House dumps bailout
The House of Representatives killed the bill to authorize a $700 billion bailout of the economy by a vote of 228-205, after impassioned pleas on both sides.
Plenty of members from both parties were unhappy about the unpopular legislation, especially on the eve of elections. One congressman offered an all-too-vivid image.
“This is a huge cow patty with a marshmallow stuck in the middle of it,” said Rep. Paul Broun (R-Ga.).
But congressional members supporting the bill expressed their distaste for the bailout too, torn by their constituents’ disapproval.
House Republican leader John Boehner, who called the bill a “crap sandwich” at one point and initially said he wouldn’t vote for the legislation, spoke in support of it today.
“Nobody wants to vote for this. I don’t blame you. We have an imperfect product, a product that may work,” he said. “I believe we have to vote for this bill to keep ourselves from the brink of an economic disaster.”
To score a few points, House Speaker Nancy Pelosi took the opportunity to lay the blame for the financial meltdown entirely on the Bush administration’s economic policies.
“They claim to be free market, when it’s really an ‘anything goes’ mentality,” she said. Pelosi urged the House to pass the bill.
Democratic leader on the discussion, Rep. Barney Frank, chairman of the Financial Services Committee, avoided political commentary to point to the severity of the situation.
“If we repudiate George Bush’s secretary of the Treasury and the chairman of the Reserve, and we say, ‘Naah, calm down, we’ll get over it,’ I believe the consequences will be severe.”
“I wish I could have included more of my priorities,” said Frank. “I wish I could eat more and not gain weight. … Please don’t throw it out because you’re unhappy with some of the provisions.”
But they did. Now Congress, expected to go to recess today, may be in session the rest of the week to discuss other options to solve the crisis.














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back to top146 Comments to “House dumps bailout”
What’s the story about this OFHEO agency and the agency’s head guy? Seems he was the canary in the coal mine who went unheeded by Barney Frank and the finance experts on Capitol Hill.
So we had a diligent regulator who rang the bell for iceberg dead ahead, and our federal stewards were off at happy hour?
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The Democrats just learned what happens to you when you bash republicans constantly in the press blaming them for your own problems, concoct a socialist scheme that no House republicans had any input on and then the dems couldn’t even control their own majority in the house and 95 dems voted against their own 105 page bill they crafted from 3 pages of pure genius.
Dems can put lipstick on a pig but it is still a pig – but what do you expect from a party whose mascot is a jackass
You got to love them.
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Could someone explain this in laymans terms without bashing the dems or reps.
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I feel sorry for the democratic leadership who have been blaming the right all week for causing this mess and when they got it in teh chops by their own representatives they could not hold in line – they blamed the republicans again. Barney Frank and especially Nancy Pelosi torpedoed this bill with their huge mouths as usual. They simply are not adults. Like all whack jobs, they have no personal self control, no shame and can never be satisfied. Even little children know how to behave better then they do. They have to be stupid since there can be no other explanation.
Pelosi, Reid, Dodd, Frank and Obama should know what any 1st year law student knows. Never ever ask a witness a question that you do not already know the answer to. Never bring a bill to the floor unless you know you have the votes to get it passed if you are the majority. They had the votes until these babies shot their mouth off again this morning. Now they will never get the right to ever work with them again – no not ever.
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My guess is that given the seriousness of the credit-market meltdown this will be a pyrrhic victory that bids fair to precipitate a deep recession or worse. The problem is that the meltdown was caused mainly by the Democrats and a few spineless Republicans who allowed a lowering of mortgage credit standards in the interests of “affordable” housing. The bailout plan was designed to plug the hole in the boat and pump out the exceedingly dangerous financial waters, followed by an effort to reform the compromised credit-market standards.
Hoover, the Fed, and the Congressional conservatives back in ‘29-’32 period sat righteously on their hands, ushering in the Roosevelt era that exacerbated matters, precipitating the ten-year pleasures of the Great Depression. Don’t kid yourselves that this is not a very real financial crisis. Ironically, the Democrats for the most part have a better understanding of the depth of the crisis than the many righteous and financially naive Republicans in the House.
What could easily happen next is a combination of some sort od a bank run and a decsion among those with capital in produvtive companies to find save havens, especially gold. The Wall Street Journal tomorrow will record the gory details.
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#3 Conservative ideological commitments outweighed the facts of the matter, again.
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#3
Ample no votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill.
–Yahoo news.
Kim,
I think the Republicans and the Democrats bashing themselves, each other, you and me, and everything in sight.
If there was ever a moment since the Republican party was founded in 1854 ripe for starting a third party, I think we’re at that moment.
Who would be the candidates of a new party? I don’t know. Bloomberg and Petraeus? Combine business success and military success?
Can they mount a campaign this quickly?
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It looks like 12 House Republicans flipped their votes from yes to no after Nancy Pelosi shot her mouth off blaming republicans for this mess. So it comes down to Nancy being a whack job once again. It’s a shame that Nancy couldn’t convince 7 of her own 95 no votes to switch to a yes. Why ios that Nancy. i didnlt hear you blaming them. They must hate you as much as house republicans do. She must be a weak sister from San Francisco or something
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#4 “I feel sorry for the democratic leadership who have been blaming the right all week for causing this mess and when they got it in teh chops by their own representatives they could not hold in line – they blamed the republicans again.”
So Republicans have such fragile egos that they will vote the wrong way just for spite?
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Pelosi and Frank just came in TV blaming Republicans again claiming they were ready to work with the right in the house to get a new bill. The entire Republican caucus should go on TV and tell the world that Nancy and Barney can go to …… and that until the democratic leadership of the house is replaced there will be no bills passed at all.
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The bottom line is that our Government (both Dems and Reps) continues to fail us and the main stream media continues to turn a blind eye if it is their party that is failing us. As both parties are failing us, all media is not really reporting the issue. We need to fire the Government and the Media.
Why did the Government fail us? Lots of reasons, but do yourself a favor and look at the “resume” of Barney Frank and the majority and minority leaders of both houses of Congress. With all due respect, my 16 daughter has almost as much real-life business experience as our leaders. They have never lived a life outside of politics. What did the electorate really expect?
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Jim Manzi, a rather savvy fellow about financial matters, remarks as follows On NRO:
Well, apparently the House Republicans have decided to run a neat little experiment to test the actual odds of the current financial crisis turning into another Depression in the absence of a bailout plan. What alternative do they propose that could realistically be enacted? How long do they think this would take, and what risks would we run during the period of uncertainty, even if it were successful?
I have no visibility into the current machinations on Capitol Hill, but I’m with Noah Millman: as far as I can see, if I were a senior Democrat right now, I’d introduce a Democratic alternative tomorrow and pass it on a party line vote.
I sure hope House Republicans are holding some cards they haven’t yet revealed.
I hope so too but rather doubt it. Most of the House Republicans don’t have a clue about finance. The only hope now would be for McCain to step in and talk sense to these cretin Republicans who apparently get off shooting themselves on the foot.
