UPDATE: Bobby Jindal: You Gotta be Kidding, Right?
As my latest Twitter message says, if Louisiana Gov. Bobby Jindal, who gave the GOP response to Preisdent Obama's not quite State of the Union last night, is the great shining hope of the GOP, then I like our chances.
As an example of "wasteful" spending in the stimulus bill, Jindal singled out $140 million for Volcano monitoring. I don't know about you, but I find it odd that the so-called pro-life party is knocking volcano monitoring. After all, it is estimated that volcano monitoring by the U.S. Geological Survey during the Mount Pinatubo disaster in the Philippines of the early 1990's saved some 20,000 lives. So, the GOP is pro-life when it comes to unborn babies, but not when it comes to preventing deaths due to natural disasters. For more on this, head on over to FiveThirtyEight.com.
This is also quite odd given that Jindal governs a state that suffered from a bungled response to a major natural disaster (Hurricane Katrina), but since they has been a major recipient of federal largess. How can the governor of a state that has received boatloads of cash from Washington possibly be credible when it comes to reigning in federal spending?
Also, I love how Jindal mentioned the deficit. I note again that President Bush added $5 Trillion to our national debt in order to finance the invasion and occupation of Iraq while cutting taxes for the wealthiest Americans. I also note that of our current $10.8 Trillion national debt, roughly $8 Trillion was run up by Reagan and Bush. And these guys somehow think they are credible on spending and deficit reduction?
Finally, Jindal was clearly arguing the case that the GOP lost because it wasn't conservative enough, not because they lost the center. Jindal clearly has forgotten a truth the Jesuits taught me once upon a time: In medio stat virtus (virtue stands in the middle). If you want to drive the GOP further to the right, Bobby, all i can say is, go right ahead. Feel free.
UPDATE: Courtesy of MyDD.com. Guess which country ranks third in the world in terms of historically active volcanoes? Wait for it.... that's right, the good ol' U S of A!
...was when Obama said:
The R's jumped out of their seats in thunderous applause and agreement. Their enthusiasm was short-lived. The next line:
The D's shot right back with shouts and jeers. And the R's deserve every bit of it.
I only wish there was as much enthusiasm for fiscal restraint by both parties when the votes are being cast and they have the opportunity do the right thing.
"The D's shot right back with shouts and jeers. And the R's deserve every bit of it..."
Agree 100%. Stupid Republicans.
That said, there was something truly unbelievable about watching Nancy Pelosi, in whose chamber of the United States Congress every tax- and spending-related measure enacted by the federal government since January 2007 originated, crow in delight last night at President Obama's unworthy-of-the-office-to-which-he-was-elected cheap shots in this regard.
Obama, I note, supported the Bush/Paulson/Pelosi/Reid Big Finance bailout last fall and signed into law the largest-ever deficit spending package in U.S. history within one month of taking office.
Facts are facts.
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Political power corrupts absolutely.
(With apologies to Lord Acton.)
Hey FMP, don't forget Cheney and Palin amongst the supporters of the big finance bailout.
The simple fact of the matter is, these institutions had grown so large that to allow them to fail would present a massive risk to our economy. I note that the tipping point at which what was a moderate recession became the worst since the Great Depression happened when Lehman Brothers went belly up. Once a financial institution reaches a certain size, the normal rules of capitalism cease to apply to it.
That's why it's important for government regulators to prevent these institutions from reaching that size. Thus, the only way to prevent government intervention is...government intervention. Who said the world wasn't crazy.
I note again that Canada's still regulated financial system has not required a single dime of taxpayer money spent on a single bailout.
