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George Nemeth · links for 2008-10-08
October 8th, 2008
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Great event 10.8 w/ E4S @ CIA
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Rosemary Palmer: "If you want to keep the Payday Lending fees in check, vote YES on Issue 5."
October 8th, 2008 at 3:46 pm
I agree with Rosemary, we need to keep payday lending fees in check! Have you noticed that the payday lenders refuse to mention “payday lending” in their deceptive ads? It seems their product is so great that they’d prefer not to mention it. They are trying to scare voters so that they can continue to extract billions from our families and communities. We need to stop predatory lending in Ohio. Vote to keep the reforms passed in June in place! Vote yes on issue 5 for lower interest rates!
October 8th, 2008 at 3:58 pm
A “yes” vote on Issue 5 is really a vote for reduced credit options for people with no or poor credit histories. Restricting payday lending fees will reduce the amount of capital available for these borrowers–for some of whom this is the only available option.
Where do you propose that these borrowers go instead? More importantly, why are we voting on something that is a private transaction between two consenting adult parties, one that wants to lend and one that wants to borrow?
October 8th, 2008 at 7:46 pm
Jonathan:
This issue can just as easily be seen as a bid to reduce deceptive business practices directed toward a vulnerable population.
If the past few weeks has taught us anything, I think events have taught us that our political economy involves a mix of public and private interests and that pursuing the fiction of “free markets” (whatever that means) can lead to simplistic policies with huge unintended consequences.
October 8th, 2008 at 8:10 pm
Former AGs, candidates say vote yes for Issue 5.
October 9th, 2008 at 12:09 pm
Ed, I’m just not a believer in the Nanny State. People should face the consequences of their own actions. There are two parties in any alleged deception: the deceiver and the deceived. People who believe in a free lunch and, for instance, lie their way into a mortgage that they know they can’t afford, deserve to suffer the consequences.
Similarly, people who use payday lending services are consenting adults. They are free to ask any questions they want about the services they are voluntarily choosing to receive. If they fail to ask those questions, I do not feel obliged to “protect” them, as you clearly do. The world is full of unscrupulous people, and it is good for society to let people learn this so that they can be strengthened, rather than futilely trying to protect them from reality.
October 9th, 2008 at 2:09 pm
Hey., J., if we want more “credit options” why don’t we legalize loan sharks and knee breakers. That would fit your logic, too. Yep, unlimited interest rates and “consequences” in the form of contusions, concussions and lacerations. No reason the be a “nanny” and protect folks from these business practices, either.
Let’s go further. Laws against false advertising, how nanny-ish can you get? Mandatory drug labeling, wow, how paternalistic. Anti-spam rules, pure socialism.
J., you conservatives call us “ivory tower elitists?” How ironic.
October 9th, 2008 at 2:30 pm
Payday lenders are not to blame for people’s inability to be accountable for their decisions, choices and actions. A payday loan is an option and alternative for short term loans. A one time loan is $15 per $100 borrowed. FACT
Where is the heck being raised about the credit cards rates & bank fees??? THOSE ARE MORE EXPENSIVE than payday loans. My bank charges $28-38 per bounced check!!!! Are you kidding me??? I’d much rather do a payday loan for $100 and get charged $15, then bounce a $100 check and pay $33 (TWICE THE AMOUNT of a payday loan) for check fees.
Why would anyone want the government to telll them how, where and when they can spend THEIR money?? Next up, GUARANTEED– the Ohio General Assembly will continue to further restrict our ability to manage and control our finances. This is the same body of government that is 60 MILLION DOLLARS in the Red. How IRONIC!!!!
Oh and doing away with payday lenders doesn’t ELIMINATE the need for short term loan products. NOT one bank or credit union has stepped up to meet that need…. so basically thousands of Ohioans are going to be out of luck if this law passes.
And gee given the precarious economic state we are in as a nation– this is most certainly a good time to be laying off 6000 Ohio Citizens, closing 1600 stores and doing away with a fincancial option. (HEAVY SARCASM!)
VOTE NO ON ISSUE 5!!!! Preserve freedom of choice!!
October 9th, 2008 at 2:33 pm
@Casey: if it’s a FACT, you should link it to a CITATION. It’s the internet afterall.
October 9th, 2008 at 4:35 pm
Tom, I know you think you are being witty or sarcastic but, in fact, if payday lending is curtailed, you may drive people to loan sharks. That’s what used to happen.
By limiting payday lending, you won’t change the creditworthiness of the people for whom it is the only alternative.
You don’t think that people who are uncreditworthy are suddenly going to be welcomed at banks, do you? Or that payday lenders who accurately assess a person’s credit risk will give them a low-interest loan (unless, of course Barney Frank and Chris Dodd create a GSE, let’s call it Mr. Magoo, to underwrite and subsidize low-interest loans to the uncreditworthy)?
October 9th, 2008 at 5:29 pm
Happy to oblige….
http://www.cfsa.net/myth_vs_reality.html
October 9th, 2008 at 9:05 pm
I was commenting, wryly I had hoped, on the silliness of viewing things from such an almost theologically ideolgical lens.
October 9th, 2008 at 9:39 pm
Now you’re defending sleazy payday lending operations? Jonathan, what’s next: a defense of child molestors, people who sell handguns in grade schools? These people should be tied to barges and pushed down the river, to die a slow, painful death. Okay, maybe not that. But healthy societies don’t condone this sort of abuse of the weakest and most financially illiterate among us. Instead, it tries to educate people on better, healthier choices.
This just further illustrates an underlying principle: the pursuit of complete market freedom ends in unfathomable cruelty. On some level and at some point you really should try to reconcile your personal social amiability with the abject cruelty of your worldview and the consequences of your economic prescriptions, which would make the world an unspeakably Hobbesian place. Do you really want to live in that kind of world? I don’t.
October 10th, 2008 at 4:46 am
“People should face the consequences of their own actions.”
Wow.
Two words; Wall Street.
October 10th, 2008 at 1:10 pm
Jonathan:
It’s remarkable to me that your conservative cum libertarian philosophy can lead you to such naive conclusions.
You position, as Tom Zych notes, manages to throw out an entire body of common law that limits the freedom to contract. Courts have long imposed limitations, as have legislatures: See, for example, the Uniform Commercial Code, Section 2-302.
October 10th, 2008 at 1:38 pm
Tom, but in your lame attempt at wit, you uncovered an unexpected truth. People who use payday lenders previously had no choice but to resort to loan sharks, and you may be driving them that way again.
John, shame on you for equating a legal business practice with heinous crimes. There’s no excuse for that, even if you object to the business practicesunder discussion. Talk about sleazy!
Ed, Tom, John: do you know anybody who uses payday lenders? Have you asked anybody who uses them what they would like?