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The only hope now would be for McCain to step in and talk sense to these cretin Republicans who apparently get off shooting themselves on the foot.
After he helped encourage them last week to put in their 2 cents? I’d say he was part of the problem.
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llama post 2,
sorry llama but this was devised by Paulson and Bush.
Nice revisionist history however.
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Peter Leavitt post 5,
I agree with the bulk of your post except for one factual problem: the Republicans have owned the government from 2000 – 20006 and the presidency from 2000 – now.
It is a Republican mess and Republican house members would not support the cleanup effort.
But I fear you are right, it will now be a mess.
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llama post 8,
what llama and then let you blame the Democrats for passing the bill?
You have shown your colors here for a long time, so it is probably not useful to pretend that you are simple at this point.
If the Republicans would not participate in a bipartisan effort to staunch the problem, then it was a doomed effort. Republican partisanship will be recorded as the root of the coming troubles.
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Peter leavitt post 12,
a good assessment and I like your comment:
“The only hope now would be for McCain to step in and talk sense to these cretin Republicans who apparently get off shooting themselves on the foot.”
I suspect we will see a purely Democratic response. I have several concerns:
1) would Bush sign it
2) will it be in time
I am pessimistic on both fronts.
It is so close to the election that unless there is clear bipartisanship making major responses is difficult. We have seen the Republican Study Committee torpedo the effort at bipartisanship.
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It is worth noting that last Thursday Paulson admitted that the house Republicans were the problem.
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I’m with you Random, they’re all acting like a bunch of little kids screaming “He hit me back first.”
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Isn’t at least part of the problem that their constituents just do not understand what this is about and are clamoring for rejection?
I wonder what it would take for that to change?
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So, now what? Congress says they’re going to work all week (oooo!) and come up with a better agreement. Better for WHOM?
The problem is that the Committee in charge overseeing the financial industry was in bed (literally!) with the industries they were supposed to monitor.
When will Congress decide to investigate themselves? When pigs learn how to wear lipstick, that’s when! We need a president who doesn’t roll with the pigs. Anyone come to mind? Didn’t think so.
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Musing,
Nice try,
Paulson’s plan was 3 pages of pure genius and the left turned it into 105 pages of total insanity as usual. Blame Paulson for his 3 paged if you must but we know who put in 102 other pages and torpedoed this bill.
But nice try in not accepting the the blame anyway – a true lefty specialty. They could have passed this on their own. The left has been in control of congress for two years and they have yet to pass anything into law of note. This just shows they can even lead with a majority and caps their total incapacity to get anything done. They make the ‘do nothing’ republican congress look like eager beavers in comparison. Even with the nation falling into an abyss makes no difference to lefties. They could care less and still expect the Republicans to lead and get things done when they are in the minority. What a bunch of lazy bums the left turned out to be. You can blame the right when they are in control and when they are not in control too. What a bunch of cry babies. Either stand up and lead or get out of the way. Don’t blame the right for being able to get one thing done in two years no matter how important or meritorious.
It seems the entire main street wqanted this voted down too at 99 to 1. Looks like the left has lost control of Main street too. YThey were voting agaqint 99% of America. So much for looking out after your own.
By the way, No one on the right can even find Paulson’s 3 pages anymore. Chances are the left took them out and put in 105 new pages
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KIM (3): Could someone explain this in laymans terms without bashing the dems or reps.
FRANK: Give a few minutes of your time to Peter Schiff, president of EuroPacific Capital and the economic advisor to Rep. Ron Paul’s presidential campaign:
Peter Schiff – Bloomberg 9/22/2008
One caveat: Schiff doesn’t bash the dems OR the reps.
He bashes the dems AND the reps, because members of BOTH parties (really one party, but we’ll talk about that some other time) had a hand in creating America’s financial woes, but over several decades (not the last 4 or 5 presidential election cycles).
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Oh, I forgot: Re. the $700,000,000,000 bailout:
[pumping fist in the air] Burn baby, burn!
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“Isn’t at least part of the problem that their constituents just do not understand what this is about and are clamoring for rejection?’
Our little corner of the blog-o-sphere seems like a microcosm of the country at this point. You’ve got both sides pointing fingers at each other, giving half truths on the story, with no one interested in or agreeing on the whole story, the truth, or a solution.
“I wonder what it would take for that to change?”
It’s not a likely possibility. We’ve gotten used to our politicians lying to us for so long that it’s not like we’d listen even if they decided to tell the truth this one time about how we got here…
I’d love for a spokesman for a bipartisan effort to speak out right about now, explain the problem, and how we’re going to get out of it. With all of them acting like spoiled brats, we’re not going to get anywhere except further down the toilet…
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The Republican Party jumped off the precipice and will be no more, having ended themselves in their sea of troubles. We always suspected they had something of the fascist’s death wish, being too strong, pure, and proud for the mortal coil of democracy. Pleasant dreams in your undiscovered country, folks. R.I.P.
Democrats have no alternative but rationality. Markets are not capable of mobilizing any risk taking capacity. interest rates are too important to leave to Wall Street. Bureaucrats with PhD’s from Princeton and Berkeley need to set the price for long-term risk, and We The People need to nationalize the large insolvent financial institutions.
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I’d be clamoring for rejection too, (if I really understood what I was rejecting) unless I knew that all the irresponsible debtors and lenders and ceo’s and politicians would have to pay for this boondoggle instead of, for a change, me.
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PETER LEAVITT (5): My guess is that given the seriousness of the credit-market meltdown this will be a pyrrhic victory that bids fair to precipitate a deep recession or worse.
FRANK: Then so be it.
The market needs to correct the market, not the Central Planners of either party.
If the Central Planners get their way — again — we’ll be in much deeper kimchee than we already are.
Oh, and we should also look at building the dollar back by returning to Constitutional money. (You all remember, right? Gold and silver?)
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Re: 14 and 17
I think whether or not Bush would sign it isnt a precondition for failing to act on the Democrats part at least. You have a very good talking point if you submit a bill that passes both house and senate, AND then Bush veto’s it. Then you can blame him.
He at least offered something. Democrats and Republicans have spent the past week squabbling over who gets what out of it. Meanwhile they came up with nothing substantial and BOTH parties didnt pass it.
They did what I expected, from what they always do, they discussed it for a week and then sat on their butt. Congress never acts on any major issue. They twiddle their thumbs.
However, in this case I’m glad, cause I think a bailout bill would only lengthen any recession we will enter. I hope it doesnt pass, I hope the majority of these companies that took high leverage risk and failed, will burn.
Let the market purge itself and itll recover much faster than printing monopoly money.
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Frank in Spokane – Interesting commentary in #23. Schiff said, “Every time the government does something, they hurt us”. That is certainly true in this case.
Since Congress got us into this mess, who can we trust to get us out? Normally we would turn to the executive branch, but we don’t really have one at the moment.
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Well the following article is fascinating:
http://www.cnn.com/2008/POLITICS/09/29/campaign.wrap/index.html
It seems one side is calling for calm and refocusing the effort. The other has started a blame game.
Hmmm – what we would seem to need is leadership here.
