Today at 1:51pm
There is plenty of blame to go around on this one. No doubt, your friend believes that bankers deserve a great deal of the blame for the situation.
And no doubt he's right.
Bankers made the mistake of believing that the housing market would continue to rise no matter what. And in so doing, they made loans that they shouldn't have, trusting in the rising real estate market to cover their losses. They figured that if they got, say 80% of the value of the house in a foreclosure action, that would be just fine if the house was worth twice what it was when they made the loan.
But the government also contributed to the market by distorting the price of real estate with their policies. Including the CRA. Once the CRA was enacted and then deregulated in the 1990s, the price of real estate became detached from inflation. Previously, real estate prices moved with inflation. But when the government made home ownership more "affordable" by forcing banks to make loans that were not up to standards, more people came into the home ownership market. This increase in demand increased prices. But that increase could not go on forever.
So the article, I believe is right.
And your friend is right too, to the extent that he concedes that the government interference in real estate (and the exploitation of that interference by race hustlers) caused the problem.
So, this is one huge poop sandwich. And a whole lot of people are going to have to take a bite.
All the best, Ari
Today at 1:48pm
The bankers were individually motivated by short term profits. Their individual risk was balanced by keeping their jobs in a brutal industry, but were ultimately focused on the today; their actions were part of a collective chain of short term, systemicly isolated incentives, that added up to no one caring what happened to anyone else, once their job was accomplished, and anyone in a position of responsibility hoping the blow up would not get back to to them too soon. I know some of these guys, and NOTHING in this situation today is a surprise. That is not to say they know how this turns out.
The issue that is not being discussed anywhere is that the collaterized debt was actually a hustle against foreign investors, who wanted to keep propping up the dollar by buying dollars, but were not satisfied with the lower interest rates in treasuries. There was an unsatiable appetite for these bonds, and the capital was there looming over wall street, eager to buy ALL the mortgages we could write. Greenspan wanted to keep the enonomy growing (house building has a huge ripple effect), and the idea of putting foreign investors FURTHER on the hook for the future of the American economy was not too bad, and so he blessed the whole racket. (Greenspan was also an ideologue in all this; suspending reason to make a philosophical point about the nature of reality. Oops, I guess he was living in a bubble-world that was possible as long as he stayed in the regulatory sandbox.)
The real problem, and the real reason for the bailout is that the foreigners have the USA over a barrel and have insisted that they will not be ripped off. If the US fails to honor those obligations, the dollar spicket is turned off, and the USA will suffer under interest rates we have not seen since Carter. France would see us hang in the wind; Britain would have as back as vassels. The high interest senario may be the option that holders of dollars prefer, however disruptive that may become for them, and we may have no choice in the matter, when they stop buying treasuries that are financing our deficit budgets.
The question may be as simple as: How odious have Republicans made is in the international communion. To much of the rest of the world, WE are the bankers that need to be blamed.
But the government also contributed to the market by distorting the price of real estate with their policies. Including the CRA.
The issue of distorted realty actually goes back to incentives created after world war two. It served a useful social purpose then, and then conservative republicans (of the neo-liberal, Jack Kemp/Reagan sorts) became enamored of the idea of an ownership society (variously described). For instance, Kemp wanted to sell the housing projects to poor people. Same (republican) idea. Add the fact of the need for a bubble, any bubble to keep the economy going, and Republicans in total control of the house, senate, white house AND courts, and you have the mess we are in. While Gingrich doesn't take the credit today, he was very important in pushing the idea that if everyone owned a piece of the economy (stocks/homes), everyone would become "more Republican" and conservative, and that Republican Epoch idea caught on, and then you saw a coalition of Republicans along with minority advocates (who can blame them, but it was NOT possible to move this with out Republicans). Pressing together for home ownership made the Republican plan easier, but minority support was not essential.
The same idea was behind the push recently to privatize social security: make more Republican/Conservatives by folk who are newly, fully invested in the welfare of business, realty, stocks, bonds, etc. It was a dumb idea, and even dumber to push for every American to home ownership WITHOUT commensurate regs to protect neophytes and people newly emerging from the economic shadows... Republicans are trying to spread the blame now, and it works as a rhetorical device (Andrew!), but it is a lie. Basically, Republicans pushed expanded homeownership as a gold coast expansion of markets, but in a very evil way allowed for the easy rip off of nephytes. Shameful that Republicans would not take more responsibility.
Today at 1:51pm
Dear Friends,
On Wednesday, September 17, Senator Barack Obama participated in a historic national conference call with over 900 Rabbis representing all the major denominations in American Jewish life. He extended to the Rabbis his personal New Year's greetings as they prepare to celebrate Rosh Hashanah with their communities later this month. Never before have so many of America’s Rabbis come together to hear a major Presidential nominee reflect on his relationship with the Jewish community and share his vision for a better future.
Senator Obama discussed the pressing issues at stake – for both Jewish Americans and all Americans – in the upcoming election. He asked that, as we think about the coming New Year, we also reflect upon our common vision for America's renewed promise.