October 10th, 2008 at 7:44 pm
Payday lenders provide a service that people want, otherwise they wouldn’t be in business. Why should the many who use the product responsibly be denied the choice because a few who abuse the product (and got bleeding heart elitists to shed crockodile tears for them) can’t handle their responsibilities? I tell you, people, this is just the beginning. Government is slowly chipping away at our freedoms because too many people lack the personal integrity to be responsible for their own actions. Vote NO on Issue 5.
October 11th, 2008 at 11:45 am
Jonathan:
Good idea. Throw out representative democracy, an entire body of contract law, and start deciding things on the basis of polls. Why didn’t I think of that?
By your logic (willing buyer, willing seller, why worry?) the current credit crisis would be impossible. Sadly, we are finding that financial instruments can become so opaque that no one knows who owns the risk.
The era of laissez faire deregulation of the financial markets is coming to an end. In three stunning weeks, we are reached the limits to the policies of Reagan (”greed is good”), the philosophies of Greenspan (no need to regulate financial innovation), and the politics of Phil Gramm (ignore the whining).
We are entering a long period of readjustment in which the lines between business and government will be redrawn.
Now, here’s a point on which we can agree, I think. The closest historical analogy is probably the decade of the 1870’s. It’s time again to return to entrepreneurs and inventors to repudiate the excesses of the financiers.
They have run our economy into a quagmire, and only innovation in the real economy can pull us out.
October 11th, 2008 at 11:47 am
correction:
The era of laissez faire deregulation of the financial markets is coming to an end. In three stunning weeks, we have reached the limits to the policies of Reagan (”greed is good”), the philosophies of Greenspan (no need to regulate financial innovation), and the politics of Phil Gramm (ignore the whining).
October 11th, 2008 at 8:51 pm
Ed, I think our diagnosis is different. The current financial meltdown was caused by our government. Congress for empowering Fannie Mae and Freddie Mac to buy up (thereby encouraging and subsidizing) mortgages that should never have been written (Barney Frank’s “roll of the dice”), and the Fed for keeping interest rates too low and creating a credit bubble so that people living beyond their means could take equity out of the inflated values of their homes and use it to purchase consumer goods. That party’s over.
No question there were private sector actors who were involved in this meltdown and bear culpability, but the fundamental structural problems are ones of government.
Sadly, I fear the government(especially Congress), media, and uninformed public at large will dodge and avoid responsibility, that our political class will draw the wrong lessons from the crisis, and that they will implement the wrong solutions. Read the new book “The End of Prosperity” for an analysis of what public policies actually work and what don’t, instead of the nonsense spewed at citizens by uninformed, ideologically-driven politicians and their media mouthpieces.
My fear is that the politicians will raise taxes, increase government spending and involvement in our lives, and increase bad regulations like Sarbanes-Oxley, sending our entire financial services sector overseas.
I’m not actually sure what you mean when you say “throw out representative democracy, an entire body of contract law, and start deciding things on the basis of polls.” Nothing I have said advocates any of those three things. Indeed, I’m willing to bet that contract law is in support of payday lending. What backers of Issue 5 are trying to do is exactly what you criticize, make decisions based on polls. As to representative democracy, we don’t typically vote on contracts between private parties, and shouldn’t.
The use of the term “laissez fair deregulation of the financial markets” is simplistic. What has happened is that the financial markets have innovated, and our regulatory structures have not. This is what always happens, because regulatory structures are generally designed to solve the last problem, not to be flexible in anticipating the next one. Government does not attract the forward-looking innovators that the private sector does, and the private sector always innovates around whatever regulatory structure, however fakokta it is, that our woeful elected officials invent. The problem wasn’t the lack of regulation, but the archaism of the regulatory structure.
October 12th, 2008 at 2:37 am
Only you could look at the disastrous evidence of the last couple of months, with the entire world financial system being basically brought to its knees by “innovations” that turned on their innovators like Frankenstein, and conclude that a lack of regulation wasn’t a main contributor. As I’ve said, your brand of Bush-era blindness to the simple facts in front of one’s nose has now gone utterly out of style. Average people can see that kind of hard-right obtuseness for what it is. The “reality-based community,” as a Bush aide once famously put it, will be back in charge of the nation’s agenda for quite some time now, cleaning up the mess that your brand of political obliviousness has caused.
October 12th, 2008 at 12:10 pm
Johnathan, a thoughtful reply, but, not surprisingly I disagree for the most part. Let’s start, though, with intersections of agreement.
I agree that financial innovation outstripped our regulatory system. But, as The Economist points out this week, that will always be the case. Markets will run ahead of regulation. I also share your concern that in redrawing the boundaries between markets and government, we will move too far toward regulation.
Now to our disagreements.
The current financial meltdown was caused by our government
Not really. There’s no question that the subprime mess has multiple bad parties at its core. Jim Callahan (in his blog) and Jim Rokakis (in his City Club speech) provide good explanations.
Derivatives, though, converted the subprime mess into a global meltdown. They hot-wired our subprime markets to banks worldwide.
These complex instruments will also frustrate any effort (like reverse auctions) to clean up the situation. Government did not create derivatives. They did, however, allow them to flourish in violation of core principles of our securities markets: transparency.
No one know who owns what now. They have undermined the essential trust needed for the financial system to function.
My comments on “throw out representative democracy (and so on)” refers to your statement about going out to ask the users of payday lending what they think.
Your statement implies that we should follow public opinion on the question of whether or not payday lenders should be regulated.
What backers of Issue 5 are trying to do is exactly what you criticize, make decisions based on polls
No. You’ve got your shorts on backwards. The state legislature voted for regulations on payday lending. Now, the payday lending industry is trying to use the referendum process to (somewhat deceptively) eliminate these restrictions. Learn more.
I’m willing to bet that contract law is in support of payday lending
No so. Any first year law student has encountered the case of Williams v. Walker-Thomas Furniture, which introduces the doctrine of unconscionability (based on the unequal bargaining power of the parties). This doctrine is so well-established that the drafters of the Uniform Commercial Code have incorporated the doctrine in Section 2-302, which I cited earlier.
“laissez fair deregulation of the financial markets” is simplistic That’s the point, Jonathan.
It is simplistic, but it seems to be the formula you wish to follow with your diagnosis: The current financial meltdown was caused by our government
Last week I was driving in rural Indiana, John McCain country, so I decided to roll down the window and turn on Rush Limbaugh to get into the experience.
Rush sees the meltdown as a big Democratic conspiracy, all starting with the Fannie and Freddie mess. It was interesting to listen to his verbal contortions, as he struggled to create a narrative that the true believers can follow.
In the Down South, they have a great metaphor: The man was squirming like a worm on a hot brick.
I prefer to listen (and read) more thoughtful commentary and analysis. I recommend The Economist special section this week. You might also consider Kevin Phillips’ book, Bad Money. Although it could stand a good edit, Phillips, who wrote the book a year ago, correctly predicted the meltdown.
As for reading Arthur Laffer’s book, I cannot afford the time. This man has been thoroughly discredited as a serious economist. David Stockman, twenty years ago, pointed out the errors of his thinking.
