Observations: Hank Paulson On A Plane

At least we won't be reading any stories about Treasury Secretary Henry Paulson tooling around in a private jet.

I wish there was some terrific blogger-ish scoop I could share after spending five hours on a plane flying coast-to-coast with the man holding on to so much taxpayer cash to give away. Unfortunately, conversation, at least with any one outside of First Class, wasn't on Secretary Paulson's agenda last night. And logistics only made it worse.

Evidently Paulson was returning from a speech at the Reagan Library. Having been in LA at the LA Auto Show pre-show press event, I've some general pseudo-political vignettes I'll share if you're interested. For a few reasons, different observations I made while on the trip didn't give me a warm fuzzy about America just now. Sadly, it isn't only Obama voters that are so poorly informed. I'll get to that.

Many of us were already pensive while waiting to board the American Airlines flight. It was over-booked and they were looking for from 3 - 4 "volunteers" to take a bump for a $300 flight voucher, dinner and a flight eight hours later, arriving at Dulles at 6:30 AM the next day. But not "Hank."

The tall balding man and an associate scurried up from some unseen door at the last minute and slipped through the door, first to board and take their seat in First Class.

Boarding was rushed, the Captain constantly on the intercom urging us to take our seats as the peasant classes ogled Paulson while we made our way to the back of the plane, where we "belonged" - according to seat assignments, anyway. Paulson pretty much just looked forward into the back of the seat ahead of him. I imagine he is accustomed to flying anonymously up until the "bailout" news.

However, his presence was not lost on the chattering "tourist" class back where I was sitting.

"Man, I could use a few extra bucks at Christmas," chuckled one man. "Think I should go give it a shot?" He wasn't the only one to take a less than quiet shot, though I suspect people tend to keep their politics rather quiet when traveling. I took along Gingrich's "Real Change" for the way out and Ingraham's "Power To The People" for the way back and mostly kept the covers with the revealing pics on each book turned toward my body. It was a DC to LA trip, after all. And I wasn't up for much political discussion, until I found myself sitting next to an Orange County Republican.

The liberal indoctrination was free for one segment of the trip, courtesy of Disney-Pixar's WALL-E. Fat slovenly humans, a garbage strew earth, all brought together and healed by one newly formed green plant? Nah, no agenda there, right? Liberals shouldn't even bother writing political books. Sadly, the culture takes care of all the liberal indoctrination one might ever truly need to form such a view. And they grab them young through means far more seductive than our schools.

Paulson escaped the plane as efficiently as he got on when we landed and he, along with others in First Class I imagine, were being driven in from the remote terminal while the majority of us cooled our jets. One younger man groused, "Sure, no waiting for him." And uttered an expletive, perhaps undeserved.

But what stood in contrast the most to a man controlling hundreds of billions of taxpayer dollars at that moment of the over all trip was the extent of the homelessness problem in LA. I'm no rube and worked in Manhattan for years. I'm familiar with the prospect of the homeless and panhandlers roaming around. But that didn't prepare me for being approached by from 7 - 10 individuals outside my nice hotel in the space of a day and half during my time in downtown LA.

Still on East Coast time, I woke at 4 AM, went out front of the Sheraton for some air and the latest in a line of often glassy-eyed men and women asked me "for a few bucks." I gave away a few bucks while I was there. I often do as a personal, not a political choice. I realize no government program can mend any of those broken lives. And I stop short of lecturing them as to why they'd be better off at the Salvation Army - just two blocks away, in this case. Sometimes it just feels good to do ... well, let's say, "to help."

This time I didn't take my wallet when I went out and told the fellow so. "No problem," he said. "He'd wait." I asked him if he really thought I would, or should take the elevator up 12 floors so I could come back down and deliver him "some spare change." The thought didn't phase him at all, really. He was serious. He was having "hard times," he explained, though I hadn't asked.

Unfortunately, they got harder, as I didn't budge. Two hours later he and another fellow were actually working the lobby inside the Sheraton and made their rounds without once being approached by Hotel staff. Maybe it's just part of the local color when you visit downtown LA? I don't know. Again, I didn't ask.

And that also stood in contrast to two mid-level Big 3 automotive managers I happened to overhear while on my way back from the Convention Center where the auto show is being held.

To paraphrase: I don't know why they are waiting for 2010, or 11 to release, or debut this or that latest car, or technology, they conversed. Now if only the newspapers would stop making it sound like the end of the world.

Were these managers whistling in the dark? Out of the loop? I have no idea. But it certainly didn't jibe with some of the headlines I have been reading as to the expected fate of one of the Big Three.

But my most enjoyable, if also most disappointing story of all has to do with that Orange County Republican-type who still thinks History will be kinder to Bush, especially over Iraq, than current news would allow.

He was a good fellow with a beautiful family - his children a mix of Swedish and Oriental descent. He and his wife were both graduates of one of the Nation's top business schools some years ago. He helps run his family's manufacturing business with 100 or so employees - all squarely targeted by tax increases anticipated coming down the line. His wife was in the Fortune 500.

We talked about bailouts, Paulson, etc. Then out of curiosity I asked, "So, how do you think we got here, economically speaking?"

"I don't know," he said. "Greed, I guess. What else would compel bankers to lend so much money to people who couldn't pay it back?" he speculated.

Have you ever heard of the Community Reinvestment Act, of what went down with Fannie Mae and Freddie Mac, ultimately setting the stage for greed, too, to ultimately play a part?

"No, what?" he asked - a well thumbed copy of Smart Money sitting on the lowered tray in front of him. Internally, I was shaking my head.

I took him through the drill  - our government's role in setting the stage for the bankrupting of America, pointing to greed, the mortgage industry and Wall Street where there is enough blame to go around, as well. It bothered me to think that if an Orange County Republican voter doesn't understand what's been going on, the Right and Republicans really aren't getting out any counter-narrative to big business being the cause for our current national dilemma.

As an aside, he had no grasp of how government regulation and the UAW has negatively impacted the auto industry, either. It isn't only Obama voters who are woefully under-informed.

All in all I had a good trip for my particular purposes. Next week I'll be posting on the auto show, including pics - and a neat EcoDriving class I took and on a first-generation American Israeli I met who I promised some links to Rusty's site and others related to terrorism and the war. He races and has done some training for special forces-types when it comes to emergency driving for evasion and escape.

But if I look back on the majority of the encounters mentioned above as sort of a general survey of America right now, I'm sad to say the general impression wasn't very good. We on the Right and the Center-Right have a lot of work to do if we want to preserve the best of what has made America great in the past.

For now, I can't really think of a bad place to start.

Comments

[Barry]

Yep, I find the general public as clueless as the democratic morons. They have no idea why the big 3 are in trouble or why banking is in trouble. Hell will freeze over before the republicans attempt to explain it. Your "orange county" republican is a perfect example. A willing dupe.

[PA]

I've been eco-driving for years now, before it was ever called that. My Passat (2.0L Turbo, 170ish HP) routinely gets near 40mpg on the highway which vastly exceeds the EPA figures for that car. Locally, with stop lights and traffic 38mpg is easily attainable.

The other car, a Jetta diesel, get around 56mpg on the highway, and 45 around town.

I laugh at people who bought Priuses

[Todd]

Rather than argue with you on your oversimplified explanation of blaming everything on Fannie, Freddie and the CRA (which is code for blaming everything on the Democrats), I will just copy and paste from Barry Ritholtz's The Big Picture blog entry 10/8/08 in which Ritholtz, a constant contributor on CNBC and Bloomberg, concisely explains what brought us to this point :
http://bigpicture.typepad.com/comments/2008/10/index.html

Quote of the Day: Aggressive lending to 1st-time buyers
Wednesday, October 08, 2008 | 05:45 PM
in Credit | Real Estate | Really, really bad calls

From a speech back in 2004 comes this telling quote:
>

"One other thing I've done, is I've called on private sector mortgage banks and banks to be more aggressive about lending money to first-time home buyers. And the response has been really good. There's a lot of people in this -- our communities around the country that deeply care about the issue of homeownership, and they've been responsive."