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Well the following article is interesting:
http://www.cnn.com/2008/POLITICS/09/29/campaign.wrap/index.html
It wopuld seem that one side is calling for calm and refocusing the effort and theother is starting a blame game.
Hmmm – I think what we may need now is some leadership.
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#23 Thanks for the link, but he sounds like a libertarian goon.
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Ah so the spam filter is owrking overtime!
Well the following article is interesting:
http://w*w.cnn.com/2008/POLITICS/09/29/campaign.wrap/index.html
It wopuld seem that one side is calling for calm and refocusing the effort and theother is starting a blame game.
Hmmm – I think what we may need now is some leadership.
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Xion,
“Congress” didn’t get us into this mess.
The whole government did. (At least two of its branches, and quite possibly the third.)
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Kim: To answer your question, no one really knows what it means. Most of the “smartest guys in the room” from Paulson on down to the majority and minority leaders in both Houses, think there is a grave danger that the credit markets will collapse, and no one will be able to get any credit.
However a substantial number of lawmakers, particularly those facing close election races in a few weeks, decided that they would roll the dice and see if markets really do collapse. You can look at the totals from both parties and see which one didn’t want to roll ‘em.
Frankly, I think that after a day or so of cooling off, the House leadership will try again.
Longer term, assuming nothing else happens I think this marks the end of the dollar era in international finance. Some other currency will arise as the de facto settlement means of trade. Short term, once again assuming no rescue, likely rapid deflation and full-blown recession here, and I wouldn’t be too surprised to see “flying squads” of FDIC people shuttering your local bank branch sometime soon. There could be slight delay, but you will get your money out of your account. Just don’t even dream of borrowing anything to pay medical bills, send a kid to college or take a little vacation.
The folks at the top, who already have taken their billions out of the economy while running it off a cliff, will hardly even notice. After all, as I heard a parade of House Republicans say today, all they really wanted out of all this is a reduction in capital gains taxes, so that when they swap mansions with each other, the gov’t gets less.
Sorry, I guess I did get a bit partisan at the end, there. And, above all, I really, really hope that I am wrong.
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Llama, demonstrating the basic babyness of Republicans, said: The entire Republican caucus should go on TV and tell the world that Nancy and Barney can go to …… and that until the democratic leadership of the house is replaced there will be no bills passed at all.
And there, folks, is just why things like this fail in Washington. Republicans, too childish to ignore garden-variety political jabs, dig in their heels and hold their breath until they turn blue.
Cheered on by those like Llama, who would rather see the country collapse than have the maturity to rise above a perceived slight.
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See the list at the Bailout Reader.
But make yourself a sandwich first. There’s LOTSA stuff there …
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Thorn post 29,
but at the end of the day what is required is a plan which helps manage the problem.
What we have shown on all sides is that handling a problem as complex as this is very difficult this close to an election. The only force with the moral authority to lead well here is the lame duck presidency and this was apparently not enough to sway house Repu8blicans.
Bush, Paulson and the Democrats came to rough agreement with what even the Republican Study Committee agreed were improvements.
As discussed by Paulson on Thursday, it was the Republican Study Committee which would not work in a bipartisan manner.
Now we have sown the whilrwind.
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Anybody recommend a good history book on the Great Depression?
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llama post 22,
Paulson’s three page bill was a power grab of unprecedented dimensions that no Republican or Democrat was willing to accept as is.
Both Republicans and Democrats participated in negotiating the final bill and Paulson was comfortable that it provided the authority needed.
But as we have seen in the past, facts have never seem to interest you.
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No offense to the partisans, but the mansion swapping is happening on both sides of the aisle. Please show me a poor person from Congress, give me their name so I can investigate. I might think I am actually represented in Washington (but I know I am not).
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#36 Anybody got anything that *isn’t* just a Ron Paul propaganda list?
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Why did the Government fail us?
The market failed us. It collapsed in a self-created speculative bubble.
The moment is a great opportunity. $700 billion is a small price to pay to acquire Wall Street and take control of the price of risk. With our faith and credit, and ability to build a strong economy, the People of the US can’t afford not to do this. Besides, the price won’t be that much. We might even make a profit on this because we can get our people back to paying their mortgages and prospering.
This acquisition — that’s what a “bailout” this big really is — won’t have much effect on our ability to get the economy moving, either, contrary to what a lot of people fear. This acquisition doesn’t represent new debt in the economy, just the replacement of bad debt by good debt, backed by assets which we can make good. The mistake was in allowing deficits to rise over the past eight years, not in taking on debt now. We can safely undertake lots of fiscal stimulus, especially short-term investments in health care restructuring that will save lots of money over time.
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I’m tired of the partisan jabs from both sides. It seems to me that there’s plenty of blame to go around. Simply put…our Congress critters are acting like children.
No one cares what would really work, what is really necessary, or what long-term effects are. They’re all about getting stuff out of it for ME, ME, ME. sigh
Musing, how can you say it is all the Republicans’ fault when Congress has been controlled by Democrats for two years? How can you say that it is only the Republicans acting partisan when Pelosi got on tv and ripped the Republicans?
And, I’m not any happier with the Republicans. They should have thought of the country before their egos. (Who cares what Nancy Pelosi says anyway??) This sounds as if it has been a problem that has been building up for years. Why weren’t they sounding more alarms?
I have three children coming up on college. It scares me that I won’t be able to send them.
I am even angry at myself. My husband and I heard rumblings of a future fall, and we didn’t work hard enough to get ourselves completely out of debt and sitting well before this debacle. sigh.
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Barack “The Messiah” Obama will not reach across the aisles and create one nation from its broken parts as He has promised.
I wait for the Miracle.
or
John “The Maverick” McCain will create a Republican/Democrat alliance that will solve this mess. Once again proving that he is a true moderate.
or
Neither provides much help and the economy fails/survives despite the efforts of all politicians involved.
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SPINOZA (41): #36 Anybody got anything that *isn’t* just a Ron Paul propaganda list?
FRANK: Please elaborate. “Ron Paul propaganda list”?
IOW, suppose Ron Paul, Peter Schiff, Lew Rockwell and the rest of the Austrian school has been right all along.
Why would you disregard what they say? Because Ron Paul said it?
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No one cares what would really work, what is really necessary, or what long-term effects are.
The worst thing now is to do nothing. Paulson-Dodd-Frank could have worked. Some Democratic ideas could have worked even better, and that’s why some liberals voted no. The 1992 Swedish nationalization of the financial industry has worked great! Republicans voted no for philosophical reasons, rather than practical reasons. They were afraid of the plan because they knew it would work, and they prefer anything to “socialism,” however mixed.
It makes sense to loose the world to save your soul, but when you have already lost your soul, it doesn’t make sense to lose your shirt, too, which is where Republicans are.
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Spinoza,
Now go and learn what this means:
Schiff, Paul, Rockwell et al. have been right … and you want to hear a different answer?!
You really beat all.
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#33 Frank, “Congress” didn’t get us into this mess. The whole government did.