My college economist professor, James Tobin, commented:
“[t]he ‘Laffer Curve’ idea that tax cuts would actually increase revenues turned out to deserve the ridicule with which sober economists had greeted it in 1981.”
Read more.
October 12th, 2008 at 12:44 pm
Ed, regarding derivatives, their original invention was a generally good innovation. What made them bad was their vast extension into subprime loans (another way of saying mortgages that never should have been made) which was encouraged by Fannie Mae, Freddic Mac, and their Congressional supporters (read: bribees) fuelled by a credit bubble that was fundamentally and only a result of government action.
The markets did not create the credit bubble. The Fed did by keeping interest rates too low for too long, largely because of their dual mission to maintain price stability and, thanks to our geniuses in Congress, support growth. That loose credit caused money to pour into real estate, including a huge growth in new housing starts.
Additionaly, our wonderful government created an artificial oligopoly of ratings agencies that falsely assigned better credit ratings to mortgage-backed securities than they deserved. This was intended to (and did) give foreign buyers of mortgage-backed securites comfort. Foreign buyers natually assumed that these securities had the backing of the U.S. federal government (meaning, taxpayer wallets) when they bought them.
Okay, Wall Street played a role. However, I have long said that “the behavior you incent, you get more of,” and our federal government created tremendous incentives to issue more and more of these mortgage-backed securities. Without Fannie Mae and Freddie Mac buying up these loans, without a cozy oligopoly rating them, and without the credit bubble fuelling housing prices would we have had this problem? I think not.
Various people called for more regulation of Fannie Mae and Freddie Mac over the years, including President Bush. They were always defeated by the FM’s prodigious lobbying efforts, which bribed Congress into letting the whoopee party continue–right up until the world financial system awoke with a tremendous hangover.
I’m astonished that an educated person like you, Ed, would so willfully ignore the evidence that Keynesianism is a failure, and supply side theories are supported by the evidence. I suppose you’ll be supporting another fiscal “stimulus” later this year, while complaining about the federal deficit and debt.
John, as the election season has rolled on, your posts have moved further and further away from analysis and understanding and more and more into partisan ideological statements, with rather insulting personal comments embedded within them. Do what you have to do to justify the voting decisions you are going to make, knowing in your gut that you are taking a chance, and leave it at that, okay.
October 13th, 2008 at 1:37 am
Jonathan,
I have no interest in defending Fannie Mae. But what important role did Fannie play in “encouraging” the explosion of private mortgage securitization in the late ’90s and early ’00s? Greenspan and the Fed, yes — in cooperation with the investment banks that wanted into the securitization business. And if you want Clinton/Rubin to share the blame for the Fed’s decisions, fine by me. But Fannie?
The FNMA-underwritten part of the market has been a small factor in the foreclosure crisis in Cuyahoga County. Of more than 18,000 sheriff’s deeds in this county since October 1 2006, only 8% were filed by
Fannie, which is what happens when they’re the secondary. The vast majority were filed by banks acting as trustees for private securitization pools. Deutsche Bank alone (trustee for pools organized by Argent Mortgage and others) has its name on significantly more foreclosed properties than Fannie.
Fannie apparently played a bigger role in promoting this crap after 2004, especially in the high-price Southern and Western markets, and they earned a place in the Hall of Shame for it. But what version of history makes Fannie the prime movers of the whole subprime racket?
We’ve been hearing this “Fannie caused it all” stuff nonstop from McCain and his surrogates since everything hit the fan a month ago. It only makes sense to me as a political head fake, by people who desperately want to pin the blame anywhere but on supporters of long-term financial deregulation.
But I assume that you actually think it’s true. Could you please do me a favor and explain why?
October 13th, 2008 at 1:20 pm
J:
Crystal meth dealers provide a commodity for which there is demand. Willing buyer, willing seller. I assume you want an open market on that product as well?
Lame is as lame does.
October 13th, 2008 at 2:09 pm
“Ed, I’m just not a believer in the Nanny State. People should face the consequences of their own actions. There are two parties in any alleged deception: the deceiver and the deceived. People who believe in a free lunch and, for instance, lie their way into a mortgage that they know they can’t afford, deserve to suffer the consequences.”
I’m amazed at the number of folks who espouse personal responsibility, but refuse to place any responsibility at the feet of predatory lenders or businesses that engage in deceptive practices. Payday lending is a business whose success is predicated on the ability to trap borrowers in debt. As for individuals who were told they could afford a mortgage that they couldn’t, apparently it’s their fault and theirs alone that they took out the loan. It’s not the fault of the lender who did not “lend according to the borrower’s ability to repay.” There is responsibility to go around!
Vote yes on issue 5! Payday lenders set up shop with their neon “Cash in minutes!” and “Easy cash” signs in areas where folks are too desperate to see they are being ripped off. This predatory practice needs to stop!
October 13th, 2008 at 2:35 pm
Bill, the blame it on Fannie and Freddie is indeed a head fake and nothing more. Serious people don’t take it too seriously. And Jonathan, I’m sorry that you take my comments personally and feel hurt by them. I think you know that I like you personally. But I’ve also tried over quite a long time in this forum to get you to face up to the fact that your political philosphies and economic and social prescriptions only lead to real suffering by millions of people. That’s what I would hope you will take personally and seriously. Many of the ideas you espouse already have caused severe pain many people’s lives, and so I often don’t feel I can leave them unchallenged.
October 13th, 2008 at 4:13 pm
Jonathan:
Again, you never fail to amuse me. You are more of a Rush Limbaugh disciple than I thought.
What made them (derivatives) bad was their vast extension into subprime loans
No, what makes derivatives bad is that no one understands them. While it’s true that hotwiring subprime loans to international capital markets was not a good idea, derivatives are the mechanism that allowed that connection to be made.
The opacity of derivatives has now ground lending to a halt. Nobody knows who owns what.
Reverse auctions, as the Treasury proposes, are likely to turn out to be a really complicated mess.
Supply side theories are supported by the evidence
Really? You have a minority opinion: http://snurl.com/4bimp
A 2006 Congressional Research Service analysis concluded that “no evidence of supply-side effects from the [Bush] tax cuts exists thus far.”
Okay, Wall Street played a role
More accurately, Wall Street called the regulatory shots. See the NYT article explaining how the SEC eased its leverage rules. http://snurl.com/4bim0
Big mistake.
October 13th, 2008 at 4:19 pm
Bill, it’s complex, and thanks for asking for an explanation instead of providing the kind of thoughtless non-analysis that Ettore provides above.
Securitized mortgages began as an innovation to provide liquidity to the mortgage markets. By bundling mortgages into securities, buyers with specific preferences for capital gain, or interest, for higher interest rates at higher risk, or for shorter or longer holding periods could be accommodated.
Fannie Mae and Freddie Mac were one such buyer. They were tasked by Congress with buying some of these securities, particularly at the lower end of the market, so that the liquidity they provided could enable people with lower incomes and less credit to own houses.
