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American companies? Who needs ’em ...
Posted by: McQ
Irony is sometimes too sweet.
Barack Obama constantly rails against companies who send jobs overseas. But when it comes to making commemorative coins for his "coronation", only a foreign company will do:
A company in Birmingham's Jewellery Quarter is making commemorative coins for American presidential hopeful Barack Obama.
[...]
The coins already sold to the Democrats will be presented to the senators, congressmen, governors and other politicians they are being given to within the next two weeks.
[...]
When they got in touch with the Democrats the party jumped at the chance. And the coins have proved such a hit that locally produced versions have already been launched to compete with the UK originals.
The coins show Senator Obama's face, along with a picture of the White House and the legend "President of the United States of America".
Politics is about perception. Two things most voters don't like is hubris and talking the talk, but not walking the walk. Sometimes the most seemingly insignificant thing can hurt a candidate and a campaign. I have no idea if this is one of them, but it ought to be.
http://www.qando.net/
. Senator Ron Paul- says the issue of potential price fixing is reminiscent of the Great Depression; says we need to avoid price fixing; says idea of credit creation is not the answer; says efforts so far are to keep prices up but the natural flow of the market is for prices to fall and housing prices should be allowed to fall; asked where the authority comes from for the $700 bln: Bernanke says there is not going to be any price setting; one needs to balance intervention with economic collapse; notes banks were allowed to liquidate which was not helpful; does not expect inflationary pressures from the act; says Treasury has the authority from Congress to precede with this.
Paul is spot on here- too bad his foreign policy is just not workable
It would in essence be price fixing- the toxic debt we taxpayers will be buying will have to be overpriced or the bailout won't work the companies would go under anyway
Enron was allowed to fail and I'm sure they were involved via derivatives w/ as many counterparties as AIG
These continued bailouts will not dissuade the risky behavior that got us into this mess
House Republican Policy Committee Chairman Thaddeus McCotter is proposing a ten-point private recapitalization plan to restore stability to the financial markets, in opposition to the Bush administration's proposed bailout plan that Congress is currently considering.
Over the past three days, conservatives in Congress have raised serious doubts about the $700 billion Paulson Plan, and as Democrats have attempted to play politics with the plan, it now appears the Bush bailout may not be passed by the end of the congressional session, which is expected late Thursday or Friday. McCotter's plan is the most specific alternative on the House side and reflects criticism from such quarters as former Speaker of the House Newt Gingrich.
According to a senior House leadership aide, Minority Leader John Boehner has been attempting to rally GOP support for the Paulson Plan, with an expectation that some Democrats will not back it.
Below is the alternative plan as laid out in an email McCotter has sent out:
September 23, 2008
McCotter Opposes Paulson Plan;
Outlines Pro-Taxpayer, Private Recapitalization Plan
"Expedited American Recapitalization -- Now" Act
(EARN Act)
1. Expedited American Recapitalization -- Now (EARN) Proceedings: A sunset bill that makes available to financial institutions a pre-packaged recapitalization (EARN) proceeding in which debt forgiveness is expedited. (This is similar to expedited bankruptcy proceedings. The strike warrant price will determine values.)
2. Inducement to EARN Proceedings: To induce financial institutions to undergo EARN proceedings, future government recapitalization (if necessary) may not be offered to a financial institution which does not go through an EARN proceeding.
3. Incentivize Private Recapitalization: If, within a limited one year window (commencing upon this legislation's enactment into law), a person invests in (i.e., recapitalizes) a financial institution that has undergone an EARN proceeding, this investment over its lifetime is subject to a ZERO capital gains tax rate. If, within the same one year window, a person purchases a toxic asset, this investment over its lifetime is subject to a ZERO capital gains tax rate.
4. Government Backstop: If no private capital is forthcoming, the government can take a preferred equity stake in an EARN financial institution. No dividends may be paid to any other investor until the taxpayers' claim is redeemed with appropriate interest. The government shall also hold voting rights, as determined by the percentage of its equity shares owned, in an EARN financial institution only until such time as the taxpayers' claim is redeemed with appropriate interest. (This addresses CEO salaries and bonuses without permanently vitiating the private sector's setting of compensation.)
5. Distressed Homeowner Relief: 5% of all government recapitalization invested in an EARN financial institution must be dedicated to an across-the-board reduction in the face value of "toxic" mortgages. This will help keep people in their homes; stabilize the foreclosure crisis; and begin to stabilize and raise all homeowners' values.
6. Non-EARN Financial Institutions: Financial institutions choosing not to participate in an EARN proceeding, may wall off their toxic assets (as determined by the Secretary of the Treasury) which were purchased between December 2003 and August 2007. For these toxic assets, the current mark-to-market rule will be suspended and replaced with a more accurate three year rolling average mark-to-market; and for a fee, insurance of these toxic assets can then be purchased from the federal government. If, within the above referenced one year window a person purchases a toxic asset, this investment over its lifetime is subject to only HALF the capital gains tax rate applicable at present; if the capital gains tax changes, the toxic asset's purchaser possesses the option, upon alienating the toxic asset, of being taxed at the capital gains rate applicable at the enactment date of this legislation into law.
7. Market Transparency and Congressional Oversight: To ensure Market Transparency, the Secretary of the Treasury is empowered to examine any and all appropriate financial records at any time of financial institutions and individuals covered under this act; and Congress at any time may request of the Secretary of the Treasury any and all information required to protect the taxpayers' investment incurred under this act.
8. End "Too Big To Fail": Make an express commitment to a future, pro-active regulatory system in which a market share cap provision is imposed upon financial institutions to prevent future taxpayer bailouts and market meltdowns due to entities deemed "too big to fail."
9. American Families' Prosperity Package: Make an express commitment to further American families' prosperity in a free market future by enacting pro-growth legislation, including, but not limited to: an "all of the above" American energy security plan; income tax and capital gains relief; the repeal of Sarbanes-Oxley; suspend the mark-to-market rule for all financial institutions for six months and replace it with a more accurate three year rolling average mark-to-market; GSE privatization; and dollar stabilization. (See Gingrich and RSC proposals.)
10. Ultimate Cost to Taxpayers: ZERO!
http://www.spectator.org/dsp_article.asp?art_id=13933
McCain Goes Nuclear on the Times
We noted here that the McCain campaign called out the New York Times in a press conference, denying the Times' legitimacy as a news organization and calling it what it is: a partisan arm of the Obama campaign. Today, McCain's team amplified on that theme on its web site, in response to today's attack on McCain by the Times. Strong words, truly spoken:
Today the New York Times launched its latest attack on this campaign in its capacity as an Obama advocacy organization. Let us be clear about what this story alleges: The New York Times charges that McCain-Palin 2008 campaign manager Rick Davis was paid by Freddie Mac until last month, contrary to previous reporting, as well as statements by this campaign and by Mr. Davis himself.
In fact, the allegation is demonstrably false. As has been previously reported, Mr. Davis separated from his consulting firm, Davis Manafort, in 2006. As has been previously reported, Mr. Davis has seen no income from Davis Manafort since 2006. Zero. Mr. Davis has received no salary or compensation since 2006. Mr. Davis has received no profit or partner distributions from that firm on any basis -- weekly, bi-weekly, monthly, bi-monthly, quarterly, semi-annual or annual -- since 2006. Again, zero. Neither has Mr. Davis received any equity in the firm based on profits derived since his financial separation from Davis Manafort in 2006.
Further, and missing from the Times' reporting, Mr. Davis has never -- never -- been a lobbyist for either Fannie Mae or Freddie Mac. Mr. Davis has not served as a registered lobbyist since 2005.
Though these facts are a matter of public record, the New York Times, in what can only be explained as a willful disregard of the truth, failed to research this story or present any semblance of a fairminded treatment of the facts closely at hand. The paper did manage to report one interesting but irrelevant fact: Mr. Davis did participate in a roundtable discussion on the political scene with...Paul Begala.
Again, let us be clear: The New York Times -- in the absence of any supporting evidence -- has insinuated some kind of impropriety on the part of Senator McCain and Rick Davis. But entirely missing from the story is any significant mention of Senator McCain's long advocacy for, and co-sponsorship of legislation to enact, stricter oversight and regulation of both Fannie Mae and Freddie Mac -- dating back to 2006. Please see the attached floor statement on this issue by Senator McCain from 2006.
To the central point our campaign has made in the last 48 hours: The New York Times has never published a single investigative piece, factually correct or otherwise, examining the relationship between Obama campaign chief strategist David Axelrod, his consulting and lobbying clients, and Senator Obama. Likewise, the New York Times never published an investigative report, factually correct or otherwise, examining the relationship between Former Fannie Mae CEO Jim Johnson and Senator Obama, who appointed Johnson head of his VP search committee, until the writing was on the wall and Johnson was under fire following reports from actual news organizations that he had received preferential loans from predatory mortgage lender Countrywide.
Therefore this "report" from the New York Times must be evaluated in the context of its intent and purpose. It is a partisan attack falsely labeled as objective news. And its most serious allegations are based entirely on the claims of anonymous sources, a familiar yet regretful tactic for the paper.
We all understand that partisan attacks are part of the political process in this country. The debate that stems from these grand and sometimes unruly conversations is what makes this country so exceptional. Indeed, our nation has a long and proud tradition of news organizations that are ideological and partisan in nature, the Huffington Post and the New York Times being two such publications. We celebrate their contribution to the political fabric of America. But while the Huffington Post is utterly transparent, the New York Times obscures its true intentions -- to undermine the candidacy of John McCain and boost the candidacy of Barack Obama -- under the cloak of objective journalism.
The New York Times is trying to fill an ideological niche. It is a business decision, and one made under economic duress, as the New York Times is a failing business. But the paper's reporting on Senator McCain, his campaign, and his staff should be clearly understood by the American people for what it is: a partisan assault aimed at promoting that paper’s preferred candidate, Barack Obama.
It's a harsh but fair assessment, and one that will resonate with a large majority of Americans.
Posted by John at 7:38 AM | Permalink | E-mail this post to a friend |
http://www.powerlineblog.com/
Dubious Poll Conducted By Democrat Group With Michelle Obama On Its Board Says 83% of Americans are Dissatisfied With U.S. Foreign Policy
Here we have a textbook case in media bias. The Washington Post just essentially prints a release from a group called the Chicago Council on Global Affairs.
Americans expressed strong support for changes in U.S. foreign policy, with 83 percent saying it is "very important" to improve the standing of the United States in the world, according to a poll by the Chicago Council on Global Affairs. Here are other findings:
· Majorities said the U.S. should be ready to talk to Cuba (70 percent), North Korea (68 percent) and Iran (65 percent).
· 67 percent call for a U.S. withdrawal from Iraq within two years.
· 68 percent say the U.S. should join the International Criminal Court to try war crimes and other grave offenses.
Gee, basically sounds like Barack Obama and the far left's foreign policy wishes.
Now how convenient this story goes out worldwide without anyone bothering to question the source.
The survey comes as John McCain, the Republican presidential candidate, and Barack Obama, his Democratic opponent, prepare to square up on Friday in the first presidential debate. The poll, conducted in July, suggests that most Americans think the US should talk to hostile states – a view more closely aligned with Mr Obama.
Now has any reporter even bothered to check out the Chicago Council on Global Affairs?
Of course not.
Why, look who sits on the board:
Michelle Obama
Vice President for Community and External Affairs, The University of Chicago Medical Center
Hmmm. Might it occur to anyone this poll is, um, maybe just a wee bit biased?
