http://www.nhinsider.com/nhigb/Copyright NHInsider.com 2006-2007en-USSquarespace Site Server v5.0.0 (http://www.squarespace.com/)smrstraussThu, 09 Oct 2008 01:25:00 +0000http://www.nhinsider.com/nhigb/2008/10/8/the-bush-economy.html#comments13961:612487:comment/2120652
Banks around the world are going belly up. We are hearing about trillions of dollars of investments in suspect “credit default swaps,” high leverage by banks making leveraged buyout loans, assets held “off balance sheet” so investors would not hear about them, mortgage-backed paper rated at AAA when it should have been DDD, and according to this blog, it is all caused by loans made to poor people. To be sure, some mortgage loans made to poor are now in default, but can you show with statistics that the rate of default of the poor is higher than the middle class? Or, the rich (see some examples of loans made to Wall Street leaders below.)

And yes, in 2004, four years ago, the Democrats did not see that there was a problem.

Do you suppose that if a Democrat had got up in 2004 and said that “credit default swaps should be regulated” or that AIG was risky, any Republican would have listened to him? And the Republicans were in charge of Congress during the time when the Democrats were said in this article to have blocked legislation. How did the minority party block legislation without the support of members of the majority party?


The following two articles destroy the MYTH that Fannie and Freddie were the main cause of the crisis:


First

From the Wall Street Journal

OCTOBER 1, 2008

The GOP Blames the Victim
Capitalism sure is fragile if subprime borrowers can ruin it.
By THOMAS FRANK


Two weeks ago, I wrote that the breakdown of the nation's financial industry was undeniably a self-induced injury; that it would finally force conservatives to own up to the wrongheadedness of their deregulatory project; that they couldn't possibly blame the disaster on any of their traditional bogeymen…..

There is no doubt that Fannie and Freddie enabled the subprime neurosis, but for certain conservatives they are virtually the only malefactors worth noting. The dirge goes like this: Fannie and Freddie were buying up subprime mortgages, and they were doing it for (liberal) political reasons. Mortgage originators thus had no choice but to hand out mortgages like candy. Had market forces been in charge, loans would, no doubt, have been administered with a rigor and sternness to make John Calvin blanch.

I asked Bill Black, a professor of economics and law at the University of Missouri-Kansas City and an authority on the Savings and Loan debacle of the 1980s, what he thought of the latest blame offensive. He pointed out that, for all their failings, Fannie and Freddie didn't originate any of the bad loans -- that disastrous piece of work was done by purely private, largely unregulated companies, which did it for the usual bubble-logic reason: to make a quick buck.

Most of the mistakes for which we are paying now, Mr. Black told me, were actually made "by four entities that under conservative economic theory should have exercised effective market discipline -- the appraisers, the originators of the mortgages, the rating agencies, and the investment banking firms that packaged the subprime mortgage-backed securities." Instead of "disciplining" the markets, these private actors "served as the four horsemen of the financial apocalypse, aiding the accounting fraud and inflating the housing bubble." It is they, Mr. Black says, who "turned a crisis into a catastrophe."

Ah, but truth is no ally to a conservative with his back to the wall. So much more helpful are the trusty narratives on which the movement was built. So when we have dispatched this first canard, we learn from other conservatives that it is the sub-prime people who are to blame; that by taking out loans they couldn't possibly pay off, these undesirable borrowers have ruined us all.

There is no way to measure the number of people who took out mortgages they knew they couldn't afford, of course, but for what it's worth, a 2007 report by the Mortgage Bankers Association reports that the FBI estimates "80 percent of all reported fraud losses arise from fraud for profit schemes that involve industry insiders." That means the lenders, not the borrowers.

Just imagine the flights of fancy that the theory of borrower malevolence and Wall Street victimization requires conservatives to take: All these no-account folks, you see, got together and forced investment banks to engineer subprime mortgages into highly leveraged securities. Then they tricked all manner of hedge funds and pension funds and financial institutions into buying these lousy products. Just for good measure, these struggling homeowners then persuaded bond-rating agencies to misrepresent the risk associated with these securities.