As federally-chartered companies (GSEs) Fannie and Freddie could borrow more cheaply than private borrowers because it was assumed that they had an implicit taxpayer guarantee in the event that they failed. This is the so-called “moral hazard” issue, which means that when markets assume governments guarantee companies or assets, they behave differently.
Buyers (including overseas buyers) assumed that these securities had U.S. government backing, and behaved accordingly, including performing poor due diligence and accepting without question the ratings provided by ratings agencies that were, in clear conflict of interest, paid by the sellers of these securities.
At any rate, Fannie and Freddie, in effect, provided subsidized mortgage loans to less creditworthy and poorer buyers.
The underlying assumptions, taken no doubt from “It’s a Wonderful Life,” were that homeowners are more stable and better citizens than renters, and that homeowners would never walk away from a mortgage in a downturn.
All good and fine, until 2004, when the credit bubble began fuelling real estate prices. Everyone should now understand that during 2004-2007 there was a rapid rise in home prices and in housing starts, that a get-rich-quick mentality sprung up among homeowners and that speculators jumped into the market. I had to fight my own wife about jumping on the bubble.
During this time, lots of people bought houses with mortgages that, when they reset, they knew they wouldn’t be able to afford–but they assumed they could just refinance. Others took equity out of their houses with second mortgages or refinancings, and spent the money on consumer goods.
As the credit bubble was fuelling increased house prices, speculation, and increased trading-up to more expensive homes, Fannie and Freddie encountered two problems: they owned all the securities they were allowed to, and couldn’t buy any more; and they were increasingly being asked to buy securities containing more expensive homes, which was outside of their charter.
In response, they did what they do, which was to lobby Congress to increase the amount of assets they could hold and the size of mortgages they could buy–which Congress repeatedly did (Google “Barney Frank” and “roll the dice” to read some of the specific testimony and statements on this), over the objections of many people, including President Bush.
After 2004, the FMs became a much larger purchaser of these types of securities, as you have pointed out, permitted by Congress. They also falsified their accounting statements (which is well documented) to make it appear that these securities were performing better than they were. Their lying about the early signs of default and foreclosures in their portfolio sent a signal to the market that “all is well,” instead of a signal to stop issuing these securities.
As Fannie and Freddie bought up more and more of these securities and lied about their performance, the market responded by creating more of them. Since Fannie and Freddie did poor due diligence and relyed on credit agencies who were paid by the issuers, mortgage brokers became less diligent in lending standards (liar’s loans). Hey, Fannie and Freddie will buy anything, the market said (not to exonerate market players who engaged in these activities).
Okay, so now we get to your question about how Fannie and Freddie cause the current problem. As they became ever-larger purchasers of any junk the market would feed them, the pipeline grew larger and of poorer quality.
…And then, one day, the music stopped: some of these loans began to reset and, whoops, lots of people couldn’t pay the new rates. Mortgage issuers suddenly got diligent, and wouldn’t or couldn’t refinance. Defaults and foreclosures increased, purchases slowed, and housing prices stopped rising.
In the banking community, this had several effects. One was that banks that crafted securitized mortgages intending to sell them to Fannie and Freddie and other investors couldn’t find any buyers, and had to hold them on their balance sheets. Another was that as defaults and foreclosures rose, the value of mortgage securities fell. Accounting rules required banks to take writedowns on the value of those assets, which had the effect of eroding their capital bases. This is what precipitated the international financial crisis.
This is a complex chain of events that most people will not be willing to follow or understand. It’s much easier to blame greedy people on Wall Street.
There is a lot of information that can be accessed about this, particularly on the OpinionJournal.com web site.
By the way, the reason that the FMs are not filing many foreclosures should be obvious; they are political animals dependant on their relationship with Congress and it would damage that relationship for them to behave like market players.
October 13th, 2008 at 5:17 pm
Tom, again, as I said to Ettore, shame on you for equating criminal behavior with a legal activity.
Steve, would you prefer that customers of payday lenders are forced to use loan sharks? Or do you (falsely) believe that voting yes on Measure 5 will somehow magically change the creditworthiness of people who use those services?
John, sorry, but the argumentation method of stating that “serious people don’t take this too seriously” to invalidate my arguments, as if you and your unnamed co-conspirators have some omniscient insight, doesn’t work. Provide an alternative explanation for what happened, in detail, please.
October 13th, 2008 at 5:45 pm
Ed, we’ll just have to agree to disagree on the problem with derivatives. Used appropriately by informed buyers and sellers, they are valuable. Overused by the ignorant, they are dangerous.
Regarding supply side theory, I don’t mind being in the minority. Usually, I take it as a badge of honor, since most people take their opinions from others instead of doing their own analysis and thinking. Read Laffer’s new book.
The regulatory picture is mixed. Wall Street didn’t “call the regulatory shots.” They were one influence on them. Talk about discredited, the NY Times is blatantly ideological in its point-of-view about these things.
October 13th, 2008 at 7:16 pm
I agree with Jonathan on one point - this a complex problem. It will take years to get it sorted out and people will argue for many more years over who is a fault and for what.
Some important aspects that have not been discussed here…
Fraud:
-Brokers forge income documents
-Friendly appraisers get used when a deal is tight (meaning it may not appraise for the needed value) to get the desired value.
I learned a lot about the underbelly of the lending business from a family member who used to work in operations for a major subprime lender (15 years ago). This house of cards has been going up for a long time.
Here is a more recent and detailed piece: http://www.npr.org/templates/story/story.php?storyId=89505982
SEC:
Changes to the net capital rule - allowed broker/dealers to more than double their leverage. “The SEC modification in 2004 is the primary reason for all of the losses that have occurred.” Increased leverage allowed for increased throughput - Use a fatter pipe and more stuff can flow.
http://www.nysun.com/business/ex-sec-official-blames-agency-for-blow-up/86130/
Auditors:
Where was KPMG (Fannie’s auditor)? Fannie overstated, what, $9 Billion in earnings and KPMG signed off? WTF? KPMG later sued Fannie claiming they were deceived because they relied on Fannie for truthful disclosure. If that’s the case, what is the point of having an auditor? “The audit is designed to reduce the possibility of a material misstatement. A misstatement is defined as false or missing information, whether caused by fraud (including deliberate misstatement) or error.”
http://en.wikipedia.org/wiki/Financial_audit
Rating Agencies:
Here is a short video on CDOs by Paddy Hirsh of Marketplace. Financial Crisis 101: CDOs explained. AAA ratings on junk. Rating agencies are paid by the organizations they rate.
Sidenote: Berkshire Hathaway owns 20% of Moodys.