Wait, it gets better.
Conducted by Knowledge Networks from Menlo Park California, the survey was carried out between July 3 and July 15 with a total sample of 1,505 American adults. The margin of error is between plus or minus 3.7 percent and plus or minus 2.5 percent.
Let's overlook for a minute that a poll conducted 10 weeks ago is just released now, but does the name Knowledge Networks rings any bells?
Well, it should. Just the other day they released a poll claiming a third of Democrats are so racist they won't be voting for Obama, using some rather unorthodox polling methods.
The AP-Yahoo News poll used the unique methodology of Knowledge Networks, a Menlo Park, Calif., firm that interviews people online after randomly selecting and screening them over telephone. Numerous studies have shown that people are more likely to report embarrassing behavior and unpopular opinions when answering questions on a computer rather than talking to a stranger.
Other techniques used in the poll included recording people's responses to black or white faces flashed on a computer screen, asking participants to rate how well certain adjectives apply to blacks, measuring whether people believe blacks' troubles are their own fault, and simply asking people how much they like or dislike blacks.
Interestingly, Sweetness & Light notes Knowledge Networks has a history of contributing to individuals of a certain party.
Take a wild guess which one.
So here you have a poll taken by a group partisan to Democrats released by a group with the Democrat nominee's wife on its Board of Directors finding results almost exactly in line with the Democrat nominee himself and nobody in the media questions it.
Now, does Barack Obama have the stones to cite this poll during his foreign policy debate with John McCain Friday? We'll see. We already know he has unlimited audacity.
Media bias? What media bias?
http://jammiewearingfool.blogspot.com/2008/09/dubious-poll-conducted-by-democrat.html
Interesting how Robert Reich has said that Glass-Steagall had nothing to do with the current crisis
THe root problem in this mess was giving loans to people who had very little chance of ever repaying them. IT was a dem motivated action to placate their base
"the rich don't spend their money"
Interesting hypothesis. Any backup for that assertion?
Wonder who's buying all those Lamborghini's?
IT would seem that even if they don't spend on consumer items they would invest their money- adding liquidity to the system allowing growth in the economy
Please explain who would determine just how rich the rich can become and how taking away someone's legally obtained wealth can be justified morally
Thanks
Obama And Ayers - What's The Story?
Marc Ambinder wonders, what is the point of the Obama-Ayers connection?
What "radical" ideas did Obama and Bill Ayres come up with to foist on the Chicago school system?
What specific projects -- "radical" projects -- did Obama work on with Ayres? Is there evidence that they collaborated and schemed to ... do anything "radical" together? Ever?
...
Is the real story here that Obama once served on the board of a liberal education charity?
Silent Running wonders whether Google has canceled Marc Ambinder's subscription:
WTF Ambinder? Google blocked at your place? | September 23rd, 2008
CY points out a classic lefty response - toss out a bunch of simple questions already answered in the material they don’t like, avoid the (repeat of the just as simple) answers, then hope something else comes along to change the subject.
My guess is that Google probably is blocked, since Ambinder resolutely misspells "Ayers" as "Ayres".
Steve Diamond, who has been advancing this story for months, has a summary here and a full paper devoted to the Ayers education agenda. From the summary:
Rather, I think there was a more pressing purpose at the heart of the award and the support it engendered among certain elite institutions and individuals in Chicago. Ironically, while Kurtz wants to tar Obama with the red paint brush of the 60s "radical" Ayers, an understanding of the real purpose of the CAC indicates a much closer political alliance between Obama and Ayers.
The grant application itself and much of what the CAC was up to emerged in the heated "Chicago School Wars" underway in that city from the late 1980s until the late 1990s. This war was for the control of Chicago's public schools.
One side in this war was controlled by Mayor Richard M. Daley, Jr., son of the legendary Mayor Daley.
And the other side was led by Ayers and a small group of reformers that had emerged several years earlier in 1988 during a battle to create a new power center in the Chicago schools, the so-called Local School Councils, or LSCs. The LSCs were an effort to rein in the power of unionized teachers, school principals and school administrators, in the wake of an unpopular teachers' strike in 1987.
This milieu around Ayers also included, as far back as the late 80s, Barack Obama and the Developing Communities Project (DCP) that had hired Obama as its Executive Director in 1985. The DCP was a leading participant in the campaign to establish the LSCs.
Thus, in fact, the "radical" Bill Ayers and his ally Barack Obama, a Democratic political activist and lawyer on the rise in Chicago, were engaged in an anti-union effort to influence the direction and nature of the entire Chicago public school system. It would lead them into a battle with Mayor Daley himself.
I don't know why the real story can't be the ongoing Obama cover-up of his once-close relationship with an unrepentant domestic terrorist. Isn't the cover-up worse than the crime? Obama and his campaign (including David Axelrod) have been providing false and misleading answers to questions about the Obama-Ayers relationship since February.
And this cover-up is continuing - there is an excellent chance that Obama and Ayers first allied in 1988 but the campaign has not admitted this and the press is not exactly pushing hard for answers.
We will see where Ambinder takes this. At a minimum, we hope he can figure out how to spell "Ayres".
AHH, YES: If you remember without looking that Fox News also mis-spelled "Ayres" you have been following this story too closely. But you will also remember that this is the only time Obama came close to describing his relationship with Ayers (it was a few days after the Philadelphia debate, in which Ayers was just a guy from the neighborhood. Here is Obama with Chris Wallace of Fox:
OBAMA: ...Now, Mr. Ayres is a 60 plus year old individual who lives in my neighborhood, who did something that I deplore 40 years ago when I was six or seven years old. By the time I met him, he was a professor of education at the University of Illinois.
We served on a board together that had Republicans, bankers, lawyers, focused on education, who worked for Mayor Daley. Mayor Daley, the same Mayor Daley probably who when he was a state attorney prosecuted Mr. Ayres’s wife for those activities, I (INAUDIBLE) the point is that to somehow suggest that in any way I endorse his deplorable acts 40 years ago, because I serve on a board with him.
Well, it is hard to characterize the Chicago Annenberg Challenge as having "worked for Mayor Daley" given its role in the Chicago school wars. And the suggestion is not that Obama endorses Ayers' domestic terrorism; the suggestion is that Obama and Ayers share a hard-left educational philosophy, that Obama has an odd taste in friends, and that Obama has been lying about his past.
http://justoneminute.typepad.com/main/2008/09/obama-and-ayers.html
Chairman Bernanke Finally Spills The Beans
It’s a Bailout
Posted by: Blackhedd
Wednesday, September 24, 2008 at 05:58AM
0 Comments
The attention of financial markets yesterday was fixed on the Congressional testimony of Treasury Secretary Paulson and Fed Chairman Bernanke. It was an up and down day, mostly down. Bernanke finally gave us an (elliptical) answer to one of the questions that most concerns Wall Street about the bailout plan: the valuation at which distressed mortgage-backed securities will be purchased. The other question, whether there will be a deal in Congress at all, remains unanswered.
Markets generally had a mostly negative tone yesterday, but well short of the near-panic conditions we saw on the night between Wednesday and Thursday last week. Credit and money markets remained very, very tight, but not at the edge of insanity. Stocks and commodities were generally lower, and interest-rate action was muted.
If you’ve been following my posts, you know that the most critical variable in the proposed purchase by the Treasury of up to $700 billion in MBS and related assets, is the valuation.
Get the valuation too low, and a lot of banks and Wall St. firms will bust because of the capital losses. Get it too high, and it’s a big transfer of wealth from the taxpayers to Wall St.
I’ve been trying to get some sense for how Paulson and Bernanke are seeing this, for days now. Yesterday in open Congressional testimony, Bernanke finally spilled it: the purchases are to take place at “a price close to the hold-to-maturity price.”
I’ll say it straight out: that would be far higher than the current market for these securities. The Troubled Asset Relief Plan is a bailout of Wall Street, at taxpayer expense. Pure and simple.
This puts everyone in a very difficult position, for two reasons: First, it’s morally wrong and politically a disaster. Second, it represents a misallocation of resources that can only hurt the economy later.
So as we’ve learned (after five days of asking the question), the objective of the plan is to reflate the economy. The idea is to pull money into the US economy from global investors, including foreign central banks, through heavy issuance of US Treasury debt.
The purpose of the capitalization is to counteract the effects of the enormous losses that everyone has suffered as housing prices have fallen.
The people who are at the point of the spear are the banks and Wall Street firms who own the notes on your house. They’re the ones with such large losses that they can’t pursue any new business.
But the body of the spear is everyone who owns a home and is paying on a mortgage. If you’re a homeowner, your situation is stable because you can keep paying that mortgage (unlike leveraged Wall St. firms who face bankruptcy). But you’re not going to be buying a whole lot of new goodies (and therefore expanding the economy) as long as the value of your house is lower than it used to be.
Apparently the hope is to flood enough additional capital through the system to loosen everything up. The downside risk if that this enormous misallocation of resources will produce high inflation over time, and restrain growth in the whole global economy.
I’m starting to see some of the dimensions of what is happening here. Bernanke, who is a deeply-knowledgeable expert on the subject of deflation, is going to err on the side of inflation.
And I can broadly agree with this. Inflation reduces the value of your savings, but deflation throws people out of work. Taken to an extreme, deflation frays the social fabric and leads to radical, even revolutionary tendencies in politics.
The other thing I think they’re trying to do is to manage this situation in light of the lessons learned by Japan’s horrible mismanagement of their housing deflation a decade ago.
We’ll all need a bit more time to figure this out, and I think Paulson understands that this deal can’t be done in a few days.
And that’s where it gets sticky. In terms of the politics, the whole situation is coming at an unfortunate time.
I’m not talking about the Presidential election, which is between a man (McCain) who is not known to believe in free markets, and another man (Obama) who is not known to believe anything at all. As far as economic management is concerned, the Presidential choice is nearly random.
I’m talking about Congress. They’re scheduled to get the hell out of Dodge on Friday, to go get themselves re-elected. Three more days isn’t enough time to get this deal done. Congress should ideally work on this for a month (forget about it), but at least they should stick around for another week or two to put a few markers down.
Otherwise financial markets will be in turmoil for months to come.
-Francis Cianfrocca
http://www.redstate.com/diaries/blackhedd/2008/sep/24/chairman-bernanke-finally-spills-the-beans/
The top 1 % pay 40% of the taxes
40% of wage earners pay no taxes at all
Our corporate taxes are the highest in the world
Raising taxes usually decreases tax revenue
Raising taxes in the current environment would be financial suicide
Other than that brilliant idea. Your boy Barry has even admitted it would be a bad idea but that he'd go ahead and do it anyway despite the fact that it would hurt the economy because it would be the " fair " thing to do
UFB
Syrian masses 10,000 commandos on border to invade N. Lebanon
DEBKAfile Exclusive Report
September 23, 2008, 6:39 PM (GMT+02:00)
Syrian deployment on Lebanese border: Commandos on right; positions on hill, trucks below
Syrian deployment on Lebanese border: Commandos on right; positions on hill, trucks below
Damascus is pressing forward with its plan to occupy Greater Tripoli, Lebanon’s second largest city and port, DEBKAfile's military sources report. To this end, 10,000 Syrian commando troops have massed at Abboudieh on the Lebanese border ready to follow an advance force which occupied seven villages around the northern city earlier this month, as first disclosed by DEBKAfile on Sept. 20. To read the article click HERE.
A Lebanese army spokesman first denied the concentration while the mainstream Israeli media ran the official denial without checking the story out.
