from a tax cut than others. Wow, I had no idea.

Not telling any one person anything. Rather, I am expressing my opinion in a public forum that the people involved with the recent investment bank break down benefited more from the recent tax breaks than the majority of the US tax payers.

The federal government does not get more of its tax money from dividend taxes and inheritance tax than income tax, by the way.

Moreover, the second part of my opinion had to do with social security. As there is a cap on social security deductions, middle income tax payers pay as much as high income. The federal government has been raiding the social security piggy bank to make up for the deficit for years. The end result is the tens of thousands of dollars I have paid to social security may never yield anything for me, as the money is already gone to the above mentioned bail outs and of course the war efforts.

[Joellogicman]

Just to be clear:

The housing bubble was not driven by a social imperative to have poor people buy homes. Sure, there was a lot of speculation on the demand side--hair stylists quitting their day jobs to flip houses, but the lax lending standards were also driven in a very large part by the supply side, i.e. global capital looking for a place to go and everyone who stood to earn a commission on those deals.

An interesting list of who is to blame is here (http://www.npr.org/blogs/money/2008/09/who_can_i_blame.html#more), and some of the most obvious scapegoats are not on it.

Were the odd ball credit terms that drove the current collapse the fault of people who borrowed the money or the people whom, at least until the bubble burst, profited from lending the money?

The linked opinion has some good points. However, I find it curious the author mentions deferring the cost Viet Nam War yet ignores the US is doing the same thing with Iraq and Afghanistan. In my opinion, if an issue is worth bringing a democracy to arms, all citizens, soldiers and civilians need to bear the burden. FDR got the US citizenry to go without to see through WWII. Leadership since has not even tried to ask the nation to join the effort.

[BumbleBeeDave]

. . . I don't want to violate forum rules and get in a forum fight. . . .

. . . and you, too, News Man.

The thread is civil and fascinating. Can we please keep it that way? Many thanks! . . .

BBD

[fiamme red]

An interesting list of who is to blame is here (http://www.npr.org/blogs/money/2008/09/who_can_i_blame.html#more), and some of the most obvious scapegoats are not on it.Great! It's not our fault, we can blame it on Japan, China, Germany, and France! :banana:

[Climb01742]

when fannie+freddie were bailed out, a commentator said if the entire economies of japan or england had gone into bankruptcy, it would have had less impact than if fannie+freddie went belly up. i'm guessing that was a bit of an exaggeration for effect, but i don't think most of us fully appreciate the ripple effects of a few giant somewhat obscure financial institutions.

[Steelhead]

This is from an email that I just sent to one of my clients. Important to note that the Fed did not "buy" AIG. They have opened a line of credit to them in the event of a fall out, up to $85 bil. and in exchange AIG has put up 80% of their company in the event they should need any of that loan. I predict AIG will be ok from a property & casualty standpoint.

Dorothy -

Another exciting day on Wall Street as the Federal Reserve steps in with a cash infusion of $86 billion funding to back AIGs holdings in the financial lending and mortgage insurance market. It is my understanding that this cash amount is in exchange for a collateral guaranty of 80% of those holding companies, and AIG has a two year period to return any capital received. I would imagine that AIG might liquidate some of it's holdings to fund this load, in the event they use any of it. For example, AIG owns a fleet of approximately 965 commercial, business and luxury jet airplanes worth ~ $30 billion that could be liquidated. Keep in mind, this is only an approved amount of lending in the event that they need it.

What is of real merit here is that the AIG Commercial Property & Casualty Insurance risk is stable, with adequate re-insurance and a cash reserve of $26 billion that is separate from any other reserve, and exempt of creditors. The three rating agencies that have dropped their ratings have done so by taking AIGs rating from A+, Superior to A, Excellent. An "A" Rated, Excellent company is still very stable in terms of financial strength and liquidity.

I have clipped the following copy from one of our many AIG brokerage sources:

To: Our Valued Producers

Re: American International Group

As you are no doubt aware, American International Group (AIG) is in the midst of a financial crisis. We wanted to communicate to you our understanding of the situation at present, and to assure you that we continue to monitor the situation and will follow your wishes as respects any business placed or to be placed with any AIG company.

The crisis has been brought on by a lack of liquidity at the holding company level, which has destabilized the company's financial condition. Three rating agencies, Moody's, Fitch, and Standard and Poor's, have downgraded AIG's debt ratings. Additionally, late yesterday A.M. Best downgraded the financial strength rating of AIG's domestic property and casualty subsidiaries from A+ (Superior) to A (Excellent).

AIG is seeking a "bridge loan" from a variety of sources, including the federal government, private lenders, and internal funding from subsidiaries to meet its liquidity needs.

We are enclosing material from AIG indicating that these challenges do not impact AIG Commercial Insurance, and which note the segregation of the insurance subsidiaries capital from the parent, strong regulatory oversight, and a profitable operation which has increased statutory surplus to over $26 billion at the end of the first half of 2008.

One thing to note as well, is that the AIG Polices we have offered are admitted in Texas, therefore subject to TX Dept of Insurance regulation, and more importantly backed by the Texas Guaranty Fund. During your bid considerations, you may have gotten non-admitted carriers that are not regulated or backed by the State.

I have also attached AM Best Reports on your current carrier, Markel and one of the other options you may have seen, Arch Insurance Co/Care Providers. As you can tell, A/Excellent is common and nothing to be alarmed about.

[Joellogicman]

when fannie+freddie were bailed out, a commentator said if the entire economies of japan or england had gone into bankruptcy, it would have had less impact than if fannie+freddie went belly up. i'm guessing that was a bit of an exaggeration for effect, but i don't think most of us fully appreciate the ripple effects of a few giant somewhat obscure financial institutions.

I read an interesting article in an architectural magazine a while back about Freddie and Fannie. Assuming the point of view of an archeologist, the author points out how dramatically US housing changed after the mortgage guaranty corporations were formed.

In the decades prior to creating Fannie and Freddie, the majority of the US people lived in small muti-dwelling structures. Single family housing were either eleborate residences for the wealthy in exculsive urban and suburban neighborhoods or user built rural structures (farm homes).

More prosperous members or the working and middle class who were able to get out of crowded apartment buildings usually did so by buying a two or three flat building. The rent from tenants (who were often part of the extended family) helped defray the overall cost of buying land and making the expensive structure. As most banks would only lend for 10 years, without the rent income the middle class would not have been able to buy.

After Fannie and Freddie and the rise first of the 30 year fixed, then the myraid of other loan options the middle and working class began buying single family homes. The first generation - the WWII vets and their families - bought modest properties close to the city core. Succeeding generations bought larger and further.

The bike is the perfect way to see how Fannie and Freddie effected the national landscape. As you ride out of a city core (LA an odd exception), you typically pass large multi-family housing, then two and three flat belts, then bungalow or ranch or balloon frame homes usually still on the city grid,(depending on the location and climate) before finally coming to the cul de sac subdivisions.

Fannie and Freddie are not the only reason this happened, but certainly important ones.

[Joellogicman]

We are enclosing material from AIG indicating that these challenges do not impact AIG Commercial Insurance, and which note the segregation of the insurance subsidiaries capital from the parent, strong regulatory oversight, and a profitable operation which has increased statutory surplus to over $26 billion at the end of the first half of 2008.

One thing to note as well, is that the AIG Polices we have offered are admitted in Texas, therefore subject to TX Dept of Insurance regulation, and more importantly backed by the Texas Guaranty Fund. During your bid considerations, you may have gotten non-admitted carriers that are not regulated or backed by the State.

I have also attached AM Best Reports on your current carrier, Markel and one of the other options you may have seen, Arch Insurance Co/Care Providers. As you can tell, A/Excellent is common and nothing to be alarmed about.

The casualty insurance arms of AIG, subject to usually more stringent state regulation are healthy. It is the unregulated derivative insurance activity that is prompting the disaster.

Time will tell. However, I believe the chance AIG will ever pay back the entire fed loan is dubious.

[DukeHorn]

The politics of it is simple. One party believes in limited regulation and oversight. This party is the one that tells the SEC and the EPA to not hire regulators when that party is in the administration. The party that believes that corporations will "self-report" crimes. Seriously, we went through this in the 80s and we're wondering why history is repeating itself?

PS Also the same party that limits hires of FDA inspectors and then we all wonder why there are more e. coli outbreaks in meat.

[93legendti]

Great! It's not our fault, we can blame it on Japan, China, Germany, and France! :banana:


http://www.npr.org/blogs/money/2008/09/who_can_i_blame.html#more
"...Democrats and Republicans are equally to blame.

In fact, I would say Jimmy Carter probably stands tall as the lousiest economic manager of the modern era (and he's got some real competition). We are still paying the price for his foolishness. (Write your angry letters now).

So, let's pick out the people we do get to blame (thanks to Charles Morris and Nouriel Roubini's writings for help and inspiration).

- Lyndon Johnson, Richard Nixon, Gerald Ford, Jimmy Carter: for spending too much money and pressuring the Fed to pump more cash into the economy to avoid the necessary adjustments caused by the Vietnam War and the oil crisis. The problem didn't go away, of course, it festers and got worse.

- 1970s Fed Chairman Arthur Burns for doing the politicians' bidding instead of responsibly guiding the Fed. He knew better.

- His successor G. William Miller for being a total joke of a Fed chairman. He didn't know better, though he must have suspected he was not the man for the job. (I guess we really have to blame Jimmy Carter for appointing a man with no knowledge or ability to confront one of the greatest financial crises of U.S. history. This was a shockingly irresponsible move by Carter and I shudder to imagine what would happen if a similar corporate hack were running things now.)

- Ronald Reagan for casting the debate as more regulation vs. less regulation rather than smart regulation vs. stupid regulation. Everyone can agree that the U.S. has a lot of stupid regulation that slows the economy without adding any meaningful oversight. Almost nobody argues for regulation. Reagan could have promoted smart, unobtrusive regulation rather than, simply, weaken lousy regulation. That created vacuums of oversight but left in tact many of the arbitrary rules that troubled Wall Street.

- Bill Clinton for allowing the Glass-Steagall Act to be repealed without adding new regulation. It eliminated the legal divide between investment banks and depository banks without realizing that this would require a total overhaul of regulation.

- George W. Bush and his dad, I'd say, get the least blame of any of these presidents for this crisis. I know that many readers of this blog believe it is, somehow, all George W. Bush's fault. Make the case. I don't see it. I think it would have been lessened if he had kept government deficits lower and had seen the brewing housing bubble and had smarter regulation to avoid it. But this bubble was many decades in the making.

- Alan Greenspan, for keeping interest rates too low and not understanding that asset bubbles can be as dangerous as inflation.

- France and Germany and Japan, for having stupid government rules that restrict economic growth and have forced the U.S. to carry the global weight of financial innovation and economic growth. Simply put, France and Germany and Japan weren't doing enough financially exciting things to attract global investors. So, those investors flooded into the U.S. -- the only show on the globe -- and that helped fuel the housing bubble.

- Almost every country on earth. For similarly having stupid economic policies that prevent them from growing and attracting smart investment, further funneling the world's investments towards the U.S., where they can create a bubble.

- China for keeping its currency pegged to the dollar, which forces them to keep buying U.S. treasury bills -- artificially lowering interest rates and fueling the housing bubble.

- Wall Street investment banks for being too trustful of their risk management software that told them the risks they were taking were, well, manageable. Even the people who wrote the software would have told them they were being too trustful. The risks are greater than you think.

- Everyone in Congress for the last 70 years, for allowing Fannie Mae and Freddie Mac to continue as a highly risky walking, talking moral hazard: a company built on the model of giving profits to shareholders while forcing the U.S. government to bear the risk. Outrageous.

- You. For enjoying the boom years without paying attention to the potential risks. For thinking that voting for one party or another somehow encourages more responsible policies. For loving the rapidly growing price of your house and using it to buy stuff. For spending more than you make. For imagining that someone out there, one guy, caused this because they, alone, are uniquely greedy and you are not greedy.

This, of course, is a partial list..."
http://www.npr.org/blogs/money/2008/09/who_can_i_blame.html#more

[DukeHorn]

Democrats and Republicans are equally to blame

That's a laugher..... The intellectual dishonesty in tossing the housing bubble at the foot of Jimmy Carter is pretty outrageous.

[Steelhead]

Time will tell. However, I believe the chance AIG will ever pay back the entire fed loan is dubious.

If they don't use the money, they wont have to pay any back. It is a reserve available to them, not a loan directly to them as of today. The fed did not whip out a checkbook and write a check payable to American International Group for $86 Bil so they could go deposit it and all is well. :)

[fiamme red]

That's a laugher..... The intellectual dishonesty in tossing the housing bubble at the foot of Jimmy Carter is pretty outrageous.I put all the blame on Rutherford Hayes -- why not? :rolleyes:

[fiamme red]

- George W. Bush and his dad, I'd say, get the least blame of any of these presidents for this crisis. I know that many readers of this blog believe it is, somehow, all George W. Bush's fault. Make the case. I don't see it. I think it would have been lessened if he had kept government deficits lower and had seen the brewing housing bubble and had smarter regulation to avoid it. But this bubble was many decades in the making.Make fun of Eliot Spitzer if you like, but he's right about this:

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.

It's the Fed's fault too:

http://www.nytimes.com/2007/12/18/business/18subprime.html

Today, as the mortgage crisis of 2007 worsens and threatens to tip the economy into a recession, many are asking: where was Washington?

An examination of regulatory decisions shows that the Federal Reserve and other agencies waited until it was too late before trying to tame the industry’s excesses. Both the Fed and the Bush administration placed a higher priority on promoting “financial innovation” and what President Bush has called the “ownership society.”

On top of that, many Fed officials counted on the housing boom to prop up the economy after the stock market collapsed in 2000.

[michael white]

with all due respect, anyone who doesn't think the bailout has anything to do with politics should look at today's polls.


Gallup Tracking 09/14 - 09/16 2787 RV 45 47 Obama +2
Rasmussen Tracking 09/14 - 09/16 3000 LV 48 47 McCain +1
Hotline/FD Tracking 09/14 - 09/16 909 RV 42 45 Obama +3
Reuters/Zogby 09/11 - 09/13 1008 LV 45 47 Obama + 2

[goonster]

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably.

We'll see.

Believe me, I'm the most unlikely defender of the Bush administration you'll ever find, but we have to be fair and look at the really big picture. It's not that they're blameless, it's just that this was a problem beyond the scope of the type of regulation that is politically feasible.

There were macro-economic factors at play, which pushed money into the lending market from the top down. The real root causes of the bubble arguably had less to do with predatory lending practices (and insufficient regulation thereof), than with this pile of money that was looking for a place to go.

How do you say no to money?

Actually, that's where Germany, France, Italy et al are assigned "blame". They effectively said no to the money just by being who they are.