Several leading Rabbis spoke and posed questions to the Senator, including Rabbi Jeffrey Wohlberg, of the Rabbinical Assembly of Conservative Judaism; Rabbi Tzvi Hersh Weinreb of the Orthodox Union; Rabbi Eric Yoffie of the Union of Reform Judaism; and Rabbi Dan Ehrenkrantz of the Reconstructionist Rabbinical College. Introducing Senator Obama were Rabbi Sam Gordon of Congregation Sukkat Shalom in Wilmette, Illinois, and Rabbi Elliot Dorff, Vice-Chair of the Conservative Movement’s Committee on Jewish Law and Standards and Professor at the American Jewish University in Los Angeles, California. Rabbi Gordon, along with Rabbi Steve Bob, is co-founder of Rabbis for Obama, a grass roots group of nearly 500 Rabbis from every corner of the country, who have publicly declared their support for Senator Barack Obama to be the next President of the United States.
In his opening remarks, the Senator thanked all of those who joined the call and shared his thoughts on the nature of Rosh Hashanah.
“I know that for rabbis this is the busiest time of the year as you prepare for the High Holy Days. So I am grateful for a few minutes of your time. I extend my New Years greetings to you and to your congregations and communities. I want to wish everybody a Shana Tovah and I hope that you will convey my wishes to all of those you pray and celebrate with this Rosh Hashanah. The Jewish New Year is unlike the new years of any other cultures. In part because it's not simply a time for revelry; it's a time for what might be called determined rejoicing. A time to put your affairs with other people in order so you can honestly turn to God. A time to recommit to the serious work of Tikkun Olam-of mending the world.”
The Senator’s remarks included a discussion of key policy issues on the minds of many voters in the Jewish community this election season. From the economy to health care, foreign policy to support for America’s seniors, Senator Obama shared his view of where we stand and how to move America forward to repair this country and the world.
“We have a severe financial crisis in this country that is having an impact worldwide. We also have an economy that, even before the problems on Wall Street, has been putting families and communities across the country under enormous strain. People are working harder for less; we have had 600,000 people lose their jobs since the beginning of the year; we are seeing wages and income flat for the average American at a time when the cost of everything from health care to college education are skyrocketing. Bin Laden is still on the loose; Iran is issuing vile threats against Israel and developing nuclear weapons. So it’s a challenging time. Our security is at risk; the security of Israel is at risk and even the planet is in peril.
“…Repairing all of that is a task that is beyond any one man or one woman. It can be daunting and I do not presume that I can, as President, repair all of this on my own. I am absolutely convinced that when we come together with determination we can make the situation better. I know that one of the most profound Jewish teachings is that you are not required to complete the task but neither are you free to desist from it. That, I think, is what we have to do: we have to begin the hard task of repairing our economy and our foreign policy and that is, in my mind, what this election is all about.”
Senator Obama also reiterated his “unwavering” support for the State of Israel and the deep ties between our country and Israel. Promising to restore America’s role as an “effective partner,” the Senator repeated his call for active engagement in the peace process and a strong stance against Iran’s nuclear ambitions.
“I think that it's also important to recognize that through out my career in the State Legislature and now in the U.S. Senate I have been a stalwart friend of Israel. On every single issue related to Israel's security, I have been unwavering, and will continue to be unwavering. My belief is that Israel's security is sacrosanct and we have to ensure that as the sole democracy in the Middle East, one of our greatest allies in the world, one that shares a special relationship with us and shares our values, we have to make sure that they have the support – whether it’s financial or military – to sustain their security [amid] the hostile environment. And its also important that we are an effective partner with them in pursuing the possibilities of peace in the future, and that requires not only active engagement and negotiations that may take place with Palestinians, but it also requires that we stand tough and with great clarity when it comes to Iran and the unacceptability of them possessing nuclear weapons.”
Concluding the call with a reflection on one of the Rosh Hashanah’s most significant rituals, Senator Obama expressed a deep sense of hope and optimism for the future. “I know that the Shofar is going to be blown in your synagogues over Rosh Hashanah, and there are many interpretations of its significance. One that I have heard, that resonates with me, is rousing us from our slumber so that we recognize our responsibilities and repent for our misdeeds and set out on a better path. The people in every community across this land [who] join our campaign, I like to think that they are sounding that Shofar to rouse this nation out of its slumber and to compel us to confront our challenges and ensure a better path. It's a call to action. So as this New Year dawns, I am optimistic about our ability to overcome the challenges we face and the opportunity that we can bring the change we need not only to our nation but also to the world.” In the spirit of the echoing shofar, the call to action Senator Obama describes, we encourage you to forward this recap of his conference call with America’s Rabbis, to your congregation’s Rabbi, your friends, family, colleagues, community lay leaders, and fellow-congregants.
May the New Year be filled with health, hope, and happiness.
Today at 3:55pm
I agree with your friend that the incentives in the banking and lending industries were completely messed up.
Although I believe that the democrats were MORE at fault than the republicans, I do not believe that reubicans including Kemp and Reagan get off scot free on this one.