However, when witnesses said the boosted Syrian deployment was visible from the Lebanese side of the border Tuesday, Sept. 23, the spokesman issued a new statement. He said Beirut had asked Damascus for clarifications and was told the measure was “internal and in no way directed against Lebanon.” This left the deployment with the option of striking at anti-Syrian militias operating outside the Lebanese army in the Tripoli region.
Damascus stressed the move was linked to a crackdown against smugglers (sic).
In yet another “clarification,” the measure was linked to digging new wells along the Syrian-Lebanese border.
These various “clarifications” are so implausible that Damascus is obviously unconcerned about any serious challenge to its sudden build-up of a 10,000-strong special forces deployment.
This sort of strength, say DEBKAfile’s military sources, is deployed for war operations, not anti-smuggling policing.
Tuesday, unofficial Lebanese sources confirmed that Syrian commandos had occupied Wadi al-Ashaer, a village in the Rashaya district in the North.
Our sources add that this is only one of the seven villages captured by an advance Syrian force in northern Lebanon last week, after which Damascus advised Washington and Paris not to interfere. It is now engaged in building fortifications and paving military road links for the main body of special forces to move in.
Syrian occupation of northern Lebanon will make profound inroads on the strategic position of the United States and Israel in this part of the Middle East, yet Washington and Jerusalem are turning a blind eye.
debka.com
The Diversity Recession, or How Affirmative Action Helped Cause the Housing Crisis
Posted by Steve Sailer on June 22, 2008
Uncovering the roots of the disastrous home mortgage bubble that popped last year will keep economic historians busy for decades. Yet, one factor has so far been largely overlooked: the bipartisan social engineering crusade to drive up the rate of homeownership by handing out more mortgages to minorities.
More than a negligible amount of the blame for the mortgage meltdown can be traced back to multiculturalism: government-mandated affirmative-action lending, demographic change, illegal immigration, and the mind-numbing effects of political correctness.
The chickens have finally come home to roost.
About half of all mortgages for blacks and Hispanics are subprime, versus roughly one-sixth for whites. Not surprisingly, the biggest home price collapses have occurred in heavily Hispanic cities such as Las Vegas, Miami, Phoenix, and Los Angeles.
The mortgage bubble was essentially a bet on the purportedly increased creditworthiness of the bottom half of the American population. After three decades of the home ownership rate stalling at around 64 percent, a series of federal initiatives to increase minority and low-income ownership helped push the rate up to just below 70 percent.
As this graph from a 2006 article by three economists with the Federal Reserve Bank of St. Louis shows, the great bubble of the last dozen or so years was driven by bets on marginal households well below the median.
Economist William T. Gavin, a vice president at the St. Louis Fed wrote in 2006:
One of the stated goals of current and past administrations since the Great Depression has been to increase home ownership. After remaining relatively stable around 64 percent, the rate of home ownership has risen to 69 percent in the past decade. This uptrend has been driven by a sharp rise in the rate of home ownership among young, minority and low-income households.
In contrast, at least the previous bubble, the Internet stock boom of the 1990s, had a bit of prima facie credibility. It was a largely a wager on a three-phase business plan:
1. The smart fraction of American society would invent amazing new online services.
2. ?
3. Profit!
As it turned out, bright young people really did start up lots of websites that did things that almost nobody in 1994 had imagined. The problem turned out to be getting from Phase 1 to Phase 3. So many of them became competent at website creation that few (with the huge exception of Google) ended up with the kind of lucrative quasi-monopoly of which investors dreamt.
The housing bubble, on the other hand, never made much sense. The lower half of American society, where the new homeowners had to come from, isn’t getting better educated, is not settling down to more stable family structures, and is not developing a more rigorous code of honor about paying debts.
Nor was the government doing much of anything to help the bottom half earn more in order to afford home ownership. Indeed, by not enforcing the laws against illegal immigration, the Clinton and Bush Administrations were flooding the country with unskilled workers who competed down the wages of blue-collar Americans.
The home construction industry lured in Mexicans to build new exurban houses for Americans trying to get their children away from public schools overrun by the children of illegal immigrants—in effect, a Ponzi scheme that had to break down eventually.
It turned out, not surprisingly, that contrary to the assurances of the Great and the Good of both parties, many of these marginal homebuyers should have continued to rent.
Pushing black and Hispanics into buying was risky for all concerned. Economist Edward N. Wolff calculated that in 2004 the median net worth of black households was only $11,800, exactly one order of magnitude less than the median net worth of whites. (Hispanics were similar to blacks.)
Yet, pointing out that expanding credit to minorities was likely to lead to a debacle is not the kind of thing a prudent corporate manger would put in an email--too great a chance it would be discovered in a discrimination lawsuit.
For four decades, political leaders have viewed subsidizing minority home buying as insuring social peace. The Wall Street Journal reported on white flight from a Chicago neighborhood on March 2, 1977:
The whites in Marquette Park are particularly embittered over the Federal Housing Administration mortgage insurance program, which they claim is causing neighborhood deterioration by subsidizing home purchases by blacks too poor to maintain them. Long conservatively run and an engine of the post-World War II suburban housing boom, the FHA program was liberalized shortly after the 1968 urban riots to encourage lower-income black home ownership (‘if they own it they won’t burn it’ was the maxim of the time).
Whether home ownership actually precludes riots is uncertain. In the Florence-Normandie neighborhood in South Central Los Angeles, where the 1992 race riot broke out, five of every eight residences were owner-occupied.
Still, “if they own it, they won’t burn it” provides a hardheaded-sounding excuse for a complex web of policies that please real estate developers, who contribute so much to local campaigns. (For instance, Barack Obama has admitted to receiving a quarter of a million dollars from developer Tony Rezko, recently convicted on 16 counts).
Republicans theorized that raising the rate of home ownership would create more conservative voters, as Margaret Thatcher was said to have done in Britain by selling public housing flats to their tenants. Thus, George W. Bush campaigned in 2004 under the rubric ”the ownership society.” As the President explained in his eye-glazing prose style:
...[I]f you own something, you have a vital stake in the future of our country. The more ownership there is in America, the more vitality there is in America, and the more people have a vital stake in the future of this country.
Thus, in a 2004 address to home builders, Bush called for the Federal Housing Administration to issue zero down payment mortgages in order to aid 150,000 first-time buyers per year, saying,
To build an ownership society, we’ll help even more Americans to buy homes. Some families are more than able to pay a mortgage but just don’t have the savings to put money down.
Long before Bush came up with the phrase “ownership society,” Democrats had gleefully been using this justification to funnel vast sums of mortgage money to their base voters among minorities through the liberal-dominated quasi-state institutions Fannie Mae (once run by former Obama adviser Jim Johnson) and Freddie Mac and via leftwing NGOs such as ACORN (to which Obama had long and close ties). The government both devised de jure quotas and leaned on lenders with discrimination lawsuits to get them to impose their own de facto quotas.
The strong growth in the homeownership rate from the early Forties into the early Sixties was a symptom of an economically and socially healthy society in which good-paying jobs were widespread and human capital was rising. The high school dropout rate, for example, fell steadily from early in the century until the end of the Sixties.
In the mid-Sixties, however, the fraction of households owning their residence plateaued at around 64 percent, where it more or less remained into the mid-1990s, as the collateral damage of the Sixties cultural revolution hit the lower half of the population hard. The upper reaches of American society flourished under the new customs that emerged in the Sixties … but they already owned their own homes. To boost homeownership beyond 64 percent would require millions of people in the bottom half of society to convert from renting to owning.
In retrospect, this post-Sixties stagnation of the ownership rate stagnation was hardly surprising. American society began fragmenting in the Swinging Sixties, reducing the number of grown-ups per household. For example, the percentage of babies born to unmarried women has risen from six percent in 1963 to 39 percent in 2006. The 22 percent black illegitimacy rate that so alarmed LBJ’s advisor Daniel Patrick Moynihan in 1965 has grown to 71 percent. The percentage of babies born to unmarried white women hit 27 percent in 2006, and the illegitimacy rate of Latinas, a category that barely mattered in the 1960s but now accounts for a quarter of all babies, is now 50 percent.
After 1973, economic inequality grew steadily as well.
Moreover, the human capital of the bottom half of society stopped improving. According to a 2007 study by Nobel laureate economist James Heckman, the high school dropout rate has risen from around 20 percent in 1969 to about 25 percent in 2000.
Rather than make the fundamental reforms needed to help the bottom half actually become economically productive and domestically stable enough to afford to buy a home, the government tried to juice the home-ownership rate directly. Indeed, without ever-increasing government efforts, such as the 1977 anti-redlining Community Reinvestment Act (CRA), to artificially boost minority housing purchases, the rate would have naturally fallen due to the increasing number of single parent homes.
The CRA enables leftist lobbies like ACORN to shake down big financial firms whenever they tried to merge. Economist Thomas J. DiLorenzo observed that the Community Reinvestment Act:
compels banks to make loans to low-income borrowers and in what the supporters of the Act call ‘communities of color’ that they might not otherwise make based on purely economic criteria. … These organizations claim that over $1 trillion in CRA loans have been made …The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA ‘protest’ is issued by a ‘community group.’ … They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.
To avoid the Community Reinvestment Act hassles, more than a few respectable institutions avoided doing business in minority communities. A lender could define its “community” as, say, stretching only five miles north and south from Mulholland Drive along the top of the Hollywood Hills.
Then, who’s more likely to offer mortgages to Compton and Pacoima? Why, high-pressure bucket shop operations that have no skin in the game—they’re just sales outfits that immediately repackage often fraudulently documented subprime mortgages and sell them to Wall Street.
Two events in 1992—a much-publicized study and a new piece of legislation—ratcheted up mortgage affirmative action.
U. of Dallas economist Stan Liebowitz recently pointed out:
Yet a ‘landmark’ 1992 study from the Boston Fed concluded that mortgage-lending discrimination was systemic.
That study was tremendously flawed—a colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination.
As Peter Brimelow noted in Forbes on January 4, 1993, blacks had the same default rates as whites, suggesting racial fairness. After all, if current financial institutions were really discriminating irrationally against minorities, it would be highly profitable for a non-discriminator to enter the market, just as the Brooklyn Dodgers won six National League pennants in the decade after they became the first team to sign black baseball players.
In reality, as Insight on the News reported in 1999:
A recent study by Freddie Mac, the federally chartered Federal Home Loan Mortgage Corp. that buys mortgages from banks to resell to investors, documents the shaky financial standing of minorities. The study found that nearly half of black borrowers and a third of Hispanics have “bad” credit records—that is, they have a record of delinquent loans or bankruptcy—compared with a quarter of whites. Moreover, income does not explain the disparity, according to the study. Among people with incomes of $65,000 to $75,000, 34 percent of blacks have bad credit, compared with 20 percent of whites.
Today, however, non-Asian minorities (NAMs) have much higher default rates, suggesting racial bias has entered the system of judging creditworthiness.
Liebowitz went on:
Yet the political agenda triumphed—with the president of the Boston Fed saying no new studies were needed, and the US comptroller of the currency seconding the motion.
No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: ‘discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.’
Liebowitz asked:
Some of these ‘outdated’ criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant’s ability to manage debt.
This is just standard operating procedure when the government wants private firms to impose racial quotas on themselves. The same procedure is used in hiring. Objective measurements that have ‘disparate impact’ on legally protected groups have been subjected to severe judicial and legislative review for decades, with the burden of proof severely resting on the firm.