[Ray]

with all due respect, anyone who doesn't think the bailout has anything to do with politics should look at today's polls.


Gallup Tracking 09/14 - 09/16 2787 RV 45 47 Obama +2
Rasmussen Tracking 09/14 - 09/16 3000 LV 48 47 McCain +1
Hotline/FD Tracking 09/14 - 09/16 909 RV 42 45 Obama +3
Reuters/Zogby 09/11 - 09/13 1008 LV 45 47 Obama + 2
In fairness, those tracking polls are generally based on three day rolling averages, so today's poll results are probably the results of the last three days, all before the bailout became known, but partially since the failure of Lehman became known.

I think it has more to do with the race returning to some kind of equalibrium after the two conventions and the big (but very short-lived) bounce Obama got after his convention and the smaller, but longer lasting bounce McCain got after his (or should I say Palin got after hers?). The race is pretty close to where it was before the conventions. The polling over the next week or so will probably reflect any reactions to the financial situation, and then the debates start and will no doubt cause their own changes.

-Ray

[Joellogicman]

Time will tell. However, I believe the chance AIG will ever pay back the entire fed loan is dubious.

If they don't use the money, they wont have to pay any back. It is a reserve available to them, not a loan directly to them as of today. The fed did not whip out a checkbook and write a check payable to American International Group for $86 Bil so they could go deposit it and all is well. :)

Perhaps better to opine the fed has $86 billion tied up in a venture that will never be worth the investment.

[michael white]

I think it has more to do with the race returning to some kind of equalibrium after the two conventions and the big (but very short-lived) bounce Obama got after his convention and the smaller, but longer lasting bounce McCain got after his (or should I say Palin got after hers?). The race is pretty close to where it was before the conventions. The polling over the next week or so will probably reflect any reactions to the financial situation, and then the debates start and will no doubt cause their own changes.

-Ray


yeah, I forgot about that.
but I would say that McCain got a much bigger bounce than Obama did. Not only did his numbers go up after St Paul (maybe the Palin effect), but Obama's dropped about as low as they've ever been. So, McCain's been leading for the past week, for the first time in several months. Today might (or might not) be the end of his lead.

[Joellogicman]

In fairness, those tracking polls are generally based on three day rolling averages, so today's poll results are probably the results of the last three days, all before the bailout became known, but partially since the failure of Lehman became known.

I think it has more to do with the race returning to some kind of equalibrium after the two conventions and the big (but very short-lived) bounce Obama got after his convention and the smaller, but longer lasting bounce McCain got after his (or should I say Palin got after hers?). The race is pretty close to where it was before the conventions. The polling over the next week or so will probably reflect any reactions to the financial situation, and then the debates start and will no doubt cause their own changes.

-Ray

is how little real events - the war in Iraq, the economy, how the government should react to disasters on both micro (Katrina, etc) and macro (development in questionable areas, climate change) seem to be effecting the electorate. Wacky issues appear to be driving whatever opinion changes there are.

[William]

Interesting talk on NPR.

When markets crashed, banks failed and the Depression happened, obviously everyone was hurting.....and thus ensued a major political shift away from Republicans.

AIG goes under, with everything they are tied up in, the FDIC my not have been able to cover all loses. No one is going to be happy getting back $.97 or $.96 of every dollar that had in their accounts. They had to avoid "breaking the buck". Sure this is just part of the equation, but it goes to show you how close we are to sliding out of a recession into a..."D" word? The Feds said they wouldn't bail anyone out...24 hours later they announce propping up AIG. Things ain't good folks. Things are teetering, and they're trying to keep it from tanking (......and likely avoid a major political shift as well).


Time for a ride....


William

[Steelhead]

Perhaps better to opine the fed has $86 billion tied up in a venture that will never be worth the investment.

Maybe - the return on investment (interest) in this event is rumored to be ~11 %. I wish my money was doing that well.....

Keep in mind, AIG has a lot of assets they can unload in the event of a fire sale. If you need an airplane, they have $30 billino worth, I am sure you could find one you like. ;) :)

[Joellogicman]

Maybe - the return on investment (interest) in this event is rumored to be ~11 %. I wish my money was doing that well.....

Keep in mind, AIG has a lot of assets they can unload in the event of a fire sale. If you need an airplane, they have $30 billino worth, I am sure you could find one you like. ;) :)

In my experience, insurance companies can be a real tangled mess when it comes to asset sales. I was involved in the the Kemper Group liquidation. Now Kemper collapsed for different reasons than AIG. As the liquidation proceeded, the surprise dissapointments forever jaded my view of asset valuation.

[Ozz]

I suspect Red Devils will need some new jerseys.... :beer:

[goonster]

I suspect Red Devils will need some new jerseys.... :beer:

There's a lot of that going around. West Ham's shirt sponsor filed bankruptcy last week, so they are playing with blank jerseys.

[Blue Jays]

It figures, with that image!

http://forums.thepaceline.net/attachment.php?attachmentid=48173&stc=1

[Ozz]

It figures, with that image!
Ha! I thought the picture was very apropros!

[Joellogicman]

Ha! I thought the picture was very apropros!

just perfect.

[GoJavs]

I really need to drink some of that Republican kool-aid. How do you spend 8 years in charge and try to say 'it ain't my fault!'....

I'm sure right around now we could use the $800B we blew in Eye-rack! :rolleyes:

[Ray]

I really need to drink some of that Republican kool-aid. How do you spend 8 years in charge and try to say 'it ain't my fault!'....

I'm sure right around now we could use the $800B we blew in Eye-rack! :rolleyes:
I think its been pretty well established that presidents and congresses sometimes have some influence on economic conditions, but its sort of marginal compared to all of the other influences. But they will be given the credit or blame REGARDLESS. When things are good, the party in power will try to take credit and the party out of power will say that the party in power had nothing to do with it - it was the bidness cycle! When things go pear-shaped, the party out of power will blame the party in power with all guns blazing and the party in power will claim they had nothing to do with it - it was the bidness cycle. Usually the public will give the president in power the blame or the credit whether they deserve any of it or not. You may have noticed that the economy has hit the iceberg and the ship is listing like a mutha and the orchestra is settling in for a nice chilly little jam session. Hence, McCain is running away from Bush as fast as his creaky old legs will carry him. And Obama is trying to attach McCain to Bush with several layers of the strongest adhesive known to man.

Its not Republican kool-aid. Its what they all do. Look, I'm quite obviously an Obama supporter here, but fair is fair. The games that politicians of all stripes play with the economy is really not much other than funny as hell to watch and predictable as the sun coming up in the east.

Pull up a deck chair. Be sure to rearrange them first!

-Ray

[News Man]

I really need to drink some of that Republican kool-aid. How do you spend 8 years in charge and try to say 'it ain't my fault!'....

I'm sure right around now we could use the $800B we blew in Eye-rack! :rolleyes:


It's impossible to begin to correct this reasoning. Where would one start?

[GoJavs]

News Man - why don't you try?

Really. You think the Bush administration has had nothing to do with has been unfolding over the last several months? Do you truly think that the Fed operates in a vacuum? Do me a favor and keep your condescending comments to yourself.

The Republican's thirst for endless deregulation and corrupt governance got us here. Ask Phil Gramm how this happened! Ask his wife!

The only folks that are making out right now are defense contractors (of which KB & R/Halliburton is the biggest) and oil companies. Funny - aren't Bush and Cheney related to both of those?

Please, News Man, please. Go drink s'more of that tastee kool-aid.

I've been a good Republican for 20 years but I'm ashamed of ever being one right now. Disgusting. :crap:

[znfdl]

I think that it is time to kill this thread. We talk about the potential consequences e.g domino effect if a large counterparty fails with respect to financial derivatives and ends up being an argument filled political rewdness.

Doesn't matter how we got in this mess, this mess is here and we have to deal with it. Try working at regulator with some arcane out of date laws to regulate the ever changing financial firms. I can tell you, not easy......

[GoJavs]

Agreed. I'm going to go pop a cold one. A Budweiser (formerly a U.S. company).

[Marcusaurelius]

It just strikes me as unnatural to bail out financial institutions. I always thought it was just part of the process--if you fail--you go bankrupt.

It seems only fair that the government you should now bail out every business that does into financial difficulty.

I'm always very sceptical about prognosticators that predict gloom and doom if a company fails. Let them fail and then maybe--just maybe--someone might change the way they conduct business and make loans.

[Joellogicman]

Doesn't matter how we got in this mess, this mess is here and we have to deal with it. Try working at regulator with some arcane out of date laws to regulate the ever changing financial firms. I can tell you, not easy......

that opines the US went astray when we began to think all government regulation inherently bad, rather than just stupid or arcane regulation?

[Joellogicman]

It just strikes me as unnatural to bail out financial institutions. I always thought it was just part of the process--if you fail--you go bankrupt.

It seems only fair that the government you should now bail out every business that does into financial difficulty.

I'm always very sceptical about prognosticators that predict gloom and doom if a company fails. Let them fail and then maybe--just maybe--someone might change the way they conduct business and make loans.

The bail out is not consistent with the adage government that governs least governs best or that the market should be allowed to govern itself. Indeed there is a good article in today's New York Times that argues the Chrysler bail out - successful on paper at least - turned out to be a gross failure as the US did not seek change nor did Chrysler, Ford or GM change their business models afterwards.

If in response to the debacle the fed comes up with meaningful and enforceable regulation, a bail out may be worthwhile. History suggests this will not happen.

[3chordwonder]

So, let's pick out the people we do get to blame (thanks to Charles Morris and Nouriel Roubini's writings for help and inspiration).

- France and Germany and Japan, for having stupid government rules that restrict economic growth and have forced the U.S. to carry the global weight of financial innovation and economic growth. Simply put, France and Germany and Japan weren't doing enough financially exciting things to attract global investors. So, those investors flooded into the U.S. -- the only show on the globe -- and that helped fuel the housing bubble.

Yes, let's blame some European regulators and financial markets for refusing to join in the 'exciting financial innovations' that caused this mess ;-)

[1centaur]

Wow, a lot happens when you go out and ride 86 miles.

Bad lending standards involved BOTH excess greed (facilitated by new structured products) AND a desire to get poor people into homes. Home ownership rates going up were considered undoubtedly good and community activists howled if their favored group did not get loans because the loan officer thought members of that group not credit worthy. It's much easier to please the people judging you on percent of loans approved if you can get that loan off your books quickly by putting it into a structured product. If the government had said 20% down, unborrowed, no exceptions, a heck of a lot of people would have howled about being shut out of the American dream. Lesson: Lenders making conservative loans and mostly keeping them on their books regardless of what statistical pattern gets created by that should be the goal. It wasn't.

Regulation: Generically, Republicans like less regulation because they understand that regulation means bureaucracy means more gum in the works of the economy. They want to maximize the size of the pie and have an inherent understanding that regulation can get in the way of that. Democrats, again generically, like regulation because it's a political process and their voters like the feel of it - stopping rich guys from doing bad things out of greed. The political process is supposed to (cross fingers) reach some happy medium between those two agendas for the good of us all. Notably, the regulatory regime should not swing back and forth as different parties come into power because everyone agrees that knowing the rules ahead of time is crucial to business proceeding efficiently. Republicans (including Bush) do not come into power and chop away 25% of the rules even if they would want to. Democrats do not come to power and add 10,000 pages to the rule books. Thus most rules are the result of compromises and debate over the last 25 years or even more. With the split power and close to 50/50 congresses we have had for a while, I don't think we've had a sea change in regulation for a long time; changes have been on the margin. Innovations in housing finance preceded Bush; this mess is not about Bush or Republicans, it's about humans coming up with new ways to do things and nobody figuring out the consequences of that until it's too late - which is how pretty much all rules come about.

"Bail outs" vs. Dislike for regulation: Not inconsistent. I want the lowest level of regulation possible that's conducive to prudence and stability (anybody want more than that??) but I think this loan was necessary. Regulation has its place, as does financial support.

Will the loan get paid back: Note that 11% is not an expected rate of return, per se, it's just current LIBOR plus 800ish. If LIBOR rises to 5% the rate will be 13%. If we go into a deep recession and LIBOR falls to 1% it will be 9%. That's a market rate of interest for a senior position in a very troubled credit that will sell assets to pay down the loan in the short term. From what I understand, the subsidiaries of AIG are in general of good quality and will attract real bidders. I expect asset sales and loan paydowns well before the 2-year maturity. That said, some wonder if $85B is enough given the derivatives book. We just don't know. If it costs taxpayers $25B actually out of their pockets (mostly out of the pockets of those who got the biggest benefit from the Bush tax cuts, those being the people who pay the majority of the taxes in this country and who will be targeted for the biggest increases in taxes if Obama wins) then it will have been money well spent.

Europeans above the fray? Most people think there's plenty of structured product on the balance sheets of European banks that will need to be written down. Those people think America was ready to own up to its weaknesses quicker. Time will tell.

[ti_boi]

getting poor people into homes............................................. .................................................. .with balloon mortgages.............................how wonderfully noble. :beer:

[1centaur]

getting poor people into homes............................................. .................................................. .with balloon mortgages.............................how wonderfully noble. :beer:

No, and BTW, I don't think this issue was at play at mortgage originators that you would find in a strip mall (not banks). They were just generating fees and selling into the structured product market. I am not familiar with their regulatory framework and if anyone expected them to approve anybody in particular. I am thinking of banks who could not get regulatory approval to buy another bank unless they committed to certain targets for loan availability.

Structured product could have been a great idea for keeping mortgage rates down if executed and rated properly with conservative loans. IOs, weird re-sets, odd indexes, no money down, no income verification, etc. was just a bad way to execute the idea. Further, all the folks buying that AAA-rated structured product did not understand the linkage between credit standards and their purchase (seems obvious in hindsight but it's hard to look past a AAA rating and figure the agencies were dumb). Everybody liked what was happening to ownership and prices but nobody apparently stepped back, looked at the whole picture and said no, we must stop extending credit under these circumstances. Maybe somebody thought of it and realized how politically unpopular it would have been. Anybody on this board have any link to a whistleblower in this area from, say, 2002 or before? It would be interesting to see if there was a Don Quixote out there on this well before the peak in home prices (2006) who got shut down by the system.

[TMB]

one thing in all of those that I keep shaking my head at is the fact that rating agencies are publicly listed.

So they are managing to quarterly results as well. Which means managing for fees and repeat business.

A rating agency??

That is a serious weak link in this whole system, at least in my view.

[1centaur]

one thing in all of those that I keep shaking my head at is the fact that rating agencies are publicly listed.

So they are managing to quarterly results as well. Which means managing for fees and repeat business.

A rating agency??

That is a serious weak link in this whole system, at least in my view.