The point is that market forces were distorted by government action. The laws of economics do not care about the party affiliation of the lawmaker that made a bad policy decision. And having the government get involved in the economy is more often than not a bad decision. Extreme examples of the government failing in the department of economics is, of course, communist countries, which uniformly fail economically.
But lesser involvement of governments can also have a terrible effect. Think about the government involvement in he economy after the 1929 crash. Both Hoover and Roosevelt made the economy worse by playing with it. The economy didn't recover until the war. Examples of governmental mishandling of the economy are too numerous to name.
Your friend is right that after market trading of mortgage backed securities distorted the market. Surely, by spreading out the risk, the market was distorted. But that's not the end of the story. Not by a long shot.
The question your friend does not answer is this: How much less would those mortgage backed securities have been worth if the buyers thought the government would never do a buyout? He made a very revealing comment when he said that the market for these securities involved people who didn't want just treasuries. They wanted something that carried a bit more risk and a bit more reward. But if you're marketing those securities to those who would otherwise buy treasuries, then you're putting at least some of the faith and credit of the US Government behind that security.
And here we see governmental interference in markets rearing its ugly head again.
If the market believes that the government will bail out the lending market, the risk of the securities dependent on that bailout promise goes down. But the potential reward remains.
If I invited you to a trip to Vegas. And I told you that no matter what you lose, I would refund your money. Trust me, you would play in a much more unrestrained way than if I didn't make such a promise.
And that summarizes what the banks did. They responded rationally to poorly designed incentives. Incentives designed by the government. The CRA, was one of these market distorting factors. It encouraged bad loans. And the government's implicit promise that it would back up those loans also hurt.
I don't disagree with your friend, except that he still doesn't seem willing to concede that a major part of this problem was due to the government.
Today at 6:18pm
This meltdown has nothing to do with too much government interference, or market distortions, it has to do with a lack of oversight, or regulation.
Conservative orthodox rhetoric has, since Reagan been all about de-regulation. While there was some legitamate frustration by businesses toward regulation, the problem was vastly overstated, and Republican used it to appear magically well-informed about economic issues in the rhetorical debates that ensued.
The real idea was that we could mint a whole bunch of millionaires, and instead of perfecting transfers schemes that were already under way, we could instead turn everyone into budding millionaires, if only the government let a few stallions run free to show the rest of us how it is done; and, if you put the burden on each to make their own way in the world, and not depend on mama; and, get government out of the way of private enterprise (crowding out business).
The barely discernable economics undergirding these notions had to do with economic efficiency, or the optimal allocation of scarce resources being determined by market forces. So, instead of growing the overall economy by 3.2%, a more efficient allocation would grow the economy by 3.4%.
The only problem is that ours is not an resource efficiency problem, it is a systems collapse precipitated by a complete lack of responsiblity by the central banking system and the federal government (run by Reps, last time I checked). The net result of our deregulation is that, as a system, we efficiently allocated dollars into a toxic bubble, all too well.
So, instead of, say, tweaking criminal laws to proscribe selling mortgages to people who could not afford them, we are now witnessing the whole system collapse instead. Why ? Because the conservative movement is living in an ideological bubble, and can't concieve they have their head up their .... They couldn't be talked to, because they thought if they had enough power, they could overcome the pesky details that liberals kept raising as objections.
So the ditto heads ran like stallions (rhetorically) against regulation, as if deregulation were a magical economic principle that would cure all economic ills, and hoards of ditto-heads lined up to chime in Amen. Republican shills, con men and hacks who got to play congressmen, and cribbed policy their choices from guys with the barest understanding of what they were pontificating about, still now stand up like adults and take responsibility. They are like the dead-enders in Hitler's bunker, crazily and idiotically pointing their fingers at the people who are trying their best to fix the bloody mess they caused.
If any one thing needs to be understood it is that conservatives cannot be trusted to manage the economy, because at those levels of responsibility the artificial props are gone that create the safe sand box that conservatives need to be able to strut around acting like masters of the universe. (Bush has seen a slightly different flavor of this reality in international affairs, environmental science, fiscal policy, etc.) Too bad we all had to be dragged into this disasterous excersize in conservative's characteristic miss-management.
You don't have to believe me, but the judgement will be made when we compare where we are under Republican's sophmore economics, against the reasoned policies of Europe and most of the rest of the developing world.
If we are adult about this, we will eventually have to confront the charge that our economic policies were idiotic, pathetic, and promolgated by knuckle headed Republicans who dutifully parroted a party line they could barely understand, in order to accomplish a little personal social climbing. Pitiful.
On the other hand, I commend the Republicans who got themselves and their families a lifetime pension and health benefits, but they should consider that the only honorable this is to turn their ill-gotten gains to the poor, for their moral depravity of leaving political power with the country on its back.
Today at 6:32pm
Okay. Then we've clarified where we disagree.If your friend believes in a managed economy, I doubt there's any more I can say that will be persuasive.
Andrew B. NoselliToday at 6:39pm
I found this exercise instructive and very entertaining !
Thank you for participating.