Not sure what you mean. Congress oversees the entire financial services industry, including the securities, insurance, banking, and housing industries, the Federal Reserve, the United States Department of the Treasury, the U.S. Securities and Exchange Commission, and other financial services regulators.
What’s left? No investigation then? Everybody’s OK with the Congressional oversight of the financial industry? The media shouldn’t maybe ask the House Banking Committee a question or two?
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Surprisingly (to some of you) when I took the test yesterday on where I fall (Left or Right), I actually came out in the middle but definitely leaning Left. (Kind of surprised me too.)
I do tend to think of myself as Right, but with strong centrist tendencies. The test claims I’m a bit Left but with strong centrist tendencies.
At any rate, I don’t CARE (really I don’t) whether the Right or the Left was at fault, or whose toes have been stepped on.
I just want them to work together to do what is BEST for the country.
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In Llama’s 5th grade mentality Paulson’s original version was better for one simple reason. It was 3 pages, something Llama could have read if he had a weekend free!
Don’t even bother mentioning that Paulson’s version offered 700 Billion to Paulson with no over-sight. In fact it wrote out the possibility of oversight by ANYONE! I want one person here to defend that!
Peter is equally vacuous! “The problem is that the meltdown was caused mainly by the Democrats and a few spineless Republicans who allowed a lowering of mortgage credit standards in the interests of ‘affordable’ housing.”
As musing and Arcadia are so kind to point out the Republican’s owned the government from 2000-2006. And I’ll add, set the record for obstructionism after the American people kicked them out of power. Luckily for us most of the country properly blames the GOP for this catastrophe and trusts the democrats to fix it. And you can see that in Obama’s creeping poll numbers.
One more little delight. McCain just made a major gaffe!
McCain takes credit for bill before it loses
This is a headline on Politico today. It’s awesome. Want some quotes?
“The rush to claim he had engineered a victory now looks like a strategic blunder that will prolong the McCain’s campaign’s difficulty in finding a winning message on the economy.”
“After the vote, commentators were harsh. MSNBC’s Chris Matthews said: ‘He’s like a cavalry commander who said “Charge!” and the Republicans went into retreat.’”
Gotta love old Walnuts, politicize a financial crisis and then take all the credit for yourself…oops…maybe he should have counted up the votes first.
Over at the BBC there was a great commentary that America isn’t done yet because financial crises here hit Russia and China worse. Well that adage seems true for McCain’s campaign too, and it’s the only good news coming out of all of this.
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#45 I don’t doubt Paul et al. have *a* point. But I’m also interested in the other 99 that matter.
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I am very interested in how both Obama and McCain react to this nightmare.
Obama wants to ride the wave of destruction right into the White House. He will make token efforts to appear concerned but realizes he can’t truly reach across the aisle since he has never done it before.
McCain wants to ride in like a knight in shining armor and vanquish the dragon. Unfortunately, he has fought his own party so often that many republicans view him as a RINO. Can’t see him rallying the troops in this case. Nice try though.
Who else?
Bush? No one wants to touch him with a 10 foot pole.
Cheney? Make it a 10 mile pole.
Pelosi? Ineffectual.
Boehner? More so.
Well I guess we’re done for.
Oh wait. What about Petraeus? Maybe we should bring him back to help in a surge on Washington.
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Spinoza #38 “Anybody recommend a good history book on the Great Depression?”
Try “Grapes of Wrath” by John Steinbeck
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As I look this over, this was a classic “prisoners dillema” problem.
And we got the standard “prisoners dillema” outcome.
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I think the American people are saying the following to our government:
1. Stop the finger pointing and the political posturing and fix the mess.
2. A gigantic “NO” to golden parachutes and excessive salaries for company executives.
3. Don’t just give them the money – get something in return so that we can recoup the money and end up costing us as little as possible.
4. Fix the regulations so it never happens again.
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Musing I agree with the bulk of your post except for one factual problem: the Republicans have owned the government from 2000 – 20006 and the presidency from 2000 – now
Pres.Bush with the support of Sen. McCain in both 2002 and 2005 proposed legislation to reform Fannie Mae and Freddie Mac, which were at the heart of the lowering of mortgage-credit standards. Both proposals were defeated mainly by Democrats, especially Sen Dodd and Rep. Frank and some spineless Republicans, especially Sen. Bennet.
Should you question the role of Fan and Fred in this mortgage-market meltdown you might check out the 1999 New York Times article, Fannie Mae Eases Credit To Aid Mortgage Lending, including:
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
…From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.
In addition to Mr. Wallison the Wall Street Journal for many years argued that the softening of mortgage-credit standards could lead to a financial crisis. Both Pres. Bush and Sen. Mccain understood this and tried hard to avert it through reforming Fan and Fred. Sure, Wall Street firms made serious errors of judgment, though the root of the debacle can be traced to the lowering of credit standards according to the sentimental hope that home ownership could be extended to poor people, especially minorities, who were suckered into sub-prime and alt A mortgages and have paid a wicked price for it.
In the past families rented and saved the 20% down payment for a mortgage and stayed within budget to pay off the mortgage. This may sound like quaint, conservative thinking, though it has proven in spades just now to be rather sensible.
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Hey, Theo, I suggested Petraeus before you did. However, I will split the credit with you. I also suggested a Bloomberg-Petraeus team. Bloomberg’s got bucks and business experience and government experience. I’m a long way from NYC, but he seems to have navigated his time there without huge amounts of egg on his face. That can’t be that much of a breeze.
Petraeus seems to be good at military, management, and strategy. McCain is a genuine hero, and he’s got spunk, but there are some drawbacks there.
Neither Bloomberg nor Petraeus seems to be that identified with a particular party. Both the Democrats and Republicans are knee deep in a very suspicious and smelly brown substance; perhaps as in 1854, the time is ripe for a new party.
Name for a new party, anyone? Something besides “liberals” and “conservatives”?
Pragmatists Party? What animal? Fox? Grizzly Bear? Weasel? Crow? Chimpanzee? Gorilla?
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We have a situation in which if side a goes forward but side b does not, then side b gets the advantage AND can blame side a for the unpopular action: a loses big, b wins big
If both sides go forward then both win a bit and lose a bit: a and b win something.
If both sides do not go forward, then they both lose.
Under these conditions it takes extremely strong leadership or very greate fear to hold consensus.
Obviously we had neither the fear nor the leadership.
The Dow dropped about 700 points today. It does not look good for the after hours markets, and tomorrow would seem to not be promising.
If the economic experts are correct, we should see increasing pain over the next bit. The question becomes how much pain will be required to finally gain everyone’s attention.
Stay tuned!
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Peter Leavitt post 58,
proving that it was the Republicans who controlled congress who are to blame?
The Democrats did not control congress until after the 2006 elections.
Good try though.
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Theo Goodwyn post 54,
but I already posted the article noting that Obama is calling for calm and McCain is blaming the Democrats.
Hmm this would seem to be a clear answer to your question.
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The reality is that the pain will now have to increase dramatically so that the risk of doing nothing far outweighs the penalty of taking action.