- George W. Bush, U.S. President, March 26, 2004.

>

Its important to understand how this situation occurred in the first place, if we want to be able to fix it. Blaming the CRA and Fannie/Freddie is a total misunderstanding of how the problem occurred, and what we need to do to fix it now, and avoid doing it again in the future.

To repeat my prior arguments, the proximate cause of the Housing crisis were 1) Ultra-low rates; and 2) Abdication of traditional lending standards, thanks to 3) originators ability to resell mortgages for securitization purposes, and hence, 4) not have to worry about loan defaults.

The credit crisis was caused by 1) the above securitized mortgage paper, that was 2) rated triple AAA by Moody's and Standard & Poors, which then 3) Which was then "insured" by credit default swaps (CDS) -- the unreserved for, shadow insurance products 4) whose exemption was made possible by the Commodities Futures Modernization Act. That legislation exempted these derivatives from any supervision or regulation. The lack of reserve requirements is why there is now $62 trillion in CDS, many of which will never pay their counter parties the promised insurance.

If you are going to blame Fannie/Freddie/CRA, or George Bush or Barney Frank, you are missing the big picture.

[Todd]

And more from Ritholtz on October 7th on the CRA and why it's a bogus argument:

Subprime Suspects
Tuesday, October 07, 2008 | 09:37 PM
in Credit | Real Estate | Really, really bad calls | Taxes and Policy

Dan Gross gets medieval on the wingbut meme that Fannie Mae and the CRA was responsible for the housing and credit mess:

"We've now entered a new stage of the financial crisis: the ritual assigning of blame...On the Republican side of Congress, in the right-wing financial media (which is to say the financial media), and in certain parts of the op-ed-o-sphere, there's a consensus emerging that the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage giants, and the Community Reinvestment Act, a law passed during the Carter administration. The CRA, which was amended in the 1990s and this decade, requires banks—which had a long, distinguished history of not making loans to minorities—to make more efforts to do so. The thesis is laid out almost daily on The Wall Street Journal editorial page and in the National Review . . .

But none of these issues is the cause of the problem. Not by a long shot. From the beginning, subprime has been a symptom, not a cause. And the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd.

Here's why.

The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren't regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn't apply. There's much more. As Barry Ritholtz notes in this fine rant, the CRA didn't force mortgage companies to offer loans for no-money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on subprime debt."

Go read the entire piece . . .

[Dion]

PA:

What the hell is "eco-driving?" Whatever it is I'm sure it won't increase CO2 emissions, right? What, precisely, is the correlation between "global warming" and CO2? What about methane? Experts trotted out by NPR the other day say that methane is a worse problem. Who's the first to volunteer for an "eco-friendly" bowel movement?

What about climatic changes that occurred well before the industrial revolution? Dinosaur farts? Maybe they drove Hummers.

[Todd]

And then, Dan, you have this 10/3 Ritholtz blog entry about George W. Bush's SEC's 2004 decision to deregulate 5 investment banks so they could superleverage up into mortgage backed securities and other unregulated vehicles. Nothing to do with Fannie, Freddie or the CRA:

SEC Deregulation Let Banks Leverage Up
Friday, October 03, 2008 | 07:27 AM
in Bailouts | Corporate Management | Credit | Derivatives | Taxes and Policy

Nyt_100308_2 We've discussed this extensively over the past few weeks, but its now on the front page of the NYTimes:

"Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.

On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.

They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.

(emphasis added)

No wonder the bailout package is so poorly crafted: The same genius, Hank Paulson, that helped us to get into this, and has utterly failed to see this coming until it was all but on top of is, is trying to get us out. He is uniquely unqualified for this task. How this guy hasn't honorably fallen on his own sword yet is beyond me.

Here are a few money quotes from the article:

“We’ve said these are the big guys,” Mr. Goldschmid said, provoking nervous laughter, “but that means if anything goes wrong, it’s going to be an awfully big mess.”

“I’m very happy to support it,” said Commissioner Roel C. Campos, a former federal prosecutor and owner of a small radio broadcasting company from Houston, who then deadpanned: “And I keep my fingers crossed for the future.”

Now you know: Hoping and praying as a policy approach don't really work all that well . . .

>

[Todd]

And finally, ad nauseam, one last very long Barry Ritholtz diatribe about the misrepresentation of the fault of the CRA in today's financial crisis, as per blog entry of 10/2:

Misunderstanding Credit and Housing Crises: Blaming the CRA, GSEs
Thursday, October 02, 2008 | 07:00 AM
in Credit | Derivatives | Fixed Income/Interest Rates | Psychology/Sentiment | Real Estate | Taxes and Policy

"It's telling that, amid all the recent recriminations, even lenders have not fingered CRA. That's because CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn't make them lend. The profit motive did."

-Robert Gordon, American Prospect

>

>

I have been meaning to get back to this issue, but events in the market have kept me a tad busy.

Making the rounds amongst a certain subset of wingnuts on CNBC, at IBD and other selfconfoozled folks has been the meme that the entire housing and credit crisis traces to the the Community Reinvestment Act (CRA) of 1977. An alternative zombie myth is the credit crisis is due to Fannie Mae and Freddie Mac. A 1999 article from the New York Times about the GSE's role in subprime mortgages has been circulating as if its the rosetta stone of the credit crisis.

These memes have become a rallying cry -- cognitive dissonance writ large -- of those folks who have been pushing for greater and greater deregulation, and are now attempting to disown the results of their handiwork.

I feel compelled to set the record straight about this pseudo-intellectual detritus. As we have painstakingly discussed over the past few years, there were many direct and indirect causes of the current financial mess.

Let's clarify the causes of current circumstances. Ask yourself the following questions about the impact of the Community Reinvestment Act and/or the role of Fannie & Freddie:

• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?

• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?

• What about "No Money Down" Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?

• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?

• Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?

• Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?

• How exactly did legislation force Moody's, S&Ps and Fitch to rate junk paper as Triple AAA?

• What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment -- at the same time?

• Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn't have been: Titled How to Get an "Iffy" loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?)

Caseshillerpricedeclines_2

• The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ?

• Did the GSEs require banks to not check credit scores? Assets? Income?

• What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood

• What was it in the Act that forced banks to make "interest only" loans? Were "Neg Am loans" also part of the legislative requirements also?

• Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages -- was that a CRA requirement too, or just a grab for more market share, and bad banking?

The answer to all of the above questions is no, none, and nothing at all.

The CRA is not remotely one of the proximate causes of the current credit crunch, Housing collapse,and mortgage debacle. As I detailed in Barron's, there is plenty of things to be angry at D.C. about -- but this ain't one of them.

If you were to ask me to reveal the prime causative factor for the Housing boom, I would point you to Fed Chairman Greenspan taking rates to 1%, and then leaving them there for a year. The prime factor in the bust was nonfeasance on the Fed's part in supervising bank lending, allowing banks to give money to people who couldn't possibly pay it back.

The root legislative cause of the credit crisis was excessive deregulation. From exempting derivatives from regulation (2000 Commodities Futures Modernization Act) to failing to adequately oversee ratings agencies that slapped a triple AAA on junk paper, the pendulum swung too far away from reasonable oversight. By taking the refs off of the field and erroneously expecting market participants could self-regulate, the powers that be in DC gave the players on Wall Street enough rope to hang themselves with -- which they promptly did.

There are too many people who are trying to duck responsibility for the current mess, and seeking to place blame elsewhere. I find this to be terribly important, as we seek to repair the damage amidst an economic crisis. Rather than objectively evaluate the present crisis in an attempt to craft an appropriate response, the partisan hacks are trying to obscure the causes of the current situation. Like burglars trying to destroy the surveillance tape, they are all too aware of their role in the present debacle.