Maybe. Maybe not. We don't know, they didn't vote on it and neither had a lot to say about it that I'm able to recall. In fact, I found Cheney's non-statements on the matter to be telling. In any case, neither Cheney nor Palin was elected President on a platform of balancing budgets and reducing deficits. It appears (increasingly every day) that Barack Obama didn't mean anything he said about fiscal discipline, nor does he now. Case in point:
http://apnews.myway.com/article/20090226/D96J8DGO1.html
Canada doesn't have laws requiring extension of credit to subprime borrowers. Anti-'redlining' regulations have proved disastrous as well - Canada doesn't have these. Canada doesn't sponsor government entities that bundle subprime mortgages for re-sale on the bond market. Check out Larry Kudlow's CNBC interview w/ Canadian PM Stephen Harper for more:
http://kudlowsmoneypolitics.blogspot.com/2009/02/interview-with-canadian-prime-minister.html
The U.S. banking industry is very-heavily regulated. We can implement smarter regulations. And we should, no question. Better leverage requirements seem to be in order, for example. Another good idea might be to eliminate regulations requiring lending institutions to loan on any basis other than the borrowers' ability to re-pay. Bottom line, it seems to me this is a question of making better choices rather than piling a bunch of stupid new regulations on top of the stupid old ones.
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"The more federal oversight and regulation you were subject to, the fewer bad loans you made."
You're kidding, right?
It was a REGULATION that created subprime lending in the first place. Minus CRA and anti-'redlining' laws (and the threat of federal lawsuits related thereto) banks would make loan decisions on the basis of a prospective borrowers' ability to repay. Period. Fan, Fred bundling and purchase of these debts for resale as assets are what made subprime lending economically feasible for banks. It was a taxpayer-financed gravy train. It was the total opposite of deregulation.
Profit-seeking shareholders own banks (for now). Would these loans, if not for taxpayer-guaranteed backstops against losses made possible by clearinghouses Fannie Mae and Freddie Mac, have been extended in the first place? If you believe this, you believe that bankers would knowingly lend money to people who couldn't repay it, thus guaranteeing a loss on each of these transactions. I thought bankers were greedy? Fool.
Your first Palin link doesn't include any mention of her. It's about the auto bailout. The second (the video), I stand corrected, I suppose. Thanks? The fact remains that Barack Obama was elected President on promises he clearly will not keep and you don't really have a response for the substance of what I wrote. Because I'm right. Not disingenuous or ill-informed. Right. Correct me if I'm wrong. $1.75 trillion deficit - not including the $1 trillion (interest payments) 'stimulus' package and the earmark-filled (I thought no earmarks?) $410 billion spending bill they passed this week. These are facts, no?
On Cheney, I stand half-corrected. He went to the Hill and browbeat a bunch of Congressman behind closed doors. Big deal. Still, I don't recall him playing a high-profile role in selling TARP to the public Neither Palin, for that matter, your link to a three-minute segment of an interview w/ Katie Couric notwithstanding. So on second thought, I don't stand corrected. In either case, neither Dick Cheney nor Sarah Palin is making these decisions these days. Your guy is. And he's not doing what he said he would. Change!
By the way, I hated TARP and made clear that I did at the time. Ditto the auto bailout. I'm about as harsh a critic of Bush as you'll meet these days on matters related to economics. What views do you hold that are not approved by politicians? Are deficits OK when Democrats are President? Always happy to debate ideas with fellow citizens, that's near-impossible to do with disciples.
Finally, I don't "blame" anyone for the mortgage meltdown other than economically-illiterate, demagogic politicians - R or D - who exploit citizens to further their own personal ambitions. Who said anything about the color of anyone's skin? Only you, my friend...
fmpolitics.com - Free Market Politics
It was a REGULATION that created subprime lending in the first place. Minus CRA and 'redlining,' banks would make loan decisions on the basis of a prospective borrowers' ability to repay. Period.
Fannie and Freddie had nothing to do with the predatory lenders going door to door in poor neighborhoods, signing up people to loans they knew they couldn't pay back (liar loans, anyone?) just so they could collect the originiation fee, sell the loan to an unsuspecting investor, and move on. I saw them at work in Cleveland. If you really believe the above statement, you've been brainwashed into believing GOP talking points. Fannie and Freddie did not underwrite the worst of the predatory loans, Wall Street did that.