Now imagine what such a fantastic scheme, if true, would mean for capitalism itself. This economic system, glorified by all, dominates the globe today, bidding prices up and down, forcing entire nations to change their ways to better suit its needs, and yet it is so fragile that, when challenged by the weakest members of society and a handful of community organizers, it simply crumbles. Thank goodness the Soviets never figured this out.

End Quote

Second article, from Slate

Subprime Suspects
The right blames the credit crisis on poor minority homeowners. This is not merely offensive, but entirely wrong.
Slate Magazine
Daniel Gross

Posted Tuesday, Oct. 7, 2008, at 2:08 PM ET

We've now entered a new stage of the financial crisis: the ritual assigning of blame. It began in earnest with Monday's congressional roasting of Lehman Bros. CEO Richard Fuld and continued on Tuesday with Capitol Hill solons delving into the failure of AIG.

On the Republican side of Congress, in the right-wing financial media (which is to say the financial media), and in certain parts of the op-ed-o-sphere, there's a consensus emerging that the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage giants, and the Community Reinvestment Act, a law passed during the Carter administration. The CRA, which was amended in the 1990s and this decade, requires banks—which had a long, distinguished history of not making loans to minorities—to make more efforts to do so.

The thesis is laid out almost daily on the Wall Street Journal editorial page, in the National Review, and on the campaign trail. John McCain said yesterday, "Bad mortgages were being backed by Fannie Mae and Freddie Mac, and it was only a matter of time before a contagion of unsustainable debt began to spread." Washington Post columnist Charles Krauthammer provides an excellent example, writing that "much of this crisis was brought upon us by the good intentions of good people."

He continues: "For decades, starting with Jimmy Carter's Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac—which in turn pressured banks and other lenders—to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity." The subtext: If only Congress didn't force banks to lend money to poor minorities, the Dow would be well on its way to 36,000. Or, as Fox Business Channel's Neil Cavuto put it, "I don't remember a clarion call that said: Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster."

Let me get this straight. Investment banks and insurance companies run by centimillionaires blow up, and it's the fault of Jimmy Carter, Bill Clinton, and poor minorities?

These arguments are generally made by people who read the editorial page of the Wall Street Journal and ignore the rest of the paper—economic know-nothings whose opinions are informed mostly by ideology and, occasionally, by prejudice. Let's be honest. Fannie and Freddie, which didn't make subprime loans but did buy subprime loans made by others, were part of the problem. Poor Congressional oversight was part of the problem. Banks that sought to meet CRA requirements by indiscriminately doling out loans to minorities may have been part of the problem.

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

Here's why.

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

Second, many of the biggest flameouts in real estate have had nothing to do with subprime lending. WCI Communities, builder of highly amenitized condos in Florida (no subprime purchasers welcome there), filed for bankruptcy in August. Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities. The multiyear plague that has been documented in brilliant detail at IrvineHousingBlog is playing out in one of the least-subprime housing markets in the nation.

Third, lending money to poor people and minorities isn't inherently risky. There's plenty of evidence that in fact it's not that risky at all. That's what we've learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as the New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York's outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project's 3,900 homes. That's a rate of 0.25 percent.

On the other hand, lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Bros. or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity. And here, again, it's difficult to imagine how Jimmy Carter could be responsible for the supremely poor decision-making seen in the financial system.

I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33 to 1, which instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients' money, and that required its septuagenarian CEO to play bridge while his company ran into trouble.

Perhaps Neil Cavuto knows which CRA clause required Lehman Bros. to borrow hundreds of billions of dollars in short-term debt in the capital markets and then buy tens of billions of dollars of commercial real estate at the top of the market. I can't find it. Did AIG plunge into the credit-default-swaps business with abandon because Association of Community Organizations for Reform Now members picketed its offices? Please. How about the hundreds of billions of dollars of leveraged loans—loans banks committed to private-equity firms that wanted to conduct leveraged buyouts of retailers, restaurant companies, and industrial firms? Many of those are going bad now, too. Is that Bill Clinton's fault?