And this is just part of the story…
October 13th, 2008 at 7:19 pm
Here is the Paddy Hirsch link: http://marketplace.publicradio.org/display/web/2008/10/03/cdo/
October 13th, 2008 at 7:54 pm
Ed, I went and researched the Uniform Commercial Code and the definition of “unconscionable,” which you wrote about and linked to in your earlier postings. It basically gives courts the right to throw out parts of contracts that they find to be unconscionable. What is unconscionable is not defined; there is no standard; the issue of interest rates or fees is not discussed. This is just a generic definition with flexibility for judges to implement.
It’s a bit disingenuous of you to suggest that something this generic and vague supports your contention.
It’s in the history of decided legal cases that the community standard develops and, where I’m willing to bet there will be as many court decisions supporting payday lending, or more, than those opposing it. Think about it: if you and Tom and John could have gotten your way in the courts, why would you have had to go to the ballot box?
All in all, Ed, a bit deceptive and weak as an argument.
October 13th, 2008 at 7:57 pm
If issue 5 passes, payday lenders will still be able to operate. House Bill 545 did not ban payday lending, it merely requires that lenders offer fair and affordable small loans at 28% APR or below and limits the number of loans that can be taken out at 4 per year. This is good for Ohio consumers. Over 1,130 of Ohio’s payday lenders have applied for licenses to operate under the new law and a myriad of alternatives exist like “stretch pay” at your local credit union. Too many people are trapped in debt for these predatory and reckless lending practices to continue. Vote yes on issue 5!
October 13th, 2008 at 8:02 pm
Rick, thanks. I did address ratings agencies in my several rather lengthy (sorry) posts, but not fraud, which clearly occurred, the SEC rules change or auditors.
October 14th, 2008 at 2:59 am
Jonathan, I’m not sure you understood my question.
The private mortgage securitization pools that hold most of the subprime and Alt-A mortgages originated around here in the last ten years weren’t designed to be sold to Fannie — they were designed to compete with Fannie. Back in the ’80s Fannie and Freddie were pretty much the only operations buying mortgages from originators and repackaging them into securities for investors. Starting in the ’90s, under Mr. Greenspan’s beneficent gaze, hundreds of investment houses and banks started doing it too, and selling the securities widely to all kinds of investors including each other. Thence arose a vastly expanded (and much praised) secondary mortgage market built on impenetrable pooling agreements and their derivatives, complaisant rating agencies, careless and often corrupt brokers originating for paper-starved mortgage companies, The Bubble, etc., etc. This all started ballooning in the private financial sector from the late ’90s on, and was already driving the mortgage markets of cities like Cleveland and Detroit into the hands of Argent, New Century, etc. by 2002-03.
Meanwhile, in the words of Wikipedia, “In 1999, Fannie Mae came under intense pressure from the Clinton administration to ease its credit requirements on the mortgages it was willing to purchase in order to encourage lenders to extend more mortgages to borrowers with low to moderate income and improve rates of home ownership among those groups. Shareholders also pressured Fannie Mae to purchase mortgages below its conventional credit standards in order to maintain its record profits. In 2000, due to a re-assessment of the housing market by HUD, anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals. In 2004, these rules were dropped and high-risk loans were again counted toward affordable housing goals.”
So Fannie jumped into higher risk loans for its own portfolio and securitization pools during the same period that private securitization was booming, on a parallel track. And got deeply in over its head, and played accounting games, and got into parallel big trouble, especially after 2004.
But how did Fannie cause the private securitizers and underwriters — Sachs, Lehman, Morgan Stanley, Citi, Merrill, and smaller fish like Argent, New Century, etc.etc. — to get into trouble, too? The hundreds of billions in nonperforming mortgage securities they created and now have rotting in their portfolios — along with their clients and partners’ portfolios — are a whole other animal from Fannie’s securities. If they weren’t they’d be Fannie’s problem.
What relationship do you see here that I don’t?
(Incidentally, this statement makes no sense: “The reason that the FMs are not filing many foreclosures should be obvious; they are political animals dependant on their relationship with Congress and it would damage that relationship for them to behave like market players.” Fannie Mae doesn’t make the decision on whether to file, the servicer (i.e. the originator that sold them the mortgage) does. The only way that servicer gets out from under a defaulting mortgage is to foreclose. In Cuyahoga County, Fannie’s name doesn’t even enter the case until the sheriff’s sale.)
October 14th, 2008 at 10:56 am
Johnathan:
Perhaps you are at a disadvantage because you never went to law school or studied for a bar exam. I had the good fortune of spending a few years studying the law.
The drafters incorporated the common law doctrine of unconsionability into the UCC. The clearest definition has been set forth by J. Skelly Wright in the Walker Thomas case. That’s the case that every first year contracts student reads.
The fact that you cannot interpret the law is no mystery to me. That’s why people go to law school.
October 14th, 2008 at 12:41 pm
J:
Shame? J., let’s not get pedantic. The only thing that separates legal from criminal activity is a law that prohibits one set of acts and not another. My point was to show that your logic leads to anarchy. If we, through our representatives or by direct vote (and we’ll have both in this case) decide that it is harmful to society toi have legal loan-sharking, then the 300%+ loans will be unlawful, like crystal meth. So there’s nothing shameful at all in my analogy - it’s hyperbole used in service of spotlighting weak logic.
October 14th, 2008 at 1:40 pm
No omniscience needed to figure this out, Jonathan. All that’s required is intellectual honesty, which the hard right has some serious challenges with. This article is perhaps the single best at explaining how the abject failure of the most basic federal regulation led to the problem:
http://www.nytimes.com/2008/10/03/business/03sec.html?_r=1&pagewanted=print&oref=slogin
October 14th, 2008 at 1:57 pm
Bill, good additional analysis.
To answser your question more briefly, the government caused the current crisis, and Fannnie and Freddie were part of the way in which they caused it. The FMs contribution was to drive down lending standards through their lobbying in Congress and through buying up any junk the market would serve them, so long as executive compensation kept flowing.
They also lied to the market about default rates, so that the market thought all was well when it wasn’t and when an early warning sign might have caused earlier intervention.
They also stopped buying securities at a time when they had 50% market share. These securities remained on the balance sheets of the investment banks that originated them. When the lying about default rates was exposed by published data about actual default rates, those securities had to be written down, which eroded the capital base of their holders. Since banks lend $10 for every $1 they have ($30 to $1 for dopes like Lehman and Bear Stearns), a writedown of assets may cause them to become insolvent. I hope that better explains the chain of causation.
As to filing foreclosures, the securitization of mortgages had the effect of separating the holder (Fannie and Freddie) from the servicer. That was a convenient way for Fannie and Freddie to distance themselves from foreclosure filings and avoid Congressional wrath, which could then be directed at private companies without attacking the FMs. That’s what I call a Barney Frank win-win-lose. Congressional leftists win; the FMs win; and market players lose.
Ed, you know as well as I do that case law is iterative, cumulative and often contradictory. What does citing one case that provides sideways support of your position say about the entire body of case law? Less, I would guess, than you are making of it. For a wonderful example of this concept, read the majority and dissenting opinions of the recently decided Second Amendment case by the Supreme Court. Taken separately, each opinion makes an elegant argument for a point-of-view that is readily defensible. It is only when the dissenting opinion is read in concert with the brilliant opinion by Justice Scalia that the reasons for the decision can be discerned.