So it has proven. I've had a structured product I manage rated, so I have interacted with the agencies. I think the people there try to do the right thing, ask reasonable questions, etc., but they are not very well paid and so tend to be people with sort of middling accounting mindsets. When faced with structures built by the best whiz kids on Wall Street, trust me the agencies will always be a step behind. Dogmatic modelers who proceed based on evidence are the WORST people to get ahead of trends, see the forest for the trees, etc. While people talk about the profit motive, I honestly think they could have been non-profit and still made the same mistakes. We have now seen how critical those ratings were to getting us in a mess, so if we'd paid the best minds $10MM a year to work at the agencies it would have been worth it to stop us from getting here. Could that ever happen? I think not. This is a problem that will be resolved by dogmatic modelers building in much bigger cushions before granting a rating, which will mean far less available credit, which will cost us points of global GDP for decades - the cost to the world of that approach may be far higher than the bailout (so called) cost. For quick readers let me emphasize that I am NOT saying let's have crashes based on loose ratings. I am, however, pointing out a downside to the conservative ratings regimes to come that won't get a lot of play in the popular media.

[TMB]

So it has proven. I've had a structured product I manage rated, so I have interacted with the agencies. I think the people there try to do the right thing, ask reasonable questions, etc., but they are not very well paid and so tend to be people with sort of middling accounting mindsets. When faced with structures built by the best whiz kids on Wall Street, trust me the agencies will always be a step behind. Dogmatic modelers who proceed based on evidence are the WORST people to get ahead of trends, see the forest for the trees, etc. While people talk about the profit motive, I honestly think they could have been non-profit and still made the same mistakes. We have now seen how critical those ratings were to getting us in a mess, so if we'd paid the best minds $10MM a year to work at the agencies it would have been worth it to stop us from getting here. Could that ever happen? I think not. This is a problem that will be resolved by dogmatic modelers building in much bigger cushions before granting a rating, which will mean far less available credit, which will cost us points of global GDP for decades - the cost to the world of that approach may be far higher than the bailout (so called) cost. For quick readers let me emphasize that I am NOT saying let's have crashes based on loose ratings. I am, however, pointing out a downside to the conservative ratings regimes to come that won't get a lot of play in the popular media.

I dealt with Moody's and Fitch in a previous life.

It struck me that you could pretty much manufacture your own rating.

[Joellogicman]

No, and BTW, I don't think this issue was at play at mortgage originators that you would find in a strip mall (not banks). They were just generating fees and selling into the structured product market. I am not familiar with their regulatory framework and if anyone expected them to approve anybody in particular. I am thinking of banks who could not get regulatory approval to buy another bank unless they committed to certain targets for loan availability.

The majority of mortgage loans over the past 15 years or so came out of originators. I recall reading Countrywide alone issued something in the neighborhood of 10% of all no down payment loans.

On the other hand, Community Reinvestment Programs which regulators imposed on banks typically provided good old fashioned large down payment fixed rate mortgages. I worked on a program that helped employed Section 8 residents buy their first homes. They had to take six months of classes, deposit a percentage of their income into accounts controlled by the program, and were subject to a lot of follow up scrutiny.

Low and no down payment mortgages were not the result of do gooder government programs. They were products originators created to lure more people into their stores.

Structured product could have been a great idea for keeping mortgage rates down if executed and rated properly with conservative loans. IOs, weird re-sets, odd indexes, no money down, no income verification, etc. was just a bad way to execute the idea. Further, all the folks buying that AAA-rated structured product did not understand the linkage between credit standards and their purchase (seems obvious in hindsight but it's hard to look past a AAA rating and figure the agencies were dumb). Everybody liked what was happening to ownership and prices but nobody apparently stepped back, looked at the whole picture and said no, we must stop extending credit under these circumstances. Maybe somebody thought of it and realized how politically unpopular it would have been. Anybody on this board have any link to a whistleblower in this area from, say, 2002 or before? It would be interesting to see if there was a Don Quixote out there on this well before the peak in home prices (2006) who got shut down by the system.

Actually, at the poor people level, a lot was being said the past five and even ten years. I recall reading article after article how no down payment loans were a fools game for the borrower. But the orginators and the realtors kept pushing them. On the consumer level, it was not readily apparent why this would be if the loans were such a trap. It turns out the reason lay in a massive ponzi scheme perpetrated by companies such as Lehman and underwritten by insurers such as AIG.

[Ray]

What I find most interesting about this election so far is how little real events - the war in Iraq, the economy, how the government should react to disasters on both micro (Katrina, etc) and macro (development in questionable areas, climate change) seem to be effecting the electorate. Wacky issues appear to be driving whatever opinion changes there are.
McCain's campaign manager doesn't even try to hide the fact that they're trying to make the campaign about personalities and get it away from issues. They know that THIS year, a Republican candidate is not going to win on issues, and they're going to make it about McCain's heroism vs Obama's scary otherness. Elitism, tax and spend (which is kind of about issues but its more or less just turned into negative branding by now). Not like you. Etc. Questionable how often its ever really about issues. Presidents are such a gut level call for the relatively small percentage of people who actually make the difference in the election most years. I think it often comes down to who you'd rather have a beer with. Having a southern accent never seems to hurt. We don't really have any of those this year, so I guess Palin's Alaskan accent, which sounds an awful lot like Minnesota and North Dakota to me, will have to do. Kind of like a southern accent with northern inflections. Or maybe Biden's Philly/Balimer tough guy accent will get through. You never know.

Even on the rare occasion when my guy wins one, I'm never under the illusion that it was about issues and that the American people have finally seen the light. They just like the guy better at a gut level. Partly because the ads scared them off of the other guy pretty well. Partly because of, well, just because.

-Ray

[ti_boi]

McCain's campaign manager doesn't even try to hide the fact that they're trying to make the campaign about personalities and get it away from issues. They know that THIS year, a Republican candidate is not going to win on issues, and they're going to make it about McCain's heroism vs Obama's scary otherness. Elitism, tax and spend (which is kind of about issues but its more or less just turned into negative branding by now). Not like you. Etc. Questionable how often its ever really about issues. Presidents are such a gut level call for the relatively small percentage of people who actually make the difference in the election most years. I think it often comes down to who you'd rather have a beer with. Having a southern accent never seems to hurt. We don't really have any of those this year, so I guess Palin's Alaskan accent, which sounds an awful lot like Minnesota and North Dakota to me, will have to do. Kind of like a southern accent with northern inflections. Or maybe Biden's Philly/Balimer tough guy accent will get through. You never know.

Even on the rare occasion when my guy wins one, I'm never under the illusion that it was about issues and that the American people have finally seen the light. They just like the guy better at a gut level. Partly because the ads scared them off of the other guy pretty well. Partly because of, well, just because.

-Ray


Ray, the country is in big trouble. Forces are converging economically that will slowly unwind over the next decade or two...some say this could dwarf the last depression. No one in Washington can fix this one. No one of either party has it in them. Sorry.

[Ray]

Ray, the country is in big trouble. Forces are converging economically that will slowly unwind over the next decade or two...some say this could dwarf the last depression. No one in Washington can fix this one. No one of either party has it in them. Sorry.
I couldn't agree more. I've thought for several years that we're nearing the end of the supremacy of our 'empire' for lack of a better word. I don't understand all of the subtleties of the various economic interactions to the extent that some here do, but its just seemed overwhelmingly obvious that we've been living waaaaaaay beyond our means as a nation for years. We're in debt up to our eyeballs (both as a nation and way too many individuals), we're not the only ones demanding more and more energy anymore, now that China and India are modernizing. We can't continue to monopolize the world's resources, as the rest of the world is making abundantly clear. The writing has been on the wall for a long time. The chickens are beginning to hatch and I agree its gonna be a serious downhill slide. My only concern is whether we're going to have leaders that can help manage the inevitable decline or those who continue to try to sell us on a return to the glory days. The longer we deny reality, the more its likely to be a crash rather than a downhill glide.

No president is going to be able to "fix" the economy, but can have an influence on a lot of other issues both directly related and only tangentially related to the economy. So I still think the election matters. And I still doubt it will be decided on "issues".

-Ray

[keno]

is that while the candidates may understand the the basic issue at play, no or low down payment lending, they will find it difficult to address the issue. They will try to place the blame where it last belongs - Wall Street. I believe that the candidates may think that the "solution" lies with dealing witht he evils of Wall Street, when, in fact, the real solution lies in disappointing their constituents.

A meaningful solution starts with what is the real genisis of the problem - low or no down payment home mortgages. Meaningful regulation, in my view, would be to require stringent down payment rules as well as stringent requirements for borrower's ability to pay. People may like to point at Wall Street as the villain, but they are truly secondary in this Shakepearan tragedy. While it seems to be part of the American dream, home ownership is not a viable reality for many because of inability to provide equity for their home purchases or to pay their mortgages. It is not the government's role to assure every citizen the right to own a home, just as it is not their role to make things nice when business decisions go awry.

The best way to win a fight is to avoid it in the first place. Very simple steps were put aside for political exigency. The home purchasers who should never have been allowed, by regulation, to purchase, are the creators or these worthless assets and the last source of finding value in them.

While it may sound cruel, I believe that this is the reality.

Interestingly, if I were to buy a stock on margin, I would be required to meet many rules regarding balances and calls depending upon many factors. Nothing of the kind was allowed to exist in the home lending market, yet purchasers are doing the same transaction regarding home purchases - buying on margin.

Mine is not a defense of Wall Street in the same way that I cannot defend home buyers who should never have bought a home. They simply did what the law allowed without regard to all of the possibilities, not that they would have been swayed by realizing them in any event.

keno

[michael white]

We're entering some very dark times right now. McCain is not only on the wrong side of things because he's of the current party, he's also one who championed the 99 deregulation, has said the fundamentals are strong, etc. The fundamentals are not strong; the fundamentals are a disaster, so it should be a pretty easy job, esp in the debates, to take McCain's own losing positions and beat him to death with them. Obama might not be the genius of economics that we really need, but he has the winning hand right now, and the polls are suddenly all in his favor by a clear margin. Basically, I think what's happening on Wall St. will decide the election, and frankly, unless the financial mess goes away completely, which they can't do, McCain won't win because he's not only of the wrong party, he's of the completely wrong background to win this thing. It's kind of the bad luck of he draw that the GOP ended up going with a foreign policy centrist at exactly the wrong time for it. Obama isn't quite right either, of course, but he's not as much a part of the fiasco as McCain is. advantage, obviously: Obama.

[News Man]

is that while the candidates may understand the the basic issue at play, no or low down payment lending, they will find it difficult to address the issue. They will try to place the blame where it last belongs - Wall Street. I believe that the candidates may think that the "solution" lies with dealing witht he evils of Wall Street, when, in fact, the real solution lies in disappointing their constituents.

A meaningful solution starts with what is the real genisis of the problem - low or no down payment home mortgages. Meaningful regulation, in my view, would be to require stringent down payment rules as well as stringent requirements for borrower's ability to pay. People may like to point at Wall Street as the villain, but they are truly secondary in this Shakepearan tragedy. While it seems to be part of the American dream, home ownership is not a viable reality for many because of inability to provide equity for their home purchases or to pay their mortgages. It is not the government's role to assure every citizen the right to own a home, just as it is not their role to make things nice when business decisions go awry.

The best way to win a fight is to avoid it in the first place. Very simple steps were put aside for political exigency. The home purchasers who should never have been allowed, by regulation, to purchase, are the creators or these worthless assets and the last source of finding value in them.

While it may sound cruel, I believe that this is the reality.

Interestingly, if I were to buy a stock on margin, I would be required to meet many rules regarding balances and calls depending upon many factors. Nothing of the kind was allowed to exist in the home lending market, yet purchasers are doing the same transaction regarding home purchases - buying on margin.

Mine is not a defense of Wall Street in the same way that I cannot defend home buyers who should never have bought a home. They simply did what the law allowed without regard to all of the possibilities, not that they would have been swayed by realizing them in any event.

keno

Agree 100%, well said. Solving problems is about finding root cause and fixing it. Root cause, in this case, is not wall street. It is as you have so eloquently stated above. Wall street will serve nicely as scape goats and allow justifiable anger at Fat Cats, rather than at the average citizen who took on ill-advised debt. It is much easier to get mad at a Fat Cat than at your next door neighbor.

[Tom]

You can gate the mortgage thing by simply putting the fees and interest into escrow or whatever you call an account that is there but you can't touch until some conditions are met... the mortgage originator doesn't get paid unless the mortgage is good for some period of time and the holder of the mortgage doesn't get the interest until some percentage is paid off. A more direct mode of PMI, I think.

I work for the people that I got my first mortgage from, they sold it within 15 minutes to one of these guys that first went under...

I re-fied with a local bank and they still hold it. They're doing just fine. Funny how that works.

The other piece is that nobody is taught when they are kids that you need to keep things in perspective. Making $30k a year and having a $25k a year mortgage bill probably won't work. Everybody thinks they can just keep it rolling like some Ponzi scheme. Everybody. Borrowers, lenders, everybody.

[William]

Agree 100%, well said. Solving problems is about finding root cause and fixing it. Root cause, in this case, is not wall street. It is as you have so eloquently stated above. Wall street will serve nicely as scape goats and allow justifiable anger at Fat Cats, rather than at the average citizen who took on ill-advised debt. It is much easier to get mad at a Fat Cat than at your next door neighbor.


I don’t disagree that the consumer has blame in this, but to put the blame solely on the consumer is crap. According to this logic, I could walk into any bank and say, “I want to take out a loan of $2,000,000. No, I can’t pay it back in 30 years, but I’ll take it anyway.” The bank gives me the money, but I should have known better than to barrow it in the first place. What happened on the banks end? Don’t they check to make sure that you are capable of paying back the loan in an acceptable amount of time? If you’re not, you are a bad risk and they should deny your loan.

How many people who have been house hunting had to be pre-approved by the banks to know what price range the bank would lend them so they could look for houses in that range? Again, if these people were such bad risks, why were they let in the door in the first place? Low down and zero down payment advertising was used to bring in people who didn’t have anything to put down…but hey, we can still get you into a house.

Sorry, I don’t buy that line of thought one bit.


William

[Climb01742]

i, too, agree that setting minimums for down-payments on mortgages and limiting the amount a borrower can be leveraged is a very necessary first step. but there is a parallel to that. we must also limit how leveraged banks and investment houses can be too. it's not just homeowners who have shown that they can't always be the best judge of their financial leverage and liquidity. too many people, on main street and wall street, got too far out on a leveraged limb. some degree of greater regulation is needed on both streets.

[CNY rider]

I don’t disagree that the consumer has blame in this, but to put the blame solely on the consumer is crap. According to this logic, I could walk into any bank and say, “I want to take out a loan of $2,000,000. No, I can’t pay it back in 30 years, but I’ll take it anyway.” The bank gives me the money, but I should have known better than to barrow it in the first place. What happened on the banks end? Don’t they check to make sure that you are capable of paying back the loan in an acceptable amount of time? If you’re not, you are a bad risk and they should deny your loan.