Clearly the american public was not convinced of the upcoming pain. this was reflected in the voting in particular of housemembers who were facing challenges in their relection:
Swing Districts doomed bailout
Assuming that the pain does increase as the economic experts predict, the only question is how much will be irreversible damage before the pain level gets high enough.
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The rooster has crowed for the 3rd time and the GOP has yet again disowned any commitment to Reaganite principles.
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Coulter is a national treasure!
Read on:
“Under [Bill] Clinton, the entire federal government put massive pressure on banks to grant more mortgages to the poor and minorities. Clinton’s secretary of Housing and Urban Development, Andrew Cuomo, investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low- to moderate-income borrowers by the year 2001. Instead of looking at ‘outdated criteria,’ such as the mortgage applicant’s credit history and ability to make a down payment, banks were encouraged to consider nontraditional measures of credit-worthiness, such as having a good jump shot or having a missing child named ‘Caylee.’ Threatening lawsuits, Clinton’s Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn’t a joke—it’s a fact. … In 1999, liberals were bragging about extending affirmative action to the financial sector. Los Angeles Times reporter Ron Brownstein hailed the Clinton administration’s affirmative action lending policies as one of the ‘hidden success stories’ of the Clinton administration, saying that ‘black and Latino homeownership has surged to the highest level ever recorded.’ Meanwhile, economists were screaming from the rooftops that the Democrats were forcing mortgage lenders to issue loans that would fail the moment the housing market slowed and deadbeat borrowers couldn’t get out of their loans by selling their houses. A decade later, the housing bubble burst and, as predicted, food-stamp-backed mortgages collapsed. Democrats set an affirmative action time-bomb and now it’s gone off.”
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“but at the end of the day what is required is a plan which helps manage the problem”
Why and What plan do you offer that will “manage” the problem?
This issue has arisen from consumer greed, business greed, and government greed on all sides over many years. The market can manage itself here, itll purge the greed right out if you let it. Let the irresponsible and greedy render their consequences. Problem managed and solved.
They are the ones that caused it. Its an easy long term fix. A recession will occur at this point no matter what the government attempts to manage at this point; however, if you let the market purge itself, the market will stabilize much faster, and people will know what they are investing in. Gone will be the bad, instead of bailed out and still hanging around. You leave them hanging around the recession will last much longer as youve only delayed the issue. If you bail them out with printed money, it will take even longer, as its just as fake as the market has become.
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Musing,
Obama is the new Moses. I can see him standing in front of the Red Sea telling his people to remain calm as the Egyptian army charges toward him. What a hero.
The difference between Moses and Obama in these stories?
Moses had faith that God will provide a path so the children of Israel can escape.
Obama has no clue what to do. He is a deer in the headlights calling for the other deer to remain calm and not to panic as the danger comes straight at them.
Neither Obama nor McCain can solve this. Both just want to look good in the process. I’m not buying the posturing of either of them.
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“The reality is that the pain will now have to increase dramatically so that the risk of doing nothing far outweighs the penalty of taking action.”
See I just disagree with this. And thats fine. Its alot of what ifs and unknowns even on what I think will happen. But I dont see too much pain for people and businesses that have been responsible in their risk and credit up to this point. I do see alot of pain for those who were irresponsible and greedy, and for them, its well deserved. Give me one good reason why any of them should be bailed out?
This furthers my lack of understanding as to why no high school kids are required to take a money management and risk course??? There is something the government can do that would be useful and on the long term be very beneficial.
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The problem is that the meltdown was caused mainly by the Democrats and a few spineless Republicans who allowed a lowering of mortgage credit standards in the interests of “affordable” housing.
# 5 and # 65
The largest cause of personal bankruptcy in America is not unemployment but excessive medical costs. Its not the lowering of mortgage credit standards which led to mortgage defaults but the lack of money caused by medical bills. Spend the money on universal health care and people could pay their mortgages.
http://www.commondreams.org/view/2008/09/29-6
Some democrats also rejected the bailout on a matter of principle, principles from the left side of the political spectrum. My favorite American politician in action:
http://www.youtube.com/watch?v=nAGzLfmV4Ks
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Reaganite principles told Republicans to vote no.
Wall street, meet your enemies. You thought you only had to worry about big Denis the Menace and Rep. Barbara Lee, D-Berkeley.
Citi-Bank with $3 trillion in derivatives just got $300 billion more form Wachovia. BofA has $3 too. JPMorgan has $8. Thats trillion with a “T”, as we used to say.
Hedge funds are going to start asking for some payout. By the end of the week, Congress won’t have a banking system left to regulate.
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Musing true, the Republicans controlled the Congress until 2006, though the Bush and MCcain bills to reform Fan and Fred were killed by a sufficient combination of Democrats and RINOS. One notes that you have nothing to say about the role of Fan and Fred in this mortgage meltdown; further that Fan and Fran were pressured by mainly the Democrats in congress to soften mortgage credit standards.
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I hope everybody here liquidated last week. Too late now.
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Fannie & Freddie’s encouragement of low-income homeownership didn’t cause the crisis. 40% of subprime loans were for speculation — investment properties and vacation homes. Alan Greenspan has stated that the securitization of home loans for people with poor credit — not the loans themselves — was to blame for the crisis. This is a confession of guilt on his part. Greenspan had praised these financial instruments in 2002 as the greatest thing since sliced bread, while Warren Bluffer called them “WMD.” By 2005 there were about $13 trillion of these derivatives. I’ve read there are as much as $72 trillion today. That explains why the government is the only institution left with faith and credit.
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HRW – Are those medical bills lead to bankruptcy studies the ones that cassify medical bills as a “cause” of the bankruptcy if the debtor had $1000 in medical debt among the debts?
That way of figuring it grossly inflates the percentages of those “caused” by medical bills – so much so that the category becomes meaningless.
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Institutions that were subject to CRA actually made fewer subprime loans, charged lower interest on the ones it did, and kept more of them rather than selling them to the credit markets. This suggests the CRA institutions provided better products to its customers and avoided speculators. It worked!
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Last year as my 14 year old daughter studied the great depression and the things that caused it she came to me and told me that it sure seemed like these things were happening in America again. I must admit that I listened to her but didn’t really think that things would get that bad again. I guess she is the better student of history!
On another note, I read a little piece in which it was said that many members of the Congress are concerned about the possibility of having to stay and work out some new bill. They want to go back home and campain. Oh poor little guys……
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Thorn post 66,
but of course the immediate problem is a credit lock due to bad mortgage securities.
The bailout would have addressed this directly.
I suspect that we will see a modified bailout using government money as soon as the pain level gets high enough.
As Peter Leavitt also noted, the only question is how much damage will be done before the government takes action.
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Theo Goodwyn post 67,
I find few who consider Obama the new Moses.
It is possible that he is one of the few preoviding any real lleadership right now:
Statments of Obama and McCain at 4 PM EDT
It will be interesting to see how this plays out, but right now no one on the field has demonstrated the leadership required to meet the present crisis.
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Thorn post 68,
as a minimum the majority of 401Ks have lost perhaps 7% on average today.