Citing one case does little more than citing the portion of the UCC that includes the use of the word unconscionable to provide understanding of the full body of case law.
October 14th, 2008 at 2:01 pm
John, the SEC role is just a piece of what happened, and not a very large one. Instead of advancing an alternative and comprehensive narrative, you’re just providing rifle shots in isolation. It’s not even your own thinking.
October 14th, 2008 at 2:06 pm
Tom, thanks for the evidence that you’re a moral relativist. Putting aside what is legal and what is not, please explain to me the moral equivalence of high interest lending, based on borrower risk, and selling crystal meth?
October 14th, 2008 at 3:39 pm
Jeez. J., why the namecalling? I simply pointed out that your snarky comment is tripped up by a simpe truism, namely, that conduct is classified as either either “legal” or “criminal” as a result of the actions of those organs of a government that make and enforce minimum normative standards. It goes back to you r comment that we, ipso facto, shouldnlt outlaw commercial condust between willing buyers and sellers. Touchy, aren;t we?
October 14th, 2008 at 4:07 pm
Tom, I’m shocked that you think “moral relativist” is “name calling.” And what’s snarky about pointing out that you are comparing a legal financial transaction with a drug sale?
October 14th, 2008 at 6:30 pm
Some good debunking to be found here of the notion that affordable housing initiatives caused the financial meltdown:
http://mediamatters.org/items/200810100022
October 14th, 2008 at 6:42 pm
Come on, John, really. A leftist partisan mouthpiece selects media reports supporting its agenda of subsidized housing, and you weigh that against the mountain of actual evidence–not opinion–and expert testimony? The media is not real, John, it’s a selected, abstract self-invented world.
October 14th, 2008 at 7:59 pm
That last sentence is pretty anti-intellectual. Any rendering of anything is someone’s selection and interpretation of the facts. That’s just how it is. But some renderings are far more consistent with the underlying facts than others, and some renderings are more based on an honest, disinterested search for the truth than others.
October 14th, 2008 at 8:30 pm
J: How about putting together a list (with links) of your support documents and expert testimony…
October 14th, 2008 at 11:54 pm
It’s so great to see people coming out in favor of Issue 5! Keep it up!
October 15th, 2008 at 8:15 am
Jonathan:
Your limited understanding of legal analysis is, I think, beyond my ability to repair. I have no time to educate you on the legal meaning and implications of doctrine. (That’s why they invented law schools.)
While dissenting opinions are valuable to understand the dimensions of a case, they have no legal effect. However, as social conditions change, dissenting opinions may serve as the basis for a change in case law.
I have given you the leading case on the doctrine of unconsionability, as well as its codification in the UCC.
As Tom has noted, the freedom to contract is not unfettered. Legislatures routinely impose limits. In this case, the Ohio legislature has imposed limits on what payday lenders can charge. The payday lenders have tried to circumvent these limits with what is, in my view, a dishonest campaign that skirts the core issue.
These limits are squarely within established case law and the doctrine of unconsionability. That doctrine is widely accepted and enacted as part of the UCC. The doctrine recognizes that unequal bargaining power of the parties can give rise to unenforceable contracts.
(In the words of Walker Thomas: Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.)
What continues to puzzle me is how a person as intelligent as you can possess the skills of financial analysis, yet carry so limited an understanding of the interplay of contract law and public policy.
When I was clerking in a law firm in Atlanta, a senior partner described his opposing counsel. I remember his words, as I write: “He’s seldom right, but always certain.”
Uncertainty has never been your weak point.
October 15th, 2008 at 12:59 pm
Ed, your withering pen has rarely been so sharp as this. I especially admired that quote from the senior partner. It does describe a handful of folks I know, present company excluded.
October 15th, 2008 at 3:49 pm
Ed, I understand a lot more than you think, including that case law evolves over time, usually in association with changes in community standards. There was a time, long ago, when usury laws derived from Biblical principles dominated finance. There wasn’t much innovation in finance, and credit generally wasn’t available to most people–because the risk of lending to most creditors couldn’t be offset with interest rates that reflected those risks.
As economies grew, community standards shifted such that higher interest rates became acceptable, and the body of case law associated with them evolved. Entire industries, like the credit card industry, grew up around innovations in finance and changing community standards.
Sometimes evolutions in case law happen through an accretion of dissenting opinions that ultimately cause established precedent to be overturned. Just look at some of the landmark cases of the Supreme Court to see that.
So, nice try invalidating me, and the correct points I am making, by waving your law degree around. One doesn’t have to go to law school to understand the way case law evolves or have an informed conversation about it.
October 15th, 2008 at 4:13 pm
How the markets really work (great video) http://www.brasschecktv.com/page/187.html
October 15th, 2008 at 5:14 pm
Rick, funny link. Thanks.
In response to your earlier post, I would say you would have to read dozens of articles. I recommend going to OpinionJournal.com, and reading the past 60 days of commentary and analysis of the financial crisis. Be inclusive, rather than selective, and when you are done, let it settle and form patterns of its own.
October 15th, 2008 at 5:39 pm
Rick, in particular you (and others) might be interested in today’s article entitled “Obama Voted Present.” It describes how the cry of “deregulation is the problem” is a canard, as little meaningful deregulation of the financial markets has occurred over the last 20 years, and that which happened has had no role in the current problem. But when bills were put forth (by Republicans) to INCREASE regulation of Fannie Mae and Freddie Mac, Obama voted in lock-step with other Democrats on a straight-line partisan basis to defeat them.
October 15th, 2008 at 6:17 pm
Jonathan:
Let’s get back on track. I do not believe I am “invalidating you”. And I doubt most readers would conclude that I am “waving a law degree around”. I’m just stating some facts.
Because of my professional background both as a lawyer and staff counsel in the U.S. Senate, these concepts are not unfamiliar to me. I simply underestimated your grasp of them.
In my view, people with no formal training in law are really not equipped to discuss legal reasoning or precedence.
As I mentioned earlier, that’s why they invented law schools and bar exams. Your decision not to get trained in the law is, well, your decision.
To imply, as I think you do, that you are equipped to make legal arguments is, I think, overblown. (I’m not equipped to make medical diagnoses, or fix an elevator, for that matter.)
Of course, you are free to offer opinions on legal doctrines but from my point of view, your opinions are uninformed when it comes to legal analysis. (Saying that case law evolves is like telling us the weather changes.)
From my perspective, you have shown little apparent understanding of the concept or purpose of legal doctrine. As a result, it’s really not very productive to carry this discussion about the connection between the doctrine of unconscionability and Issue 5 much further.
The connection between legal doctrine and a legislature’s power to influence doctrine through statute is a very interesting nexus to explore. But let’s leave that for now.