Liebowitz goes on:
Sound crazy? You bet. Those ‘outdated’ standards existed to limit defaults. But bank regulators required the loosened underwriting standards, with approval by politicians and the chattering class. A 1995 strengthening of the Community Reinvestment Act required banks to find ways to provide mortgages to their poorer communities. It also let community activists intervene at yearly bank reviews, shaking the banks down for large pots of money.
Banks that got poor reviews were punished; some saw their merger plans frustrated; others faced direct legal challenges by the Justice Department.
Also in 1992, Congress passed the Government Sponsored Enterprises bill, which set “targets” (i.e., quotas) for Fannie Mae and Freddie Mac, which are quasi-governmental publicly-traded for-profit thing-a-ma-bobs, to encourage “affordable” and “underserved” (more or less minority) home loans.
Both the Clinton and Bush departments of Housing and Urban Development raised the quotas repeatedly. For example, initially, the Clinton Administration required 21% of these quasi-governmental mortgages must go to ”underserved areas” (which are officially defined as “low-income census tracts or in low- or middle-income census tracts with high minority populations"), but the quota for 2008 established by the Bush Administration is 39 percent.
Reuters reported October 13, 1999:
The mortgage industry intends to pursue minorities with greater intensity as federal regulators turn up the heat to increase home ownership in underserved groups. ‘We need to push into these underserved markets as much as we can,’ said David Glenn, president and chief operating officer of Freddie Mac. …
In September, Freddie Mac launched a new lending program, based on research done in collaboration with five black colleges, to bring more African-Americans into the market.
The federal government in the meantime has increased pressure on lenders to seek out minorities, as well as low-income groups and borrowers with poor credit histories.
Fannie Mae recently reached an agreement with the U.S. Department of Housing and Urban Development to commit half its business to low-and moderate-income borrowers. That means half the mortgages bought by Fannie Mae would be from those income brackets.
Now, even the head of Freddie Mac has protested that the quotas have become “perverse.” On March 12, 2008, Bloomberg News reported:
Freddie Mac Chief Executive Officer Richard Syron said he’s urging changes in federal rules that enabled too many low- and moderate-income Americans to buy houses they can’t afford. It’s ‘perverse’ that Freddie Mac and Fannie Mae, the two biggest providers of money for U.S. home loans, have been encouraged ‘to put people into homes that they end up losing,’ Syron said at a meeting with analysts and investors in New York.
Ironically, Syron helped get us into this mess when he was head of the Boston Fed. His Freddie Mac biography boasts, “Syron also was sponsor of a landmark study on racial discrimination in mortgage lending …”
Similarly, the Clinton Administration used the Community Reinvestment Act and Fair Housing Act to set, in effect, racial quotas for private lenders. Cynthia Latta, an economist with DRI/McGraw-Hill, commented in 1999:
We have created a tremendous amount of risk…Banks are under a great deal of pressure to lend in these communities. It is very political
The Fed pumped so much money into the system after 9/11 that, with stocks in disfavor after the Internet bubble burst, the liquidity flooded into the home market, postponing the day of reckoning in housing until now.
Straightforward tax-and-spend programs were out of favor in the 1990s, but lean-on-lenders for the benefit of your political constituents is always in season.
For instance, an article entitled “Fannie Mae Bending Financial System to Create Homeowners, Says Raines” reported in 2000:
Yet home ownership is unevenly distributed in society, [Fannie Mae head Franklin] Raines said. He quoted the famous pronouncement by W.E.B. Du Bois, in The Souls of Black Folk in 1903, that the problem of the 20th century is the problem of the color line. Du Bois also observed that the size and arrangement of people’s homes is an index of their condition…
In the early days of the movement, he said, there was a significant commitment of government funds. … Now, said Raines, more money is being invested in community development through private mechanisms, including Fannie Mae, which works through mainstream lenders to reach out to underserved communities.
During the 1990s, Fannie Mae pledged $1 trillion in capital over seven years to boost home ownership among underserved populations. Last spring, said Raines, the commitment was completed ahead of schedule, and Fannie Mae pledged a further $2 trillion to assist 18 million families during the next decade.
George W. Bush got in on the game too. The Bush Administration announced on June 17, 2002:
Today, President Bush announced a new goal to help increase the number of minority homeowners by at least 5.5 million before the end of the decade… The President also issued ‘America’s Homeownership Challenge’ to the real estate and mortgage finance industries to join in his effort to increase the number of minority homeowners by taking concrete steps to tear down the barriers to homeownership that face minority families.
Bush called for, “Creating new mortgage products to meet the unique needs of recent immigrants.”
The President bragged:
Many organizations have already responded to the President’s challenge by committing to substantially increase by at least $440 billion, the financial commitment made by the government sponsored enterprises involved in the secondary mortgage market, specifically targeted toward the minority market.
$440 billion here, $440 billion there, pretty soon you are talking about real money.
In 2004, President Bush promoted his Zero Down Payment Program for FHA insured loans, thus giving Presidential respectability to the ruinous trend toward no money down deals. MSNBC reported in a March 27, 2004, article subtitled ”President wants to add new minority home owners:”
He also proposes to make zero down-payment loans available to first-time buyers whose mortgages are guaranteed by the Federal Housing Administration.
The Washington Post reported on June 10, 2008, in ”How HUD Mortgage Policy Fed the Crisis:”
In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending. Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more ‘affordable’ loans made to these borrowers. … Housing experts and some congressional leaders now view those decisions as mistakes that contributed to an escalation of subprime lending that is roiling the U.S. economy.
None of this was controversial at the time, in part because being oblivious to the obvious about minorities is the hallmark of authority these days.
Thus, the home ownership increased over the 1994-2004 period by 8.6% for non-Hispanic whites, but by 16.1% for blacks and 16.7% for Latinos. I calculate that ethnic share changes alone between 1994-2004 would have driven down home ownership rates by 1 to 2 points. Instead, they went up 4 points.
Similarly, from 1994-2004, the ownership rate for married couples went up 7.8%—but by 15.2% for female-headed families.
One mystery remains: Why was Wall Street was so credulous about all these dubious mortgages?
Obviously, greed and fear are always at war on Wall Street. Perhaps, though, one reason greed outgunned fear while phony subprime mortgages were running amok in recent years was that so many were going to non-Asian minorities and that Wall Streeters assumed that the federal government would bail them out rather than see so many NAMs turned out on the street.
Further, lots of immigrants actually do have more income than they report to the IRS—illegal immigrants often get paid in cash under the table. As USA Today reported in 2007:
Hispanic families are more apt to have undocumented income, leading them to lenders who make loans without income verification, according to the National Council of La Raza.
Quite a few of the legal immigrants in Southern California are from mercantile minorities in West Asia who consider paying taxes something that only chumps do. The presence of all these immigrants who work in a grey market cash economy gives a mortgage company like Countrywide a rationalization for believing loan applicants when they put down an income figure that’s far above what they can document from their 1040: Who knows? Maybe Uncle Adnan’s import-export business really does generate enough cash to cover the loan. Who can tell for sure?
As Fred Dickey showed in his 2003 Los Angeles Times Magazine article “Undermining American Workers,” immigration has driven a large fraction of California’s economy underground. Not only can’t it be taxed, but it can’t be documented either.
And the problem is not just that “undocumented workers” get “undocumented mortgages.” It’s also that so many others get drawn into the “undocumented income” racket. For example, many of the highest rates of foreclosure are in fast-growing boomtowns like Las Vegas and exurbs like Palmdale, CA, where so many people are in the contracting business building and upgrading housing.
When some of these contractors get a mortgage for their own homes and the bank asks them to document their income, they wink and imply: ”My employees don’t want me to keep a lot of documents on them, so I pass my savings on to my customers who don’t want me to keep a lot of documents on them either. Just trust me.”
And many contractors were getting rich in the housing boom, so they were safe bets as long as the boom went on even if they wouldn’t document their income. But a lot of the people applying for mortgages by claiming to be successful cash-only businessmen weren’t successful, and were just staying afloat by refinancing their mortgages as interest rates dropped and home prices went up. Ultimately, even the ones who were raking in the cash during the Bubble got hammered when the housing construction boom ended.
Finally, a compounding factor in the subprime debacle was that these complicated exploding adjustable rate subprime mortgages were disproportionately handed out to people who aren’t very good with numbers. For example, the Washington Post profiled the fraudulent straw-man mortgage received by a Honduran immigrant cook named Glenda Ortiz, who paid “triple what the house had sold for the year before, and $5,000 more than the asking price…”:
She agreed to a high-interest loan that would cost her more than $3,000 a month, more than 70 percent of the $4,200 that she and her husband brought home monthly. She signed papers in English that she didn’t understand. One said she was married to a man she didn’t know. She placed her financial future in the hands of a woman she barely knew who sold cosmetics and jewelry door to door. She sought no one else’s advice.
In contrast, a list of the ten places with the lowest ratio of subprime to normal mortgages consists of sophisticated San Francisco and nine classic college towns, such as Ithaca, NY.
In summary, while blame for this economic fiasco is deservedly widespread, multiculturalism bears a much larger share of the shame than it’s gotten so far.
As Brimelow wrote in National Review in 1993:
Classical socialism called for direct state ownership of the means of production, distribution, and exchange. Neosocialism just aims at political control. Socialism claimed to be more efficient. Neosocialism claims to be more equitable. Above all, neosocialism professes to combat ‘racism,’ since this magic word cows all opposition.
Steve Sailer is a columnist for VDARE.com and the founder of the Human Biodiversity Institute. He also blogs a lot.
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Who’s To Blame?
Jennifer Rubin - 09.23.2008 - 1:05 PM
Barack Obama would have us believe that lax regulation and deregulation in the form of the Glass-Steagall Act are at the root of the problem. He’s wrong on both counts.
First, as detailed by two AEI gurus, the answer is closer to home–or to the House and Senate, to be exact. The nub of the problem they argue in convincing fashion were Freddie Mac and Fannie Mae which jumped into the sub-prime mortgage market with abandon:
It is important to understand that, as GSEs [G0vernment-Sponsored Enterprises], Fannie and Freddie were viewed in the capital markets as government-backed buyers (a belief that has now been reduced to fact). Thus they were able to borrow as much as they wanted for the purpose of buying mortgages and mortgage-backed securities. Their buying patterns and interests were followed closely in the markets. If Fannie and Freddie wanted subprime or Alt-A loans, the mortgage markets would produce them. By late 2004, Fannie and Freddie very much wanted subprime and Alt-A loans. Their accounting had just been revealed as fraudulent, and they were under pressure from Congress to demonstrate that they deserved their considerable privileges. Among other problems, economists at the Federal Reserve and Congressional Budget Office had begun to study them in detail, and found that — despite their subsidized borrowing rates — they did not significantly reduce mortgage interest rates. In the wake of Freddie’s 2003 accounting scandal, Fed Chairman Alan Greenspan became a powerful opponent, and began to call for stricter regulation of the GSEs and limitations on the growth of their highly profitable, but risky, retained portfolios.
If they were not making mortgages cheaper and were creating risks for the taxpayers and the economy, what value were they providing? The answer was their affordable-housing mission. So it was that, beginning in 2004, their portfolios of subprime and Alt-A loans and securities began to grow. Subprime and Alt-A originations in the U.S. rose from less than 8% of all mortgages in 2003 to over 20% in 2006. During this period the quality of subprime loans also declined, going from fixed rate, long-term amortizing loans to loans with low down payments and low (but adjustable) initial rates, indicating that originators were scraping the bottom of the barrel to find product for buyers like the GSEs.
