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A completely open, free and unregulated market is the last place any of these people want to do business. In an open market the risk is too high and the profit too hard to get. The best situation is a regulated monopoly (pre TVA AEP system) where you control the information provided to the regulators.
That has to be one of the more flagrant non sequiturs I've seen posted this week, at least with respect to one specific set of statements that I take issue with. For purposes here, I am not objecting to many aspects of your comment. However, how you manage to hop, skip, and make the thousand mile jump between the premise "big companies have gotten handouts in the past," to the conclusion that these companies would "not exist," if not for that subsidization, simply boggles imagination. You used Cray as an example, but you seem to be hinting that this is to be taken as a universal principal that should apply broadly.
The only reasonable conclusion one comes to by recognizing that large corporations are in fact subsidized far more ways than is commonly recognized (and they are), is that absent those subsidization the landscape and history of the company would not be what it was if not for the subsidization, and on average would likely be a much smaller company (heavy emphasis on "much") if not for being propped up.
That, however, is entirely different from deducing that business would simply "not exist." Even if we accept that you are merely taking liberty with hyperbole by understating the size of the companies so as to reinforce the point that we should recognize that many of these companies would be much smaller if not for subsidization, that's still a pretty big stretch from not recognizing that some companies would still be reasonably big entities, relatively speaking. All of these companies would not somehow be reduced to a feeble mom and pop shop, absent subsidization.
However, how you manage to hop, skip, and make the thousand mile jump between the premise "big companies have gotten handouts in the past," to the conclusion that these companies would "not exist," if not for that subsidization, simply boggles imagination. You used Cray as an example, but you seem to be hinting that this is to be taken as a universal principal that should apply broadly. . . . That, however, is entirely different from deducing that business would simply "not exist." Even if we accept that you are merely taking liberty with hyperbole by understating the size of the companies so as to reinforce the point that we should recognize that many of these companies would be much smaller if not for subsidization, that's still a pretty big stretch from not recognizing that some companies would still be reasonably big entities, relatively speaking. All of these companies would not somehow be reduced to a feeble mom and pop shop, absent subsidization.
Yes, I used Cray Inc. as an example and I still don't think they're the only ones benefiting from the government. Not by a long shot. Perhaps I erred in intimating that the Cray example indicated a "universal principal" that should be applied across the board IN THE MOST ABSOLUTE SENSE. Fair enough. Indeed, I should've been more clear when I said that a number of companies would "not exist," were it not for this lapdog government. (After "not exist," I should’ve added "in the viable sense.") Yes, some companies would survive, but how viable would they be without corporate welfare, subsidies, AND the government CONSTANTLY coming to their rescue? I still would contend that many would FAIL outright, and the remaining ones would hardly resemble the powerful titans they remain to this day, were it not for THE GOVERNMENT CONSTANTLY COMING TO THEIR RESCUE. This whole scam of the last twenty-five years represents the biggest transfer of wealth ever witnessed -- completely facilitated with the aid of the government to the detriment of the public, which it's supposed to serve. The government instead served the banking interests, which corroborates my original thesis statement of the government always being involved. In the case of the last twenty-five years, it was the WRONG type of involvement i.e. corporate welfare (rescues and bailouts without oversight, legislation benefiting the bankers, liquidity injections, etc.).
Last edited by grindlemeister; 12-10-2011 at 06:18 AM..
Yes, I used Cray Inc. as an example and I still don't think they're the only ones benefiting from the government. Not by a long shot. Perhaps I erred in intimating that the Cray example indicated a "universal principal" that should be applied across the board IN THE MOST ABSOLUTE SENSE. Fair enough. Indeed, I should've been more clear when I said that a number of companies would "not exist," were it not for this lapdog government. (After "not exist," I should’ve added "in the viable sense.") Yes, some companies would survive, but how viable would they be without corporate welfare, subsidies, AND the government CONSTANTLY coming to their rescue? I still would contend that many would FAIL outright, and the remaining ones would hardly resemble the powerful titans they remain to this day, were it not for THE GOVERNMENT CONSTANTLY COMING TO THEIR RESCUE. This whole scam of the last twenty-five years represents the biggest transfer of wealth ever witnessed -- completely facilitated with the aid of the government to the detriment of the public, which it's supposed to serve. The government instead served the banking interests, which corroborates my original thesis statement of the government always being involved. In the case of the last twenty-five years, it was the WRONG type of involvement i.e. corporate welfare (rescues and bailouts without oversight, legislation benefiting the bankers, liquidity injections, etc.).