Shame on them for their foolishness or cowardice.

Whenever I see a CRA proponent blathering, I have a "Star Trek moment." That's when Captain Kirk proves to some random alien computer that its basic programming is logically inconsistent. It's the AI (artificial intelligence) version of cognitive dissonance. The computer, recognizing the fraud its entire existence was based upon, seeing the futility of its belief system, at least has the dignity to blow itself up. No such luck with the wingnuts, who merely move on to their next piece of spin . . .

Continue reading "Misunderstanding Credit and Housing Crises: Blaming the CRA, GSEs"

Thursday, October 02, 2008 | 07:00 AM | Permalink | Comments (127) | TrackBack (0)
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[Budahmon]

Todd,
It is a pretty shady rhetorical tool to state:

"4) whose exemption was made possible by the Commodities Futures Modernization Act. That legislation exempted these derivatives from any supervision or regulation."

This is a false and very misleading statement. These derivatives were not supervised nor regulated prior to the Commodities Futures Modernization Act nor were they after. CDSs were created by a Democrat, Blythe Masters, who worked for JP Morgan. Credit Default Swaps were created in 1995 as a way for banks to diffuse credit risk. The problem wasn't that CDSs were deregulated...the problem was that they were never regulated and the argument made by Alan Greenspan at the time was that banks would regulate themselves due to being risk averse. Both the Dems and Reps thought this was fine on the appropriate committees and the associated sub-committees.

The best analogy I know to describe these instruments is this way: Your neighbor down the street looks like he is of fine health and he very well maybe. You take out an insurance policy on his health with a third party. Then you do everything in your power to kill him and collect the insurance. Drexel Burnham Lambert in 1998 was the first company to succumb to this once they started experiencing liquidity issues, but they were soon forgotten in the hubbub of Wall Street.

...and you sir are blaming this on Bush and the Commodities Act. What a friggin idiot! If you wish to claim that they should have been regulated, in hind sight the Clinton Admin and the Senate should have regulated them through legislation. But to claim they were exempted by the Commodities Futures Modernization Act is a LIE!!!!! They were never regulated so how could you exempt them from legislation! If they were by law required to be regulated then that statement would be true, but they were not by law required to be regulated prior to the CFMA or after.

[Fred Beloit]

Todd, the fact that Fred/Fan didn't raise an alarm and instead told Barney Frank, in I believe 2003, that there was nothing risky going on with their activities (it is on video tape) means they were either stupid or complicit. And when Frank then said, "Then why are we here[having a meeting to determine whether Fred/Fan was doing something risky?]", he was also either a dupe or complicit. I say he was complicit. Why? Because he got a heck of a lot of money from them to cover up for Fred/Fan. Am I wrong?

[Fred Beloit]

A question for Ritholtz: Why did Fred/Fan give so much dough to Dodd, Frank, and Obama?"

While awaiting a non-answer, you may read some good news and some bad news. First, the bad news: Huffington is being financed to expand her web activities significantly. The good news: This will drive Kos up the wall.

[Fred Beloit]

Oops sorry
http://business.timesonline.co.uk/tol/business/movers_and_shakers/article5201252.ece

[Fred Beloit]

Here is another place to start the education of the populace. Global warming and global cooling are normal processes that are not caused by human activities and that are beyond human control.
Examples from Drudge:
"At least 200 narwhal whales in Canada's Arctic, trapped by winter ice and facing starvation or suffocation, must be culled, officials say.
Hunters from the village of Pond Inlet on Baffin Island discovered the animals trapped near Bylot Island, about 17 kilometres from Pond Inlet, on November 15."
http://news.smh.com.au/world/over-200-whales-trapped-in-canadian-ice-20081122-6eas.html
"Fresh arctic air will spread over the East today, leading to more lake-effect snow downwind of the Great Lakes. Record lows will be challenged across the South tonight.
A reinforcing shot of chilly air is pouring across the eastern half of the nation in the wake of a cold front. The cold will keep high temperatures below freezing over the interior Northeast and 10 to 20 degrees below normal across the South today."
http://www.accuweather.com/news-top-headline.asp?partner=accuweather&traveler=0&date=2008-11-21_07:51&month=11&year=2008

[Worst President Ever]

Arguing that loans to poor folks - that's what blaming the CRA boils down to - brought down all those financial geniuses at Lehman, Citi, Smith Barney, AIG, etc., etc., etc. is laughable on it's face. Too bad the facts don't back it up.

The real culprit was Republican's singular goal to gut government of all its regulatory power - yes, some moron Dems bought into the same BS - coupled with an administration so incompetent it couldn't tell its a** from a hole in the ground.

January 20, 2009 - America gets back on track.

[Lala]

Tim Blair has a good column on global warming in the Daily Telegraph -

excerpt

Except that even they are now changing their tone.

"Hollywood insiders and climate change experts agree that they can't shove messages about global warming down audiences' throats,'' read a troubling Associated Press report this week.

The item continued: ``Howard Frumkin, director of the National Center for Environmental Health at the Centers for Disease Control and Prevention, agreed that viewers are turned off by accusations and hectoring. He said dispensing incorrect information about climate change can also elicit depression.''

Incorrect information about cimate change? Why, I've never heard of such a thing.

More from the delightfully-named Frumkin: "One thing we've learned is that apocalyptic stories don't work very well.''

That would be almost every global warming story ever told, then. Still, at least we still have important opinion leaders fighting boldly to keep global warming in the headlines. Don't we? Don't we?

Actually, we don't, according to report this week from AFP: "Climate change is fading as a priority in the Pacific Rim as the gloomy state of the global economy takes precedence, a survey of opinion leaders showed Wednesday ...

http://www.news.com.au/dailytelegraph/story/0,22049,24685629-5001030,00.html

[Fred Beloit]

If insults and claims could win arguments, Worst really would be a president:
"You are wrong and I have proof. My proof is that what you say is laughable. Not only that. Here is more proof. The facts don't back up what you say. Yet still more proof. Bush/Repubs = incompetent fascists."
Very impressive, Worst.

[Fred Beloit]

Lala, you may be interested in this misuse of the Secret Service.
http://www.brutallyhonest.org/brutally_honest/2008/11/the-age-of-o-ppression.html

[Todd]

"Todd,
It is a pretty shady rhetorical tool to state:

"4) whose exemption was made possible by the Commodities Futures Modernization Act. That legislation exempted these derivatives from any supervision or regulation."

This is a false and very misleading statement. These derivatives were not supervised nor regulated prior to the Commodities Futures Modernization Act nor were they after. CDSs were created by a Democrat, Blythe Masters, who worked for JP Morgan. Credit Default Swaps were created in 1995 as a way for banks to diffuse credit risk. The problem wasn't that CDSs were deregulated...the problem was that they were never regulated and the argument made by Alan Greenspan at the time was that banks would regulate themselves due to being risk averse. Both the Dems and Reps thought this was fine on the appropriate committees and the associated sub-committees."
-----------
According to Wikipedia, CDS's were invented by Blythe Masters in 1997 (not 1995). It was with the passage of the CFMA in 2000 that allowed for the parabolic growth to $64 trillion. Prior to the CFMA, the issuance of CDS's was miniscule by comparison. The amount of CDS's in existence grew 1000% from 2003-2007. Alan Greenspan's confidence in the free market to self-regulate was entirely misplaced, something he recently admitted to in congressional testimony in what could be the understatement of the millenium. You can draw a straight line from the deregulating aspects of the CFMA and the explosion in CDS's, leading us to the massive economic dislocations today. And, you can count Alan Greenspan as being one of the most significant individuals to share in the blame for this mess.

http://en.wikipedia.org/wiki/Credit_default_swap

[Spartan112]

"his children a mix of Swedish and Oriental descent"

FYI Dan,
Rugs are "oriental", people are Asian.