When some Senators tried to rein in the GSEs, their Demcoratic patrons blocked the way:
In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.
Well, what about “banking deregulation”? That sounds ominous. Actually that’s the good part of the story–banks operated across state lines, offered new products and improved as financial institutions. You will note that, with the conversion of the last two investment banking firms, Morgan Stanley and Goldman Sachs, to bank holding companies, banks are once again king.
And don’t take my word for it. From the Washington Post:
Obama said McCain “has fought time and time again against the common-sense rules of the road that could’ve prevented this crisis,” neglecting to mention that his new brain trust on the crisis includes two Clinton administration Treasury secretaries, Robert E. Rubin and Lawrence H. Summers, who helped negotiate the deregulation of the financial services industries in 1999. In an interview on Friday, Rubin said the law, named after its now-retired congressional sponsors — Phil Gramm (Tex.), a top McCain economic adviser; Jim Leach (Iowa), who heads Republicans for Obama; and Thomas J. Bliley Jr. (Va.) — “had no impact, zero,” on the current crisis.
There is plenty to debate about going forward–the shape and very existence of the bailout plan–but voters should at least be clear about how we got into the present mess.
http://www.commentarymagazine.com/blogs/index.php/category/contentions
Biden — The Election Wouldn't Be the Same without Him [Kathryn Jean Lopez]
This one, just for a chuckle, from Ben Smith:
Joe Biden's denunciation of his own campaign's ad to Katie Couric got so much attention last night that another odd note in the interview slipped by.
He was speaking about the role of the White House in a financial crisis.
"When the stock market crashed, Franklin Roosevelt got on the television and didn't just talk about the princes of greed," Biden told Couric. "He said, 'Look, here's what happened.'"
As Reason's Jesse Walker footnotes it: "And if you owned an experimental TV set in 1929, you would have seen him. And you would have said to yourself, 'Who is that guy? What happened to President Hoover?'"
09/23 12:12 PM
This Ought to Help Obama in Appalachia [Jim Manzi]
In a great Kinsley Gaffe, Joe Biden seems to tell a supporter pretty clearly that he wants "no coal plants in America."He stumbles into the reality here that the goals of energy independence and reduced carbon emissions will be very difficult to reconcile because of one word: coal.
By the way, is his body language with this young woman kind of creepy only to me?
09/23 11:59 AM
http://corner.nationalreview.com/
LOL
Sad but true
Hmmm, did Congress " rush through " the voting for extending the Patriot act??
Were the Dem's hypnotized into voting for it again??
Kinda like Shrillary and Biden were hypnotized when they voted for the war in Iraq??
And Biden when he voted against the war to take back Kuwait from Saddam?
Kinda like when Biden said that the McCain computer ad was tasteless till his handlers made him yap like a good little dog and recant??
Kinda like this also:
Obama on Biden's Initial Opposition to AIG Bailout: "Joe Should Have Waited"
September 23, 2008 9:41 AM
"What has been clear during this entire past ten days is John McCain has not had clarity and a grasp on the situation," Sen. Barack Obama, D-Ill., told NBC's Matt Lauer in an interview that ran this morning.
Lauer was talking about how Obama hit Sen. McCain for flip-flopping on the AIG bailout -- saying he opposed it one day then announce he supported it the next day.
But, as Lauer pointed out, scarcely three minutes after McCain said he opposed the AIG bailout last week, "in an interview with Meredith Vieira, Joe Biden, your running mate was asked the exact same question, 'should the federal government bailout AIG?' And he said, 'No, the federal government should not bailout AIG.'" (As we noted at the time.) "And I think that in that situation," Obama said, "I think Joe should have waited as well."
"But it's the kind of thing that drives people crazy about politics," Lauer said. "It sounds like you were trying to score some political points against John McCain using his words, when your own running mate had used very similar words."
"No, hold on a second Matt," Obama said. "I think what drives people crazy about politics is the fact that somebody like John McCain who for 26 years has been an advocate for deregulation, for 26 years has said the market is king and then starts going out there suggesting somehow that he's a populist who's been railing against Wall Street and regulation -- that's what drives people crazy about politics."
What Happens If There’s No Bailout?
Handicapping the Downside
Posted by: Blackhedd
Tuesday, September 23, 2008 at 07:00AM
23 Comments
Yesterday morning, the new week started off on a hopeful note in world financial markets, as all eyes turned to the action in the US Congress. Secretary Paulson and Chairman Bernanke had managed to create enough fear among lawmakers to convince them that a large emergency bailout is needed, in order to repair the balance sheets of banks, Wall St. firms, and other financial intermediaries.
The mood darkened throughout the day as it appeared increasingly likely that there will be no deal in Congress, and no bailout. I’m going to fill you in on the flaws with the deal as currently proposed, the political action in Congress and elsewhere, and what happens if there’s no deal.
The Paulson/Bernanke bailout plan is called “TARP,” for Troubled Asset Relief Program. I’ve given you the details here and here.
Reactions to the plan from politically-minded people have been uniform, and uniformly mindless.
Conservatives: “It’s all Clinton’s fault! No bailout! That’s socialism!. [But the commercial paper market may freeze up, the company where you work may not be able to operate, and your paycheck might bounce.] Hmm, umm, well, ahhhhh, umm… No bailout! That’s socialism!”
Liberals: “See, I told you free markets don’t work. Now I want to talk about foreclosure relief, federal aid to cities and states, increased funding for ACORN, and limits on executive compensation, in that order.”
Reactions from people who actually understand economics and markets have also been uniform. The glaring defect in the plan as proposed relates to valuation.
The objective is to create a bid for mortgage-based assets that are owned by financial firms, and which were purchased for more than they’re worth now.
In many cases, these assets are being carried on firms’ books at values above the current market (which is ragged and illiquid). This makes firms reluctant to sell the assets because they will then be required to realize large losses to capital, which in extreme cases can put them out of business.
There is also a great deal of fear that there will be many open-market transactions in distressed assets (perhaps by people who are forced to sell because of margin calls). By current accounting rules, that will force even firms that don’t sell to recognize the new lower prices when valuing their own portfolios.
All of that has conspired to freeze up the secondary market for mortgage-backed securities. And behind it all is the worry that when the losses are finally recognized, someday, somehow, a great many firms will be revealed to be insolvent.
But market participants have no need to wait for that day. They can sell first and ask questions later. In a nutshell, that’s what’s been happening these last two weeks, leading to the bankruptcies or forced sales of some of the titans of the industry.
So the most important questions for Paulson are: What will be the value at which you will purchase these distressed assets? Who will make the decision, and how will they be compensated?
These are the critical questions because they illuminate the underlying policy objective.
Does Mr. Paulson intend to systematically purchase MBS at higher prices than current market values would suggest?
This would save Wall Street’s bacon. A great many firms would be relieved of the burden of their past errors and mismanagement, and would get a fighting chance to stay in business and attract new capital.
Is that fair and right? No, it’s not. It would also put the taxpayers in a position to absorb Wall Street’s losses, through higher taxes, higher inflation, or both. (Politically, of course, this is dynamite.)
But what if Mr. Paulson’s intent runs the other way? What if he means to value his MBS purchases fairly, or to undervalue them? That will force the pain to be borne by the firms that made the bad decisions and took too much risk.
Is that fair and right? Yes, it is. But it will also force many of these firms out of business. And that would have severe follow-on effects in world markets, as a cascade of liquidations cause asset values to collapse across the world. More than one analyst has suggested that we could see a 25% drop in the US stock market, or worse.
Pick your letter of the alphabet. If we socialize the MBS losses by overvaluing the purchases, we face an “L-shaped” recovery: a long period of very slow growth, and a lot of pain for consumers. (Think about how Japan dealt with their real-estate/bad-loan crisis in the Nineties.)
If we force the financial firms to take the medicine, the recovery is “V-shaped”: a vertiginous plunge to far lower levels from here, with wreckage and busted financial firms all over the world, but (very likely)with an equally sharp and fast recovery, as capital floods back in from the sidelines.
So does the Paulson plan make any sense at all, if it’s not done at an overvaluation? Many have suggested that it does not, because that would do nothing more than recognize current reality.
But it does make sense to do the bailout. We need to perform the purchases of MBS either at a fair valuation or at an undervaluation. Because, as with the Resolution Trust Corporation, that will give the authorities time to control the process and work everything out carefully, perhaps over the next two years.
Under ideal conditions, this would give us a “U-shaped” recovery. It would avoid panic selling and market destruction in the near term , which is what we'll get if Congress fails to act.
But it also avoids shafting the taxpayers, the consumer economy, and the financial firms that managed risk prudently and deserve to stay in business.
That’s the correct way to approach this process. And it’s the deal Congress should pass this week.
Instead, the perception is growing in financial markets that the deal will die in Congress. The culprits: Republicans who are dead-set against a bailout on principle, and Democrats who are seeing a chance to jump-start their plans for the government to take over the economy and run it in a corrupt way.
If there’s no deal, there’s no upside for Republicans. (Other than being able to cry in their beer that they fought the good fight.) For Democrats, there is significant upside because they can blame the coming financial-market crash on the Republicans. That charge will stick because ordinary people have no clue what’s really going on.
I’ll let you decide for yourself which side is being stupid, and which side is being evil.
Here are my bottom lines:
Mr. Paulson: Come clean. Give us your view on the valuations, who will set them, and what their incentives will be. Are you trying to save your friends on Wall Street, or the rest of us on Main Street?
Members of Congress in both parties: Get your heads out of your lower intestinal tracts and do the people’s business for a change.
-Francis Cianfrocca
Obama and Ayers
Pushed Radicalism
On Schools
By STANLEY KURTZ
Despite having authored two autobiographies, Barack Obama has never written about his most important executive experience. From 1995 to 1999, he led an education foundation called the Chicago Annenberg Challenge (CAC), and remained on the board until 2001. The group poured more than $100 million into the hands of community organizers and radical education activists.
[Obama and Ayers] AP
Bill Ayers.
The CAC was the brainchild of Bill Ayers, a founder of the Weather Underground in the 1960s. Among other feats, Mr. Ayers and his cohorts bombed the Pentagon, and he has never expressed regret for his actions. Barack Obama's first run for the Illinois State Senate was launched at a 1995 gathering at Mr. Ayers's home.
The Obama campaign has struggled to downplay that association. Last April, Sen. Obama dismissed Mr. Ayers as just "a guy who lives in my neighborhood," and "not somebody who I exchange ideas with on a regular basis." Yet documents in the CAC archives make clear that Mr. Ayers and Mr. Obama were partners in the CAC. Those archives are housed in the Richard J. Daley Library at the University of Illinois at Chicago and I've recently spent days looking through them.
The Chicago Annenberg Challenge was created ostensibly to improve Chicago's public schools. The funding came from a national education initiative by Ambassador Walter Annenberg. In early 1995, Mr. Obama was appointed the first chairman of the board, which handled fiscal matters. Mr. Ayers co-chaired the foundation's other key body, the "Collaborative," which shaped education policy.
The CAC's basic functioning has long been known, because its annual reports, evaluations and some board minutes were public. But the Daley archive contains additional board minutes, the Collaborative minutes, and documentation on the groups that CAC funded and rejected. The Daley archives show that Mr. Obama and Mr. Ayers worked as a team to advance the CAC agenda.