But what I cannot seem to impress upon you was that this entire problem was the result of government involvement in the first place. Seriously. If the government hadn't begun getting involved in the mortgage biz in the mid-90s there wouldn't have been a bubble to start with, and there wouldn't have been a need to bail out anyone.
But what I cannot seem to impress upon you was that this entire problem was the result of government involvement in the first place. Seriously. If the government hadn't begun getting involved in the mortgage biz in the mid-90s there wouldn't have been a bubble to start with, and there wouldn't have been a need to bail out anyone.
Again, when did I say the government wasn't involved? My original thesis statement said that the government is ALWAYS INVOLVED in the marketplace. HOW it's involved is the only thing that changes. Sometimes government involvement is in the form of regulation(s). But at other times, it involves massive bailouts (without adequate oversight, might I add) when the big boys of finance get into trouble after having a big party at the casino i.e. post 1990s Wall Street. So, even if the government steps back, as far as regulations are concerned and allows the market to "regulate" itself, sooner or later, the government (i.e. the American taxpayer) comes to the rescue via SECRET bailouts. So, I ask you this: When is the government NOT involved in the marketplace? How can we have a truly laissez-faire system? That was the whole point of my original post. The way I see it, the government is always involved, one way or another. To quote Elizabeth Warren (Special Advisor for the Consumer Financial Protection Bureau): "You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for."
What I can't impress upon my critics is the fact that the subprime mortgages, as bad as they were by themselves, wouldn't have caused a mess this big -- not even close. It was the layers of leveraging and speculation, courtesy of Wall Street and a government paid for by the financial sector (lobbying), that let it happen. Of course, the subprime loans shouldn't have happened in the first place; and if the government played a significant role in it, I wholeheartedly condemn it. But here's the bigger transgression: The government shouldn't have allowed the financial sector to become so powerful, through legislation like the Gramm–Leach–Bliley Act, which set the stage for massive speculation (this would be the kind of government involvement that I, personally, don't like). The financial sector lobbied furiously to get that act passed. And it became law, thereby removing the wall separating commercial banking from riskier investment banking. Despite the fact that those mortgages shouldn't have happened to begin with, there's the BIGGER sin of using risky home loans as collateral for speculation on Wall Street GONE MAD. And without the aforementioned act, which effectively repealed important provisions in Glass-Steagall (the older law of regulation, which is an example of government involvement that I DO like), risky assets would not have been put up as collateral. To reiterate, I'm here to say that the BIGGER disease was the layers of leveraging, betting and borrowing added on top of the bogus mortgages -- courtesy of Wall Street and a government that was in its back pocket -- that was the primary cause of this mess.
Again, my thesis statement acknowledged that government is always involved in the marketplace. Even in the case of 1990s deregulation (e.g., Gramm–Leach–Bliley Act), the government was involved. The financial-sector-friendly attitude of our public officials, during those years, was obviously influenced by lobbying (i.e. bribes) from the financial sector. They chose to side with Wall Street instead of Main Street. So, no thanks to the WRONG TYPE OF GOVERNMENT INVOLVEMENT (in the form of irresponsible legislation), the risks were placed on the shoulders of the public. And, moreover, the public dime came to the rescue (but unfortunately, without attaching proper government oversight to accompany such bailouts) when those financial sorcerers got into trouble by evoking nefarious forces at the altar of Wall Street (again, this is the type of government involvement that I don't like).
But of course, the profits were privatized. A lot of money was made at the expense of the taxpayer.
Actually, I agree with you when you say, "this entire problem was the result of government involvement in the first place." But I recognize that the layers of leveraging, betting and speculation put on top of those bogus mortgages (due to bad legislation involving DEREGULATION) were even worse than the bogus mortgages themselves, which seems to be your primary focus.
Last edited by grindlemeister; 12-12-2011 at 05:36 AM..