How many people who have been house hunting had to be pre-approved by the banks to know what price range the bank would lend them so they could look for houses in that range? Again, if these people were such bad risks, why were they let in the door in the first place? Low down and zero down payment advertising was used to bring in people who didn’t have anything to put down…but hey, we can still get you into a house.

Sorry, I don’t buy that line of thought one bit.


William

William, this all happened because the Fed completely ignored any and all regulatory duties that they should have been performing.
Banks are supposed to perform underwriting on their loans and the Fed has regulatory authority over the banks. Alan Greenspan and the Fed over the last decade created this bubble. Bernanke is actually doing a decent job managing the mess he inherited, but there was no way out of this mess without serious pain.

[Ray]

William, this all happened because the Fed completely ignored any and all regulatory duties that they should have been performing.
Banks are supposed to perform underwriting on their loans and the Fed has regulatory authority over the banks. Alan Greenspan and the Fed over the last decade created this bubble. Bernanke is actually doing a decent job managing the mess he inherited, but there was no way out of this mess without serious pain.
Its kind of interesting that Greenspan was the guy who spotted and reacted to the tech bubble with his "irrational exuberance" line, but presided over and did nothing about the housing bubble. He either missed it or just didn't believe it could burst? And now, to cover his own butt, he's talking about this being a once in a half-century or century bad economy, as if it just happened. I thing he's trying to cover his posterior.

There's blame everywhere there's greed on this one. And there's greed everywhere. From lenders making bad loans who should have known better to the big guys buying up loads of bad loans to "spread the risk" to the family that couldn't afford a place buying it anyway with credit they couldn't afford. To many many many of the rest of us assuming the value of our homes would always go up and borrowing heavily against that idea to finance the high-life. Every one of those participants gets hurt, as do many who didn't even partake.

There are a lot of different religious beliefs in this world, and many political and economic beliefs as well. But who doesn't believe in gravity? Lots of folks, evidently.

-Ray

[goonster]

They will try to place the blame where it last belongs - Wall Street.

Here ya go:

HANNITY: Let's talk about, Governor, obviously, the economy is on the minds of many Americans. We've got Lehman, we've got Merrill, we've got AIG. Senator Barack Obama yesterday was attacking Senator McCain for saying that the "fundamentals of the economy are strong."

Do you believe that the fundamentals of our economy are strong?

PALIN: Well, it was an unfair attack on the verbiage that Senator McCain chose to use because the fundamentals, as he was having to explain afterwards, he means our workforce, he means the ingenuity of the American. And of course, that is strong and that is the foundation of our economy.

So that was an unfair attack there, again, based on verbiage that John McCain used. Certainly it is a mess though, the economy is a mess. And there have been abuses on Wall Street and that adversely affects Main Street.

And it's that commitment that John McCain is articulating today, getting in there, reforming the way that Wall Street has been allowed to work, stopping the abuses and that violation of the public trust that too many CEOs and top management of some of these companies, that abuse there has got to stop.

It is, somebody was saying this morning, a toxic waste there on Wall Street, affecting Main Street. And we've got to cure this.

[michael white]

amazing interview--what she does with logic is beyond humorous or curious. it's like a really intense session of Twister. . .

[Climb01742]

interesting suggestion in this piece. felix rohatyn has an idea called the "national infrastructure bank".

http://www.nytimes.com/2008/09/18/opinion/18cohen.html?_r=1&hp&oref=slogin

[Joellogicman]

Agree 100%, well said. Solving problems is about finding root cause and fixing it. Root cause, in this case, is not wall street. It is as you have so eloquently stated above. Wall street will serve nicely as scape goats and allow justifiable anger at Fat Cats, rather than at the average citizen who took on ill-advised debt. It is much easier to get mad at a Fat Cat than at your next door neighbor.

Ill-advised by whom? The rub lies in the answer to that question.

Over the last ten years the mortgage orginators, banking industry, real estate industry, construction industry, local boom town politicians and a large number of financial advisors in print and electronic media as well as on-line all talked up the real estate market as the be all and end all. The unsophisticated investor heard over and over again they should buy the most house they qualify for and borrow as much as the lender will allow. The repeated claim was this would free up the homeowner's cash for other investments with little risk as the home was going to increase in value anyway. The federal governmnent further blessed the process by providing ample funding for new highway and other infrastructure while denying urban and older suburban areas money for maintenance.

Equity loans had some critics, but even there the lending industry pressed such dubious claims as it is better to borrow on your home when buying autos and other big ticket consumer items and reap a tax deduction.

The home buying process itself lent the aura that the process was sound. The developers and real estate agents puffed the product, the loan originator generated reams of paper work including appraisals, assessments, valuations, credit verifications, and down the line yielding huge envelopes full of documentation for even a modest home purchase. Heck, when my dad bought his house, He signed three papers at the closing - a mortgage, the loan agreement, and the bill of sale for appliances.

Should our neighbors have been so gullible? Maybe not. But there sure was not anyone telling them not to be. Indeed, a strong argument can be made our neighbors were acting rationally. Sophisticated large businesses were offering them a chance to live well beyond their means. If the choice is living in a small apartment in a dicey area or a brand new house in a brand new subdivision, why walk away from a fool and his money?

In hindsight one can argue our neighbors should have cared more about their nation's economic health. I do not recall many of our political leaders saying anything about it. The few who did complain were usually inner city reps whose electorate was so disenfranchised they could not jump into the mortgage merry go round. Their complaints - that tax breaks for mortgages unfairly favored the middle and upper classes over renters - were disparaged as nay saying by losers.

Now that everything has fallen apart in my opinion it is quite disingenous to argue the fault lies in those who made the loans available, promoted them in every way possible, profited magnificently from them, and now are enjoying bail outs at levels well beyond what the taxpayer could ever expect the government to spend on such things as infrastructure, medical care, local law enforcement, etc.

[Joellogicman]

interesting suggestion in this piece. felix rohatyn has an idea called the "national infrastructure bank".

http://www.nytimes.com/2008/09/18/opinion/18cohen.html?_r=1&hp&oref=slogin

It is a good article, well written and good ideas.

Focusing efforts on making infrastructure work makes for bad populist politics. Unless the electorate can get over the populist sham and learn to pay attention to intelligent ideas, intelligently expressed, this kind of talk will go no farther than Isaiah's warnings from the desert.

[Climb01742]

there's an interesting parallel to the sub-prime mess:

all those credit card offers that jam everyone's mailbox. where does the responsibility lay: should creditors only offer cards to good credit risks? or should people only take on the credit they can handle?

for me, the only honest answer is both parties need to act more responsibly. offering unwise credit is just as bad as accepting it.

[Joellogicman]

there's an interesting parallel to the sub-prime mess:

all those credit card offers that jam everyone's mailbox. where does the responsibility lay: should creditors only offer cards to good credit risks? or should people only take on the credit they can handle?

for me, the only honest answer is both parties need to act more responsibly. offering unwise credit is just as bad as accepting it.

both sides are equally liable.

But from a market sense, I go back to my earlier post and walking away from the fool and his money quip.

An analogy would be when US manufacturers of, say, appliances, bikes, cars, complain that Japanese and Chinese currency manipulation make their products unfairly less expensive than those of their US competitors. Very few would advise the consumer to pay more for the US product because it is the morally correct thing to do.

Sure, a prospective borrower lies about their assets, income, or credit history, they have to take the blame (and indeed they do, it is very easy to dismiss a bankruptcy petition on the basis of fraud). But when a lender knows full well the borrower's limits and lends anyway, a market analysis suggests the borrower acts rationally when taking the loan.

[Ozz]

Ill-advised by whom? The rub lies in the answer to that question.....
A home purchase is probably the single biggest financial event in the average person's life. A reasonable person would do some research and figure how what is involved before committing to it.

Banks and mortgage brokers were selling a product...the consumer needs to know that. No one forces them to sign on the dotted line, but they need to know what they are getting into.

I think a relatively simple solution to curbing "predatory" lending would be to require the loan originator to hold a percentage of the loans they make. If they have some "skin in the game", they might behave more responsibly when pushing their product.

My wife was in the mortgage business for a couple years, so any knowledge I have is via osmosis....I do know that at some levels, it can be pretty slimey.

[News Man]

Ill-advised by whom? The rub lies in the answer to that question.

Over the last ten years the mortgage orginators, banking industry, real estate industry, construction industry, local boom town politicians and a large number of financial advisors in print and electronic media as well as on-line all talked up the real estate market as the be all and end all. The unsophisticated investor heard over and over again they should buy the most house they qualify for and borrow as much as the lender will allow. The repeated claim was this would free up the homeowner's cash for other investments with little risk as the home was going to increase in value anyway. The federal governmnent further blessed the process by providing ample funding for new highway and other infrastructure while denying urban and older suburban areas money for maintenance.

Equity loans had some critics, but even there the lending industry pressed such dubious claims as it is better to borrow on your home when buying autos and other big ticket consumer items and reap a tax deduction.

The home buying process itself lent the aura that the process was sound. The developers and real estate agents puffed the product, the loan originator generated reams of paper work including appraisals, assessments, valuations, credit verifications, and down the line yielding huge envelopes full of documentation for even a modest home purchase. Heck, when my dad bought his house, He signed three papers at the closing - a mortgage, the loan agreement, and the bill of sale for appliances.

Should our neighbors have been so gullible? Maybe not. But there sure was not anyone telling them not to be. Indeed, a strong argument can be made our neighbors were acting rationally. Sophisticated large businesses were offering them a chance to live well beyond their means. If the choice is living in a small apartment in a dicey area or a brand new house in a brand new subdivision, why walk away from a fool and his money?

In hindsight one can argue our neighbors should have cared more about their nation's economic health. I do not recall many of our political leaders saying anything about it. The few who did complain were usually inner city reps whose electorate was so disenfranchised they could not jump into the mortgage merry go round. Their complaints - that tax breaks for mortgages unfairly favored the middle and upper classes over renters - were disparaged as nay saying by losers.

Now that everything has fallen apart in my opinion it is quite disingenous to argue the fault lies in those who made the loans available, promoted them in every way possible, profited magnificently from them, and now are enjoying bail outs at levels well beyond what the taxpayer could ever expect the government to spend on such things as infrastructure, medical care, local law enforcement, etc.

It begins and ends with personal responsibility. I take mine, other should take theirs. In the end, I decide and I take the responsibility for that decision. I take input from others, weigh it, but I own it.

[Joellogicman]

A home purchase is probably the single biggest financial event in the average person's life. A reasonable person would do some research and figure how what is involved before committing to it.

Banks and mortgage brokers were selling a product...the consumer needs to know that. No one forces them to sign on the dotted line, but they need to know what they are getting into.

I think a relatively simple solution to curbing "predatory" lending would be to require the loan originator to hold a percentage of the loans they make. If they have some "skin in the game", they might behave more responsibly when pushing their product.

My wife was in the mortgage business for a couple years, so any knowledge I have is via osmosis....I do know that at some levels, it can be pretty slimey.

Over the past 10 years or so, there were many apparently knowledgeable sources advising home owners to buy the best property their credit would allow. Real estate appreciation was repeatedly sold as a given. Tax breaks both for interest payments and for appreciation (no taxes on up to $500k appreciation in your home) further served as suggestions real estate was always a good risk no matter how dicey the loan.

I bought small, cheap and bike riding distance from work for environmental reasons. I cannot tell you how many otherwise intelligent people repeated the 'you should have bought more' mantra to me.

Indeed, far from accepting that I was acting responsibly, many argued I was putting my retirement at risk by not buying into the one appreciating asset that could assure comfortable source of income later in life.

In hindsight it is easy to say they were wrong and I was right. In my opinion, the majority of the overburdened buyers bought in good faith on the basis of information provided by many in government and industry who are now pointing fingers back at them.

[Joellogicman]

It begins and ends with personal responsibility. I take mine, other should take theirs. In the end, I decide and I take the responsibility for that decision. I take input from others, weigh it, but I own it.

How is it irresponsible to seek out expert advise in an area where you have limited knowledge and act in accord with that advise? The loan industry created a brave new world with their products and repeatedly invited the consumer to join them.

Or are you arguing we should return to a 19th Century model economy where most people consumed and lived in only what they made with their own hands and thus understood as well as possible what they were doing?

[1centaur]

Are the fundamentals of the economy strong?

Nobody knows the answer to this question better than economists, and most of them were not calling for a recession, or at least not a severe recession, per my most recent review of Street and Blue Chip economists. A slightly tone deaf politician scanning those numbers could have made McCain's statement and NOT been out of touch with reality. US exporting manufacturers have been booming due to the weak dollar (and attractive goods of course). Retail sales have been closer to flat than down a bunch. Unemployment has ticked up but is not at what traditionally was viewed as a high level, particularly away from financial services. I think he was trying to say that the overall economy is not what you see when you look at news stories on Wall Street.

Mainstream media and those who consume it do not understand economics at that level. They breathlessly report on crashing house prices and imploding Wall Street brokers and so create this impression of doom. Could such doom come to pass? Yes. Might it be a lot sunnier 6 months from now? Yes, despite the longer term consequences. I think McCain was trying to be a steady optimist, sort of practicing for the State of the Union (it's sound) rather than a pandering bandwagon jumper, and in so doing he zigged when the national mood zagged (he did that on the surge too). When he was nailed by the press as an out-of-touch rich guy he could not come back with a dull and nuanced recitation of the economy's strengths, so he came back with that half-assed American worker is strong justification that Palin was then forced to echo. By the time he debates he will be well prepared for the obligatory out of touch attack. He'll try to sell the steady, experienced thing vs. Obama. It should be good theater.

[Ozz]

Over the past 10 years or so, there were many apparently knowledgeable sources advising home owners to buy the best property their credit would allow. Real estate appreciation was repeatedly sold as a given. Tax breaks both for interest payments and for appreciation (no taxes on up to $500k appreciation in your home) further served as suggestions real estate was always a good risk no matter how dicey the loan...
True, but those sources also had a stake in putting you in the biggest loan you could afford. When my wife and I bought our house 12 years ago, the ratios we were give said something like 40% of our pre-tax income could go towards the mortgage payment....I heard that and had a "***" moment. No way did I want to spend that much on a house payment. I calculated our budget, came up with a payment size I could live with and worked backwards from there. We ended up with a small, old house on a nice size lot in a very desireable neighborhood. Staying within our means still worked out well for us...home value is about 400% of what we paid for it.

I bought small, cheap and bike riding distance from work for environmental reasons. I cannot tell you how many otherwise intelligent people repeated the 'you should have bought more' mantra to me..
Smart you, the "intelligent people"....maybe not so much. You obviously knew what you wanted, and calculated what you could afford. Not what someone else told you that you could afford.