Look: There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb-lending virus originated in Greenwich, Conn., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington, D.C. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them—frequently using borrowed capital.

At Monday's hearing, Rep. John Mica, R-Fla., gamely tried to pin Lehman's demise on Fannie and Freddie. After comparing Lehman's small political contributions with Fannie and Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise. Fuld's response: "De minimis."

Lending money to poor people doesn't make you poor. Lending money poorly to rich people does.

End quote]]>Steven J. ConnollyWed, 08 Oct 2008 22:36:41 +0000http://www.nhinsider.com/nhigb/2008/10/8/the-bush-economy.html#comments13961:612487:comment/2120366
What thousands of companies failing? Sure, a few internet speculative gambling ventures failed it was the nature of the market. Alot of ventures however, were very successful in creating economic value and jobs. Even here in New Hampshire.]]>Bill GnadeWed, 08 Oct 2008 21:55:42 +0000http://www.nhinsider.com/nhigb/2008/10/8/the-bush-economy.html#comments13961:612487:comment/2120263
Very, very interesting. Thank you.

Peace,

BG]]>Matt SimonWed, 08 Oct 2008 17:27:24 +0000http://www.nhinsider.com/nhigb/2008/10/8/the-bush-economy.html#comments13961:612487:comment/2118728
Or if you're fed up with Republicans who have proven themselves to be just as ineffective as Democrats, vote Libertarian!

In particular, why would anybody waste a vote on Joe Kenney? Libertarian Sue Newell is the principled alternative, and if she gets 4%, the Libertarian Party regains major party status in New Hampshire.

If we've learned one thing over 200+ years, it's that the two-party system does not produce answers to tough questions until it is too late. Sorry Bob, but we've got to stop thinking good government comes in neatly-wrapped packages...

Matt]]>Dave JarvisWed, 08 Oct 2008 17:18:50 +0000http://www.nhinsider.com/nhigb/2008/10/8/the-bush-economy.html#comments13961:612487:comment/2118709
Amen!]]>Peter BearseSat, 04 Oct 2008 20:37:38 +0000http://www.nhinsider.com/nhigb/2008/9/29/the-big-bailout-1.html#comments13961:612487:comment/2092140Peter BearseThu, 02 Oct 2008 13:15:46 +0000http://www.nhinsider.com/nhigb/2008/9/29/the-big-bailout-1.html#comments13961:612487:comment/2065522
As for my own afterthoughts, given the evolving debate, I've been reflecting on the shortcomings of my quickly composed essay and its shortcomings. I've come to realize that the term "bailout" is a bad label that has inhibited our ability to face the real nature of our financial crisis, together, Newt Gingrich has proposed that we change the "bailout" bill so that it becomes a "workout." I agree, so I'd like to see the final package include not only the insurance option that I and others have proposed but also substitute loans for struggling companies rather than buyouts. On balance, I still believe an "equity" rather than a "debt" solution is better in principle but the problems of implementing the workout plan (using loans) would be less than those of the bailout plan (giving equity-type money for bad assets). If necessary, loans can be convertible.

It's also necessary to relax or delete the "mark to market" accounting rule, as proposed by Cox, head of the SEC. PETER]]>Sam FarquharTue, 30 Sep 2008 03:03:59 +0000http://www.nhinsider.com/nhigb/2008/9/29/the-big-bailout-1.html#comments13961:612487:comment/2057683
All economic pundits from such high seats of learning as Princeton University, Harvard University, Stanford University and Wall Street are not trying to name the fundamental cause of the current problem. They are all beating round and round the bush but not wanting to name the ugly word that is really causing this colossal economic problem. It is a four letter word named “JOBS” in the English lexicon. Today’s artificially created economic crises actually stems from the manipulations of the market by a mighty few to the detriment of the lowly weak.

It all emanated from the lack of jobs of people who actually went and borrowed from the sub prime market because they had no way of seeking sustenance but turn to easy money by mortgaging either their houses or their businesses with whatever residual value there was because the basic requirement of the mom and pop lender was no income verification and no background check. The ruthless lenders charged the desperate people huge closing fees and charged them upto 35% interest rates in almost all cases. The government of the lobbyist, by the lobbyist and for the lobbyist turned a blind eye to one of the most irresponsible money lending practices in the market place. The worst irony is that till today not a single mom and pop lender or the companies that backed these sub prime mortgages have gone to jail. That is the system that we defend.