What is of more import than the 777 point drop (largest point drop in the history of the Dow) is what is happening to the credit markets.
As a minimum, stock is often used as collateral for certain loans (for idividuals 401K loans might be one example). The dropping Dow will start the calling of loans and this feeds a downward spiral problem.
Is this sense of the economic experts correct? We will see over the next few days. The carnage today was, however serious and we can only hope that it was not a symbol of more to follow.
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Peter Leavitt post 71,
I already posted a number of arguably scathing posts on the problems with Fannie and Freddie in past blogs. I consaider this old news.
At worst Fannie and Freddie are, however, about 50% of the problem, Actually based on their standards for loans, it would appear they should be less, although the muddle of the mortgage backed security market makes this difficult to confirm.
In any event, we can blame them if you like, but they come back on the Republican controlled congress yet again.
The chronology is implacable here.
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Peter Leavitt post 71,
see scoop moth’s post 73. It was the securitization which leads to the present problem.
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Moth, Warren Buffet in his 2003 annual report remarked that derivatives are potential weapons of financial mass destruction What is your source for claiming that he made a similar claim for mortgage-backed securities?
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I saw the NY Eyewitness News before, and they interviewed briefly an employee of AIG. His glib response was what happened today doesn’t matter to him — he’s employed and he’s going to Mexico on vacation. So, my tax dollars saved this guy and he essentially tells me to go to….
They aren’t learning. None of them will learn until it really hurts. The bad part is that all of us and a lot of other decent people will be hurt by their attitude.
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Musing, the securitization problem is minor compared to that of the softened credit standards brought abought by Congress and its regulation of Fan and Fred. The mortgage backed securities became distressed mainly due to sub-prime and alt A mortgages that bankers were pressured to make to poor, mainly minority peole. This contagion of lowered credit standards then spread to other sectors of the mortgage market. There is blame all around, though the root has to do with mainly Democrats and some feckless Republicans.
Probably the most prescient and outspoken economist that understood the mortgage-credit problem was Greg Mankiw, the Harvard prof., and former Chairman of Bush’s Council of Economic Advisers. Anyone who cares to understand the problem should check out his views here, here, and here.
Both Pres. Bush and Sen. McCain, following Mankiw’s advice, made an attempt to reform Fan and Fred but were thwarted by mostly Democrats and Republicans who lacked the guts to take on these powerful institutions that provided large political contributions and jobs for political friends.
I’m writing this having become fed up with the allegations coming from the left that this whole problem is due to lax Republican regulation and Wall Street greed. Speaker Pelosi today could well have lost votes for the bailout had she not made such a toxically political jeremiad against the Bush administration.
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In spite of the fact that the Republicans controlled congress for 6 of the last 8 years and the Presidency for 8 of the last 8 years, they’re trying to claim that none of this – absolutely none of it – is their responsibility or fault. They were weak and powerless these 8 years to do anything about it. Now they’re saying to the American people, “Give us 4 more years and we’ll do something this time around”. Hopefully people aren’t that stupid. But you never know.
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Peter Leavitt post 84,
which by your own arguments occurred under a Republican dominated congress.
I disagree with your analysis on the impact of the mortgage backed securities BUT this is a heads I win, tails you lose: either way it was actions under a Republican dominated congress and a Republican administration which led to the problem.
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The failure to pass the bill appears to have cost $1.1T based on the market drop although I need to confirm the source here.
Interesting: the bill would seem like a bargain by comparison.
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Yup, Nancy Pelosi’s partisan diatribe cost us 1.1 trillion today. I don’t say that because she is a Democrat. I say it because she is the most harmful woman in America. If she were a Republican I would say the same thing.
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Pelosi hurt someone’s feelings and so they voted no. If they voted no on priciple I can understand but on such a petty personal matter, they need to grow up. And talking about growing up, Republicans need to ante up and take responsibility. Instead of admitting their mistakes and promising to fix them, they are still playing games — see the link at #78
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xion post 88,
sure xion.
The Republican Study Committee has been fighting this for a week.
Republicans had promised 100 votes to match 120 Democratic votes.
As I understand it the Democrats delivered about 140 votes but Republicans delivered 65 or so.
Its a good story but it doesn’t stand the red face test.
And for practical purposes it is what the voters conclude, and the intiial results do not seem pretty for the Republicans.
You have been ducking and weaving all day and trying to avoid admitting the actual facts. Now is just more of the same.
Good try though!
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Musing, of course this happened during a Republican administration and majority of Congress. My point is that Pres. Bush and John McCain were defeated in their efforts to reform Fan and Fred by a combination of mainly Democrats and some RINO Republicans that swung the balance.
HRW, quite a few Republicans were wavering and had tipped slightly in favor of the bailout plan; Pelosi’s toxic partisan remarks were sufficient to swing enough of them back to defeat the bill. Unfortunately in politics partisan passion can sometimes rule the day.
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Also, HRW, why don’t you chill out up there in the land of the tundra and mind your own political business.
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I really don’t give a rat’s behind if Pelosi or McCain or anyone else is a total ass. They need to forget about their personal pique’s and do what’s right for America. This isn’t “The Hills” or “Gossip Girls”, it’s our freaking nation.
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#91 Its rather petty to vote no on a bill you think is absolutely necessary simply because you don’t like the way the opposition talked about you.
#92 Huh?
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HRW has as much right to post his comments as anyone on here does. This site is not restricted to the USA. I welcome the perspective of people outside the USA.
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Anlir
Don’t get too irate — past experience has taught me that addressing my nationality is merely to divert attention away from the fact I’ve scored a point they can’t legitimately refute.
And speaking of foreign prespectives, do you think many Republicans would survive in the Canadian or better yet the UK parliament with that type of childish attitude?
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But Peter can relax, hockey season is starting soon so I will have my own diversion.
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Peter Leavitt: Pres.Bush with the support of Sen. McCain in both 2002 and 2005 proposed legislation to reform Fannie Mae and Freddie Mac, which were at the heart of the lowering of mortgage-credit standards. Both proposals were defeated mainly by Democrats, especially Sen Dodd and Rep. Frank and some spineless Republicans, especially Sen. Bennet.
Wait, the Republicans controlled both houses both of those years. So what you are really telling us it that both Bush and McCain utterly failed to, ahem, LEAD just as they have failed to LEAD in this perilous time. When the two primary LEADERS of a party hit the panic button, screaming about a crisis that threatens the entire country’s economic health, yet can’t even persuade one-third of their own members to vote for a rescue, the conclusions about their leadership capabilities are inescabable.
In case you missed statesmanship 101 LEADERSHIP involves persuading people to do things they don’t want to do. And in my years of watching politics I have never seen such a catastrophic failure of leadership.
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Agreed HRW – it is a diversionary tactic, and one that, to their everlasting shame, has become a favorite tactic of conservatism in America.
And yes, I think the Republican’s childish attitude would be shredded in the House of Commons.
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HRW,
One further note:
If this vote had occurred in the House of Commons, the government would have fallen today.
