Monday, September 29, 2008

Rankings, Ike spirit, Dome, and more

The smaller misc items have been piling up since before the hurricane, and now are so many I'll have to split them over a couple of posts this week. Before getting to them though, I wanted to throw out another plug for my solution to the national housing and financial crisis, after the bailout defeat in Congress today. Just hoping one of my readers out there has the ability to get it in front of the crisis-response decision makers in the government. On to the list, starting with a little good news to raise your spirits after today's depressing market crash:
More later this week.

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18 Comments:

At 8:07 AM, September 30, 2008, Anonymous kjb434 said...

It was great day yesterday when the $700 Billion tax hike was rejected. Yes, I know the line everybody says that the American taxpayer could end up making money in the end. The important word is could. And more important, if you actually read the bill that was voted on, it gave the Secretary of Treasury the ability to bail out any financial situation and institution he/she feels like with not approval from congress or presidents. They could even bail out plain bad investments that have nothing to do with mortgages....

As for the cause......It all goes back to believing forced equality and diversity is a good thing. In the late 80s and early 90s, concerns were raised about minorities not owning homes and racism was blamed. The reality is that financially many of these minorities didn't measure up to the risk of having a mortgage. Two little GSE company's along with congress and the US Attorney General forced lenders to dole out bad loans. The USAG (Janet Reno) vowed to prosecute any lender that do not lend these risky loans.

Since most banks didn't want these on the books, they repackaged them and promoted them as investment securities. They made since to invest in since housing prices were soaring so the risky part of the securities wouldn't be so risky. Low and behold, the bottom dropped out.

The big question: Why can't the risk takers live with there consequences? Why do I have to pay for their irresponsibility?

I really don't care if we enter a recession or even a deeper depressions. This is history repeating itself such as in 1987, 1929, and 1873 (most people forget about 1873 beginning a 20-year depression). Each time involved people taking risk and the risk coming back and biting them.

If this shakes down a few large banks, so be it. There are plenty of banks out there that are safe from these risks and will work their way up. Houston is home to at lease one bank that is safe from this mess (Amegy). There are countless others across this country that are ready to step in. So we'll have many medium sized banks versus a couple of really big ones with all the power.

In the end, if you want to live in a free market for the ups, you have live in it for the downs. Especially when the downs are caused by the government intervention and not free market problems. The free market is just now finally rejecting the government intervention. To bad it's 16-years later.

 
At 9:19 AM, September 30, 2008, Anonymous Anonymous said...

I don't understand the financial industry, but I am now distrustful of giant New York based financial companies. These companies have acted in bad faith. We might be better off with a decentralized banking system free from these financial monsters. I hope for a future where Citi, Bank of America and Chase are seen as grotesque monsters. Never again should we be threatened by such corruption, arrogance, greed and incompetence.

 
At 6:00 PM, September 30, 2008, Anonymous RedScare said...

Pretty easy to see that some people get all of their info from Fox News.

kjb, care to put up any numbers to bolster your rcist post? I choose to use the word "rcist", because that is the only word to describe the baseless attack on minority home ownership with no facts to back it up. You also fail to mention that any encouragement to lend to minorities came from President Bush's 'ownership society' iniatives first announced in his 2002 State of the Union speech, and put into play in 2004. Those iniatives HOPED to help 150,000 minorities per year. Considering that Fannie and Freddie guarantee $6 TRILLION in mortgages, and that Credit Default Swaps, the financial vehicle at the center of the credit crisis are valued at $56 TRILLION, down from a high of $62 TRILLION, it would be hard to blame all of this crisis on perhaps 450,000 Black people, only a small percentage of whom have defaulted on their mortgages. But, congratulations! You have managed to do so.

Lest there be any doubt, I will state it again. Put up some REAL numbers on the number of Black people who brought down the world financial system. You might also put up some proof that these mortgage brokers and hedge fund managers were FORCED to make obscene profits off of these minority homeowners, but I'll settle for the proof that Black people brought down the banks.

 
At 6:03 PM, September 30, 2008, Anonymous RedScare said...

Not sure why I misspelled it twice, but I intended to call your post "racist".

 
At 10:43 AM, October 01, 2008, Blogger slinkydog said...

This comment has been removed by the author.