I had sought to address the finer points of law and public policy regarding payday lending. I meant no disrespect.
October 15th, 2008 at 6:56 pm
Ed, people become qualified to practice law by passing bar exams, not attending law schools. I believe that the pathway to the bar through self-study followed by many attorneys, including Abraham Lincoln, is still available.
There may be many reasons that law schools were invented, but one of them was not to act as an exclusive gateway to understanding, or practicing law.
People can become informed about the law, and equipped to discuss legal reasoning or precedence, without the “formal training” that you appear to hold so dear–and which sounds to me like an elitist attitude.
As to your second-to-last paragraph, which you want to leave aside, that is a very interesting point. I’m sure you know that the volume of statutory law created by Congress in the last 100 years is vast–and that much of it is flawed. I think the last time I saw the statistic it was enough, in pages if stacked up, to reach the Moon.
Among all this talk about “deregulation” (which is a canard) nobody has noticed the massive amount of statutory law that has been added to society by a Congress that is, by general consensus, stocked with many mediocre talents. You want to meaningfully reform the regulatory structure? Let’s start with no new legislation until all existing legislation has either been updated or retired.
October 15th, 2008 at 9:36 pm
J: I think you misunderstood me. I am not asking you what I should be reading in general. I am asking you to cite specific documents, testimony, etc. to support your assertions. The Wallison piece is a start.
For example: you said “John, the SEC role is just a piece of what happened, and not a very large one.” “not a very large one” is vague…include some links in your comments.
October 15th, 2008 at 11:14 pm
Jonathan:
Reading for the law is still available for a handful of states, but my guess is that about 50 people follow this path each year. In 2006, only 18 passed bar exams, according to the National Conference of Bar Examiners.
Suggesting that people go to law school (if they want to learn about the discipline of legal analysis) is hardly an “elitist attitude”. Indeed, I have no objection to people reading for the law. The point is that you need professional training in the discipline.
By your posts, my sense is that you have not grasped the core concept of a legal doctrine, its formation and use in legal reasoning. I see no sense in pursuing this line of thinking with you on Issue 5.
Your suggestion — “Let’s start with no new legislation until all existing legislation has either been updated or retired” — is hardly serious. To me, your judgment is clouded by ideology and politics.
October 16th, 2008 at 12:08 am
Rick, sorry, you’re going to have to do all the reading and understand all the influences to see how infrequently the SEC pops up, and how small its role was. There’s no link to any article that says “we spent a lot of time looking at the SEC and found its role was small.” But there are many articles on the subject that include no discussion about the SEC. That’s just how it works.
Ed, it’s not about ideology and politics, but about common sense. The more law schools we have and the more lawyers we produce the more laws we have. Hey, there’s a surprise.
We don’t need laws for everything, certainly not statutory laws. Case law worked for centuries, because it reflected evolving community standards. There is a lot of bad statutory law in place today. Example #1, the legislation creating Fannie Mae and Freddie Mac…
October 16th, 2008 at 1:00 am
Jonathan - the SEC item was an example. You have pages of commentary here and links are helpful. Perhaps in the future you would be kind enough to add some links that refer back to your sources. This is the Internet after all.
October 16th, 2008 at 12:07 pm
J:
Updated information. In all but one state, a degree from an accredited law school is a prerequisite to sitting for the bar examination. That’s a good thing. There’s a little more law to learn these days that in the 1830’s. “Reading for the law” is just not an effective nor satisfactory way to absorb all one needs to know to practoce in today’s world, just as you wouldnl;t want someone to “read for surgery” or “read for civil engineering.”
By the way, “unconscionability” is a statutory standard, since the UCC exists, in reality, only as the enactment bi individual state legislatures of model uniform legislation. This pareticular rule comes from Article 2 of the UCC, which covers sales of goods (and not financial instruments). Nevertheless, John E. is entirely correct in using it as an example of well-accepted legislative boundary-drawing on commercial transactions.
Now, as for the preference for common law over statute, that’s another oversimplification. It was well recognized (by at least the early 20th Century) that case law is always, and always, after-the-fact adjudication that is subject to differning outcomes, since the decisions of, say, the California Supreme Court on matters of state law are not binding on Ohio courts. In a national (really, global) economy, patchwork standards can be a hindrance to commercial relationships, so our syatem has for many, many years made the decision, for efficiency purposes, to enact relatively standard rules of the road so that commercial parties can have some sense of what is and is not permissible before they enter into business dealings. You have a romanticized view of how case law “worked for centuries” because that’s just not real history. So, in some form or other (and there will be usury laws) there will be a “speed limit” type limit on maximum allowable interest on commercial transactions. The question is what that limit will be. The statute specifies a transparent, predictable and understandable limit that parties can know before the enter into the transaction, instead of guessing how a court will judge the transaction after the fact. In economic terms, greater legal certainty reduces risk premiums.
Now, because our Constitution gives Congress the power to regulate commerce, where a national standard increases uniformith and transparency (truth in lending laws, for example) Congress uses this enumerated power to set a national standard directly, rather than waiting for the accretion of uniform state laws. Your generalizations about the quality of those laws are really useless - it’s your ideology driving a conclusion lacking any rigor. But I guess that’s what blogs are for.
Thus endeth the lesson.
October 16th, 2008 at 12:31 pm
Rick, here you go: http://www.opinionjournal.com. Read everything on the crisis for the past 60 days.
October 16th, 2008 at 2:30 pm
Jonathan, let’s start with the Peter Wallison article you mentioned yesterday.
In the article “Obama Voted ‘Present’ on Mortgage Reform”, Wallison states,
“In the summer of 2005, a bill emerged from the Senate Banking Committee that considerably tightened regulations on Fannie and Freddie, including controls over their capital and their ability to hold portfolios of mortgages or mortgage-backed securities. All the Republicans voted for the bill in committee; all the Democrats voted against it. To get the bill to a vote in the Senate, a few Democratic votes were necessary to limit debate. This was a time for the leadership Sen. Obama says he can offer, but neither he nor any other Democrat stepped forward.”
Jonathan, in your commentary, you state,
“Various people called for more regulation of Fannie Mae and Freddie Mac over the years, including President Bush. They were always defeated by the FM’s prodigious lobbying efforts, which BRIBED Congress into letting the WHOPEE party continue–right up until the world financial system awoke with a tremendous hangover.” (caps added by me)
However, Rep. Michael Oxley (R - Ohio), the Chairman of the House Financial Services Committee, in his May, 2006 letter to the Wall Street Journal (opinionjounal.com but more than 60 days ago), provided a rational and nuanced explanation. http://s.wsj.net/article/SB114730848510849717.html?mod=Commentary-US
Oxley explained that the House passed a strong, bipartisan reform bill 331 to 90 (Dems: 122 - 74).