[scarshapedstar]

Plants suck and obesity and garbage are awesome.

[Spartan112]

I've been eco-driving for years now, before it was ever called that. My Passat (2.0L Turbo, 170ish HP) routinely gets near 40mpg on the highway which vastly exceeds the EPA figures for that car. Locally, with stop lights and traffic 38mpg is easily attainable.

The other car, a Jetta diesel, get around 56mpg on the highway, and 45 around town.

I laugh at people who bought Priuses

Posted by: PA | Friday, November 21, 2008 at 09:06 PM

After having lived through the trauma of owning a VW I'd happily own a Prius (or any other toyota product).

[scarshapedstar]

Also, Toy Story was liberal filth as well; a community of toys (don't lesbians love 'toys'?) led by a flamboyantly gay Tyrannosaurus rex? A climactic moment consisting of "Woody the cowboy" (GAY?) humping an astronaut's back while shouting about "style"? The one patriotic American in the film, a young man with a healthy interest in guns and explosives, is portrayed as a dangerous misfit?

Hollyweird, your day of reckoning is nigh.

[Todd]

"...and you sir are blaming this on Bush and the Commodities Act. What a friggin idiot! If you wish to claim that they should have been regulated, in hind sight the Clinton Admin and the Senate should have regulated them through legislation. But to claim they were exempted by the Commodities Futures Modernization Act is a LIE!!!!! They were never regulated so how could you exempt them from legislation! If they were by law required to be regulated then that statement would be true, but they were not by law required to be regulated prior to the CFMA or after.

Posted by: Budahmon | Friday, November 21, 2008 at 11:17 PM"
------------------------------------
Why don't you argue your points without the name calling, Budahmon? Let's have a discussion on the facts and leave the vitriol aside.

Addressing what you write, I am not blaming Bush for the CFMA. As much as I want to blame Bush for virtually everything, I only want to hold people accountable for their direct actions and Bush had absolutely zero to do with the CFMA and he is blameless in this instance. People reading this blog, whether they are Republican, Democrat or Independent should be able to agree that the responsible parties need to be known by all. I have no problems blaming Barney Frank and Chris Dodd if they did play a direct part in blocking regulation of Fannie and Freddie, and they should be cast out of the Congress if it can be proved their decisions make them culpable. You on the right should have no problems blaming Republicans who are responsible. I just object when I see false or simplistic arguments put forth that blame only Democrats. Let's be fair in our criticism.

The primary scoundrel to take the blame for the passage of the CFMA is former Republican Senator from Texas, Phil Gramm. (Other sponsors of the bill who are responsible are Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA) Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) ). Bill Clinton is to be held accountable for signing the bill into law, and Robert Rubin is to be held accountable for supporting the legislation. Rubin was no longer at Treasury, at that time working for Citigroup but his opinion held sway, and is to be held responsible for blame.

The important thing to note about the passage of the Commodities Futures Modernization Act of 2000 is that Phil Gramm managed to attach the CFMA to an 11,000 page omnibus spending bill on the last day of a lame duck Congress ready to adjourn for the Christmas holidays and during the Clinton/Bush transition after the 2000 election (which does not excuse Bill Clinton for his negligence, although it's possible he didn't even know he was signing the CFMA into law as it was attached to the 11,000 page omnibus spending bill). The CFMA was never,ever debated on its own merits by neither the House or the Senate, which is astounding given the landmark nature of the bill !!!! The abdication of government during this period of time is mindboggling, and Phil Gramm knew exactly how to game the system. Phil Gramm enacted this legislation to enrich his friends and then to enrich himself shortly thereafter, going to work for UBS in 2002.

Here is a link to an article in the Texas Observer about Phil Gramm's role. I will post the aritcle in full in my next post for those who don't usually employ the links, so everyone can read for themselves what Phil Gramm did.

http://www.texasobserver.org/article.php?aid=2767

[Todd]

Here is the first half of the May, 2008 article in the Texas Observer about Phil Gramm's role in the deregulation process. Sorry about the length but it's important reading. It' the second half of the article that delves into the CFMA and the Enron Loophole pushed through by Phil Gramm and the role his wife played in that, too.
------------------------------------------------------------
http://www.texasobserver.org/article.php?aid=2767

The Texas Observer

John McCain's Gramm Gamble
The GOP presidential nominee is relying on the ex-senator who helped bring you the mortgage crisis and Rick Perry.
Patricia Kilday Hart | May 30, 2008

In the early evening of Friday, December 15, 2000, with Christmas break only hours away, the U.S. Senate rushed to pass an essential, 11,000-page government reauthorization bill. In what one legal textbook would later call “a stunning departure from normal legislative practice,” the Senate tacked on a complex, 262-page amendment at the urging of Texas Sen. Phil Gramm.

There was little debate on the floor. According to the Congressional Record, Gramm promised that the amendment—also known as the Commodity Futures Modernization Act—along with other landmark legislation he had authored, would usher in a new era for the U.S. financial services industry.

“The work of this Congress will be seen as a watershed where we turned away from an outmoded Depression-era approach to financial regulation and adopted a framework that will position our financial services industry to be world leaders into the new century,” Gramm said.

Watershed indeed. With the U.S. economy now battered by a tsunami of mortgage foreclosures, the $30-billion Bear Stearns Companies bailout and spiking food and energy prices, many congressional leaders and Wall Street analysts are questioning the wisdom of the radical deregulation launched by Gramm’s legislative package. Financial wizard Warren Buffett has labeled the risky new investment instruments Gramm unleashed “financial weapons of mass destruction.” They have fed the subprime mortgage crisis like an accelerant. While his distracted peers probably finalized their Christmas gift lists, Gramm created what Wall Street analysts now refer to as the “shadow banking system,” an industry that operates outside any government oversight, but, as witnessed by the Bear Stearns debacle, requiring rescue by taxpayers to avert a national economic catastrophe.

While the nation’s investment bankers are paying a heavy price for their unbridled greed (in billions of dollars of write-offs), Gramm has fared quite nicely. He currently serves as a vice president at UBS AG, a colossal, Swiss-owned investment bank, the post, no doubt, a thank you for assiduously looking out for Wall Street interests during his 23 years in public office. Now, with the aid of his longtime friend Arizona Sen. John McCain, Gramm may be looking at a quantum leap in power and influence.

Gramm serves as co-chair of the McCain 2008 presidential campaign. As one of the candidate’s chief economic advisers, he is mentioned as a possible secretary of the treasury in a McCain administration. Their friendship was forged in the Senate as they worked against the Clinton health care proposal, and cemented when McCain served as national chairman of Gramm’s own (ill-fated) 1996 presidential bid.

During McCain’s rocky road to the nomination, it was Gramm as much as anyone who helped smooth the way. Last July, when it looked as though McCain’s campaign would go bankrupt, Gramm, who once called money “the mother’s milk of politics,” advised him to slash his costs and assisted him with fundraising. Throughout the marathon primary season, Gramm has made numerous appearances with McCain and served as an ambassador to conservative groups. This spring, when conservative commentators attacked McCain as too liberal, McCain shored up his conservative bona fides by (according to The Huffington Post) bringing Gramm to a meeting with the editorial board of The Wall Street Journal.

But ask Gramm about his influence with McCain and it’s clear that the former senator has not lost his talent for political spin. “My position [with the campaign] is, I am the senator’s friend,” he aw-shuckses in a telephone interview. “It would be a mistake to call me an economic adviser.” Calling himself “a private citizen,” Gramm claims ignorance of McCain’s appearance two days earlier on Jon Stewart’s The Daily Show.

“I’m so out of it, I don’t even know who Jon Stewart is,” he says in his trademark Georgia drawl.