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Musing,
To give you some kind of vision on this problem, the fed pumped $650 Billion into the financial markets today alone. This is almost equal to what our nitwit elected officials were arguing about today as some big deal. Last week the fed pumped an average of $188 billion dollars a a day – that’s nearly $1 trillion last week alone and $1.6 Trillion in the last 6 working days.
I’m guessing that our worthless elected officials have no idea that the Treasury is printing unprecedented amounts of money and the Fed is floating it out in the financial markets before the ink is dry. I’m guessing you didn’t know it either. If America knew what was really happening, they would not be acting the way they are. Our insane elected officials would not be phased by anything anyone did. They are too far gone in La LA land and need to be put in prison. They would like it there if you put hem in charge.
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I hope everybody here liquidated last week. Too late now.
Spoken by someone who has exactly zero experience in the stock market.
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If this vote had occurred in the House of Commons, the government would have fallen today.
Thank God we revolted against the Old World and establish our own nation!!
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Anlir: Heterosexual evangelicals have every right to post on this evangelical Christian blog as socialists and those of your sexual ilk.
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#57
I don’t agree with Anlir on much, but I agreed completely with this post.
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Why couldn’t McCain get this done to save the country?
He suspended his campaign to go to Washington for the first time since April, and he just made a mess?
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Lump, McCain tried to get this bailout bill passed and failed. Good on him for at least trying. Too many House Republicans and not a few Democrats lacked the wisdom and financial acumen to understand the depth of this financil crisis. David Brooks in a NYT column today is very incisive on this:
And let us recognize above all the 228 who voted no — the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.
House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.
Youall and your nihilist buddies in Dogpatch have a happy day.
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In the above one might add, I fear, that the American people get the political leaders they deserve.
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Peter Leavitt post 91,
no what you have shown is that neither McCain nor Buysh exerted the leadership required to get thewir own party to accept their proposals.
Bush and McCain can’t claim creidt for “I tried” when the end result is as we saw yesterday and the party of which they are supposed to be leaders let this happen. their leadershipp is therefore shown to be very thin.
The apologia trying to excuse everyone is going on as a great party game.
In the end it matters not: we lost about 7% – 9% of market cap for our entire industrial base yesterday.
The only question is will it continue today or will profit taking give us a “dead cat bounce”.
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Peter Leavitt post 108,
your comment here is extremely germane:
“In the above one might add, I fear, that the American people get the political leaders they deserve.”
The political leadership from the last eight years let this happen.
A rump group of Republicans refused to take the necessary action to prevent collapse of the markets.
And it appears that in 2008 we will change our political leadership.
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llamam post 101,
for once you and I agree.
The losses yesterday appear to far exceed the cost of the entire bailout.
And you are right, the treasury has by my counting pummped at least $1.1T and perhaps more into the economy, so this was a small sum in comparison.
This being the case, then it is worth noting that:
1) the public was apparently outraged over the action to try to save the U.S. economy
2) a segment of the house, predominantly although not entirely Republican, appears to have voted against this measure based on ideological grounds
We destroyed a lot of wealth yesterday, wealth which we desparately need to face the real challenges our country faces.
Rather than face up to our problem the country instead reverted to partisan disputes and efforts at bipartisanship were rebuffed by the extremes, to the detriment of the whole.
The campaign seems to suggest that the American public plans on rectifying much of this problem in the coming election.
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anlir post 99,
much of the posturing right now is diversionary.
The vote and the participants in this vote are clear: Republican voted overwhelmingly against the bill, Democrats overwhelmingly for the bill.
The lead up to the crisis is clear: Republicans controlled all th elevers of power from 2000 – 2006 and the presidency from 2000 to the present.
The impact is now pretty clear: an immediate carnage of perhaps $1.1T or so. We will see how this damage evolves over the next bit.
Right now we are seeing that for those in the positions of power during this debacle, the immediate challenge appears to be how to escape the blame for this debacle. We have seen only minor efforts at rallying the system to try again.
My sense is that after this debacle, the uneasy coalition which was the Republican party is now clear to all: social conservatives allied to a money elite. And when it comes to the crunch, this coalition did not hold.
Which raises the valid question, raised earlier in this blog if I am not mistaken, of whether the Republican party as we know it can hold together after this.
People have been calling for a third party: yesterday they may indeed just have gotten one.
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So I suggest that a country which can not take critical actions necessary for its well being have shown themselves to be effectively ungovernable.
Yesterday, I suuggest, the U.S. showed itself to be at this time effectively ungovernable. We are in short, based on yesterdays performance, a failed state.
In the case of the U.S. I trust that two things may yet allow us to salvage something from this debalce:
1) the U.S. tends not to give up easily
2) we have en election in five weeks
But it would seem highly plausible that U.S. credibility in the world as a whole was severely damaged: people seldom hold hgh regard for countries from whom inaction imposes external major financial consequences.
And this credibility was criitcal: it was what made us the most trusted economy in the world and allowed us to continue with high deficits and trade imbalances.
With this credibility gone, it would seem plausible that the entire U.S. standard of living may have to adjust to a new and much lower level as countries lose their faith in us and seek safer places for investment.
If so, then indeed a sunset of sorts of the U.S. happened yesterday, and it appears to have been driven in large part by the ideological inflexibility of a shortsighted rump group of Republicans.
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Musing, you’re playing the worse kind of politics imaginable with this crisis. A pox on you. You.re right up there with Speaker Pelosi.
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Peter Leavitt psot 114,
I suggest that with your attempted apologias for people who are clearly responsible for this situation it is rather you who have played politics with this situation.
We have a crisis.
I am clearly stating the form of this crisis.
If you read your posts you appear to agree with the essence of my conclusions.
You do not appear to be willing to state these conclusions as starkly as I am.
As Senator Gregg Republican New Hampshire, said:
““If we don’t pass it, we shouldn’t be a Congress,” Mr. Gregg said.”
http://www.nytimes.com/2008/09/29/business/29bailout.html?em
And all I have done is rephrase his critique more forcefully.
It is my observation that you appear to try to soft peddle your beliefs and opinions, perhaps to be more palatable to what appears to be your apparently preferred conservative community.
But at root your core beliefs seem at most times to actually mirror mine.
But I have no problem with stating these beliefs in a stark manner which I trust leaves room for little misunderstanding.
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“but of course the immediate problem is a credit lock due to bad mortgage securities.
The bailout would have addressed this directly.
I suspect that we will see a modified bailout using government money as soon as the pain level gets high enough.”
Credit lock will continue if the companies that are needing bailout are still left standing. Who wants to invest in them? Who wants to lend them more money? It will take much longer for the dust to settle if you bail them out.
Let them crash and burn or be bought out by companies that are not in this situation. Let the market absorb it.
BTW when was the last time the “pain” got too much for Congress to do anything? Gas hit 4 plus dollars and they sat on their butt. That affected way more people than this has. There is a large disconnect between the average American and the majority of Congress. The proposed bailout does not address the majority of American concerns.
“people seldom hold hgh regard for countries from whom inaction imposes external major financial consequences.”