One unsettled question is how Mr. Obama, a former community organizer fresh out of law school, could vault to the top of a new foundation? In response to my questions, the Obama campaign issued a statement saying that Mr. Ayers had nothing to do with Obama's "recruitment" to the board. The statement says Deborah Leff and Patricia Albjerg Graham (presidents of other foundations) recruited him. Yet the archives show that, along with Ms. Leff and Ms. Graham, Mr. Ayers was one of a working group of five who assembled the initial board in 1994. Mr. Ayers founded CAC and was its guiding spirit. No one would have been appointed the CAC chairman without his approval.
The CAC's agenda flowed from Mr. Ayers's educational philosophy, which called for infusing students and their parents with a radical political commitment, and which downplayed achievement tests in favor of activism. In the mid-1960s, Mr. Ayers taught at a radical alternative school, and served as a community organizer in Cleveland's ghetto.
In works like "City Kids, City Teachers" and "Teaching the Personal and the Political," Mr. Ayers wrote that teachers should be community organizers dedicated to provoking resistance to American racism and oppression. His preferred alternative? "I'm a radical, Leftist, small 'c' communist," Mr. Ayers said in an interview in Ron Chepesiuk's, "Sixties Radicals," at about the same time Mr. Ayers was forming CAC.
CAC translated Mr. Ayers's radicalism into practice. Instead of funding schools directly, it required schools to affiliate with "external partners," which actually got the money. Proposals from groups focused on math/science achievement were turned down. Instead CAC disbursed money through various far-left community organizers, such as the Association of Community Organizations for Reform Now (or Acorn).
Mr. Obama once conducted "leadership training" seminars with Acorn, and Acorn members also served as volunteers in Mr. Obama's early campaigns. External partners like the South Shore African Village Collaborative and the Dual Language Exchange focused more on political consciousness, Afrocentricity and bilingualism than traditional education. CAC's in-house evaluators comprehensively studied the effects of its grants on the test scores of Chicago public-school students. They found no evidence of educational improvement.
CAC also funded programs designed to promote "leadership" among parents. Ostensibly this was to enable parents to advocate on behalf of their children's education. In practice, it meant funding Mr. Obama's alma mater, the Developing Communities Project, to recruit parents to its overall political agenda. CAC records show that board member Arnold Weber was concerned that parents "organized" by community groups might be viewed by school principals "as a political threat." Mr. Obama arranged meetings with the Collaborative to smooth out Mr. Weber's objections.
The Daley documents show that Mr. Ayers sat as an ex-officio member of the board Mr. Obama chaired through CAC's first year. He also served on the board's governance committee with Mr. Obama, and worked with him to craft CAC bylaws. Mr. Ayers made presentations to board meetings chaired by Mr. Obama. Mr. Ayers spoke for the Collaborative before the board. Likewise, Mr. Obama periodically spoke for the board at meetings of the Collaborative.
The Obama campaign notes that Mr. Ayers attended only six board meetings, and stresses that the Collaborative lost its "operational role" at CAC after the first year. Yet the Collaborative was demoted to a strictly advisory role largely because of ethical concerns, since the projects of Collaborative members were receiving grants. CAC's own evaluators noted that project accountability was hampered by the board's reluctance to break away from grant decisions made in 1995. So even after Mr. Ayers's formal sway declined, the board largely adhered to the grant program he had put in place.
Mr. Ayers's defenders claim that he has redeemed himself with public-spirited education work. That claim is hard to swallow if you understand that he views his education work as an effort to stoke resistance to an oppressive American system. He likes to stress that he learned of his first teaching job while in jail for a draft-board sit-in. For Mr. Ayers, teaching and his 1960s radicalism are two sides of the same coin.
Mr. Ayers is the founder of the "small schools" movement (heavily funded by CAC), in which individual schools built around specific political themes push students to "confront issues of inequity, war, and violence." He believes teacher education programs should serve as "sites of resistance" to an oppressive system. (His teacher-training programs were also CAC funded.) The point, says Mr. Ayers in his "Teaching Toward Freedom," is to "teach against oppression," against America's history of evil and racism, thereby forcing social transformation.
The Obama campaign has cried foul when Bill Ayers comes up, claiming "guilt by association." Yet the issue here isn't guilt by association; it's guilt by participation. As CAC chairman, Mr. Obama was lending moral and financial support to Mr. Ayers and his radical circle. That is a story even if Mr. Ayers had never planted a single bomb 40 years ago.
Mr. Kurtz is a senior fellow at the Ethics and Public Policy Center.
Well, he actually does know how to use a computer- just has trouble with the keyboard.
In fact, his campaign in 2000 pioneered a lot of the net fund raising that Barry is using now.
Do you really think WWII was a completely noble cause and that you weren't a pawn being manipulated by the powers that be?
In that respect, you're just as much as war criminal as any soldier
How about Kerry and his "heroics" in Vietnam
This particular meltdown has not much to do with naked shorting.
Interesting that now w/o shorting the financials still are going down. Short covering actually used to provide a cushion as the shorts covered their positions- not gonna happen now
Well, at least you've realized ( finally ) that impeachment isn't gonna happen. Still holding out the delusion of criminal charges after he's left office, huh?
Pretty pathetic.
The bigger joke is that if Barry is actually elected, his incompetence will be so disastrous that even the libs won't be able to hide from it- as a template look at Deval Patrick- another gifted orator w/o a clue who's been a disaster as an executive
Biden reconsiders, decides it really is okay to mock McCain for POW disability which prevents him from using keyboards
Posted by: Bill Dyer at 11:46 PM
(Guest Post by Bill Dyer a/k/a Beldar)
It seemed, for a few moments, that at least one of the principals of the Obama-Biden campaign was capable of being ashamed of their campaign's television ad mocking John McCain's inability to use a computer. From the CBS Evening News' interview today with Democratic vice presidential nominee Joe Biden (bracketed portion mine):
Couric asked: "Are you disappointed with the tone of the campaign? The 'lipstick on the pig' stuff, and some of the ads — you guys haven't been completely guilt-free making fun of John McCain's inability to use a computer."
"I thought that was terrible by the way," Biden said.
"Why did you do it then?" Couric asked.
"I didn't know we did it and if I had anything to do with it, we would have never done it," Biden said. "And I don't think Barack, you know. I just think that was … [trailing off]"
McCain's persistent physical disabilities from untreated injuries he sustained as an American POW in North Vietnam "prevent him from combing his hair, typing on a keyboard, or tying his shoes." As far as I'm concerned, anyone who mocks John McCain — or any other American veteran — for that sort of disability isn't worthy to shine those veterans' shoes.
But with a spectacular non sequitur, the Obama-Biden campaign has already "walked back" from — or, in plain English, disavowed — Sen. Biden's moment of decent shame:
[I]n the statement issued by the Obama campaign, Biden said he had never seen the ad and only read press reports of it.
"Having now reviewed the ad, it is even more clear to me that given the disgraceful tenor of Senator McCain's ads and their persistent falsehoods, his campaign is in no position to criticize," Biden said in the statement.
I would like to think that this statement was drafted by some junior campaign staffer, some soulless political hack — some craven worm whose entire universe is partisan politics and who has no concept of what it meant to spend five years as an American POW in North Vietnamese dungeons. I would like to think that in letting their campaign issue this statement, both Sens. Obama and Biden only momentarily and temporarily lost focus, lost perspective, and lost their humanity, and that by tomorrow they'll recover some measure of those traits. I would like to think that whichever of their subordinates actually wrote and issued that statement tonight will be out of a job, and out of any career in politics, by breakfast tomorrow morning.
But ultimately, one just can't excuse a campaign's principals from this kind of literal shamelessness displayed by their campaign spokesmen. It just doesn't matter whether Sen. Obama and Sen. Biden feel more sinned against than sinners themselves when it comes to the fairness or truthfulness of each side's political advertisements: Decent Americans of any political stripe don't mock American POWs for their disabilities sustained in the defense of this country, and they certainly don't retract their absolutely appropriate, candid apologies immediately after having made them.
-------------------------
UPDATE (Tue Sep 23 @ 12:55 a.m. CST): Here's a more complete — but no more rational — version of Biden's retraction:
I was asked about an ad I’d never seen, reacting merely to press reports. As I said right then, I knew there was nothing intentionally personal in the criticism of Senator McCain’s views which look backwards not forwards and are out of touch with the new economic challenges we face today. Having now reviewed the ad, it is even more clear to me that given the disgraceful tenor of Senator McCain’s ads and their persistent falsehoods, his campaign is in no position to criticize, especially when they continue to distort Barack’s votes on an issue as personal as keeping kids safe from sexual predators.
That boils down to "Having now bothered for the first time to actually look at our campaign's ad, I suddenly discovered that McCain's ads are mean, so forget what I said earlier today about our ad mocking his disability being 'terrible.'" That's both shameless and shamefully lame, and unfortunately the syntax and leaps of illogic seem pretty close to the kind of thing Biden himself would actually say.
— Beldar
The bill never got out of committee
Revisionist history on your part
Exactly how can the reps pass a bill if the dems don't even allow it out of committee
You neglected the more important question of why the dems didn't support the bill
Are you saying the reps wrote the bill with no intention of ever passing it?
The Dems stonewalled because of the same pandering that turned Fanny/Freddy into the mess they were- encouraging riskier loans
Complete control means nothing if you don't have a filibuster proof majority- which the repubs didn't have
Instead of blaming the reps- who warned of the impending disaster and actually tried to do something about it- why not consider blaming the dems who blocked the legislation that might have prevented the mess we're in now?
How the Democrats Created the Financial Crisis: Kevin Hassett
Commentary by Kevin Hassett
More Photos/Details
Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.
Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.
But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.
Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.
In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.
The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.
Turning Point
Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.
It is easy to identify the historical turning point that marked the beginning of the end.
Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.
Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.
Greenspan's Warning
The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''
What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.
Different World
If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.
But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.
That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''
Mounds of Materials
Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.
But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.
Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.
Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.
There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.
Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.
(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)
To contact the writer of this column: Kevin Hassett at khassett@aei.org
DO you really doubt Pelosi/Reid wouldn't do this?
It's exactly in line with their other tone deaf actions
Wanna do a wager with the proceeds going to charity that they attempt to do this?
Breaking News: Pelosi 'No Energy' Bill Part of House Draft CR
by Jed Babbin
09/22/2008
House Democrats are bypassing renewal of the offshore oil drilling ban by including the entire Pelosi “drill nothing” energy bill in a draft of a Continuing Resolution. HUMAN EVENTS obtained a copy of the most recent House draft CR this morning.
The Pelosi bill, HR 6899, fails to open more than a miniscule part of the available offshore drilling areas and -- even worse -- it establishes permanent bans on development of most other domestic energy sources (natural gas, oil shale, etc.) and does nothing to develop nuclear power. It passed the House earlier this month and is now languishing in the Senate as a separate measure.
As one member of Congress said last week, it’s got more incentives for bicycle riding than for nuclear power.
Continued
Now, the House leaders have included the “drill nothing” bill in a new draft Continuing Resolution. According to the document we obtained, Section 152 of the draft CR says:
[FEDERAL OIL AND GAS LEASING; INTERIOR]
SEC. 152. Notwithstanding section 101, the terms and conditions for Federal oil and gas leasing set out in title I of the Comprehensive American Energy Security and Consumer Protection Act (H.R. 6899), as passed by the House of Representatives on September 16, 2008, shall apply in lieu of the terms and conditions in sections 104, 105, and 433 of division F of Public Law 110–161.