Indeed, far from accepting that I was acting responsibly, many argued I was putting my retirement at risk by not buying into the one appreciating asset that could assure comfortable source of income later in life..
There are lots of ways to fund retirement....and none of them are a sure thing

In hindsight it is easy to say they were wrong and I was right. In my opinion, the majority of the overburdened buyers bought in good faith on the basis of information provided by many in government and industry who are now pointing fingers back at them.
I would argue that they:
wanted to buy a house
felt they deserved a house
used what "everyone told them" as a justification

There is obviously more to it than that, but if the payment would not fit your budget, or you didn't understand the risks of the loan being put together, then hold onto your money.

No one forced them to sign, but they got into something they didn't understand. Following the crowd is not an excuse.

[1centaur]

How is it irresponsible to seek out expert advise in an area where you have limited knowledge and act in accord with that advise? The loan industry created a brave new world with their products and repeatedly invited the consumer to join them.

I would hesitate the call most of what unqualified buyers knew before they bought to be "expert advice," anymore than buyers would view the "what payments will it take to get you in this car" guy as an expert. Going back to your point about Countrywide et al being a major source of lending, those guys were just order takers/clerks. I doubt anybody wandering in to one of those places got the sense they were talking to a wise investor. Before they got to that office, they probably talked to their friends and listened to the news and maybe, just maybe, heard a few talking heads say real estate was great (let's hope they were not listening to real estate infomercials). That's really insufficient basis to sign away a huge portion of your income and risk your credit rating for a decade or more. I think it's fair to assume they heard what they wanted to hear, and in so doing abandoned their responsibility to borrow prudently.

That said, there was common "wisdom" in this country that housing was a good long-term investment no matter what, so if you were going to occupy the home anyway what did you have to lose. Again, I would not call that an expert view, but most people make decisions on less information than that. The pity is that some did not differentiate between big and small decisions and did not have the arithmetic/life skills to understand what they were doing. There was nobody to help them through that, nor will there be in the future of 20% downpayments, good LTVs and appropriate debt coverage ratios for borrowers. Those old rules assumed borrowers were too lacking in understanding or too starry eyed to manage their own credit exposure closer to the edge. Good assumption in the aggregate; too bad for a few.

[michael white]

[QUOTE=1centaur]

I think McCain was trying to be a steady optimist, sort of practicing for the State of the Union (it's sound) rather than a pandering bandwagon jumper, and in so doing he zigged when the national mood zagged (he did that on the surge too). QUOTE]

In my view he was right the first time, when he said he really doesn't know much about the economy. Probably when he said that he didn't anticipate the economy becoming a make-or-break issue, but it is, and he's stuck. I would argue that this will be his fatal flaw . . . Obama has flaws too, of course, but then again he won't be tied to the current mess nearly as much as the incumbent party invariably is tied to it.

If you're a Republican and you have to win an election in this economy in the next two months, you better be dang sure your guy is an economic whiz, and that's one thing McCain ain't. I would also predict, in my liberally biased way, that Palin's appeal to the well-armed pro-life contingent won't hold up in this particular economy; she doesn't have it, either.

"When he was nailed by the press as an out-of-touch rich guy" 1Centaur

--and just how in-touch does one have to be to remember how many mansions one owns??????

[SamIAm]

The loan industry created a brave new world with their products and repeatedly invited the consumer to join them.




At what level of purchase can we trust the consumer to make good decisions? Does it stop at the house, car, motorcycle, bicycle, furniture, groceries?

There are a lot of potato chip manufactures inviting me to join them as well. If I do and I end up fat, will you be there to help me. Will you cry for regulation of the junk food industry. I mean junk food affects life span, that should be as important as the mortgage lending industry.

What else can you and regulation protect me from?

[fiamme red]

There are a lot of potato chip manufactures inviting me to join them as well. If I do and I end up fat, will you be there to help me. Will you cry for regulation of the junk food industry. I mean junk food affects life span, that should be as important as the mortgage lending industry.But there are regulations of the junk food industry. Every bag of potato chips, for example, has to be labelled with nutritional information, so that consumers should be able to know how many calories they have consumed.

[Joellogicman]

What else can you and regulation protect me from?

First, I do not think I have said anything to suggest I support regulation. One of my earlier posts I say in my opinion AIG should not have been bailed out. I would also say the Fed should not have helped Chase buy Bear Stearns. Fannie and Freddie were created by the federal government and lately ran amuck. I am somewhat ambivalent on their take over. On the consumer level, I certainly do not believe the government should stop mortgage foreclosures.


At what level of purchase can we trust the consumer to make good decisions? Does it stop at the house, car, motorcycle, bicycle, furniture, groceries?

There are a lot of potato chip manufactures inviting me to join them as well. If I do and I end up fat, will you be there to help me. Will you cry for regulation of the junk food industry. I mean junk food affects life span, that should be as important as the mortgage lending industry.

If you eat a lot of potato chips, the results are quickly and readily apparent. The real estate development and lending industry told primarily younger people that buying the house of their dreams now not only satisfied their desire but would go far to assure their retirement.

My posts on this point are not an argument for regulation protecting buyers but rather a rebuttal to what I see as an absurd assumption the consumer bears more or even an equal portion of the blame for the derivative backed mortgage meltdown than Wall Street and the Feds.

The same industry people who spent the last 15 years finding increasingly complex ways to sell bad debt at a profit invested nearly as much energy in convincing consumers to take on the bad debt.

In the end, the consumers are the ones who will suffer more from this meltdown than Wall Street and the politicians. The McCains in the world may have to give up one or two of their seven houses. The people who bet their house would increase in value enough to catch up with their ARM are either taken their families to live with the grandparents or are finding just how little rental apartments (and thus how much rent they have to pay for substandard homes) are available after 15 years of condo conversions.

[Joellogicman]

Smart you, the "intelligent people"....maybe not so much. You obviously knew what you wanted, and calculated what you could afford. Not what someone else told you that you could afford.

Well, I based my decision on sustainable philosophy. I would recommend that to everyone.

[Joellogicman]

[QUOTE=1centaur]In my view he was right the first time, when he said he really doesn't know much about the economy. Probably when he said that he didn't anticipate the economy becoming a make-or-break issue, but it is, and he's stuck. I would argue that this will be his fatal flaw . . . Obama has flaws too, of course, but then again he won't be tied to the current mess nearly as much as the incumbent party invariably is tied to it.

If you're a Republican and you have to win an election in this economy in the next two months, you better be dang sure your guy is an economic whiz, and that's one thing McCain ain't. I would also predict, in my liberally biased way, that Palin's appeal to the well-armed pro-life contingent won't hold up in this particular economy; she doesn't have it, either.

McCain's chief economic advisor is Phil Gramm. The Gramm Leach Bliley Act deregulation of the banking industry allowed banks to access derivative markets not previously available to them.

As long as we are saying consumers who mess up should be responsible for their actions and allowed to fail, it seems equally fair to me that Wall Street should be responsible for its actions and allowed to fail.

[michael white]

[QUOTE=michael white]

McCain's chief economic advisor is Phil Gramm. The Gramm Leach Bliley Act deregulation of the banking industry allowed banks to access derivative markets not previously available to them.

As long as we are saying consumers who mess up should be responsible for their actions and allowed to fail, it seems equally fair to me that Wall Street should be responsible for its actions and allowed to fail.

yes I agree. And on Monday, McCain agreed too. On Tuesday, it was a different story.

[DukeHorn]

This quote captures the situation succintly.

Here's how it goes. You bet big with someone else's money. If you win, you get a huge bonus, based on the profits. If you lose, you lose someone else's money rather than your own, and you move on to the next job. If you're especially smart — like Lehman chief executive Dick Fuld — you take a lot of money off the table. During his tenure as CEO, Fuld made $490 million (before taxes) cashing in stock options and stock he received as compensation. A lot of employees, whose wealth was tied to the company's stock, were financially eviscerated when Lehman bombed.

[zap]

snipped

. . . Obama has flaws too, of course, but then again he won't be tied to the current mess nearly as much as the incumbent party invariably is tied to it.



Isn't Obama's chief economics advisor Frank Raines?

If you are really about change, why have him on your team.

[Ozz]

Well, I based my decision on sustainable philosophy. I would recommend that to everyone.
:beer:

[znfdl]

snipped



Isn't Obama's chief economics advisor Frank Raines?

If you are really about change, why have him on your team.

Raines was providing insight on the housing policy.

[keno]

Potato chip analogy - NONSENSE. How many of you, let alone the people purported to be protected by a label indicating calories per serving (which we all know is the entire container), know how many calories it takes in order to maintain your desired body weight given your lifestyle, age and other considerations? For the most part, you and they don't. The people who really care about what they put in their mouths make it their business to know these things. The calorie information is actually surplus to their needs as they already know the answer.

Similarly, how many people have a prayer with a single piece of financial information in the context of a very broad subject? I can't imagine the tome that would have to appear to explain all that should go into making a serious financial decision such as buying a house and giving a mortgage, not that anyone would actually read it yet check the box saying they had both read and understood it. What it comes down to, as others have said, is personal responsibility. If you don't know what you are getting into, don't get into it until you do.

Many think that information is the cure. I do not believe so for the reasons stated or implied above. What are necessary are hard and fast rules with severe penalties for those who controvert them, in this case with the emphasis on the party putting up the debt money, as well as the loss of significant equity money by the buyer.

keno

[fiamme red]

Nice summary of what's been happening in the last couple of weeks:

http://freakonomics.blogs.nytimes.com/2008/09/18/diamond-and-kashyap-on-the-recent-financial-upheavals/

[SamIAm]

But there are regulations of the junk food industry. Every bag of potato chips, for example, has to be labelled with nutritional information, so that consumers should be able to know how many calories they have consumed.


Yes, but any mortgage documents that I have signed tell me what the interest rate is, how and when it will adjust and what my payment is and how much I will pay over the life of the loan etc. etc. The information is there, people chose to ignore it with the surety that real estate always goes up in value and interest rates are always low.

Just as I may choose to ignore the warnings on chips because my Dad has eaten them his whole life and he is doing well.

[DukeHorn]

Actually you're probably still eating the chips because you don't understand the nutritional information that affects you, just as many of the ARM holders didn't understand the terms of their mortgage or how that projected into their monthly costs.

Just saying...

[cdimattio]

First, I do not think I have said anything to suggest I support regulation. One of my earlier posts I say in my opinion AIG should not have been bailed out. I would also say the Fed should not have helped Chase buy Bear Stearns. Fannie and Freddie were created by the federal government and lately ran amuck. I am somewhat ambivalent on their take over.

There are philsophical and esoteric arguements, but there was not much of a decision to make. I am not sure how one can have an anti-takeover position with regard to these entities.

Since inception, Fannie and Freddie have operated with an implicit guarantee from the US Government. The only development is that the implicit guarantee became explicit. Fannie and Freddie ARE the mortgage market. I am not sure there is much to be ambivalent about. Saving them is the difference between a housing downturn and an all-out collapse.

AIG, the world's biggest insurance company, is one of the firewalls between the credit and mortgage meltdown and the general economy. If AIG failed it would hurt everyone. AIG is so big and does business with so many other corporations that a collapse would trigger a nationwide crisis in lending, spending and hiring.

This is not over. Look at what is going on in Russia. So far we have experienced some hiccups in lending, I am personally a bit terrified of what could happen.

[zap]

http://www.investors.com/editorial/IBDArticles.asp?artsec=16&issue=20080908

[SamIAm]

Actually you're probably still eating the chips because you don't understand the nutritional information that affects you, just as many of the ARM holders didn't understand the terms of their mortgage or how that projected into their monthly costs.

Just saying...

How do you sign something you don't understand? If I eat the chips, I do so because I make a decision for immediate gratification and am willing to take the long term risk, not because I don't understand that its there.

[TMB]

I don’t disagree that the consumer has blame in this, but to put the blame solely on the consumer is crap. According to this logic, I could walk into any bank and say, “I want to take out a loan of $2,000,000. No, I can’t pay it back in 30 years, but I’ll take it anyway.” The bank gives me the money, but I should have known better than to barrow it in the first place. What happened on the banks end? Don’t they check to make sure that you are capable of paying back the loan in an acceptable amount of time? If you’re not, you are a bad risk and they should deny your loan.

How many people who have been house hunting had to be pre-approved by the banks to know what price range the bank would lend them so they could look for houses in that range? Again, if these people were such bad risks, why were they let in the door in the first place? Low down and zero down payment advertising was used to bring in people who didn’t have anything to put down…but hey, we can still get you into a house.

Sorry, I don’t buy that line of thought one bit.


William

Does the root of this mess not go back a whole lot further than the last 8 years?

Big changes take a long time to work through the system, and I think it is quite likely that the genesis of this mess lies in the origination of the old Community Reinvestment Act, that was in 1974 or 1975.

There essentially was no sub-prime market prior to that and there certainly was not any significant securitized asset backed paper market in mortgage securities.

The Act was amended in 1995 and again 2003 and all of the changes did nothing but make a bad situation worse. It was particularly after the changes of 95 and 03 that the Banks and thrifts essentially did away with any pretence at "Risk Management", which any of us would expect a bank to be doing.

That is a lot of years, and a lot of residents of the white house and the congress and the senate all buying into the mess, lots of blame to go around.

A big Mess, and this is, takes a long time to create, longer than 6 or 8 years, and when it craters, creates and even bigger mess that will take a very long time to clean up.

[keno]

how many of you, and you and I are all quite intelligent I have to believe, have downloaded many, many pieces of software over the past 12 months and scrolled directly to the end and clicked the box saying "I agree" and never read a word of the long disclosure that preceded it. I fully admit to the practice so long as I have not given credit card information.

We are a nation of signers, not readers and understanders. It's obviously the lawyers' faults for writing all of that 'stuff'. Nothing would ever get done if we stopped to understand what we were getting into. The lawyers who wrote the stuff knew, you can bet.

keno

[TMB]

how many of you, and you and I are all quite intelligent I have to believe, have downloaded many, many pieces of software over the past 12 months and scrolled directly to the end and clicked the box saying "I agree" and never read a word of the long disclosure that preceded it.

keno

ME!!!

[ti_boi]

Keno speaks the truth. :beer:

[Joellogicman]

Does the root of this mess not go back a whole lot further than the last 8 years?

Big changes take a long time to work through the system, and I think it is quite likely that the genesis of this mess lies in the origination of the old Community Reinvestment Act, that was in 1974 or 1975.

Trying to blame this on allowing some poor people a chance to buy homes is not consistent with the facts. CMA loans are tightly regulated. Along with federal, institutional and local government oversight, NGOs and community groups assist and manage participants. If all mortgages received such oversight, defaults would be much lower. CMA loans also make up a small percentage of FDIC banks loan products. Over the last ten years or so, the percentage of mortgages offered by banks decreased. Finally, banks tend to keep their CMA loans, as they need to have a percentage of CMA on their books to meet FDIC requirements. As we know, the loans that banks kept are not the problem. It is the loans sold on the secured derivative market that caused the problem.