It’s hard to imagine that anyone remotely connected to politics is unaware of Stewart, but the remark fits well with the homespun persona that Gramm has carefully crafted for public consumption. Despite his false modesty, Phil Gramm remains a powerful force in Republican politics. Here in Texas, his many protégés—most notably Gov. Rick Perry, the beneficiary of a whopping $612,000 in campaign donations from Gramm’s Senate campaign reserves—give him significant reach in Lone Star public policy.

Gramm might be interested in downplaying his role with the McCain campaign because, while the alliance might help with conservatives, it’s at odds with the maverick image McCain has worked so hard to project. Gramm is more closely aligned with the kind of influence-peddling represented by the Keating Five scandal, in which McCain intervened with federal regulators on behalf of a campaign contributor with a failing savings and loan. The scandal shredded McCain’s reputation and convinced him of the efficacy of reform.

In Gramm, McCain has chosen for a campaign adviser a former senator who espouses free market, conservative principles, but whose actions in public office served wealthy contributors and even himself. Exhibit A: Gramm’s cozy Enron Corp. connections. Not only did CEO Ken Lay chair Gramm’s 1992 re-election campaign, but Gramm’s wife, Wendy, earned $50,000 a year as an Enron director from 1993 to 2001 (not counting perks that included stock options). Meanwhile Gramm pushed the company’s aggressive—and ultimately self-defeating—political agenda to escape government scrutiny.

That Gramm is now advising the Republican nominee for president on economic matters “shouldn’t give people a lot of comfort,” says University of Maryland law professor Michael Greenberger, a senior official at the Commodity Futures Trading Commission in the late 1990s. “Gramm has been a central player in two major economic crises—the credit crisis and the incredibly high price of energy. ... He’s got his fingerprints all over legislative efforts that led to this.”

Nonetheless, Gramm holds fast to his ideology. “I’ve never seen any evidence that opening up competition among banks and insurance companies in any way contributed to this,” he says with the patience of the college prof he once was. “You’ve got a lot of people trying to rewrite history. You’ve got people with an ax to grind. They always wanted more government regulation, and when you have a problem, they want the government to regulate more.”

His critics say that Gramm’s anti-regulatory rhetoric failed the bulk of his constituents—which included thousands of hapless Enron employees who lost their life savings—but lavishly rewarded a few wealthy pals, like Ken Lay. University of Texas economist James Galbraith says Gramm is “not against government at all. His career has been finding ways to make money for his friends. It’s a predator relationship. [Government] is his food supply.”
McCain & Gramm

When Gramm retired from the U.S. Senate in 2002, Texas Democrats celebrated that a powerful nemesis would no longer be a force on the national scene. Wrote Molly Ivins: “Gramm both looks like a snapping turtle and has the personality of one. When he ran for president in 1996 and finished fifth in Iowa, all the profiles written of him included the line ‘Even his friends don’t like him.’” She concluded: “We’ll sure miss that sweet style.” Clearly Molly’s jubilation was premature.

It’s easy to understand why Democrats were so eager to say goodbye to Gramm, who began his political career when he was elected to Congress in 1978 as a Democrat—and then quickly broke ranks with his party.

Gramm often jokes that he “didn’t go to Washington to be loved, and was not disappointed.” In his telling, his lack of popularity stemmed from his uncompromising stand on issues. Democrats who served with him, however, felt deeply betrayed by his actions as co-author of Ronald Reagan’s austere first budget.

Former House Speaker Jim Wright recalls in his memoir, Balance of Power, that he learned to his “chagrin and sorrow” that Reagan sought counsel from a fellow Democrat who “was the beneficiary of my help and recipient of my naïve faith. His name was Phil Gramm.”

In 1981, Gramm pleaded with fellow Texan Wright to help him win a seat on the powerful House Budget Committee, a privilege he had been denied by his Democratic peers, who found him unreliable. “Phil Gramm promised me ... that if he were favored by a Budget Committee assignment, he would make his arguments within the committee and then would close ranks and back whatever budget resolution the committee majority approved,” the former speaker wrote. “That sounded fair enough.” Later, Wright would be “flabbergasted” to learn that Gramm met clandestinely with Reagan budget guru David Stockman to strategize and defeat a Democratic budget plan. Reagan’s “Gramm-Latta” budget would prevail.

Having led the charge for a Republican president’s budget plan that, among many other things, drastically cut Social Security benefits, Gramm resigned in 1983 and forced an election for his House seat, which he won as a Republican. In a 1984 special election hastily called by then-Gov. Bill Clements, he waltzed to victory in the contest for longtime Republican John Tower’s seat in the U.S. Senate.

When his new party won control of the Senate, Gramm rose to chairman of the Senate Banking Committee, where he was able to put his anti-regulation views into law. The Gramm-Leach-Bliley Act of 1999 repealed laws put in place after the Great Depression setting up protective barriers between commercial banks, investment banking firms, and insurance companies.

Consumer groups strenuously opposed the landmark legislation. “It was strongly deregulatory and ... did not address safety and soundness,” says lobbyist Ed Mierzwinski of the public interest group U.S. PIRG.

But more powerful interests were pushing for the law, and they had a deadline. In 1998, Citicorp Inc. purchased Traveler’s Insurance Group. Under the old law, the new company had a two-year grace period to divest either its insurance or banking functions. Instead, it went to Washington, D.C., and got the law changed—with Gramm’s help.

“Some people jokingly refer to it as the Citigroup Relief Act,” says University of North Carolina law professor Lisa Broome. “Normally, they would have had to spin off their insurance activities.”

Another beneficiary: Gramm’s future employer, UBS, which was able to absorb the brokerage house Paine Webber. (As of March 31, UBS employees and company-related PACs have given the McCain campaign $82,865, according to the Center for Responsive Politics.)

Banks had been chipping away at the barriers through Federal Reserve rules for decades. But Gramm’s sweeping deregulation “stripped away restraint,” says Broome.

While Gramm denies any link between the current subprime mortgage crisis and his legislative efforts, Mierzwinski, Broome, and even some Wall Street analysts trace a direct connection.

Michael Panzner, a Wall Street veteran and author of Financial Armageddon, says the massive deregulation encouraged “aggressive, swashbuckling, high-risk practices that might have been frowned upon in the banking industry, but which were viewed as typical, say, on Wall Street.” Eventually, those practices “became the modus operandi throughout the financial services industry.”

Panzner also believes that Gramm-Leach-Bliley “may have even set the stage for both the collapse and the subsequent ‘rescue’ of Bear Stearns by the Federal Reserve.” The deregulated financial services industries were “encouraged to push the envelope in terms of risk-taking, and were not entirely dissuaded from thinking that the public purse would be available if things went horribly wrong.”

Still others blame Gramm’s Commodity Futures Modernization Act. Prior to its passage, they say, banks underwrote mortgages and were responsible for the risks involved. Now, through the use of credit default swaps—which in theory insure the banks against bad debts—those risks are passed along to insurance companies and other investors.

Maryland law professor Greenberger believes credit default swaps “were a key factor in encouraging lenders to feel they could make loans without knowing the risks or whether the loan would be paid back. The Commodity Futures Modernization Act freed them of federal oversight.”

Before passage of the modernization act, the Commodity Futures Trading Commission was attempting to regulate the swaps market through rule-making. The modernization act, Gramm noted in his remarks on the Senate floor, provided “legal certainty” for the growing swaps market. That was necessary, Greenberger says, because at the time, “banks were doing these trades in direct violation of federal law.”

Greenberger has also been critical of former Clinton Treasury Secretary Robert Rubin, who supported Gramm’s banking deregulation. But Greenberger insists that it was Gramm’s slick legislative move that prevented government regulators from halting the spread of the risky financial instruments.

“Without Phil Gramm adding that 262-page bill onto an 11,000 page appropriations bill in 2000, it never would have seen the light of day,” Greenberger says. “It was a lame duck Congress ... racing off to Christmas recess. It was not an orderly process.”