 
At 11:28 AM, October 01, 2008, Blogger slinkydog said...

But quite simply, the real problem is that Americans of all stripes haven't been saving. Our consumption was 72% of GDP. It's wishful thinking to believe that subprime mortgages alone are the straw that broke this camel. Hopefully we will get a robust economy back in a decade or so.

 
At 12:14 PM, October 01, 2008, Blogger Michael said...

>>It all goes back to believing forced equality and diversity is a good thing. In the late 80s and early 90s, concerns were raised about minorities not owning homes and racism was blamed.

I don't think "forced equality" was ever the goal. But non-discrimination is a goal. Even within the past few years, my wife's rate on her Honda financing package was something like 1.5% higher than it should have been simply because she is Hispanic. This was found to be an illegal practice by a class-action lawsuit against Honda's financing arm, and we were subsequently adjusted to the new, lower rate. It really didn't matter in our case because I paid the whole thing off very quickly. But I was and still am shocked that this sort of thing actually happens.

I do believe that minorities and whites of equal means should be given equal credit ratings and should qualify for the exact same loan terms. If this is not happening, then the law should be upheld and the guilty parties should be prosecuted.

To say that the practice of ensuring non-discrimination is a cause of the present housing bubble is extremely specious to me. As such, I agree with redscare and think it is correct to say that kjb is being racist by implying that loans to minorities are somehow responsible for the present crisis. If KJB wants to say that only people of a certain credit level should be given loans, fine - I agree - but we also have to ensure that credit ratings are non-discriminatory and transparent. Whether loan applicants are minorities should be irrelevant.

 
At 5:00 PM, October 01, 2008, Anonymous kjb434 said...

I see Redscare and Michael didn't read my post...

Please read the banking committee reports from the House and Senate that use the same language as I did regarding minorities from the late 80s and early 90s.

The easing of lending to unqualified buyers in the late 80s and early 90s was done specifically because these lawmakers believed it help more minorities own homes. The disproportionate in home ownership by race was blamed on racism by this legislators when in reality, many of the applicants simply didn't fit the basic financial requirements for mortgages.

Technically, the rules established didn't site minorities. That would be illegal. These legislators assumed that minorities in general were financially unqualified so they forced the bar to get a mortgage to be much lower. This in end allowed many Americans (regardless of race) to now be qualified for mortgages that they would never have been able to get.

This policy was enforced throughout the Clinton and Bush administrations. Freddie Mac and Fannie Mae also consistently lower the requirements even more and used the department of justice to force lenders to dole out these risky loans. They even gt plenty of state Attorney Generals involved.

So let me state, I'm not blaming this mess on minorities. If you inferred that from my post, then I'm greatly sorry. The reality is race played a roll in creating the policies and formed the reasoning for the policies. If you look at actual subprime mortgages, you would actually see a majority of them are actually Caucasians. The problem came from the fact the Americans of all stripes were now able to receive mortgages from these policies.

I have to make sweeping statement, this problem was cause by Congressional action and complete mismanagement by the GSE's. Any attempt to correct this bad practices through either legislation or regulatory scrutiny was labeled as being racist and hurting minorities. ACORN and NAACP were the two of the loudest voices to prevent any corrective action on these misguided policies. LaRAZA was major player during the current Bush administration to prevent new regulatory rules because of his relaxed stance on illegal immigration. The reaction that I was being racist is part of the problem of why this wasn't fixed every time someone tried.

My issue is that Congress started this mess, the last group I want to attempt to fix it is Congress again. This issue with Wall Street banks is that they had all these loans that nobody wants to hold. They had to find a way to make it profitable. They created these securities that now have little value. Actually, nobody knows what their value actually is.

I done a lot of research into this which involved a lot of reading legal documents pouring through testimony. There are countless economist that warned this was a grown problem for years. Many of them when testifying in congress under the banking committees were labeled as racists when in there testimony they never mentioned one thing about minorities or race.

 
At 9:28 PM, October 01, 2008, Anonymous Anonymous said...

I don't agree that racism was the cause of this blunder. This disaster has been caused by arrogance, greed, and imorality. The banking and financial institutions have orchestrated a elaborate hoax and blackmailed our spineless leaders. To me this is like a spectacular bank robbery, "A need a trillion dollars by the end of the week or else the bomb will explode and all of you will be sorry"

 
At 9:21 AM, October 02, 2008, Anonymous Mike said...