And yes, the $1.75 Trillion does include the cost of the stimulus and the omnibus spending bill, which has only passed the House, not the Senate. I'm not happy with it either, but that's a story for another post.
No one, particularly not Wells Fargo, denied Cleveland and Baltimore area African American borrowers who qualified for prime loans the prime loans they applied for and instead only offered them subprime loans. No one at all. Just say it a hundred times to yourself and you believe it after a while. Now go vote Republican. Break!
I don't see your point. I don't know enough about the Wells Fargo matter to offer a particular view on the situation but I don't see how a discussion about mortgage lending requirements morphed into what is written above.
Racial discrimination is evil. An evil, I note, that is not a matter of partisan politics in the manner you imply (see former Klansman/current Democrat senator Robert C. Byrd, for example).
If your point is that exposing taxpayers to multi-billion-dollar losses by forcing lenders to make risky loans on bases other than the creditworthiness of individual borrowers and guaranteeing them with public dollars is the best means to address discrimination-related injustices of the past (and some present, sadly), I don't agree.
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A serious point and question for your consideration. These loans were extended to people who couldn't repay them. On this, we agree.
If it wasn't Fannie and Freddie taking these assets off the books of lenders in the manner I described above ("This is a joke, right?"), what was it that made banks extend these loans? Seriously, what was it? Bankers are just into losing money on crappy investments? Of course not.
What made it all possible? What you are asserting is that banks knowingly made investments that were destined to fail and that there was no guarantee from politicians that taxpayers had bankers' backs via Fan/Fred. Just a big loss-fest, from profit-seeking institutions on behalf of profit-seeking investors. This makes absolutely no sense under any circumstances.
If I have misunderstood your point, please clarify.
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FMP, great question. Let me explain it to you.
If it wasn't Fannie and Freddie taking these assets off the books of lenders in the manner I described above ("This is a joke, right?"), what was it that made banks extend these loans? Seriously, what was it? Bankers are just into losing money on crappy investments? Of course not.
What was it? Well, these banks were originating the loans, collecting the origination fees, chopping the loans into tiny pieces and packaging them as mortgage-backed securities (unregulated thanks to Phil Gramm, of course), and re-selling them to investors. Moody's, S&P, and the rest stamped these things AAA so they sold for good prices.
If borrowers defaulted, the theory is no money would be lost because housing prices were rising and so homes could be resold without losing money. Lots of money made by everyone as long as housing prices continued to rise.
Banks loved the things because they could originate the loan, collect a hefty origination fee, and then resell the loans to investors. When the market for these securities collapsed, however, lots of banks were left holding the bags on these loans, and that's why everyone is running scared. That's what took down National City.
Read this great article for more.
Nick:
Your joking (I think?) reference to 'explaining' the situation to me aside, my question was rhetorical. You have pretty much validated everything I wrote above on the matter.
Fannie Mae and Freddie Mac are the entities that buy these mortgages from lenders and bundle them for re-sale to investors. Voila, mortgage-backed securities. This was/is the whole purpose for the creation of/administration of the REGULATIONS that establish(-ed) Fan/Fred and their role in the housing market in the first place. Taxpayers guarantee the investments. Private gains, socialized losses. We can agree, I suspect (hope?), this is neither de-regulated, free market capitalism nor acceptable.
The relatively minor banking law you so frequently cite that was sponsored in the U.S. Senate by Phil Gramm was backed by 37 (if I recall correctly) Senate Democrats and 162 (if I recall correctly) House Democrats and signed into law by President Clinton. If you hold the view that the repeal of Glass-Steagall created this mess (I happen not to agree), at least tell the rest of the story.
Back to MBS's, specifically in regard to what you wrote:
"Banks loved the things because they could originate the loan, collect a hefty origination fee, and then resell the loans to investors."