A more notorious feature of the modernization act was the “Enron loophole,” which allowed energy trading to escape federal oversight. It was Enron’s electronic trading that led to the California electricity crisis of 2000 and 2001, as well as Enron’s own demise.

The issue of regulating electronically traded energy futures had been a pitched battle at the Commodity Futures Trading Commission throughout the ’90s. One chairman advocated so passionately for deregulating energy futures that she persuaded her fellow commissioners to agree to a rule exempting them from oversight. Who was that? Wendy Gramm, the senator’s wife, who served on the commission from 1988 to 1993. Shortly after her resignation, she was welcomed onto the Enron board of directors, where she would ensconce herself on the happily deaf-blind-and-mute audit committee.

The exemption received broad criticism from an array of sources—including the President’s Working Group on Futures Markets, and then-chairman of the Federal Reserve, Alan Greenspan, who believed it contributed to market volatility.
Gov. Rick Perry

Efforts to reverse the policy became moot when Gramm’s amendment on that December evening gave the exemption the force of law—at a time when his wife served on the board of the one company that would ultimately most abuse it.

The impact of the “Enron loophole” has been enormous. Since its passage, the Senate Permanent Subcommittee on Investigations has concluded that the loophole contributed to inflated energy prices for American consumers. In 2006, its report found credible expert estimates that the loophole—by encouraging speculation—accounted for $20 of the price of a barrel of oil, then at $70. In 2007, the same committee blamed the loophole for excessive speculation by hedge fund Amaranth Advisors that led to the distortion of the natural gas market.

After Enron’s demise, Wendy Gramm ultimately participated in a $13-million settlement personally paid by Enron directors for insider trading, when they collectively sold some $276,000 worth of stock early in the company’s decline. Consumer advocacy group Public Citizen has reported that Enron paid Wendy Gramm between $915,000 and $1.85 million from 1993 to 2001 in salary, attendance fees, and stock options.

Last September, Michigan Democratic Sen. Carl Levin introduced legislation to close the loophole, citing two congressional reports blaming it for excessive speculation that has “unfairly increased the cost of energy in the United States.”

In announcing his legislation on the Senate floor, Levin noted that the Enron loophole was “inserted at the last minute, without any opportunity for debate, into commodity legislation that was attached to an omnibus appropriations bill ... in the waning hours of the 106th Congress.

“The loophole has helped foster the explosive growth of trading on unregulated electronic energy exchanges,” Levin said. “It also rendered the U.S. energy markets more vulnerable to price manipulation and excessive speculation with resulting price distortions.”

Asked about Levin’s legislation, Phil Gramm expresses ignorance. “I don’t know what provision in the law he’s talking about.”

Gramm apparently has long been touchy about the subject. When Enron collapsed, law professor Greenberger remarked to an interviewer that “all that [unregulated electronic energy trading] was made permissible by Gramm.” A few days later, the phone rang.

“He called me up at my home to tell me I was wrong,” Greenberger says. “I was sitting in my study preparing for classes. He started arguing with me that I was wrong. I said, if you insist on believing that, then you don’t know what your own legislation did. I had to terminate the call because he would have kept me on the phone forever.”

Similarly, Gramm today denies any linkage between the subprime crisis and his deregulatory legislation. “I wouldn’t blame [swaps] for the problem. You could make the argument that without them, things would have been worse,” he says. Congress should “look at the lessons of the subprime problem and learn what we can learn—loan generators and how they are compensated, what banks ought to be required to find to lend a variable rate,” he says. “I’d be open to look at those things.”

Says Greenberger, “I am quite confident Phil Gramm didn’t understand what his legislation did. It was written by the banks and hedge funds.”

Increasingly, many Wall Street titans agree that Gramm’s efforts should be reversed. In May, Richard C. Griffin, founder of the $20 billion hedge fund Citadel Investment Group, told The New York Times that “fixing” Wall Street would require more regulation.

“Investment banks should either choose to be regulated as banks or should arrange to conduct their affairs to not require the stopgap support of the Federal Reserve,” Griffin said. He also told the Times he sees a need for “new government oversight of the arcane world of credit default swaps, a business with a notional value and risk of $50 trillion.”

Said the Times: “It was the interlocking relationships between thousands of investors and banks over credit default swaps that pushed the Fed to help rescue Bear Stearns.”

Gramm isn’t one to engage in mea culpas, regardless of the evidence against him. Take for example, his reaction when California was plunged into an energy crisis in 2001 by Enron traders manipulating the energy markets. Mimi Swartz recounts in her book, Power Failure, that Gramm exploded to the Los Angeles Times: “As [Californians] suffer the consequences of their own feckless policies, political leaders in California blame the power companies, deregulation and everyone but themselves, the inevitable call is now being heard for a federal bailout. I intend to do everything in my power to require those who valued environmental extremism and interstate protectionism more than common sense and market freedom to solve their electricity crisis without short circuiting taxpayers in other states.”

Greenberger predicts that the fallout from Gramm’s legislation will continue to grow, with capital drying up for all kinds of borrowing, including student loans. Meanwhile, Wall Street firms have begun considering a voluntary clearinghouse system for swaps and derivatives, an acknowledgement, Greenberger says, that some sort of policing is lacking.

Ironically, one of the big losers in the subprime mortgage crisis has been UBS, Gramm’s new employer, which has announced losses of $19 billion and acknowledged that number could grow.

Gramm was recently quoted in The Washington Post as saying he was unaware that the company had invested in subprime mortgage instruments. “That’s like Claude Rains [in Casablanca] saying he was ‘shocked, shocked’ to find out gambling was occurring in his establishment,” says UT’s Galbraith.

[Todd]

"Todd, the fact that Fred/Fan didn't raise an alarm and instead told Barney Frank, in I believe 2003, that there was nothing risky going on with their activities (it is on video tape) means they were either stupid or complicit. And when Frank then said, "Then why are we here[having a meeting to determine whether Fred/Fan was doing something risky?]", he was also either a dupe or complicit. I say he was complicit. Why? Because he got a heck of a lot of money from them to cover up for Fred/Fan. Am I wrong?

Posted by: Fred Beloit | Saturday, November 22, 2008 at 10:19 AM"
------------------------
You could very well be right, Fred. There's no doubt in my mind that the managements at Freddie and Fannie were massively corrupt and greedy. They should all rot in jail and be stripped of all their assets as far as I'm concerned. They are financial terrorists to me. Millions of people's lives and futures lay in ruins due to their actions. Link me to an article that gives a full account of what Frank did (and Dodd). I don't want anyone who holds blame in this debacle to remain in the US government. It's absurd that any of these scoundrels should stay in any position of power if they are responsible.

[templar knight]

Wow, Todd, quite impressive. I didn't know you had it in you. And I feel exactly the same way you do, every SOB who had a part in this mess should have to pay, either literally or figuratively. I'm afraid there is WAY more than enough blame to go around, and that we will find the culprits inhabiting both sides of the isle.

I do think it unlikely that the perpetuators will be punished in a meaningful way, but ascertaining who is at fault is the first step. Good luck. And keep it non-partisan. That will give you and others a chance...a small chance...of making the bastards pay.