We have always had, from the earliest government sponsored canal companies, and still have, considering the financial bailouts and credit sponsored wars, the best government money could buy and have the middle class sent the bill. Without tax funded bailouts the financial and investment sectors would have collapsed and without military spending the remains of our industrial economy would be gone.
We need a reversal of our system so there is Capitalism for the very wealthy and government support for the less well off. We should have tariffs to level the international playing field so Chinese slave labor does not compete with our workers and an end of government bailouts for Wall Street speculators.
Most of us may not see the “invisible hand” but we have felt its middle digit where it hurts. In our wallets, real estate values and bank accounts.
But what I cannot seem to impress upon you was that this entire problem was the result of government involvement in the first place. Seriously. If the government hadn't begun getting involved in the mortgage biz in the mid-90s there wouldn't have been a bubble to start with, and there wouldn't have been a need to bail out anyone.
Your thesis in this post and throughout the thread is one of distortion, misrepresentation, and falsehood. It is a repackaging of entirely invented arguments designed to shift blame for the Great Recession off of the actual right-wing culprits and onto whomever or whatever else is available, all the better if they might be Democrats.
To start from your own beginning, CRA played no role in bringing about the credit crisis at all. What it required was that consistent with safe and sound operation (those words are from the Act itself), banks and S&L's that took federal deposit insurance had to make -- not loans -- but merely serious efforts to meet the credit needs of the communities they took deposits from. No more sucking up all the savings in urban low- and moderate-income neighborhoods and simply using the proceeds to build gated golf-course communities out in the suburbs. Such had been the law for decades, but it was ignored. What changed under Clinton was that a satisfactory CRA review was made a factor in federal approval of requests for acquisitions and participation in newly available interstate banking opportunities. That got people's attention, and as they began at last to seek out business in these local LMI communities, thet were shocked to discover that nearly half their new customers were qualifying at prime terms and nealry all the rest at Alt-A, the level just below prime. The credit needs of these borrowers had always existed of course, but with doors closed at conventional lenders, they had been forced into the arms of extortionist pay-day lender types over at the finance companies. Getting a prime or Alt-A CRA mortgage was putting extra money in the pockets of LMI borrowers, money they used to buy new cars, fix the roof, maybe add a garden or a flower box or two. Property values in CRA-served neighborhoods rose. Outside investment in local infrastructure increased. And the portfolio of CRA loans written into the late 90's performed better than industry averages. CRA, it turned out, was both good policy and good business.
The GSE's had meanwhile existed for decades as well. Their principal role was to provide a means by which conforming loans -- i.e., those that met a set of established terms and standards, could be sold by lenders in order to recapitalize themselves and obtain funds to lend to other customers. To recapitalize themselves, the GSE's sold loans -- individually at first, then in packages -- to institutional investors after setting or withholding current and future reserves against potential defaults. There is nothing suspect or evil about any of this process. It is little different from deciding after winning $250K in the lottery whether to take the winnings as a drawn-out annuity or as a discounted lump-sum payment.
Markets other than those provided by the GSE's existed for jumbo and other non-conforming loans, but the GSE's in the early 2000's represented about 70% of the market. Bear Stearns was a part of that other 30% called "private label" shops in 1997 when they purchased, packaged, and sold CRA loans for the first time.
Exactly NO contradictions arose from any of this. There is no pride to be taken in sitting on the sidelines because your funds are all tied up in 30-year notes when such instruments can easily be sold to investors to provide you with the cash to lend at a profit to borrowers who have needs today, not three decades from today. That's simply bad business. There was no Alice in Wonderland world of social engineering rules placed on anyone. Initial CRA compliance reviews were cumbersome on all sides and were quickly streamlined, ultimately replaced in most cases by recognition of actual lending as proof that serious effort had been made. There was no pressure put on anyone by the Fed to increase the use of exotic high-cost loan terms. Indeed, the Fed was supposed to act to police and prevent such abuses, but in the process of making the biggest mistake of his life, Greenspan never quite got around to that. Laissez-faire. Markets are wise enough to regulate themselves (LOL!!!).
But what I cannot seem to impress upon you was that this entire problem was the result of government involvement in the first place. Seriously. If the government hadn't begun getting involved in the mortgage biz in the mid-90s there wouldn't have been a bubble to start with, and there wouldn't have been a need to bail out anyone.