But, but, but, but it's always racism!

 
At 9:39 AM, October 02, 2008, Anonymous kjb434 said...

HAHA!

That's what if felt like when I read Redscare and Michael's posts.

I'm crossing my fingers that the House has a set and votes no on the bailout.

 
At 9:49 AM, October 02, 2008, Blogger Michael said...

KJB,

>>HAHA!

>>That's what if felt like when I read Redscare and Michael's posts.

>>I'm crossing my fingers that the House has a set and votes no on the bailout.

Funny, you are the only one saying the financial crisis has anything to do with race.

You link to no articles, you provide no evidence for any of your claims - yet somehow you conclude that mighty LaRaza got us into this mess and kept us there by presumably standing up for fair and equitable lending practices! Poor Lehman Brothers - who did no wrong, took no outlandish risks, and just operated by pure free market principles! Right KJB?

-Mike

 
At 11:06 AM, October 02, 2008, Anonymous kjb434 said...

Again, Michael you haven't read anything I posted.

You don't even have to read news articles. Just go read the congressional record from the House and Senate Banking committees.

You'll see plenty of testimony from groups and legislators on this entire topic and their reason (or lack there of).

I never said this was cause by minorities or race. Minorities were used as the reasoning by legislators to enact a policy that ended up letting people from any race whom financially should never been allowed a mortgage. I've been avoiding labeling specific people or political parties, but I'll go ahead now and do it.

One of the leading House members to begin this was Barney Frank (D, Mass.). Dig up his statements from the House Banking Committee regarding Freddie Mac and Frannie Mae over the last 20 years.

Jump over to the Senate and pick Chris Dodd (D, Conn.) and you find eerily similar statements on the same topic for the last 20 years.

Even more shocking these two senators claim that Frannie and Freddie had no problems as late as 2005 when regulation was being proposed to hold the board members more accountable.

Look up the names Franklin Raines, Tim Johnson, and Jamie Gorelick. These people continued the corruption at Frannie and Freddie and heavily lobbied and gave campaign contributions to the democratic house and senate members on the Banking Committees that fought against any regulation or attempt to limit the risky loans being doled out.

With all the risky mortgages floating around, the large investment banks had to find ways to make them seem valuable. So they packaged them with good mortgages so that investors would buy them up. While this was problematic, this would have never happened if the congressional policies were never put into place.

If there were republicans in this mess, I would gladly throw there names in this mix. And I've been looking. Strangely enough I can't find any even though corruption generally runs deep in both parties.

The groups I've mentioned ACORN and LaRAZA have also been involved in the testimony and lobbying. They are on record in the senate and house on these policies and in support of the corruption on Freddie and Fannie.

Except for calling me racist, no one has yet attempt to truly refute anything I brought up. Calling me racist is quite stupid since my to best friends are black and Peruvian.

 
At 11:30 AM, October 02, 2008, Blogger Michael said...

KJB,

>>Again, Michael you haven't read anything I posted.

I've read everything you've posted.

However, I'd much rather you give me a link to a reputable source than tell me to go dig through 20 years of Christopher Dodd's testimony, which is what you just did. Believe it or not, I have other things to do during my day than pore through the last 20 years of congressional testimony.

On the specific point of:
"Minorities were used as the reasoning by legislators to enact a policy that ended up letting people from any race whom financially should never been allowed a mortgage."

I will ask you again: *back this up* with a link to a source. I'm not saying you are wrong - but I'd like to see a solid source for this claim. Believe it or not, I get my news from many sources, and nobody has so much as mentioned this as a cause of the housing crisis or risky lending practices. You cannot simply inject race into a discussion and not expect to be called out on it.

>>no one has yet attempt to truly refute anything I brought up

You have not attempted to truly prove anything - to me, you are just ranting, so why should I even try to refute it? All I'm doing now is questioning your claims, and questioning the biases you apparently have which are driving you towards your conclusions.

-Mike

 
At 4:13 PM, October 02, 2008, Anonymous kjb434 said...

http://public-gis.org/

This website is a pretty extensive overview of everything Freddie and Fannie did and goes in GSE and sub-prime lending.