[Fred Beloit]

Glad to try to oblige, Todd:
Exhibit A: How Frank's "mind" works:
http://www.youtube.com/watch?v=u1Mazjm_A5k

Frank and Schumer defend Fred/Fan status quo against additional regulation.
http://www.youtube.com/watch?v=9HQWk1Wp3L4

Repubs call for more regulations. Dems say none needed and toss in the race card for good measure (a "lynching" of Frank "What me worry?" Raines?)
http://www.youtube.com/watch?v=hN31-nKndg8

Liquid gold spodie-odie, pass that bottle around:
Top ten recipients of Fannie Mae ‘contributions’

"In 1996, Fannie Mae expanded the Fannie Mae Foundation enormously, turning it into a slush fund for left-wing causes and left-wing politicians. The Foundation has already given away over ½ billion dollars, promoting left-wing causes and buying influence. Here are some of the top beneficiaries among politicians:
1. Dodd, Christopher J
Senate D-CT $133,900
2. Kerry, John
Senate D-MA $111,000
3. Obama, Barack
Senate D-IL $105,849
4. Clinton, Hillary
Senate D-NY $75,550"
http://www.abelard.org/economics/fannie_mae_freddie_mac2.php

[Kevin]

The L.A. homelessness problem isn't what you think. The city police are enjoined from interfering with panhandling, sidewalk sleeping, etc, in the downtown area. Further, the run-down SRO hotels in the area have been protected from redevelopment for decades. OTOH, another group is spending gobs of cash to redevelop there. Constant battle between "evil and greedy" builders and militant co-dependents.

Most of us avoid downtown like the plague. Move a little ways from your nice hotel and you get open crack use, circa 6th and San Pedro St.

But elsewhere in the city it really isn't like that.

[bgates]

Dan, have you ever considered a word limit on comments? Or at least a plagiarism limit?

[Tom Perkins]

Todd, inconveniently for your proposition, Bush and McCain both attempted to introduce sanity--contrary to the CRA and the Democrat--into the subprime mortgage practices of the late boom. Democrats halted them at every turn.

The CRA and the Democrats are responsible for this housing bust because they were the bleeding edge of the stupidity. When the CRA resulted in an unqualified person getting a loan, then every one else with better but still poor credit insisted--fairly???--on getting at least as good a deal.

And by the late '90's, what the CRA was was the government demanding that unqualified people got loans, whether or not they could pay them back.

Yours, Tom Perkins

[mark c]

I wonder if alot of this sloppy loan making was the result of knowing that Fannie and Freddie were going to buy these POS loans immediately after origination. I am dumbfounded that a mortgage broker has zero skin in the game when it comes to loan performance. What a mess.

[PJ]

I live in LA, and we all know that downtown is turned over to the "homeless" (really, addicts and criminals) from Friday at 5 p.m. to Monday at 8 a.m. They congregate there because, as one stated in an LAT articles, that's where all the food and services are. They can then get what they need for free and save their General Relief money for drugs. It's not an economic problem, it's a values problem.

And if you think it's bad there, do not go to San Francisco.

[PJ]

I live in LA, and we all know that downtown is turned over to the "homeless" (really, addicts and criminals) from Friday at 5 p.m. to Monday at 8 a.m. They congregate there because, as one stated in an LAT articles, that's where all the food and services are. They can then get what they need for free and save their General Relief money for drugs. It's not an economic problem, it's a values problem.

And if you think it's bad there, do not go to San Francisco.

[Todd]

Todd, inconveniently for your proposition, Bush and McCain both attempted to introduce sanity--contrary to the CRA and the Democrat--into the subprime mortgage practices of the late boom. Democrats halted them at every turn.

"The CRA and the Democrats are responsible for this housing bust because they were the bleeding edge of the stupidity. When the CRA resulted in an unqualified person getting a loan, then every one else with better but still poor credit insisted--fairly???--on getting at least as good a deal.

And by the late '90's, what the CRA was was the government demanding that unqualified people got loans, whether or not they could pay them back.

Yours, Tom Perkins

Posted by: Tom Perkins | Sunday, November 23, 2008 at 10:37 AM"
-----------------------------
You misunderstand my point, Tom. What I am saying is that there are a lot of bad players here, Republicans and Democrats. I want them all to pay for what they did. I am NOT defending any bad players on the Democratic side. My links to many articles on this thread is because Dan blamed everything on Fannie, Freddie and the CRA, which is code for blaming the Democrats. I reject that entirely and had to post links to Barry Ritholtz's blog, where all the facts are concisely laid out.

And, Tom, please post links to support your statements about the Democrats and the CRA's responsibility. I am eager to read anything you provide that is fact-based, and not strictly opinion-based.

One final thought. The total of subprime loans outstanding in 2007 was $1.3 trillion. The total of Credit Default Swaps is $64 trillion. That statistic alone shows how the deregulation and proliferation of financial derivatives is the primary threat to our financial system.

http://tequila.wikinvest.com/concept/2008_Financial_Crisis

[boqueronman]

From "worsttrollever"'s earlier comment: "Republican's singular goal to gut government of all its regulatory power." Where is your evidence for this? I just read a recent study of presidential administrations rated by increases in staff and budgets at USG regulatory agencies. (Sorry, I do not have the citations.) Guess who was the President for 2 of the four administrations with the largest overall increases during the past 50 years? You guessed it - GWB! No, anyone who thinks there is a dime's worth of difference between our "opposing" political parties is nothing but a willing dupe (or dope). Politics is like any other business. It's primordial drive is to grow and expand, this means acquiring ever increasing amounts of campaign cash by whatever means necessary to deceive voters and gin up more tax funded targeted "programs" to retain old and add new voters, along, of course, with regulatory and tax penalties to slam your perceived or actual political enemies.

And what does the vast amount of tax money sucked out of the economy by the 536 mandarins in Washington and their state and local assistants? Well, so far, approximately $40 trillion in personal, corporate and government debt + another $50 trillion or so in unfunded entitlement liabilities (thru 2050) promised by the USG + let's say another $10 trillion in state and local debt unaccounted for here and you have $100 trillion in actual and future debt to be paid by those who do not leave this veil of tears within the next few years. That, by the way in approximately $330,000 in debt owed by every man, woman and child in the U.S. Gang that is real money, and we're wasting our time pointing our fingers at GWB or Barney Frank, or Alan Greenspan? Puhleeze! This globalized house of cards is headed for one humongous crash real soon. And we're counting on the empty suit Obama to fix everything and make it nice again. Oh, my sides are aching from the laughter.

[Todd]

"I wonder if alot of this sloppy loan making was the result of knowing that Fannie and Freddie were going to buy these POS loans immediately after origination. I am dumbfounded that a mortgage broker has zero skin in the game when it comes to loan performance. What a mess.

Posted by: mark c | Sunday, November 23, 2008 at 11:25 AM"
----------------------------
Mark, Barry Ritholtz sheds some light on that with his post from 10/23. Money quote: "It was the lenders themselves who were pressing the GSEs to buy these loans. The private sector lenders were pursuing this market due to fatter potential profits -- not Fannie and Freddie."

The full post: http://bigpicture.typepad.com/comments/2008/10/private-sector.html#comments

Private Sector Loan Losses vs Fannie/Freddie
Thursday, October 23, 2008 | 09:00 AM
in Credit | Derivatives | Legal | Real Estate

Joe Kernan on CNBC continues to get this not just a little bit wrong, but terribly, horribly, mind numbingly wrong.

His favorite NYT article comes form 1999 (he referenced it again this morning). This piece has become a right wing meme: Fannie Mae Eases Credit To Aid Mortgage Lending. The article discusses a 24 bank, 15 market pilot program -- teeny tiny in the overall total mortgage market -- as if its the Rosetta stone of Housing/Credit crisis.

The article states that "banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans." It was the lenders themselves who were pressing the GSEs to buy these loans. The private sector lenders were pursuing this market due to fatter potential profits -- not Fannie and Freddie.

These facts don't stop the pundits; nor does an apparent lack of understanding of the actual causes of the housing boom/bust and the credit crisis. Their cognitive dissonance has also prevented them from acknowledging the role deregulation had in these events.

Some people actually look at the data, while others foolishly parrot talking points. Consider this Federal Reserve Board data, compiled by McClathcy. It shows that:

* More than 84% of the subprime mortgages in 2006 were issued by private lending institutions.
* Private firms made nearly 83% of the subprime loans to low- and moderate-income borrowers that year.
* Only one of the top 25 subprime lenders in 2006 was directly subject to the CRA;
* Only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.
* Mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.