Yes. And via the Fan/Fred money game, they did it all with our dollars - as we have all come to learn. That's my whole point. This isn't capitalism, it's cronyism, and we're paying dearly for it. Sick, isn't it?
fmpolitics.com - Free Market Politics
Fannie Mae and Freddie Mac are the entities that buy these mortgages from lenders and bundle them for re-sale to investors.
No they weren't. They had ZERO to do with it. Absolutely nothing. It was Wall Street that was doing that. Did you even read the article I linked?
It's disappointing that you're reading the GOP talking points instead of looking at the facts.
When the former CEO of Lehman Brothers was hauled before the House Banking Committee, and asked, under oath, what role Fannie and Freddie played in his company's demise, by a GOP Congressman, his answer was "de minims." I think that speaks for itself.
Here's a couple of key excerpts from that article I linked, the End of Wall Street:
One more:
"No they weren't. They had ZERO to do with it. Absolutely nothing. It was Wall Street that was doing that."
You're just flat, completely wrong about this.
http://www.sec.gov/answers/mortgagesecurities.htm
"Mortgage-backed securities (MBS) are debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into pools by a governmental, quasi-governmental, or private entity. The entity then issues securities that represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization.
Most MBSs are issued by the Government National Mortgage Association (Ginnie Mae), a U.S. government agency, or the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), U.S. government-sponsored enterprises. Ginnie Mae, backed by the full faith and credit of the U.S. government, guarantees that investors receive timely payments..."
"More complicated MBSs, known as collaterized mortgage obligations or mortgage derivatives, may be designed to protect investors from or expose investors to various types of risk..."
Again, it is taxpayers' implicit - now explicit, as we have witnessed - guarantee of these investments that makes them attractive. But for that, no rational profit-seeking investor or institution would buy or have bought any of this junk in the first place. That's not a talking point, it's economic reality. And it's outrageous that all this took place with our money on the line. Democrat. Republican. Whatever.
fmpolitics.com - Free Market Politics
...it isn't junk. And that's why most investors bought them.
Just because some or even most MBS are from Fan and Fred doesn't mean that Wall Street wasn't issuing their own. And if you read that article, you'll discover that they were, and unlike Fan and Fred, there was no limit to the size of the loans Wall Street could make (remember that until after the crisis, Fan and Fred could only issue loans for up to $417K. Anything above that was a "jumbo loan" and only the Street was doing that).
The real question that needs to be addressed is why the rating agencies were stamping these things AAA.
On one hand, if it's stamped AAA, it's not junk, you assert.
On the other hand, "the real question that needs to be addressed is why the rating agencies were stamping these things AAA."
Yes. I agree.
The fact remains, investors bought them because they were taxpayer-guaranteed. The loans were extended on the basis that they would be bought up by GSEs back by "full faith and credit" and so forth. If not for that, they would never have been extended. Because they were (are) losers and as I wrote, no rational profit-seeking investor would knowingly throw cash at a loser if not for some other extenuating circumstance. This was a massive rip-off, perpetrated by (some of) the political class; the Fannie Mae/Freddie Mac shell game provided that circumstance.
This isn't as complicated as agenda-pushers would have us believe, just inconvenient to certain political narratives...
fmpolitics.com - Free Market Politics
The fact remains, investors bought them because they were taxpayer-guaranteed.
Nope. The MBS's issued by Goldman Sachs, Morgan Stanley, Lehman Brothers, etc. were not taxpayer guaranteed. As soon as you get that through your skull, we can have a rational discussion. Until then, there's no point in arguing further.
The GSE MBSs most certainly were. There is no denying this. And as I demonstrated earlier with the link to the SEC website, these account for the vast majority of MBSs.