If you want to look at one single cause, perhaps you should look at Gramm Leach Bliely, which made it easier for non FDIC insured (and thus not regulated) sources to offer mortgages.

As these funds started pouring into the mortgage business, the real estate market was slow, as wage stagflation made it harder for many to save up enough for their downpayments. Several companies, Countrywide one of the big leaders, launched on the rarely used ARM. This met with great success, so in turn lead to all sorts of variations including low and no money down mortgages.

At the same time, if you will recall, interest rates spiraled to historic lows. Lower interest rates meant people could borrow more, which pushed up the prices of homes, which created more apparent success stories, which drove more to the market.

Behind the scenes, the derivatives ponzi scheme was making a lot of investors rich. This brought more investors, which lead to more mortgage offerings, and continued to build the bomb that just blew up.

[Joellogicman]

There are philsophical and esoteric arguements, but there was not much of a decision to make. I am not sure how one can have an anti-takeover position with regard to these entities.

Since inception, Fannie and Freddie have operated with an implicit guarantee from the US Government. The only development is that the implicit guarantee became explicit. Fannie and Freddie ARE the mortgage market. I am not sure there is much to be ambivalent about. Saving them is the difference between a housing downturn and an all-out collapse.

AIG, the world's biggest insurance company, is one of the firewalls between the credit and mortgage meltdown and the general economy. If AIG failed it would hurt everyone. AIG is so big and does business with so many other corporations that a collapse would trigger a nationwide crisis in lending, spending and hiring.

This is not over. Look at what is going on in Russia. So far we have experienced some hiccups in lending, I am personally a bit terrified of what could happen.

However, for at least the last 50 years the United States has been the champion of the free market economy. Our political, industrial and intellectual leaders have all said allowing the market to determine our future is superior. The whole concept of US exceptionalism is built around our willingness to allow the market and not government to choose winners and losers.

Have no doubt about it, the Freddie, Fannie, Bear Stearns, and AIG bail outs are right from the pages of French Economic policy. The US government decided it must intervene to save these champion industries for the good of all.

If the bail outs were necessary, why stop with financial institutions? The slow demise of GM and Ford effects more working people than the big banks. At one time GM and Ford were stronger econmic engines than the banks. Their collapse have left large areas of the upper Midwest, Atlantic States and South in perpetual decline. Likewise the steel, textile, shoe, appliance and home electonic industries.

All of the arguments against helping US manufacturers apply just as logically to financial institutions.

[1centaur]

However, for at least the last 50 years the United States has been the champion of the free market economy. Our political, industrial and intellectual leaders have all said allowing the market to determine our future is superior. The whole concept of US exceptionalism is built around our willingness to allow the market and not government to choose winners and losers.

Have no doubt about it, the Freddie, Fannie, Bear Stearns, and AIG bail outs are right from the pages of French Economic policy. The US government decided it must intervene to save these champion industries for the good of all.

If the bail outs were necessary, why stop with financial institutions? The slow demise of GM and Ford effects more working people than the big banks. At one time GM and Ford were stronger econmic engines than the banks. Their collapse have left large areas of the upper Midwest, Atlantic States and South in perpetual decline. Likewise the steel, textile, shoe, appliance and home electonic industries.

All of the arguments against helping US manufacturers apply just as logically to financial institutions.


A couple of points:

While it seems to be a trendy talking point to suggest that free market advocates are just plain against regulations, that is really a lie being fed to the gullible by the cynical. Dems have been negotiating regulations with Reps lo these 50 years and are well aware that the debate has not been rules vs. no rules. It has been about the nature and number of the rules. When you read in Dem blogs and mainstream media this week that McCain was against regulation and now is for regulation (hypocritical flip flopper being the implication), one wonders how short memories are. McCain-Feingold? The Fannie bill in 2005?

http://www.sluniverse.com/php/vb/politics-religion-society/17389-federal-housing-enterprise-regulatory-reform.html

Free market people want the smallest burden on business that is necessary. They think of the effects on business first, while those on the other side think of the effects of the rule first. That's why these things have to be negotiated. Regulations are not a problem, bad and extra regulations are a problem. US exceptionalism is about freer markets; the term "free" is not to be taken literally and never was to my knowledge until the last two weeks.

Second, the consequences of the textile industry going out of business are not as great as the consequences of a banking collapse. The latter hurts everyone, possibly a lot (this is not about the number of employees in the industry). The former hurts a few. America has been good at letting businesses that should die because they cannot compete do so - our growth rate vs. others' over the years is testament to an adaptive economy. GM and Ford WILL get that $25B loan this time, it appears, as bailout fever is in the air. Harry Reid was quoted as saying it should obviously be done because it will cost way less than the AIG's $85B. Using that "thinking"...

[cdimattio]

However, for at least the last 50 years the United States has been the champion of the free market economy. Our political, industrial and intellectual leaders have all said allowing the market to determine our future is superior. The whole concept of US exceptionalism is built around our willingness to allow the market and not government to choose winners and losers.

Have no doubt about it, the Freddie, Fannie, Bear Stearns, and AIG bail outs are right from the pages of French Economic policy. The US government decided it must intervene to save these champion industries for the good of all.

If the bail outs were necessary, why stop with financial institutions? The slow demise of GM and Ford effects more working people than the big banks. At one time GM and Ford were stronger econmic engines than the banks. Their collapse have left large areas of the upper Midwest, Atlantic States and South in perpetual decline. Likewise the steel, textile, shoe, appliance and home electonic industries.

All of the arguments against helping US manufacturers apply just as logically to financial institutions.


The arguments do not follow logically. No manufacturer is too big to fail. The economic reality of the situation trumps all politics and philosophical views.

Failure of Fannie, Freddie or AIG could initiate a series of cataclysmic events with tragic wordwide economic repercussions. The Great Depression had less of a trigger.

Fannie and Freddie ARE the mortgage market. What would happen if housing lending suddenly stopped? What economic shock waves would that send through the financial, services and manufacturing economies?

Besides, Fannie and Freddie always had the implicit guarantee of the US Government. No real decision, this was just a follow-through on the guarantee.

This is far bigger than the preservation of financial institutions or jobs as has been suggested. There are cracks in the very foundations of US capitalism and worldwide financial markets.

Bear is a different matter. Not sure government intervention was required, but is was more of an orderly liquidation than a bail-out.

We dodged a few bullets, but are still standing on the edge of a precipice.

[Joellogicman]

The arguments do not follow logically. No manufacturer is too big to fail. The economic reality of the situation trumps all politics and philosophical views.

Failure of Fannie, Freddie or AIG could initiate a series of cataclysmic events with tragic wordwide economic repercussions. The Great Depression had less of a trigger.

Fannie and Freddie ARE the mortgage market. What would happen if housing lending suddenly stopped? What economic shock waves would that send through the financial, services and manufacturing economies?

Besides, Fannie and Freddie always had the implicit guarantee of the US Government. No real decision, this was just a follow-through on the guarantee.

This is far bigger than the preservation of financial institutions or jobs as has been suggested. There are cracks in the very foundations of US capitalism and worldwide financial markets.

Bear is a different matter. Not sure government intervention was required, but is was more of an orderly liquidation than a bail-out.

We dodged a few bullets, but are still standing on the edge of a precipice.

First, mortgages existed before Fannie Freddie. Housing existed before Fannie and Freddie. Fannie was started in the late '30s but did not become a substantial player until the 1950s when Truman then Ike saw it as way to help channel restless veterans into domesticity. Banks have to lend money to survive. If banks did not have have a convenient guarantor, they would lend much more conservatively, but lend they would. The fall out from all of this probably means banks are going to be more conservative in any event.

I mentioned the quasi government link in an earlier post. Nevertheless, when Fannie and Freddie were turned into for profit corps, the government was mighty proud to say they were on their own. No implicit promise of bailout was made.

AIG is a whole different thing. It is big, but it is an insurance company not even regulated by the Feds. As many have mentioned, most of AIG's businesses are sound. One of its subsidiaries insured derivatives. Banks that made bad debts made claims on insurance policies to avoid having losses. If AIG had been allowed to go bankrupt, those policies would not have been paid. Tough. So some banks would lose money. The rest of AIG would have been bought up by other companies and continued providing services.

As for manufacturing demise not being the same as banking, I beg to differ. The demise of the auto, steel and textile industries have left nearly a quarter of the nation in a state of perpetual decline. Once prosperous cities - Detroit - Cleveland - Buffalo - Gary - Flint - Springfield Mass., etc. are dying. The massive sums of money US consumers send abroad to buy the goods these factories make has contributed to the chaotic financial climate that lead us to where we are at present. The millions of people living wasted lives in the rust belt did not experience a real property bubble. Had Fannie, Freddie and AIG been allowed to fail, their lives would not have changed. The bail out is not going to make much of a difference to them.

The US picked an industry - finance - that it thinks it ought to champion. Ironically, it is the financiers who belabor the concept of free market most loudly.

[Joellogicman]

Free market people want the smallest burden on business that is necessary. They think of the effects on business first, while those on the other side think of the effects of the rule first. That's why these things have to be negotiated. Regulations are not a problem, bad and extra regulations are a problem. US exceptionalism is about freer markets; the term "free" is not to be taken literally and never was to my knowledge until the last two weeks..

More correctly the financial industry wants small government burden when it is doing well but seeks out the most encompassing government succor when it is not.

Free market sure meant free when entire industries were allowed to leave the United States. Banking and insurance could have done the same.

[fiamme red]

First, mortgages existed before Fannie Freddie. Housing existed before Fannie and Freddie. Fannie was started in the late '30s but did not become a substantial player until the 1950s when Truman then Ike saw it as way to help channel restless veterans into domesticity. Banks have to lend money to survive. If banks did not have have a convenient guarantor, they would lend much more conservatively, but lend they would. The fall out from all of this probably means banks are going to be more conservative in any event.

I mentioned the quasi government link in an earlier post. Nevertheless, when Fannie and Freddie were turned into for profit corps, the government was mighty proud to say they were on their own. No implicit promise of bailout was made.

AIG is a whole different thing. It is big, but it is an insurance company not even regulated by the Feds. As many have mentioned, most of AIG's businesses are sound. One of its subsidiaries insured derivatives. Banks that made bad debts made claims on insurance policies to avoid having losses. If AIG had been allowed to go bankrupt, those policies would not have been paid. Tough. So some banks would lose money. The rest of AIG would have been bought up by other companies and continued providing services.

As for manufacturing demise not being the same as banking, I beg to differ. The demise of the auto, steel and textile industries have left nearly a quarter of the nation in a state of perpetual decline. Once prosperous cities - Detroit - Cleveland - Buffalo - Gary - Flint - Springfield Mass., etc. are dying. The massive sums of money US consumers send abroad to buy the goods these factories make has contributed to the chaotic financial climate that lead us to where we are at present. The millions of people living wasted lives in the rust belt did not experience a real property bubble. Had Fannie, Freddie and AIG been allowed to fail, their lives would not have changed. The bail out is not going to make much of a difference to them.

The US picked an industry - finance - that it thinks it ought to champion. Ironically, it is the financiers who belabor the concept of free market most loudly.Excellent post! :beer:

[News Man]

As for manufacturing demise not being the same as banking, I beg to differ. The demise of the auto, steel and textile industries have left nearly a quarter of the nation in a state of perpetual decline. Once prosperous cities - Detroit - Cleveland - Buffalo - Gary - Flint - Springfield Mass., etc. are dying.


Gee, do you think unions and poor car designs had anything to do with this?

[Joellogicman]

Gee, do you think unions and poor car designs had anything to do with this?

Just as careless lending, poor derivative products, and industry wide greed produced the problems the financial world is experiencing just now.

My argument is not that manufacturing should have been saved, but rather that if a car, steel or textile factory should be allowed to fail, so to should AIG, Bear, Fannie and Freddie.

[1centaur]

And I think every instinct was to let the financial firms fail, as they did with Lehman. Luckily, sounder thinking won the day. Private profits, public risk is indeed a lousy model and would have been for all those other industries. When we're talking Depression consequences very quickly, better to hold your nose and do better next time.

[keno]

"AIG is a whole different thing. It is big, but it is an insurance company not even regulated by the Feds. As many have mentioned, most of AIG's businesses are sound. One of its subsidiaries insured derivatives. Banks that made bad debts made claims on insurance policies to avoid having losses. If AIG had been allowed to go bankrupt, those policies would not have been paid. Tough. So some banks would lose money."

You are missing an ENORMOUS point that makes your "tough" far short of reality. I don't know if it has been mentioned in other posts, but an AIG bankruptcy would trigger clauses based on rating agency gradings that would make their way around the world in a domino-like way affecting agreements, both derviative agreements and others, of an untold number of institutions. In fact, what actually triggered the AIG problem in the first place was that AIG needed additional capital in order to hold off a rating agency downgrade that would result in the ignition of this daisy chain. The end effect of this is potential disaster, far beyond "So some banks would lose money."

One of the considerations in discussing an issue as complex as this one is in understanding the underlying facts.

keno

[cdimattio]

First, mortgages existed before Fannie Freddie. Housing existed before Fannie and Freddie. Fannie was started in the late '30s but did not become a substantial player until the 1950s when Truman then Ike saw it as way to help channel restless veterans into domesticity.

If Fannie and Freddie failed morgage lending would be paralyzed and effectively stop for an indeterminate period. Housing values would plummet. It would take time for any semblance of order to return to the the market. The economic impact would be worse than anything we have experienced in our generation.


I mentioned the quasi government link in an earlier post. Nevertheless, when Fannie and Freddie were turned into for profit corps, the government was mighty proud to say they were on their own. No implicit promise of bailout was made.

It is more than a quasi government link. Fannie and Freddie debt always had negligible credit risk because it had the implicit guarantee of the US government. It is a government sponsored enterprise to further government policy. The concept of bailout becomes very esoteric when the government is already an implicit guarantor of the debt.


AIG is a whole different thing. It is big, but it is an insurance company not even regulated by the Feds. As many have mentioned, most of AIG's businesses are sound. One of its subsidiaries insured derivatives. Banks that made bad debts made claims on insurance policies to avoid having losses. If AIG had been allowed to go bankrupt, those policies would not have been paid. Tough. So some banks would lose money. The rest of AIG would have been bought up by other companies and continued providing services.

Sure the AIG vanilla insurance and leasing is sound. Unfortunately AIG is on the hook for hundreds of billions in credit default swaps. AIG is a firewall, its failure would trigger countless other banks to fail and the worldwide tsunami would be devastating.


Had Fannie, Freddie and AIG been allowed to fail, their lives would not have changed. The bail out is not going to make much of a difference to them.