The site is on the opposite side of the argument than me, but it makes my case pretty well and also lays out the history.

You will see extensive references to HUD and lending to poor minority neighborhoods by census tracts. It also will go into the expansion of who qualifies for mortgages financially by the sub-prime push from HUD. In order to include more minorities, they had to include a vast amount of people that aren't classified as minorities.

While their proposals I don't agree with, the information they provide makes my case that this all started with civil rights groups and legislators pushing to have more minorities own homes. ACORN is the most popular civil rights group thrown around. LaRAZA's involvement happened most recently under Bush with all the illegal immigration issues swirling around.

http://www.csrwire.com/PressRelease.php?id=8

The above link is press release discussing Bank of America and Rainbow Push Coalition looking to further extend HUD's and Freddie and Fannie rules to make it easier for minorities to get housing. Again, the method to do this is by lower the financial bar to get a mortgage which make all races of people able to buy a house that shouldn't.

http://goliath.ecnext.com/coms2/gi_0199-3381382/Goal-oriented-Fannie-Mae-and.html

The above link is another good primer on HUD rules set by congress and how they affected the current situation.

Have fun reading. I tried to find articles that relate to the research I didn't in actual records. The articles take different sides or are pretty unbiased.

 
At 1:33 PM, October 03, 2008, Blogger Michael said...

Thanks KJB - unfortunately, I don't think this information shows much, other than government has undertaken action to prevent discrimination in loans.

Now if you want to know what probably 60-80% of the people in the country think about the cause of the crisis - which is that the free market failed, check this explanation out. Seems like a more plausible explanation to me.

 
At 2:29 PM, October 03, 2008, Blogger Tory Gattis said...

And here's an alternate perspective from a George Mason economics prof in today's Wall Street Journal:

http://tinyurl.com/3j7ov5

Good analysis of all the different govt programs over the years and how they made an impact.

Concluding paragraphs:

"Fannie and Freddie played a significant role in the explosion of subprime mortgages and subprime mortgage-backed securities. Without Fannie and Freddie's implicit guarantee of government support (which turned out to be all too real), would the mortgage-backed securities market and the subprime part of it have expanded the way they did?

Perhaps. But before we conclude that markets failed, we need a careful analysis of public policy's role in creating this mess. Greedy investors obviously played a part, but investors have always been greedy, and some inevitably overreach and destroy themselves. Why did they take so many down with them this time?

Part of the answer is a political class greedy to push home-ownership rates to historic highs -- from 64% in 1994 to 69% in 2004. This was mostly the result of loans to low-income, higher-risk borrowers. Both Bill Clinton and George W. Bush, abetted by Congress, trumpeted that rise as it occurred. The consequence? On top of putting the entire financial system at risk, the hidden cost has been hundreds of billions of dollars funneled into the housing market instead of more productive assets.

Beware of trying to do good with other people's money. Unfortunately, that strategy remains at the heart of the political process, and of proposed solutions to this crisis."

 
At 11:58 AM, October 08, 2008, Blogger Michael said...

Here's another article (of which there are several) debunking KJB's claims that lending to minorities has anything to do with the current crisis.

"These arguments are generally made by people who read the editorial page of The Wall Street Journal, and ignore the rest of the paper—economic know-nothings whose opinions are informed mostly by ideology and, occasionally, by prejudice. Let's be honest. Fannie and Freddie, which didn't make subprime loans but did buy subprime loans made by others, were part of the problem. Poor congressional oversight was part of the problem. Banks that sought to meet CRA requirements by indiscriminately doling out loans to minorities may have been part of the problem. But none of these issues is the cause of the problem. Not by a long shot."

Also check out another George Mason econ prof's thoughts, who considers the factors of greed and lack of punishment:

"The increasing value of human capital: Bankruptcy is no longer so painful for the wealthy. You can always get another high-paying job plus you have $10 million squirreled away somewhere in Switzerland. You could end up working for the guv'ment for $130K a year and your life still is pretty good once you get over the shock of adjustment. So why not take lots of risk and try to get ahead of the other guy?"

Sounds like greed, massive market failure, and government oversight failure along with perhaps monetary policy failure to me...

 

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