Congress must pass a continuing resolution before September 30 in order to prevent a government shut-down for lack of funding.
(The Democratic leadership has managed to do what hasn’t been done for about 70 years: go through an entire year without passing a single appropriations bill. Without appropriations measures, government agencies lack funds to operate. The CR will include measures to keep all agencies going at least until congress returns either later this year or when it reconvenes next year.)
Senate sources tell HUMAN EVENTS this draft is dead on arrival.
However, there is every reason to believe that this maneuver will be repeated later this week, and that the House and Senate Democrats will make it a part of any deal with the President on his financial bailout package.
Stay tuned. This is getting uglier by the moment.
Yep, if 30 % request a secret ballot, there will be- BUT they have to do that in the open
It's very clear why the union is pushing this dilution of basic rights to all but the most naive/biased
IF it's no big deal and is giving them such bad press ( deserved ) , why are they pushing for it?
It's about a specific issue- doing away with the secret ballot
Mindbending how the libs will justify fascism if it furthers their aims
The secret ballot is a bedrock of any democratic organization
Ever stop to think why this issue is so important to them?
The same libs who whine about every imagined erosion of personal rights/freedoms applaud it when it helps their side
It's the EFCA we're talking about and the right to a secret ballot
You can use the gully pulpet as moderator and call me names if it boosts you, but the fact remains that you're wrong in saying that the secret ballot wouldn't be gone w/ EFCA
They are trying to do away with the choice that workers have in deciding whether or not to unionize. It's just another example of liberal fascism.
Unions are far removed from champions of the downtrodden. They are just as corrupt in many cases as the corporations they work for.
Right, the secret ballot is now " wingnut agitprop "
Too funny
It's that sort of moral relativism that makes a joke of any lib claim of having ethics
I guess fundamental rights are only deserved if they further your biases, right?
Love to hear the libs defend this:
Big Labor's Billion Dollar Bet on Obama
By Mallory Factor
The dirty little secret of Big Labor's massive support for the Obama campaign is the anticipated end to state right-to-work-laws and secret ballots in unionization campaigns.
On June 26, the AFL-CIO brass officially endorsed Barack Obama for president. With Big Labor's largest umbrella organization and its member unions pouring unprecedented resources into the general election campaign, the public ought to fear the legislative payback that would ensue if Obama were elected.
Indeed, Big Labor is launching its largest political campaign in its history, and this year, more than ever, Big Labor means Big Money. The union conglomerate is already sending teams of canvassers to knock on doors in swing states. Unions are distributing 1.5 million flyers and sending 500,000 targeted attack mailers to voters as well.
The two largest union coalitions -- the AFL-CIO and the "Change to Win" Federation, a coalition of the American labor unions formed in 2005 as an alternative to the AFL-CIO -- have publicly admitted they will spend at least $300 million combined on federal elections alone. When combined with political action committees and local unions and other union funders, at least $1 billion of union money (mostly in forced union dues coerced from workers as a job condition) is being dumped into electioneering.
The Democratic Party is but a penny ante player in comparison to Big Labor; the party itself will likely spend mere chump change in electing Obama and other pro-union candidates in comparison to that which will be spent by unions.
You can bet that the union bosses expect a lot of "change" from Obama next year when it comes to labor law. An Obama administration -- possibly coupled with a filibuster-proof Senate -- will feel a real sense of obligation to repay political debts.
Top on the union agenda is the so-called "Employee Free Choice Act" (EFCA), which is better described as the Employee "No Free Choice" Act. If it passes, employees would effectively have to declare their support or opposition to unionizing their shop and lose the ability to cast their vote by secret ballot. Under this Act, union organizers would "collect" signed cards from workers that then count as "votes" for unionization. When organizers have the signatures of over fifty percent of employees, the union instantly sweeps every worker into its ranks.
According to Big Labor's logic, employees can only have a "free choice" when union officials stand over them and pressure them to sign the cards. Employees who have been subjected to card check union drives have complained they have signed the cards as a result of coercion and deceptive practices.
Mandatory card check drives will mean that millions more American workers will find themselves in unions and facing the "choice" between paying union dues or being fired. Both George W. Bush and John McCain said they would veto this power grab, while Obama is a co-sponsor and leading advocate.
Another union power grab on the fast track is the misnamed "Public Safety Employer-Employee Cooperation Act." If it becomes law, the bill would force state and local governments to collectively bargain with union officials over all contracts involving police officers, firefighters, and paramedics -- even in states with laws guaranteeing workers the right to choose whether or not to join a union. This would literally overturn "Right to Work" protections for these groups of workers in the 26 states that provide these rights. The Act would also create massive unfunded mandates by imposing significant additional costs on state and local governments which are not reimbursed by the federal government.
Public safety employees would no longer be permitted to bargain individually and could be forced to accept the union's "representation" -- like it or not. Meanwhile, the bill would facilitate efforts by firefighter union bosses to stamp out (at tremendous cost to the taxpayers) the proud tradition of volunteer firefighting in America.
Like the Card Check Forced Unionism bill, the police and firefighter monopoly bargaining bill has so far been blocked -- barely -- in the Senate, backstopped by a Bush veto threat. But it could be unstoppable under an Obama presidency.
One of Obama's pet projects is the Patriot Employers Act, which he introduced last August. The bill offers incentives -- in the form of tax breaks -- to employers that comply with a litany of Big Labor demands. To get these tax breaks, companies need to agree to eliminate secret ballot elections for unionizing in their shop and to enforce a gag rule on truthful and non-coercive speech about the downsides of unionization.
But there's more. An Obama White House will also seek law changes that prohibit permanent replacement of striking workers. Under current law, an employer has the right to continue operating during a strike by hiring replacement workers. To prevent a total shutdown, an employer must have the ability to recruit replacement workers who may hope for a permanent job. In advocating a ban on striker replacements, Obama's message is clear - union ordered strikes would be automatic winners, and American workplaces would come to a screeching halt in the face of extortionate union demands.
Then there is the ultimate, though rarely spoken, goal of Big Labor: ending the rights of "Right to Work" states to secure the rights of employees to decide for themselves whether or not to join or financially support a union. This could be effected by repealing Section 14(b) of the Taft-Hartley Act. Without this provision, forced unionism would prevail in all states, and states could not protect private sector workers from union demands to pay dues to them as a condition of employment. This is a huge win for unions and pro-union candidates -- literally billions of additional dollars in new coerced dues would flow into Big Labor's coffers which could be used to support pro-Union candidates.
So the union bosses have found their man. With their billion dollar bet on Barack Obama, they know that the payoff of new union coercive powers will be worth the trouble.
A Few Important Questions for Mr. Paulson and Mr. Bernanke
A Tale of Two Financial Crises
Posted by: Blackhedd
Monday, September 22, 2008 at 05:44AM
6 Comments
We’re now into our second day of market reactions to the Treasury and Fed’s Troubled Assets Relief Program (“TARP”), or if you prefer, Mother of All Bailouts (“MOAB”). Market reaction in general is quite positive, which I’ll get to shortly. But the action is moving to Capitol Hill, where Paulson and Bernanke need to convince Congress to pass enabling legislation for the plan before they leave on Friday to face the voters. I’ll tell you how that’s going so far. And I’ll also tell you what questions Congress needs to ask, so that we all can get a better understanding of how the TARP will actually work.
Two Crises
We face not one but two financial crises: a liquidity crisis and a credit crisis.
Both ultimately stem from declines in the value of securities and derivatives that are based on mortgages. But the liquidity crisis primarily affects the financial system in the near term, while the credit crisis affects the larger economy and is a longer-term problem.
And markets have responded favorably to news of the TARP, because it’s widely expected to relieve the near-term disruptions that have rolled through the financial world like one Category-5 hurricane after another.
The reason markets are in acute crisis is because the failure or near-failure of so many important institutions (including Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG Insurance, and many others) makes normal trading impossible.
You can’t trade with someone you’re not sure won’t be bankrupt tonight. And when “someone” is just about every big name out there, that means you practically can’t trade with anyone.
The Darkest Night
That drives a flight into the safest and most liquid assets, even at the cost of losing money. In the darkest hours of the crisis last week, which came as you were asleep on Wednesday night and Thursday morning, interest rates on short-term Treasury debt became literally negative for brief periods of time.
And money-markets showed nearly half a trillion dollars in sell orders that night, by some accounts. If this hadn’t been stemmed by an extraordinary intervention by the Federal Reserve at 3am EDT that morning, it’s possible that there might not have been enough money in the bank for the company where you work to open its doors that morning.
To say that we came to the edge of Armageddon last week may be understating the case.
Pulling Out The Biggest Weapon
After 24 hours of extreme tension, the Treasury leaked word of the TARP, an extraordinary program that will borrow money from world markets, guaranteed by the taxpayers, to buy up to 700 billion dollars’ worth of a range of distressed assets from financial firms.
That news broke on Thursday afternoon around 3pm EDT. It was the source of the roughly 800-point rally in US stock markets that you heard about, and of the nearly orgasmic sigh of relief that went up from trading desks all over lower Manhattan and elsewhere.
By Friday morning, the interest rate on short-dated discount Treasury debt had gone from around 5 basis points (a level last seen in the days following World War II) to a still low but workable 95 BPs or so, where it stands this morning.
For now, markets have stabilized and the fever has broken.
And an acrimonious debate has broken out over the details of the plan. The action shifts down the Atlantic corridor from New York to Washington.
The Debate in Congress
Many well-respected conservatives are dead-set against the plan, which of course is blatant socialism just as the RTC was. These voices are screaming at the top of their lungs that the TARP should not go forward.
These people need to look at the consequences of the instantaneous return to extreme market instability that would take place if they got their wish. This bailout plan is an absolute requirement.
Many liberals, on the other hand, are seeing an opportunity to embed once again the perception that free markets just don’t work. They’re trying to load the TARP special legislation with a raft of Democratic goodies, including more handouts for people facing foreclosure, additional funding for the hard-left ACORN and other “community organizing” groups, and more support for cities that face revenue shortfalls as foreclosures rise.
Secretary Paulson and Chairman Bernanke spent a good part of the weekend on Capitol Hill with key lawmakers from both parties, answering their questions about the TARP bailout plan. (Or not answering them, depending on who you ask.)
The basic idea, according to draft legislation that I saw on Saturday, is that Treasury will set up a two-year program to purchase a broad range of assets from financial firms. The purchases will be funded by sales of Treasury debt, which of course are guaranteed by the taxpayers.
It’s reminiscent of the RTC of the late Eighties and early Nineties, which purchased the assets of failed savings-and-loan associations for pennies on the dollar, and then sold them off over time. The end result of the RTC was that taxpayers made a profit, and it’s more than likely that the TARP will end doing the same thing.
But there are some critical questions about how the TARP will work.
Questions for Mr. Paulson and Mr. Bernanke
The biggest and most important questions regard the valuation at which the mortgage-backed securities will be purchased from the participating banks and Wall St. firms.
How many pennies on the dollar? And who will make that determination?
Banks and Wall Street firms are suffering because they own large amounts of mortgage-backed securities and related derivatives that are now worth less than they paid for them. The losses mean that they can’t go forward from here and fund new investments in productive business activity.
Ideally, you’d want to sell off your bad assets and either continue life with a smaller balance sheet, or else raise additional equity capital to start growing again. Neither option is available as things stand.