I do not work in the financial industry, but all of our lives would have been impacted for the worse if these entities had failed. The second great depression would be on your doorstep. Philisophical discussions aside, that is the economic reality.

[Ray]

I do not work in the financial industry, but all of our lives would have been impacted for the worse if these entities had failed. The second great depression would be on your doorstep. Philisophical discussions aside, that is the economic reality.
I don't pretend to understand the details of this stuff, but I fully agree with this conclusion, based on everything I've read. For all of our talk about personal responsibility and independence, when the ***** hits the fan, we're all in the same boat whether we like it or not. We ARE our brothers keeper. When or if the tsunami materializes (and I don't have any level of comfort that the machinations of this week will prevent it - although I certainly HOPE they do), people who have their own financial affairs very well in order and haven't taken any shortcuts and don't feel like they should pay for the mistakes of others WILL pay for the mistakes of others. Whether they like it or not.

A lot of very fundamentally strong companies who didn't cause any of the current problems saw their stocks plummet on Monday and Wednesday. They came back up some yesterday, but don't for a minute think it can't happen again and to a much more serious extent. People who've earned well and invested soundly over the years can be just as wiped out as their neighbor who may be an idiot who's in debt up to his ears. Be angry, but get over it, because you can't just walk away from it.

Folks who complain about having to pay taxes for a government bailout have a very sound philosophical point. But, in reality, they can either pay the taxes to help keep the system afloat or they can let the system collapse and see their standard of living fall MUCH farther as a result of their investments going into the tank. If there were easy answers or even good ones, they'd have been implemented by now.

I had a flash of early exposure to this when we sold our house last summer. Our timing was horrendous. We were downsizing and bought a condo before selling our house. In the couple of months that we owned both, the sub-prime crisis hit and started getting a lot of publicity, which made it hit harder. The value of our house dropped by a substantial amount as we were trying to sell it. Between the first offer that we got before it really hit, but that the buyers walked away from when the news started flowing, and the price we ended up selling it for a couple of months later, we lost $50,000 on a solidly middle-class house - not a high rent district. I was REALLY PISSED at all of the greedy lenders and borrowers who were making and taking bad loans and causing a crisis that I was a victim of despite having been prudent in my own transactions. But there was nothing I could do but accept the new reality, drop the price to get ahead of the falling market, sell the damn thing, and get out from under. In retrospect, we did VERY VERY well compared to what would have happened if we hadn't dropped the price and sold it as quickly as we did. But losing $50,000 as a result of a crisis that we didn't do anything to contribute to was a rather painful lesson on the limits of self-reliance and personal responsibility.

Its all one boat folks, like it or not.

-Ray

[Climb01742]

Its all one boat folks, like it or not.

+1

[Joellogicman]

You are missing an ENORMOUS point that makes your "tough" far short of reality. I don't know if it has been mentioned in other posts, but an AIG bankruptcy would trigger clauses based on rating agency gradings that would make their way around the world in a domino-like way affecting agreements, both derviative agreements and others, of an untold number of institutions. In fact, what actually triggered the AIG problem in the first place was that AIG needed additional capital in order to hold off a rating agency downgrade that would result in the ignition of this daisy chain. The end effect of this is potential disaster, far beyond "So some banks would lose money."

One of the considerations in discussing an issue as complex as this one is in understanding the underlying facts.

keno

The AIG unit in question insured bank and other financial institution investments in secured mortgage derivatives. The investments have turned out to be bad. There is a run on claims of insurance. AIG does not have enough cash to pay the claims. Without a bail out, AIG would not pay the claims meaning the banks and financial institutions would be stuck with losses. In short, the banks would be on hoc for their bad investments.

Some of the banks would fail, no doubt. Most would not. The healthy banks - some US based - Chase and BOA - others foreign based - HSBC, Barclays, possibly some Asian and MidEast banks - would buy up the pieces. The people who made the bad investments would be fired or demoted. Consumers would be dealing with different personnel. There would be disruption and change, but the world would not end.

The Fed AIG bail out (and the apparent creation of a new resolution trust) takes the banks off the hoc and puts the hoc on the US taxpayers. While the Fed at least at first will insist on better practices, the people who made the bad investments will keep their jobs. The banks and other financial institutions that made dodgy investments will remain, Their shareholders will not lose as much as they would should the banks, etc. have failed.

Interestingly enough, no one is saying the same breaks should go to the people on hoc for the bad mortgages. You can bet your bottom dollar this new resolution trust, much as its predecessor from 89 through the mid '90s pwill be the number one player in the mortgage foreclosure market for years to come.

Maybe it is a good idea. The differences between the financial instituions and the great manufacturers the US have allowed to fail is de minimus. If it is a good idea for the banks, it is a good idea for the manufacturers as well.

[Ray]

Interestingly enough, no one is saying the same breaks should go to the people on hoc for the bad mortgages. You can bet your bottom dollar this new resolution trust, much as its predecessor from 89 through the mid '90s pwill be the number one player in the mortgage foreclosure market for years to come.

It seems to me that lots of people have been saying that. Foreclosures don't do anyone involved any good. The lender would rather work something out with the borrower so they can recover SOMETHING and not be stuck with an empty house that they can't recover more than pennies on the dollar for. The borrower wants to stay in the house. And the community wants to the houses to be occupied so that property values and tax revenues don't tank. I think the lenders would like to be in a position to work with the borrowers, but they can't if they fail too. I don't know exactly how this will work, but I think the borrowers who lost it all should be entitled to the same benefit as the lenders. They were all working from the same crazy set of assumptions after all.

-Ray

[Joellogicman]

If Fannie and Freddie failed morgage lending would be paralyzed and effectively stop for an indeterminate period. Housing values would plummet. It would take time for any semblance of order to return to the the market. The economic impact would be worse than anything we have experienced in our generation.

Fannie and Freddie enabled the type of mortgage products which gave rise to the single family tract home subdivision, the resultant sprawl, breakdown of the extended family, and over dependence on carbon fuel automobile - along with the financial mess we are in. All saving these institutions is doing is prolonging the pain - at the expense of the ordinary taxpayer who will suffer most for it.

It is more than a quasi government link. Fannie and Freddie debt always had negligible credit risk because it had the implicit guarantee of the US government. It is a government sponsored enterprise to further government policy. The concept of bailout becomes very esoteric when the government is already an implicit guarantor of the debt.

That is not entirely correct. When Fannie and Freddie were allowed to become for profit entities, the promise was the government would not be on the hook because the market would enrich the institutions. Fannie and Freddie used their power and unique status to crush free market competitors and hinder the development of new free market competitors. Saving them means more of the same, unless some enlightened government leader can make them fair and conscientious institutions.


Sure the AIG vanilla insurance and leasing is sound. Unfortunately AIG is on the hook for hundreds of billions in credit default swaps. AIG is a firewall, its failure would trigger countless other banks to fail and the worldwide tsunami would be devastating.

As I say above, just as Toyota picked up the pieces from Chrysler, Ford and GM, so too would the healthy banks have picked up the pieces from the bad.


I do not work in the financial industry, but all of our lives would have been impacted for the worse if these entities had failed. The second great depression would be on your doorstep. Philisophical discussions aside, that is the economic reality.

Visit cities like Flint, Detroit, Buffalo, much of Cleveland. Visit the textile regions in the South East. Go to former steel and appliance manufacturing centers. Conditions there are as bad as anything (save perhaps the Dust Bowl - which had a natural disaster of epic proportions piled atop the economic disaster) in the 1930s. Arguably worse, as the breakdown of the extended family unit and community commadarie which in significant part was fueled by cheap detached housing and the rise of the tight nuclear family have left the people in these places without the support groups their great grand parents enjoyed in the '30s.

[Joellogicman]

It seems to me that lots of people have been saying that. Foreclosures don't do anyone involved any good. The lender would rather work something out with the borrower so they can recover SOMETHING and not be stuck with an empty house that they can't recover more than pennies on the dollar for. The borrower wants to stay in the house. And the community wants to the houses to be occupied so that property values and tax revenues don't tank. I think the lenders would like to be in a position to work with the borrowers, but they can't if they fail too. I don't know exactly how this will work, but I think the borrowers who lost it all should be entitled to the same benefit as the lenders. They were all working from the same crazy set of assumptions after all.

-Ray

Maybe things will change.

Currently, foreclosures are at an all time high in many jurisdictions through out the US. Add to that the number of financial institutions that are allowing underwater borrowers to walk away without legal proceedings and we are most likely in epidemic territory.

This epidemic has been brewing at least since late last year. While I agree there are some voices calling for help, there has been nothing even remotely close to the extraordinary actions taken by the government to help save the banks, insurance companies, and Wall Street.

[Joellogicman]

Its all one boat folks, like it or not.

-Ray

For the last 15 years or more, people in the rust belt have gone from a comfortable middle class existance to belt tightening, to living in double wides, then single wides, and now many even in tent cities springing up all over the countryside.

No one threw them life preservers. Now that the economic problems have finally caught up with the cul de sac and Mcmansion crowd suddenly we are all in one boat.

Maybe it is a good development. If so, and if I were one of the people who have been underwater for a long time, I would be justified asking what took everyone else so long to notice me.

[michael white]

For the last 15 years or more, people in the rust belt have gone from a comfortable middle class existance to belt tightening, to living in double wides, then single wides, and now many even in tent cities springing up all over the countryside.

No one threw them life preservers. Now that the economic problems have finally caught up with the cul de sac and Mcmansion crowd suddenly we are all in one boat.

Maybe it is a good development. If so, and if I were one of the people who have been underwater for a long time, I would be justified asking what took everyone else so long to notice me.

These are excellent points. We've been willing to overlook all this for decades, perhaps because we've been so fixated on federal catastrophes such as WMD; Guantanamo; Abu Ghraib; waterboarding; wiretapping; habeas corpus; "Osama bin Forgotten"; anti-Americanism; deficits; spending; Katrina; Rumsfeld; Cheney; Gonzales; Libby. Suddenly now we're willing to step in and do something? Suddenly now we're willing to talk about "change"?

[Ray]

For the last 15 years or more, people in the rust belt have gone from a comfortable middle class existance to belt tightening, to living in double wides, then single wides, and now many even in tent cities springing up all over the countryside.

No one threw them life preservers. Now that the economic problems have finally caught up with the cul de sac and Mcmansion crowd suddenly we are all in one boat.

Maybe it is a good development. If so, and if I were one of the people who have been underwater for a long time, I would be justified asking what took everyone else so long to notice me.
I agree that these folks should have been getting more of a helping hand right along. But I'm a liberal and we don't get much traction on this kind of stuff. When its help that mostly goes to "them" its too expensive. When its for 'us' too, sure its expensive, but its not as expensive as the alternative of doing nothing. I hope the Democrats in the negotiations this weekend get plenty of language in this bailout vehicle to help the borrowers as much as the lenders. I'm not holding my breath.

Late? To be sure. Better late than never? Yeah, I think so.

-Ray

[TMB]

Maybe things will change.

Currently, foreclosures are at an all time high in many jurisdictions through out the US. Add to that the number of financial institutions that are allowing underwater borrowers to walk away without legal proceedings and we are most likely in epidemic territory.

This epidemic has been brewing at least since late last year. While I agree there are some voices calling for help, there has been nothing even remotely close to the extraordinary actions taken by the government to help save the banks, insurance companies, and Wall Street.

The "epidemic" has been brewing for at least 5 years.

As long as cheap money kept inflating property values, nobody paid attention.

[cdimattio]

For the last 15 years or more, people in the rust belt have gone from a comfortable middle class existance to belt tightening, to living in double wides, then single wides, and now many even in tent cities springing up all over the countryside.

No one threw them life preservers. Now that the economic problems have finally caught up with the cul de sac and Mcmansion crowd suddenly we are all in one boat.

Maybe it is a good development. If so, and if I were one of the people who have been underwater for a long time, I would be justified asking what took everyone else so long to notice me.

Regional issues versus national issues. No class warfare.

We spend billions subsidizing agriculture in the US, yet it employs relatively few people at low pay scales. I have always thought the same funds devoted to support of manufacturing would have a greater collective benefit.

[michael white]

Regional issues versus national issues. No class warfare.

We spend billions subsidizing agriculture in the US, yet it employs relatively few people at low pay scales. I have always thought the same funds devoted to support of manufacturing would have a greater collective benefit.

so in other words, you agree; you think the government should have helped the US auto industry?

[Joellogicman]

The "epidemic" has been brewing for at least 5 years.

As long as cheap money kept inflating property values, nobody paid attention.

The symptoms, foreclosures, were not there. But the viral infection was already working its damage.

[keno]

I don't think that you do. The world debt derivative market is between $4-5 Trillion dollars. The entire world financial markets were at great risk because of the serial defaults calling for more capital world wide. This would drive the cost of debt to a level at which huge numbers of bankruptcies would be inevitable and ultimate consequences to world financial markets, the value of assets, and so on unknowable.

BTW, while discussing the cost to the taxpayers, what would you estimate the increase in personal, liquid (at least for the moment) wealth is by reason of the 7+% increase in the stock markets in since yesterday morning?

keno

[Joellogicman]

I don't think that you do. The world debt derivative market is between $4-5 Trillion dollars. The entire world financial markets were at great risk because of the serial defaults calling for more capital world wide. This would drive the cost of debt to a level at which huge numbers of bankruptcies would be inevitable and ultimate consequences to world financial markets, the value of assets, and so on unknowable.

Unsubstaniated claim but for the bail out the markets will fall. Since Adam Smith's Wealth of Nations, there has been a strong train of thought that markets left to their own devices will react the best. The bail out has brought some stability, obviously. The question is in the long run are we better for it or worse? Unless you have a great crystal ball, I do not see how you can answer that question.


BTW, while discussing the cost to the taxpayers, what would you estimate the increase in personal, liquid (at least for the moment) wealth is by reason of the 7+% increase in the stock markets in since yesterday morning?

keno

Like many tax payers I have mutual funds, a 401(k), a pension and other investments. Some are probably modestly higher. Short term, great. (and actually, not all that great when you think about it. Given my age, a lot of my investments were made when the market averages were well above what they are now even after the bounce.

We also have that little matter of the record federal deficit. Any hope of bringing it down or balancing it have been delayed at best with all the billions for the bail out. The deficit definitely skewers the economy, for better, more likely for worse. Add to the social security and medicaid fixes which will also have to be delayed, and you have a recipe for things continuing to at least stagnate if not get worse.

And, as I say above, we have centuries of economic thought which suggest the government bail out is not the best way to fix these things. If these thinkers are correct - and many of the band wagon people here curiously say they are when it comes to manufacturing - then the short term bounce is coming at the expense of long term benefit.

As I do not plan to retire any time soon, forgive if I care less about the little jump than in long term health of the market.

[keno]

I hope it's ok I address you short form. If not, dont' hesitate to let me know.