As for Big Finance's MBSs - the minority of these investments - look at what has happened since October with all these bailouts and try telling anyone with a brain that these were not ultimately guaranteed by taxpayers. As I wrote, this is not capitalism. It is cronyism. Both parties. Demonstrably so. Exactly why do you think Democrats and Republicans in Washington have pumped trillions of our dollars into these institutions since last fall?
Good Lord, Nick. Raise your game. I've never met you, but I suspect from your writing that you're a lot smarter than this Republicans-always-bad, Democrats-always-good BS.
That said, I'll back away as this is showing signs of deteriorating and these things always end in people hurling mindless insults and other inanities. Have a great weekend, y'all.
fmpolitics.com - Free Market Politics
As for Big Finance's MBSs - the minority of these investments
First of all, thank you for acknowledging that not all MBSs were issued by Fannie and Freddie. The Big Finance MBSs may be the minority of these investments but they were the WORST of these investments, as is made clear in the article "The End of Wall Street."
Look at what has happened since October with all these bailouts and try telling anyone with a brain that these were not ultimately guaranteed by taxpayers. As I wrote, this is not capitalism. It is cronyism.
That's a lot different from suggesting every last MBS was issued by Fannie and Freddie. Ultimately, I agree with you however. And so does the former CEO of Salomon Brothers:
And as I said way back in our discussion thread, the only way to prevent this from happening -- this being the normal rules of capitalism no longer applying to these firms because they are " too big to fail" and therefore must be bailed out by the government -- is government regulation in the first place.
That said, I am off to a meeting.
It has come to my attention that throughout this argument I was using an incorrect term. While most mortgage backed securities are issed by Fannie and Freddie, the majority of the debt securities had a different name: collateralized debt obligations or CDOs. These were what Wall Street was churning out.
Either way, the point remains: Wall Street dumped these CDO's on unsuspecting investors with the help of the rating agencies, and they used predatory lending practices to sell the mortgages. This enabled them to collect a hefty origination fee and pass the risk on to a third party investor.
It's also important to note that CDOs don't have to be backed by mortgages. They can be backed by credit card debt, student debt, car loans, you name it. That means things might get worse as the recession causes more and more defaults.
I'm planning a seperate post about this.
I did read the OPINION piece you linked to. It was an OPINION piece about Wall Street recklessness. And I agree, Wall Street was reckless in many ways (ironically because in regard to the matter we're discussing, they were playing with other people's - taxpayers' - money...). But I know facts that were not contained in that OPINION piece. So I pointed them out.
If I linked to an OPINION piece penned by Daniel Henninger, for example, and offered his OPINIONS on related matters as hard truth to the exclusion of other truths, you would laugh at me. Really, I'm starting to wonder why I bother commenting on this site...
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I disagree with your characterization of that article as an opinion piece. It's a story by the author of one of the most famous books detailing the excesses of Wall Street, Liar's Poker, telling us how what he predicted 20 years ago finally came true.
It's a story about a guy who figured out what Wall Street was up to with these bullshit mortgages, short sold the companies in question, and made a fortune. Are those dollars in his bank accounts opinions?
My God man, have the GOP talking points about Fannie and Freddie penetrated so deep into your skull that you can't read anything contradicting them without dismissing it?
http://www.google.com/hostednews/afp/article/ALeqM5jpajAHlDBOCKiyS45PeaEQICHF3g
Another $60 billion loss (and new bailout request) for Fan? Who's paying for all this? For whose benefit? And at what point do we conclude (I'm already there) that government pushing homeownership on otherwise uninterested, unqualified (according to sound lending principles and market - not politically - oriented decision-making processes) citizens with taxpayer cash isn't such a good idea?
Just a few thoughts. More at the links (even a little Republican-bashing!):
http://fmpolitics.blogspot.com/2009/02/senate-republicans-terrible-mortgage_07.html
http://fmpolitics.blogspot.com/2009/02/ignored-lessons-of-history-part-ii.html
http://fmpolitics.blogspot.com/2009/01/chart-of-day-too-many-people-own-homes.html
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