There is no such thing as a definable "common sense" component of home prices. This is an appeal to subjectivity in the absence of any objective standard to raise. Home prices are agreed to one-at-a-time, typically between two individuals -- a willing buyer and a willing seller. Their judgments matter, yours don't. One or the other of them will almost always be doing something you would have counseled against.
But here's something that is true. The price of houses and all other long-term assets varies inversely with long-term interest rates. In the summer of 2000, the federal funds rate target was 6.5% and the average 30-year fixed-rate mortgage was around 8.2%. Three years later, those numbers were 1% and around 5.4%. Prices rose because buyers who had been on the sidelines would have been insane not to jump with interest rates at such levels. They would have been insane not to have refinanced an existing mortage at least once, and let's do mention what a significant portion of the market was in fact refi's, and not in fact flippers. Let's not forget either that real mean household income was FALLING between 2000 and 2006 for all income strata but the wealthy. The rest needed the break in the monthly budget that a refi would provide just to stay even. And you want to talk about an absence of common sense?
Underwriting standards meanwhile went out the window at unregulated private brokers (e.g., Countrywide, Ameriquest, or New Century Financial) who were writing paper specifically to see it churned through the greatly expanded private label securitization shops that Wall Street had built in order to create a path that bypassed the GSE's and their cheesy conforming requirements so as to get sliced and diced MBS's of any sort of quality at all into the secondary markets at huge profits to themselves. A few crooked appraisers, an overwhelmed bond rating agency or two, and it was free money for the cowboy capitalists for as long as they could keep the system cranking. That turned out to be through 2006 or so. Here's a handy graph of it all to think about. It shows the share of all MBS's sold by three major groups of sellers.
It wasn't any sort of government meddling and interference that froze the credit markets. It was the sheer volume of junk that was rerouted by Wall Street around long-standing public-sector screens and safety valves that ended up turning that trick.
And by the way, the secondary markets are not made up of some bunch of suckers. They include major central and other global banks, foreign governments, insurance companies, pension funds, money market funds, university and philanthropic endowments -- all your typical people with large and very large sums of money to invest. Suckers rarely manage to come by such sums.
Your thesis in this post and throughout the thread is one of distortion, misrepresentation, and falsehood. It is a repackaging of entirely invented arguments designed to shift blame for the Great Recession off of the actual right-wing culprits and onto whomever or whatever else is available, all the better if they might be Democrats.
To start from your own beginning, CRA played no role in bringing about the credit crisis at all. What it required was that consistent with safe and sound operation (those words are from the Act itself), banks and S&L's that took federal deposit insurance had to make -- not loans -- but merely serious efforts to meet the credit needs of the communities they took deposits from. No more sucking up all the savings in urban low- and moderate-income neighborhoods and simply using the proceeds to build gated golf-course communities out in the suburbs. Such had been the law for decades, but it was ignored. What changed under Clinton was that a satisfactory CRA review was made a factor in federal approval of requests for acquisitions and participation in newly available interstate banking opportunities. That got people's attention, and as they began at last to seek out business in these local LMI communities, thet were shocked to discover that nearly half their new customers were qualifying at prime terms and nealry all the rest at Alt-A, the level just below prime. The credit needs of these borrowers had always existed of course, but with doors closed at conventional lenders, they had been forced into the arms of extortionist pay-day lender types over at the finance companies. Getting a prime or Alt-A CRA mortgage was putting extra money in the pockets of LMI borrowers, money they used to buy new cars, fix the roof, maybe add a garden or a flower box or two. Property values in CRA-served neighborhoods rose. Outside investment in local infrastructure increased. And the portfolio of CRA loans written into the late 90's performed better than industry averages. CRA, it turned out, was both good policy and good business.
The GSE's had meanwhile existed for decades as well. Their principal role was to provide a means by which conforming loans -- i.e., those that met a set of established terms and standards, could be sold by lenders in order to recapitalize themselves and obtain funds to lend to other customers. To recapitalize themselves, the GSE's sold loans -- individually at first, then in packages -- to institutional investors after setting or withholding current and future reserves against potential defaults. There is nothing suspect or evil about any of this process. It is little different from deciding after winning $250K in the lottery whether to take the winnings as a drawn-out annuity or as a discounted lump-sum payment.