“The House bill succeeds in its mission to create a stronger regulator for Fannie Mae and Freddie Mac. This is a remedy that is sorely needed in order to keep regulatory pace with the explosive growth and financial influence of the housing market giants. The proposed new Federal Housing Finance Agency would have a far greater degree of independence, assured funding that does NOT rely on the congressional appropriations process, and new operational and enforcement powers that are modeled after those currently held by most banking regulators.
The Senate Banking Committee has passed a bill, but has yet to report it to the floor…However, you are backing a portfolio limitation policy that lacks widespread support and cannot pass either the House or the Senate. Supporters of the provision know that it will fail on the Senate floor, which would doom both the portfolio limitation idea, as well as GSE regulatory reform, for the remainder of this Congress.
The Federal Housing Finance Reform Act, H.R. 1461, would give the new regulator broad, discretionary power to act on portfolios. The House authors believe that a specific directional mandate or numeric limits would be a mistake. A world-class regulator is a regulator who is given the necessary tools and the authority to use them. If properly crafted, the law should give regulators the necessary flexibility to respond to changing market conditions for the time during which the law will be on the books, most likely for decades.
If this Congress does not send a bill to the president, it will not be because of a lack of responsible action by the House. It will be because SHORT-SIGHTED proponents of portfolio limitation decided that this provision is paramount.” (caps added by me)
The bill was held in the senate because they knew the portfolio limitation provision would not pass in the Senate (or the House). The House passed the bipartisan bill they could pass. Oxley also stated that a ‘properly crafted’ law would give regulators the tools they need. He continued,
“I applaud the Journal’s point about the current administration potentially exercising authority to limit Fannie and Freddie’s debt issuance. I concur that the administration possesses the FULL authority necessary to move forward. There is NO need for congressional approval. If administration officials believe that the systemic risk is so great that the Treasury should limit debt issuance and therefore portfolio size, I see nothing that prevents them from doing so. If that is their firm belief, then it is also their responsibility to protect the taxpayers and the housing finance system.” (caps added by me)
According to Oxley, the administration has had the authority to rein-in Fannie/Freddie at ANY TIME. The Secretary of the Treasury has the authority to “limit debt issuance and therefore portfolio size.” (See the article, “Freddie’s Friends on the Hill”, linked to in the Oxley piece and the reason for Oxley’s letter, for more on Fannie/Freddie lobbying and a discussion of Treasury authority.)
So, based on this ONE article from more than 60 days ago, your analysis appears partisan, less than accurate and includes unsubstantiated allegations of bribery. Perhaps in the future you would be kind enough to link to specific supporting documents.
—
Peter Wallison is a senior fellow at the American Enterprise Institute. (a conservative think tank)
October 16th, 2008 at 2:36 pm
Jonathan:
Ed, it’s not about ideology and politics, but about common sense.
Your suggestion — “Let’s start with no new legislation until all existing legislation has either been updated or retired” — stands the test of common sense?
I somehow doubt most would agree.
I share Tom’s sentiment: it’s your ideology driving a conclusion lacking any rigor.
Unlike Tom, I don’t have a problem with “reading for the law”. But it’s not a very efficient pathway, and the relatively few number of people taking this apprenticeship path and their relatively low pass rates on the bar provides evidence of that inefficiency. (I also doubt that I would ever consult an attorney who had not gone to law school, but that’s a personal matter.)
The market speaks.
October 16th, 2008 at 6:08 pm
Rick, what you are presenting is just a few pieces of data from the overall picture. Different people had different opinions about this, and you should read further.
I’ll point out that President Bush is damned if he does and damned if he doesn’t. When he exercised the power the he clearly has under the Constitution over foreign policy and security, he was roundly condemned in Congress, the media, and overseas for being a cowboy and not consulting Congress.
In your post, you present (selective) information that damns him for NOT acting unilaterally and instead consulting Congress and asking for legislation to establish a stronger regulator for Fannie and Freddie. He called for stronger regulation, if I remember correctly, in both 2004 and 2005, and was rebuffed by Congress. During the last five years, Fannie and Freddie contributed some $170 million to Congressional campaigns; while technically not a “bribe,” that spending stinks, and from a government-sponsored entity, to boot.
Relative to the bill cited by Congressman Oxley in his letter, to really understand what happened, you have to review the entire legislative history. The picture that emerges is not atypical: proposals for stronger regulation were resisted, and then to avoid later criticism, a weaker (perhaps sham) bill was put forward for passage in one house of Congress so that some Congresspeople could claim when running for election that they had voted for stronger regulation for Fannie and Freddie. And so it goes.
October 16th, 2008 at 7:07 pm
J, you defy gravity in your willful insistence on ignoring obvious facts. Of course the SEC is missing from the story of this financial meltdown! That’s precisely the point. It’s supposed to be the central watchdog of the markets, and was established for that very reason during the ’30s. But it wasn’t in the middle of any regulation, because the Bush White House kept appointing right-wing hacks who were against the very notion of regulation in the first place. And so they sat and watched while the disasters piled up, and thus weren’t really in much of a position to take part in any solution, since the agency has atrophied from lack of exercising any real oversight. If you were intellectually honest, you would have to come to terms with these simple facts.
October 17th, 2008 at 4:25 pm
Jonathan - Since you only referenced one specific article, I simply used that to point out that the authority to rein-in Fannie/Freddie existed and has always existed but that it was not mentioned in your narrative. The point is that this is complex subject that will take years to sort out, and though your analysis of the components is sound, your overarching views, are just that, your views. (Perhaps that goes without saying)
October 17th, 2008 at 11:28 pm
Well, as long as Bush is damned, I’m cool. He sold out to Cheney’s gang to avenge the attempts on his father’s life. Understandable, very human, but not presidential. Disclosure; I’m no damned Democrat either.
October 18th, 2008 at 7:21 pm
Rick, you should go to OpinionJournal.com and read two articles from the weekend edition: “Most Pundits Are Wrong About the Bubble,” and “Another ‘Deregulation’ Myth.”
Phil, “W” is a fictional movie, not history.
October 19th, 2008 at 2:42 pm
J.,
I haven’t seen W, and probably won’t unless it pops up on the Insomnia channel in several years. I saw Titanic for the first time in August. I don’t have cable, don’t allocate time for TV other than a soporific to help turn down my brain waves and sleep. Craig Ferguson rocks.
As for Bush, I’ve spent considerable time researching and trying to understand why we made the mistakes we did in the mad rush to secure and stabilize our oil supply, and how we can repair the damage done to our soldiers and the Iraqi people. I will demonstrate the criminal malfeasance of Cheney, Rumsfeld and the OFT, now “absorbed” into other Pentagon programs when Rumsfeld was sacked.
I’ll post more soon, right now I work roughly 9am to 1am,7 days a week. My businesses are thundering ahead, more than I can handle. I have much to say on payday lending, I did everything short of beg and steal to keep a business alive in Least Cleveland, which leaves borrowing from every conceivable source. I learned a lot, lost a lot, and survived because there is a shredded remnant of free enterprise left in my country that the parasites have not yet consumed. Carry on.