Insofar as the notion of markets fixing themselves is concerned, inasmuch as the markets are highly regulated at this point, perhaps incorrectly or inadequately in many respects, it is a bit like being a little bit pregnant. They are not free running, so yours is a moot point.

I am concerned about the worldwide aspects, and you have alluded to foreign problems. I can easily forsee that had a default of AIG been let to occur the consequences would be far, far greater than controlling it. I thought that the world would be brought to its knees, financially, running through all aspects of daily life.

Which claim is unsubstantiated?

Obviously, no one has a crystal ball. That's life. In the near term, I am a buyer.

keno

[Joellogicman]

I hope it's ok I address you short form. If not, dont' hesitate to let me know.

For curious aesthetic reasons, I tend to short shrift formalties far more than I ought to.

Insofar as the notion of markets fixing themselves is concerned, inasmuch as the markets are highly regulated at this point, perhaps incorrectly or inadequately in many respects, it is a bit like being a little bit pregnant. They are not free running, so yours is a moot point.

I do not disagree with you. I do find it curious which pregnancy we assist and which we allow to fail.

I am concerned about the worldwide aspects, and you have alluded to foreign problems. I can easily forsee that had a default of AIG been let to occur the consequences would be far, far greater than controlling it. I thought that the world would be brought to its knees, financially, running through all aspects of daily life.

Which claim is unsubstantiated?

Obviously, no one has a crystal ball. That's life. In the near term, I am a buyer.

keno

Probably the best thing that comes out of this is people are thinking about what is happening. We may disagree, but at least we are taking the time to ponder.

[myette10]

I've a question for the more informed persons on this thread. If the decisions we've made (collectively and individually) have been so bad for whatever reason that we deserve another great depression, why isn't getting one the best *long term* solution? By solution I don't mean bouncing my 401k for 3 years or keeping the gig going for another generation or two. What I'm suggesting is that punishing (for lack of a better word) the society that has exercised fiscal irresponsible at every level and challenging that society to rebuild its economic model may be best for long term survival. If we don't live with the consequences of our actions now, surely someone in the future will, right? with ever growing intensity?

Has our exponential rise in our SOL (std of living) over the past 100 years left us SOL?

[Joellogicman]

I've a question for the more informed persons on this thread. If the decisions we've made (collectively and individually) have been so bad for whatever reason that we deserve another great depression, why isn't getting one the best *long term* solution? By solution I don't mean bouncing my 401k for 3 years or keeping the gig going for another generation or two. What I'm suggesting is that punishing (for lack of a better word) the society that has exercised fiscal irresponsible at every level and challenging that society to rebuild its economic model may be best for long term survival. If we don't live with the consequences of our actions now, surely someone in the future will, right? with ever growing intensity?

Has our exponential rise in our SOL (std of living) over the past 100 years left us SOL?

economic historians who have argued convincingly that society coming out of recessions and depressions have gained more in the long term than lost. Off hand, I do not recall the authors (been out of college for a while now I guess!) but it makes for interesting reading if you are inclined to look it up.

Change is a very difficult thing for human's (or any sentient being for that matter) to grasp. Most of us are bright enough to know we cannot stop change. But we do try our best to slow it where we can.

Of course, it is easy for a historian 50 years after the fact to say things were not so bad after all. The people going through it all may beg to differ.

[keno]

Has our exponential rise in our SOL (std of living) over the past 100 years left us SOL?

No, it's the expectation that it would go on forever.

keno

[goonster]

Has our exponential rise in our SOL (std of living) over the past 100 years left us SOL?

We've done very well, but our standard of living has not risen "exponentially" over the past 100 years. At least, the exponent has not been constant, and during the early thirties it was less than 1.

Our energy use, on the other hand, has.

[cdimattio]

so in other words, you agree; you think the government should have helped the US auto industry?

I do not think the government should have helped the US auto industry.

I am speaking to efficiency, practicality, and greater good. Billions to support agriculture is a historical anachronism and evidence that government programs never die.

Lesser evils. If we are going to choose a business to subsidize, why is it agriculture? It makes more sense to subsidize something with significant value creation and employment characteristics. Autos or steel look better than agriculture in this light.

[myette10]

We've done very well, but our standard of living has not risen "exponentially" over the past 100 years. At least, the exponent has not been constant, and during the early thirties it was less than 1.

Our energy use, on the other hand, has.
I've got no stats on this one. I'm just figuring that the difference in Western society decade to decade has been pretty dramatic over the past 100 years. The way I figure it, life in 1800 wasn't much different than in 1810, and then not much different than in 1820 and so on through to 1900. Now consider the changes each decade in the last century, 1900-1910, 20-30, 30-40 etc. Again no figures, just those luxuries too which we've become accustomed to having and have grown to expect to improve our "quality" of life.

[cdimattio]

Unsubstaniated claim but for the bail out the markets will fall. Since Adam Smith's Wealth of Nations, there has been a strong train of thought that markets left to their own devices will react the best. The bail out has brought some stability, obviously. The question is in the long run are we better for it or worse?

Like many tax payers I have mutual funds, a 401(k), a pension and other investments. Some are probably modestly higher. Short term, great. (and actually, not all that great when you think about it. Given my age, a lot of my investments were made when the market averages were well above what they are now even after the bounce.

The serious issues of concern are completely unrelated to equity values. Vanishing liquidity and a crippled financial system will bankrupt many good businesses. Every business needs to borrow money.

The issues do not disappear with an AIG bailout. It is a soft landing versus hard landing discussion. The hard landing may seem more efficient to a dead economist, but I vote for a soft landing.

And at the risk of being redundant, there was no real decision with Fannie or Freddie. They were quasi government agencies and their debt had an implicit guarantee by the US Government. No monumental decision taken. The mistakes there leading to this outcome were made years ago.

[1centaur]

... not that I think much of that characterization:

The cavalier assumption that the remaining healthy banks would pick up the pieces almost certainly ignores the arithmetic. Those healthy institutions are not made of capital, they run Tier 1s close to the other guys', they're just in better shape overall. I have no reason to believe the interconnections between financial institutions would not have undercapitalized those good banks very quickly if Morgan, Goldman, Wachovia, AIG, Citi and who knows who else had gone into bankruptcy.

Secondly, when it comes to manufacturers vs. the financial system, we have proof to date that the country can do fine from the failure of the former even if many people do not. We have no such proof about the financial system other than our memory of the Depression, which was not fine. People were physically lining up at funds yesterday to empty money market accounts. Shades of 1928?

Third, in a world with growing population and industrialization, it would have been surprising if any economy had not bounced back better than ever after a depression. Of course, there was no control for what would have happened otherwise. Without reading the material, I am left skeptical of the insight offered by those economic historians.

Fourth, a national or even global depression would have major geopolitical consequences. That's a national security issue for us and a shaper of global power for generations to come. The failure of the US textile industry is not in the same ballpark.

Finally, while I (and others on my band wagon) have argued why this bailout makes more sense than a manufacturing bailout, you have suggested that the bads of a manufacturing failure are awful but a banking failure would just have resulted in the good banks cleaning up the mess. At the very least, you should argue that both are awful. My argument is that one's acceptable and one's not.

BTW, I hear the banks pressured government to save the autos with the $25B loan. They are highly exposed. So don't think policy is changing - the banking system is still driving the car.

[Ozz]

... ...BTW, I hear the banks pressured government to save the autos with the $25B loan. They are highly exposed. So don't think policy is changing - the banking system is still driving the car.

"Owe the bank money, and the bank owns you........Owe the bank A LOT of money, and you own the bank! ":rolleyes:

I heard that from one of my CRE lender friends this morning.....who was at work until 9:00 last night trying to sort out his small share of this mess.

:beer:

[Joellogicman]

...The cavalier assumption that the remaining healthy banks would pick up the pieces almost certainly ignores the arithmetic. Those healthy institutions are not made of capital, they run Tier 1s close to the other guys', they're just in better shape overall. I have no reason to believe the interconnections between financial institutions would not have undercapitalized those good banks very quickly if Morgan, Goldman, Wachovia, AIG, Citi and who knows who else had gone into bankruptcy.

I guess you are responding to me.

AIG was on the brink of Bk. Not sure why you think Wachovia, AIG or CITI are. CITI and Wachovia probably would not be buyers. Chase certainly would. European, Chinese, and Middle Eastern financial concerns have plenty of liquidity and could have filled the vacuum if need be. China alone is sitting on so nearly a trillion in US cash.

Secondly, when it comes to manufacturers vs. the financial system, we have proof to date that the country can do fine from the failure of the former even if many people do not. We have no such proof about the financial system other than our memory of the Depression, which was not fine. People were physically lining up at funds yesterday to empty money market accounts. Shades of 1928?

We have proof to date that some segments of the US economy can do fine when manufacturing fails. Other segments have employment levels and standards of living comparably worse than the average during the Great Depression.

Third, in a world with growing population and industrialization, it would have been surprising if any economy had not bounced back better than ever after a depression. Of course, there was no control for what would have happened otherwise. Without reading the material, I am left skeptical of the insight offered by those economic historians.

The argument in the books I referenced were institutional economic short comings would have continued to hinder economic advancement (some of the books also argue more complicated social changes as well) were it not for the shock of the depression.

Fourth, a national or even global depression would have major geopolitical consequences. That's a national security issue for us and a shaper of global power for generations to come. The failure of the US textile industry is not in the same ballpark.

The US sends billions more of its dollars over seas than it recovers from trade. The wild financial gyrations of today are unique historically precisely because there has never been such a cash imbalance between the major global consumer and the rest of the world. If US manufacturing had remained intact none of what is happening would have happened.

Finally, while I (and others on my band wagon) have argued why this bailout makes more sense than a manufacturing bailout, you have suggested that the bads of a manufacturing failure are awful but a banking failure would just have resulted in the good banks cleaning up the mess. At the very least, you should argue that both are awful. My argument is that one's acceptable and one's not.

I did not mean to say that there would be no economic or social fall out from a financial collapse. Rather, my point was the fall out would not have been any worse than that already experienced by that portion of the US society that depended upon manufacturing.

The US has allowed approximately 1/4 of its population fester in the wake of the manufacturing collapse for decades with almost nothing being done at a high level to stop it. Indeed, John McCain in a primary visit to Michigan told prospective voters they should not expect a bailout but with patience and hard work maybe could rise anew doing something different.

It is readily apparent the 3/4s of us in white collar work do not have anywhere near the patience or tolerance for pain the 1/4 of our blue collar workers have. We saw hard times a coming and demanded and got a dramatic response from the government.

While this is speculative and wholly my opinion, I believe the long term fall out from a financial collapse while harsh to the white collar workers would not be nearly as harsh or enduring as the manufacturing collapse has been to the blue collar workers.

Finally, I do not think a global financial collapse could possibly lead to any higher level of security problems than we currently face.

BTW, I hear the banks pressured government to save the autos with the $25B loan. They are highly exposed. So don't think policy is changing - the banking system is still driving the car.

That loan plan is being discussed but has not gone through. I would be surprised if the loan is made. If it is made, I would not be surprised to hear a whole lot more voices objecting to it than objected to the current bail outs.

[1centaur]

Wachovia was considered next to go by the hedgies; Morgan Stanley employees were aghast at the potential merger talk. Citi was viewed as strangely silent and in a nether world beyond MS, GS, and WB. This was accepted wisdom on Wall Street this week. GE Capital was also spoken of frequently as being an upcoming target. Only JPM and BA were viewed as essentially beyond reproach.

We would not allow foreign countries to dominate our banking system.

The proof to date is in national figures.

If manufacturing had stayed here our GDP would have been a lot lower, so maybe even fewer people would have bought houses. Otherwise, it was the financial innovations and global economic pie growing and investing internationally that got us here, in part.

Government sources are saying the $25B is a done deal; there's no serious opposition.

[Joellogicman]

Wachovia was considered next to go by the hedgies; Morgan Stanley employees were aghast at the potential merger talk. Citi was viewed as strangely silent and in a nether world beyond MS, GS, and WB. This was accepted wisdom on Wall Street this week. GE Capital was also spoken of frequently as being an upcoming target. Only JPM and BA were viewed as essentially beyond reproach.

Sorry, I thought your were referring to JP Morgan Chase in your original post. Still, merger is not the same as going to bk. Citi is not in a position to buy out its weaker competitors, that is a given. I doubt highly it was ever in risk of collapsing, bail out or no bail out.

We would not allow foreign countries to dominate our banking system.

The proof to date is in national figures.

If manufacturing had stayed here our GDP would have been a lot lower, so maybe even fewer people would have bought houses.

Quite clearly the US does not want to allow foreign countries to dominate its financial sector. I have not seen any convincing reason why this industry should be favored over so many others that have been allowed.

I do not fully follow your argument on manufacturing lowering GDP.

Best case scenario, the financial system bail out will allow the industry and regulators to catch their collective breath, update their process and regulatory oversight, and come out a better more profitable industry.

The cost to the nation as a whole is already somewhere between 500 billion and 1 trillion dollars. The US will set up a Resolution Trust Corp type company to slowly sell assets. If the RTC is used as an example, it is wishful thinking at best to hope this new company will return a profit. The RTC ultimately lost more than 100 billion dollars - and it was considered a success by nearly every one who wrote about it.

On the other hand, US manufacturing could have been rescued at a far lower cost. Temporary protective barriers, a couple tens of billions to modernize facilities, long term loans at cheap interest to fund pension schemes (which have the added benefit of taking blue collar workers off ssn and medicaid rolls).

I am not saying I am for it. Just that I wonder why finance was worthy of a yet unknown but enormously expensive bail out where no one looked to do a thing for US heavy industry.

Otherwise, it was the financial innovations and global economic pie growing and investing internationally that got us here, in part.

Got us to the brink of disaster and is costing us hundreds of billions if not a trillion dollars to fix. The long term effects of this cost to the US is a complete unknown. In less than a week the US has effectively doubled what was already a record deficit. We have yet to do a thing about social security and medicaid. I expect a lot of pain to come. The financial boom times may have been fun for some for a limited period of time. No one knows what the long term cost of trying to hold on to the status quo will be. For my part, I think it will be terribly if not unacceptably high.

Government sources are saying the $25B is a done deal; there's no serious opposition.

That thinking was before the US doubled its deficit. I would be surprised to see any further bail outs of any business before the new president and congress take office. By then the incredible cost of the bail out, coupled with an ever growing war bill - we may be out of Iraq soon, Afghanistan and Pakistan have no end in sight, North Korea looks to be entering yet another hostile stage as well, heaven knows what the US and Russia are heading toward - and, again, the social security and medicaid problems may make throwing 25 billion at US autos too much to spend.

[michael white]

an interesting, common sense response to the bailout:

http://money.cnn.com/2008/09/19/news/paulson.wrong.message.fortune/index.htm?postversion=2008091917