Markets other than those provided by the GSE's existed for jumbo and other non-conforming loans, but the GSE's in the early 2000's represented about 70% of the market. Bear Stearns was a part of that other 30% called "private label" shops in 1997 when they purchased, packaged, and sold CRA loans for the first time.
Exactly NO contradictions arose from any of this. There is no pride to be taken in sitting on the sidelines because your funds are all tied up in 30-year notes when such instruments can easily be sold to investors to provide you with the cash to lend at a profit to borrowers who have needs today, not three decades from today. That's simply bad business. There was no Alice in Wonderland world of social engineering rules placed on anyone. Initial CRA compliance reviews were cumbersome on all sides and were quickly streamlined, ultimately replaced in most cases by recognition of actual lending as proof that serious effort had been made. There was no pressure put on anyone by the Fed to increase the use of exotic high-cost loan terms. Indeed, the Fed was supposed to act to police and prevent such abuses, but in the process of making the biggest mistake of his life, Greenspan never quite got around to that. Laissez-faire. Markets are wise enough to regulate themselves (LOL!!!).
[More to come...]
Moderator cut: No personal characterizations
I actually went through great pains to NOT single out the CRA earlier in this forum, but rather cited the entire web of new Federal policy decisions begun in the mid-90s that were designed to boost home ownership rates. I even provided a nice link that statistically showed when the bubble began.
As someone who operated in that industry for a long time, I saw the effects. I saw the crash coming when guys like you--the ones who were still blithely reading the Atlantic. Where exactly were you when all this was going on?
In that sense, I can't imagine that you have anything useful to contribute to this thread. You weren't in the industry, you know squat about underwriting, and you're only interested in playing the role of political hack.
Last edited by TheViking85; 12-12-2011 at 01:59 PM..
There is no such thing as a definable "common sense" component of home prices. This is an appeal to subjectivity in the absence of any objective standard to raise. Home prices are agreed to one-at-a-time, typically between two individuals -- a willing buyer and a willing seller. Their judgments matter, yours don't. One or the other of them will almost always be doing something you would have counseled against.
But here's something that is true. The price of houses and all other long-term assets varies inversely with long-term interest rates. In the summer of 2000, the federal funds rate target was 6.5% and the average 30-year fixed-rate mortgage was around 8.2%. Three years later, those numbers were 1% and around 5.4%. Prices rose because buyers who had been on the sidelines would have been insane not to jump with interest rates at such levels. They would have been insane not to have refinanced an existing mortage at least once, and let's do mention what a significant portion of the market was in fact refi's, and not in fact flippers. Let's not forget either that real mean household income was FALLING between 2000 and 2006 for all income strata but the wealthy. The rest needed the break in the monthly budget that a refi would provide just to stay even. And you want to talk about an absence of common sense?
Underwriting standards meanwhile went out the window at unregulated private brokers (e.g., Countrywide, Ameriquest, or New Century Financial) who were writing paper specifically to see it churned through the greatly expanded private label securitization shops that Wall Street had built in order to create a path that bypassed the GSE's and their cheesy conforming requirements so as to get sliced and diced MBS's of any sort of quality at all into the secondary markets at huge profits to themselves. A few crooked appraisers, an overwhelmed bond rating agency or two, and it was free money for the cowboy capitalists for as long as they could keep the system cranking. That turned out to be through 2006 or so. Here's a handy graph of it all to think about. It shows the share of all MBS's sold by three major groups of sellers.
It wasn't any sort of government meddling and interference that froze the credit markets. It was the sheer volume of junk that was rerouted by Wall Street around long-standing public-sector screens and safety valves that ended up turning that trick.
And by the way, the secondary markets are not made up of some bunch of suckers. They include major central and other global banks, foreign governments, insurance companies, pension funds, money market funds, university and philanthropic endowments -- all your typical people with large and very large sums of money to invest. Suckers rarely manage to come by such sums.
Again, you seem to speaking in a completely academic sense. I'm guessing you're some bureaucrat busy defending your awful policy decisions.
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