The point of the TARP is to provide a bid for the bad mortgage-based assets that, in Paulson’s words, are “clogging the balance sheets” of many financial institutions. He wants to provide a market so that financial firms can sell these assets and get on with life.
The price at which they will be sold is all-important. Get it too low, and you’ll put a lot of firms out of business, because they will be forced to realize capital losses they can’t recover from.
Get it too high, and you’ll be doing two extremely bad things: you’ll be rewarding banks and Wall Street for making bad decisions; and you’ll expose the taxpayers to losses and inflation.
So the key question for Paulson and Bernanke is: who will be determining the valuation? You want above all to make sure that this job is done right, which means getting the best available people from the private sector to do it. How will they be compensated, and what are their incentives?
Already Barney Frank is saying that the people who do the valuation must not be allowed to make a lot of money. How do you get really top people on that basis? Given the dire implications of getting this wrong, it’s charitable to say that Mr. Frank is being shortsighted and probably a little vindictive.
The really deep problem I have, however, is this: what if the true, correct valuation of distressed mortgage-backed assets is actually very, very low? Like, say, five or ten cents on the dollar?
This outcome, if it happens, would be reflective of the fact that the housing industry significantly overbuilt, in response to the price bubble that burst in 2006. And that’s a misallocation of resources that simply can’t be willed away by bailouts, taxpayer handouts to Democratic constituencies, or fairy dust.
If that indeed is where we are, then the TARP will solve the near-term liquidity crisis, but not the longer-term credit crisis. And the US may be facing a long, possibly multiyear period of very slow economic growth.
A lot like what Japan has gone through after their real-estate bubble popped. In Japan, they call it “The Lost Decade.”
All eyes on Ben Bernanke at this point. A close student of the Great Depression, he understands deflation as few others do. He’ll be mouthing the same words as Paulson, to get us through this immediate crisis.
But does he really believe we’re addressing the longer-term problem? That’s a question I’d dearly like to know the true answer to.
-Francis Cianfrocca
The housing meltdown: Why did it happen in the US?
From a timely BIS working paper by Lucy Ellis released on Thursday:
Mortgage lending standards eased in many countries in recent years, but the limited available cross-country evidence does suggest that the process went further in the United States. Standards are difficult to measure because different aspects need not all move together (Gorton 2008), but the observed increase in early payment defaults in the United States (but not elsewhere) provides direct evidence that it occurred (Kiff and Mills 2007); Gerardi, Lehnert, Sherlund and Willen (2008) provide additional detail on the easing in lending standards.
Two developments seem to have spurred the easing in US standards. First, a range of legislative and policy changes had been made to encourage the development of a non-conforming (Alt-A and subprime) lending sector, lying outside the model defined by the government-sponsored enterprises (GSEs, Fannie Mae and Freddie Mac). Part of the motivation for this was a desire to ensure that home ownership was accessible to households who had historically been underserved by mortgage lenders (Gramlich 2007). In addition, the administration had wanted to reduce the GSEs' domination of the mortgage market. Following problems with accounting and governance at both institutions, the GSEs' capacity to expand lending was capped by new regulatory limits on their activities (Kiff and Mills 2007, Blundell-Wignall and Atkinson 2008). [emphasis added -- mdc]
Second, origination volumes had fallen following the end of the the refinancing wave of 2003. Lenders therefore faced a substantial reduction in fee income, with implications for the size of the entire industry. The low rates on long-term fixed-rate mortgages available in 2003 had allowed borrowers to cut their interest rate significantly, by one-fifth on average for loans refinanced with Freddie Mac, for example. Total originations peaked at around $4 trillion, with mortgage backed securities (MBS) issuance not much less than that (Figure 3, left-hand panel). As a result, around half the outstanding mortgage stock turned over through moving or refinancing in that year. According to the Federal Reserve's 2004 Survey of Consumer Finances, 45% of households with a first mortgage had refinanced within the previous three years (Bucks, Kennickell and Moore 2006).
Lenders seem to have responded to these developments by easing underwriting standards across several dimensions. The first of these was that non-conforming mortgages did indeed gain market share. Subprime loan origination grew particularly strongly, but the Alt-A category did as well (Figure 3). Although some full-service lenders branched into these market segments, much of the expansion occurred in lending originated by specialist lenders. This shift included entry into the market by major investment banks via newly acquired mortgage lending subsidiaries. Even if lenders within each category had not eased standards, the result would have been that more of the US mortgage book contained features that raised arrears and default rates. As documented by Quercia, Stegman and Davis (2007), even in the late 1990s, loans originated by designated subprime lenders were much more likely than prime lending to include features that boost default rates, such as prepayment penalties and balloon payments.
The easing in US mortgage lending standards went beyond a shift amongst lenders with different business models. An array of statistical evidence and legal findings shows that underwriting standards of individual lenders eased as well. First, and perhaps most importantly, requirements for documentation of income and assets became progressively laxer. Instead of assessing borrowers' abilities to service their loans, lenders ended up focusing on collateral values, in effect betting on rising housing prices (Gorton (2008) makes a similar point).
The analysis also indicates that it wasn't just subprime that exhibited deterioration, although it was by far the one hit hardest. Rather the key distrinction was...
The real distinction is between loans that were in the FHA pool or the conforming market -- those insurable by the GSEs -- and those that were not in either of those groups. Although there was some easing of standards in the conforming market, especially in the GSE's extended programs and the FHA seller-financed downpayment program, it was minor compared with the one that occurred in the rest of the market. Arrears rates on the GSEs' single-family home portfolio have risen a great deal recently, but this only started in the second half of 2007 (Figure 7, right-hand panel). Likewise, the increase in arrears rates on FHA mortgages has been fairly mild.
The report identifies several factor for the fact that the US housing market deteriorated even before the macro economy deteriorated -- unlike in Canada and UK.
Figure 7 from Luci Ellis, "The housing meltdown: Why did it happen in the United States?" BIS Working Paper No. 259 (September 2008).
(I think if one observes closely the the fact that the scale of the vertical axes are very different, one may very well have an altered perspective on the role of the GSE's in the mortgage crisis.)
Supply of new housing is relatively flexible
Tax system encourages higher leverage and flipping
Legal system is swift but generous to defaulters
Lenders could rely on external credit scores
Cash-out refinancing is inexpensive in the United States
Structured finance enabled subprime and other non-conforming lending
Financial regulation did not prevent riskier lending
I excerpt the section on this last point below:
...
The US mortgage market is subject to an array of laws and different regulators. The regulated GSEs enforced quality control in the conforming market, but the rest of the mortgage market was more lightly regulated. Mortgage lenders that were not also depositories were the lightest regulated of all. As one example of the relatively light regulation of many mortgage lenders, consider the new regulations announced by the Federal Reserve in December 2007 and approved in July 2008, as part of its role of enforcer of the Home Ownership and Equity Protection Act. Among the practices newly banned by these regulations were "coercing a real estate appraiser to misstate a home's value" and "making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value" (Federal Reserve Board 2008). The implication is that these practices were permitted in the absence of the new regulation, and were common enough to merit an explicit ban. Had all US mortgage originators been bound by a requirement to consider the affordability of the repayment explicitly -- as is the case under Australia's Uniform Consumer Credit Code or the requirements of UK legislation, for example -- it seems unlikely that no-documentation (stated-income) mortgages or "exploding ARMs" would have become so prevalent.
In addition, following intervention in 2004 by the Office of the Comptroller of the Currency (OCC), federally regulated lenders were exempted from state legislation which was in many cases stricter than that at the federal level. Some of the practices banned under some states' law included the prepayment penalties and balloon payments that have been shown to raise default rates, independent of the borrower's credit score (Quercia, Stegman and Davis 2007).
...
http://www.econbrowser.com/archives/2008/09/the_housing_mel.html
Again, you miss the point
Yes, it's bussiness as usual, but Barry's claim to fame is that he's a new politician
HE makes a big point of not having lobbyists on his staff. The reality is that he's an empty ( designer ) suit whos operates the same as all the other pigs
Are you actually arguing that those payments had no effect on his vote?
That would be incredibly naive. Those companies don't have lobbyists and dole out millions w/o it having a specific purpose
Just because it's on the " up and up " doesn't make it any less sleazy. " They all do it " and the " CEO's made millions more " don't make it any less sleazy and it sure as hell isn't a " change " from politics as usual
Not sure the point you're trying to make
It's unfortunate for those folks, but is the govt supposed to remove all risk from everyone's life
If you buy a stock and it has unsuspected bad earnings, should your loss be subsidized by other tax payers?
The CEO's pay is peanuts ( it should be cut if the company has to be bailed out )
The relevant part is how to value the toxic debt. Right now, nobody will touch it. The Fed will have to value it before they can sell it . Too high and there will be hyperinflation, too low and the bailout won't work and we get deflation
Bottom line, the massive debt issue to finance this will cause inflation no matter what
The list of pigs feeding at the Fanny/Freddy trough
Dodd was first and I believe Barry was third @ 125K over just 2 years- a quick learner
Notice how you just ignore the redlining and the consequences that the political pressure put on them by the Dems caused @ Fanny
"How many loans are going bad where people could have afforded more reasonable products?
Stupidity in a nutshell
YOU completely deny any responsibility those people have for knowingly getting in over their heads
What evidence do you have that there was any shortage of " affordable " housing? It's simply another one of your myths.
"I know lots of people that can bang out straight ranches and capes all day long and few if any of them complain about the job not paying." Sorta makes your claim that there was only non affordable housing available, huh?
"" Financing low income housing " = subprime loans"
Affordable housing on out reality was government subsidizing housing, taking on the risk that belonged elsewhere. Your naive if you don't think that it was an economic decision- it was purely political. Just look at the big pigs feeding off the trough- Dems keeping their constituency placated. BTW how about your boy Barry near the top of the list. IT's hysterical that you've bought into his " new politics/change BS
They put pressure on the banks for " redlining- not lending in the riskiest areas ( PS that would be the low income sub prime area. Imagine the banks not feeling too secure about lending to the worst credit risks. Fanny and Freddy guaranteed the risk and at the end of the long road it ends up in a meltdown.
"You want to blame the poor slob who took the bait? Well, by all means, have at it. But if you're going to tell me the titans of the financial industry were actually duped,
Nobody was duped and nobody should be above the consequences of their actions. The poor guy " took the bait " gimme a f'n break. I don't know about you , but every time I've purchased a house the terms were very clearly mapped out. There were no surprises
The persistent intellectual dishonesty ( nah it's probably just stupidity ) of the libs is staggering
Even in the face of the tremendous damage done by the mountain of subprime toxic debt you still are either too blind or too biased to admit the reality of the situation.
" Financing low income housing " = subprime loans
THe regulations proposed merely wanted to provide stricter suidlines for all loans. It would probably have meant lower home ownershp by low income people- but maybe people who can't afford houses shouldn't own them. There is no constitutional right to home ownership.
The ironic thing is that you got what you wanted- more home ownership by unqualified people and now want to blame the resultant mess on Bush and the Reps ( and probably Israel also )
You know why builders are predisposed to build higher end houses?? There's more money in it. I realize you'd rather live in a socialistic society ( that Chavez, what a guy, huh, great place if you don't care about human rights and private property ) but you don't.
Do you think the DEms give a sh*t about the poor and that's why they looked the other way at Fanny and Freddy? Look at the list of the top pigs feeding at their trough- Dodd and your boy Barry ( remind me again what's "new" about his greasy politics ?
""These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,['/b]
Well duh....
And supreme duh for you bringing up that quote to support a point