The "Blame Fannie/Freddie/CRA" crowd, do provide a service: I know anyone who repeats this meme is an empty headed parrot, a mindless drone without an ability to think. This is a huge timesaver, as it has allowed me to dismiss many of the ditto heads I might have otherwise wasted time on.

So whoever came up with this silly talking point, despite your lack of concern for facts and your attempts at muddying the waters -- thanks! You've saved me an enormous amount of time in identifying people not to bother reading, and to ignore.

Hat tip Econbrowser

Source:
Private sector loans, not Fannie or Freddie, triggered crisis
David Goldstein and Kevin G. Hall |
McClatchy Newspapers October 12, 2008
http://www.mcclatchydc.com/251/story/53802.html

Thursday, October 23, 2008 | 09:00 AM | Permalink | Comments (73)
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[TomT]

A few points.

The other side admits that Freddie and Fannie were at least a symptom of this financial mess. How do you diagnose a problem without looking at its symptoms?
The problem with liberals is they look at Fannie/Freddie as a static model instead of a dynamic model. Any meaningful oversight over Fannie/Freddie would had sent ripples throughout the banking industry and reduced exposure for all of us. If the Republicans were successful in reigning in these institutions in 2004/2005, this crisis could have been avoided. Tell me, what doctor would you go back to:
The one who recognizes your symptoms and tries to do something about it or the doctor who, not only doesn't do anything about it, but does so for political and financial gain? You can disagree with the Fannie/Freddie spin, but I don't care what regulatory functions you have in place, if the politicians are corrupt, what good are the regulations.

Blaming Gramm for the CFMA is being intellectually dishonest. I think it passed the Senate by a 97-0 margin and was signed by President Clinton. There was no meaningful opposition to the bill. If there was, it probably wouldn't have been passed. Gramm just authored a bill that everyone else wanted. Unlike the blocking of the Freddie/Fannie oversight, Gramm most likely thought he was doing what was best for the country.

As far as citing Bush's comment from 2004, yes I agree with you. Did you ever hear of compassionate conservatism? Citing liberal ideas to justify your cause, doesn't make a whole lot of sense. Let’s face it, you guys believe that health care, jobs, housing, and any other human need is a right. I am willing to stand with you and oppose these destructive ideas now that you have seen how disastrous they have been. Somehow I don't think you have learned your lesson.

As far as regulation, see my prior point. What good is regulation when you have corrupt regulators? Why do you want to give more power to corrupt people? At least be honest and demand the heads of the perps. Like I have always said, it is not your ideas that scare me, it your tactics and lack of principle.

[Todd]

"Blaming Gramm for the CFMA is being intellectually dishonest. I think it passed the Senate by a 97-0 margin and was signed by President Clinton. There was no meaningful opposition to the bill. If there was, it probably wouldn't have been passed. Gramm just authored a bill that everyone else wanted. Unlike the blocking of the Freddie/Fannie oversight, Gramm most likely thought he was doing what was best for the country."
Posted by: TomT | Sunday, November 23, 2008 at 12:52 PM
------------------------
It's not intellectually dishonest whatsoever, Tom. Phil Gramm attached the CFMA to the omnibus spending bill on the last day of a lame duck congress just before the Christmas break. There was no debate in the Senate and there was no debate in the House. The fact that the omnibus spending bill passed 97-0 reflects either the ignorance that the CFMA was even attached, or it's potential ramifications.

I would not blame Phil Gramm if his bill was passed on it's own, unattached to another major bill, and had been fully debated on it's merits by both the House and the Senate during a regular session of Congress, and not during a rushed lame duck session. Do you think the CFMA should have become law without a full airing in Congress of what that deregulation could lead to in worst case scenarios, Tom?

Your points regarding the regulation of Fannie and Freddie does nothing to address the lack of regulation on the primary lenders, the vast majority of whom were not under the jurisdiction of the CRA.

I have no idea what this statement means: "The problem with liberals is they look at Fannie/Freddie as a static model instead of a dynamic model."....so I can't rebut that.

"As far as citing Bush's comment from 2004, yes I agree with you. Did you ever hear of compassionate conservatism?"
Yes, I have. And I'm still wondering what it means. If it means encouraging lenders to lend without adhering to any standards, I'm against it.

"As far as regulation, see my prior point. What good is regulation when you have corrupt regulators? Why do you want to give more power to corrupt people? At least be honest and demand the heads of the perps. Like I have always said, it is not your ideas that scare me, it your tactics and lack of principle." That's exactly what I want - the heads of the perps, Republican, Democrat, CEO of a GSE, greedy corporate executives etc etc etc. Make them pay !

[Seerak]

The argument attempting to exonerate the CRA, including Todd's posted version, always seems to amount to declaring that since the CRA was not the dominant force driving the subprime implosion **once it got going**, it is therefore not to blame for the problem.

That's the equivalent of saying: since a fuse does not have enough energy in it to blow up a building, it cannot possibly have caused the explosion.

The CRA was a fuse to the bomb. The bomb itself was the inflationary effects of Alan Greenspan's easy credit. When cheap money enters the market, it seeks out the sectors offering a profitable return. In 2002, that was real estate. Of course, there are only so many prime borrowers around, so when that market got saturated, that capital flooded the subprime sector. By then, the pressure was no longer coming from the CRA, but from the money flooding the market.

If the CRA had not existed and the real estate market not unusually hot in 2002, that excess credit would have bubbled up some other market... or diffused evenly across the economy, resulting in a bump in the inflation rate. That being said, I believe that there were sufficient other government interferences in the real estate markets, particularly land use and supply restrictions (such as height limits, zoning, and land locked up in BLM coffers) to create spikes in certain markets, such as California... the CRA was not the *only* fuse.

[scarshapedstar]

"Todd, inconveniently for your proposition, Bush and McCain both attempted to introduce sanity--contrary to the CRA and the Democrat--into the subprime mortgage practices of the late boom. Democrats halted them at every turn.

The CRA and the Democrats are responsible for this housing bust because they were the bleeding edge of the stupidity. When the CRA resulted in an unqualified person getting a loan, then every one else with better but still poor credit insisted--fairly???--on getting at least as good a deal.

And by the late '90's, what the CRA was was the government demanding that unqualified people got loans, whether or not they could pay them back.

Yours, Tom Perkins"

So what you're saying is that the world's largest economy was brought down by poor people. Christ, you're stupid. Fannie and Freddie were divesting themselves of subprime loans well before the crash.

No, what happened was that shadow banks bought up their mortgages from Fannie and Freddie, who were happy to get rid of them. At that point, the shadow banks began lumping together these mortgages into one big cash flow which couldn't possibly run dry, or so they said. Lots of people invested in these CDOs, and in turn, the shadow banks bought more mortgages, and as long as home prices kept rising, the actual mortgagees could afford to make payments. When that stopped happening, though, the cash flow started to dry up. Unfortunately, hedge funds, municipal funds, you name it...everyone was counting on those mortgage payments to funnel through the CDOs. Meanwhile, the shadow banks had "insured" their CDOs with credit default swaps for which they paid fractions of pennies on the dollar. (If you're wondering how you insure something for such a tiny fraction of its value, you're clearly not a big fancy financier and should shut your pie hole. If you're wondering how anyone can possibly even afford to insure trillions of dollars worth of investments, you are quite frankly a traitor.) So did other people. Hell, some speculators even took out CDS's on the CDS's. And when things got worse, you could even conceivably repackage your CDS's into a CDO.

To recap, mind you, we're getting up to $60 trillion plus of notional value here, backed by $1 trillion or so of mortgages, most of which aren't even "subprime". This giant house of cards couldn't possibly stand, and yet you're blaming the very bottom row. One wonders if you just have an ax to grind.