These jobless people were not even on the radar screen of the labor department statistics and hence they were not counted in the employment market. If they returned to work it was at McDonalds or Wall Mart reflecting minimum wages in the job market. That figure was surreptiously counted as a lofty figure to beam to the world and the money market that the jobless rate stood steady or good. Thanks to Mrs. Elaine Chao the great labor secretary, who spent most of her time, cutting ribbons and giving lectures. Congress never asks them for their quarterly performance report. In the private sector, we have to submit our quarterly performance reports to our bosses for our job evaluations, promotions, salary increases and bonuses. These highly paid comfy sitting people whose salaries are paid by the taxpayer money is never brought before the benches of congress unless or until there is a crisis in their department that has leaked into the attention of the press and the public.

The sub prime market truly seemed to follow the fundamental ethos of the capitalist ideology i.e. Freedom to practice sale to whoever has the ability to buy goods or services in whatever way possible. This practice totally deliberately escaped the attention of the regulators and the government because it was all backed up by the Wall Street geniuses. Just imagine if the mafia did the same thing of lending money at 35%, then it would be characterized as loan sharking. But when the Wall Street gurus engaged in this practice, it was named as sub prime mortgage!

Frankly speaking all the players at Wall Street are nothing but common street thugs. The only difference between them and the mafia is that they sit in ivory towers surrounded by high tech gadgets and high tech communication network and they wheel and deal with the high and mighty and they have Mr. Henry Paulson former CEO of Goldman Sachs, now sitting as Treasury Secretary in the Federal Government (which mind you is an unelected post with unlimited monetary powers) to watch the coop for them.

If this analogy of street thugs is not right then what would you call money lending without income verification and background checks? The small street side mortgage lender was the front man for the wall street honchos to do their dirty job to lend out money at 35% interest rates without income verification and without background checks. All they needed was collateral even if it had only residual value.

The unemployed guy whose well grounded and traditionally characterized manufacturing and service jobs in the economy was no where available anymore. It just got outsourced by greedy businesses who wanted to fatten their pockets with huge margins by outsourcing it to cheap labor markets like China and India. What were the locals supposed to do when the private entrepreneur shifted their entire manufacturing plant and machinery to places like Mexico, China and India where they got them to manufacture sub standard and cheap assembly line products at massive volumes at very cheap prices so that they thought they would be able to sell it back to the same unemployed guy in the United States whose buying power had diminished to zero.

It was Henry Ford the founder of the Ford Motor company who when he built his automobile plant in Detroit, Michigan pointed out to the simple theory that if he built the plant around the local workers in his district, then he would have put enough money in their pockets so that they in turn would have the ability to buy his cars. Isn’t that philosophy still true today? But greedy entrepreneurs the likes of Microsoft, Intel, IBM, Accenture, HP, Oracle and others started sending out the work overseas to have them done cheaper so that they could fatten their margins and sit pretty comfortable in their own domains totally oblivious with a don’t care attitude to what happened to the local American whose job got outsourced. Isn’t that akin to what Marie Antoinette did in France?

Just as the Government wants to intervene vehemently in the AIG, Lehman, Bear Stearns and others downturn, they should similarly vehemently intervene in the stoppage of the outsourcing of American jobs overseas. It should be the constitutional responsibility and the moral duty of all American companies to ensure that they keep their own citizens employed first. Without employment for the local citizens, how can they have the buying power or the borrowing power to further move the economy forward? This calamity and meltdown today is the direct effect of the outsourcing of our jobs. The government must first guarantee forgiveness of all the mortgages of the common man. Those 700 billion dollars could easily build and repair all our dilapidated roads and bridges and create a total renaissance in our economy. Let AIG, Lehman, Freddie and Fannie and others at Wall Street, simply die and let us bring to justice all the manipulators who did this to us.

What a shame, we outsource the majority of our manufacturing and service jobs to China and now we are shamelessly borrowing billions of our own money from the same people at high interest rates. While their economy and their lifestyle is booming with our money and our jobs, our economy is tanking because what is processed and manufactured in China has no buyers in America. Americans without jobs went on a borrowing spree in the sub-prime market where there was no income verification and no background checks just to feed and clothe themselves and now this calamity.

The President and his coterie of advisers who consist mainly of lobbyists are once again playing the smoke and mirror game with the people of America. Let it be very clear, that the majority of the common folks in America who have their 401 investments are mostly invested in the manufacturing and service industry. Their money is not invested with Lehman, AIG or Bear Stearns. It is the pitiful money managers of state pension funds who played into the hands of the likes of Lehman, AIG, Bear Stearns, Morgan Stanley and Merrill Lynch that they are now panicking and asking us to bail them out because they squandered our nest egg savings in the Pension Plan. What a catharsis this is. These companies are mere Security companies whose modus operandi is based on greed and fear. Everyday they live on this mantra alone. WHY SHOULD WE THE TAX PAYER BAIL OUT GAMBLERS ON WALL STREET?

The truth of the matter is that the guys whose vested interests and millions of dollars of borrowings are those that the President’s father Bush 48 whose conglomerate the Carlyle Group and others which makes heavy armored tanks and other armaments in the Iraqi front are the ones whose money has been squandered by Lehman, AIG and Bear Stearns. We the tax payers must not come to their succor. Let them go to their demise.

The machinations of the market is based on greed and fear. The American tax payer’s money should not in any way go to support greed and fear. We hated the communist and the Socialist. Now why are we practicing Socialism in a capitalist country? This is pure Socialism plain and simple. The Republican Party stands for less government and more personal freedom and less government regulation and less government involvement in the lives of the market and the people. We are going against our fundamental ideology that of capitalism. President Bush and his gang is once again trying to hoodwink the American public and he is pressuring the people’s representatives to go along with him just as he did in pressuring them to vote for the Iraq war, which was based on lies, falsehoods and demagoguery. It is high time, the public of the United States came out of their closets on to the streets and have a people’s court trial of this President and put him in jail. He has unilaterally put this country on the downhill track through the massive military spending in the Iraq war which was not justified and hence he is accountable and we the people must take over the citadel now and call for the trial of President Bush immediately. We must vote out every Congressman and Senator who votes for this bill. Enough is enough. The American Public cannot swallow this type of bitter pills anymore.

The SEC chairman must resign immediately and a thorough investigation should be carried on by the FBI of all the corporate leaders and traders. Money is definitely sitting with some crooks somewhere. We have to unearth it. It did not and cannot disappear into a black hole. We have to put all of these crooks and manipulators in jail and throw away the keys forever.

Sam Farquhar
Sam.farquhar@yahoo.com]]>RowlandMon, 29 Sep 2008 16:41:46 +0000http://www.nhinsider.com/nhigb/2008/9/26/the-courtesy-of-a-straight-answer.html#comments13961:612487:comment/2055707
I'm not going to delete your comments. I don't work that way. I want there to be no doubt that you NEVER ANSWERED THE QUESTION.

Call me a liar all you want but by refusing to give a straight yes or no answer to a simple yes or no question you are PROVING YOURSELF the liar.

And thanks for going on record supporting Carol Shea-Pelosi.

I stand by everything I say about you. But where do YOU stand? I guess it will just have to leak out slowly by your various slips.]]>Steve Mac DonaldMon, 29 Sep 2008 01:21:51 +0000http://www.nhinsider.com/nhigb/2008/9/26/the-courtesy-of-a-straight-answer.html#comments13961:612487:comment/2054080
"No soldier shall, in time of peace be quartered in any house, without the consent of the owner, nor in time of war, but in a manner to be prescribed by law"

Mr. Sylvia,I realize from our limited encounters that you have little value for my opinion becasue you repeatedly point out how much more politically experienced you are than I am.

So maybe you could invoke some of that tangible political experience to explain to me how the third amendment relates to property as you have outlined it above?]]>