I can agree with this, but taking the action of not bailing out this greed is an even better decisive action than trying to fix the problem by simply pumping money into it, which at some point will most likely come out of my pocket rather than Congress. Purposely denying bailout would be a decisive action.
I have no problem with the government lending its support to those who have been hurt, but not responsible for, this mess. That is where the money should go, not come from.
Frankly if your within 5 years of retirement and your still playing the volatile stock market, thats your own fault. If your not smart enough to move yoru retirement into fixed and low risk applications then its your own fault. If youve relied solely on a 401k thats your own fault too. And so what if you have to work a couple more years till the market stabilizes and grows again before you can retire.
Frankly, Congress and the President should walk out to the podium, ask for forgiveness for their irresponsibilities, greed, and failures, and as a sign of promised improvement, hand back the American taxes for the last 2 years to its people.
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Peter leavitt post 114,
what is interesting is that both you and I have been pointing out the regulatory issues which were critical to this debacle.
What would seem to follow of course, is that more of the right regulations will therefore be needed. After all if it was failure of regulations (as you note in 2003 and 2005) which helped bring us here, then lets rectify this error.
Of course, it does not appear that the Republicans as a whole are prepared for such reregulation: in fact it appears that reduced government involvment seems to be the Republican Study Committee’s basic proposal (privatly funded optional insurance and captial gains tax breaks).
It would seem that with demonstrated failures to adequately regulate under the Republican adminstration, that a Democratic administration should at least be tried to see if it works better: it would be hard put to see how it could work worse than the present administration on this issue.
I do sense, however, that while we perhaps agree that the Republicans provided inadequate regulation, that there may not be a level of logical consistency in your suggestion of what should be done next.
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Thorn post 117,
actually this statement is I sugest in error:
“Credit lock will continue if the companies that are needing bailout are still left standing. Who wants to invest in them?”
because the issue right now is that the balance sheets of these companies are clogged with mortgage backed securities which are now worth effectviely zero.
If these companies had strong balance sheets, my sense people would be glad to invest in them: despite the present calamasties they have a long history of returning good returns for their investors.
But of course to get strong balance sheets, these assets need to be removed from the balance sheets.
They can declare a loss on them, much as Sovereign bank basically did, and they then face insolvency much as Sovereign bank is presently facing.
This will leave a vacuum on the financial markets with no immediate players to fill the vacancies: in short credit would lock up (the problem restated).
Altenratively, the Federal government can assist in cleaning up the balance sheets and get the credit markets moving again.
The letter has the fastest and surest action, and is what was proposed in the bailout.
The former appears to guarentee many long years of difficult economic times (see Japan’s decade long experience).
And we can see that the former approach already has actually cost the American people about $2T so far, with more to come. At this rate, the bailout is a bargain.
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“And this credibility was criitcal.”
And this credibility will be further harmed if you bail out the wrong doers. Credibility is restored, when the system is purged of the bad.
“We have a crisis.”
Yes, because of who? The greedy and irresponsible. Bailing them out does not help the crisis, it sustains them. Hitting the panic button and tossing more money out the window will not restore credibility if your giving it straight back to the poeple who CAUSED the mess to begin with.
“With this credibility gone, it would seem plausible that the entire U.S. standard of living may have to adjust to a new and much lower level…”
And what is wrong with living within our means? If we continue to play fantasy market rather than reality, what real credibility is there? It’s all false. Let the market purge and restore the system back to reality. The fear that the market is crashing is not accurate. THe market is dropping to where it should be. Its been much higher due to fantasy and false standards built by the greedy.
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“because the issue right now is that the balance sheets of these companies are clogged with mortgage backed securities which are now worth effectviely zero.”
Not every company is in this situation. Is it not those who took high risk and leverage?
“If these companies had strong balance sheets, my sense people would be glad to invest in them”
Why? They lied about their balance sheets last time. Is it a long history of return? Or have they simply lied to make it appear that way? This has been going on for awhile, right? Why would you support any company that leveraged at high risk and ruined itself and spent time forging the reality? Why, especially when sitting next door is a company that didnt, in which you can invest in or continue to provide credit for? Regardless of what the gov does, would you really put your money into AIG again? Not anytime soon you wouldnt. Even if you clear their balance sheet, why would you invest in irresponsibility?
“And we can see that the former approach already has actually cost the American people about $2T”
American people? Or is the majority those who screwd up? Frankly, the only people its costing is those that got greedy. Of course if you start bailing them all out, then yes, it will cost all of the American people.
Credit will be fine, as long as the creditors can see who has real balance sheets. Bailing out the greedy, obscures the picture, and it appears creditors are done lending to fantasy.
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Those who voted no are almost exclusively running in hotly contested districts where if they vote against the people wishes they will get tossed. It was a matter of survival and ideology goes out the door with folks who have to face a very upset electorate. The conservatives are especially mad as hornets.
I personally want every one of our elected officials in congress defeated when they come up for election – including Obama and McCain. They have, as a group of thieves, put this country $11 trillion in debt for no reason other than they are spendthrifts, they have bankrupted Socials Security to the tune of about $15 trillion by stealing the money and spending it on something else we didn’t know about, Medicare is about $40 trillion underwater going into the future and totally impossible to save, while they were stealing us blind and lining their pockets with as much treasure and perks as they could give to themselves. it’s all politics and ideology for them and they could care less about you or this country – it is all about their egomaniacal and prideful them and only them . Well, I say no more.
It’s time for change alright, but not the mythical, Utopian and virtual kind that Obama preaches to his followers as their messiah. I’m talking about kicking them all out and starting over from scratch. It would be impossible to do worse than what these fools have become.
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Brooks’ nihilists, ironically, are preeminently his beloved bobos in paradise, the tribe of Sam’s Club Republicans whose inimical behaviors and world view he constantly celebrates. Shame on Brooks for not calling out by name the Republican leaders who are speculating in shock politics, like Rep. Henserling of TX.
So much for the party of Main Street.
Rather than dreaming of transformation through creative destruction, but most of the Democrats who voted no were running for election in districts where they’re closely chased by Republican populists. Speaking as a progressive, I wouldn’t be discussing the merits of stints and bypasses versus regimes of diet, exercise, and psychotherapy during a code blue.
Subprime mortgages are not themselves the problem. Warren Buffet made money on them while enjoying a declining rate of foreclosures as other lenders sustained dramatic increases, because Buffet’s company leant to occupiers rather than speculators. Similarly, institutions that operated under the CRA had better-performing subprime loans than the rest of the industry.
So far as I am aware, Buffet didn’t criticize mortgage-backed securities per se when he criticized derivatives. But derivatives can have such securites as their components.
Alan Greenspan, public enemy no. 1, now blames the bubble fundamentally on low interest rates and the securitization of mortgages, which drove up house prices. He didn’t start warning about prices until 2006, because he “didn’t see it.” Prior to that he praised the mortgage markets as a “stabilizing” force and advised more home buyers to take out ARM’s. He was a big fan of credit default swaps.
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Llama,
Re. your last post:
You made it all the way through without using the word “lefty.”
See how easy it is if you just put your mind to it?!
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Musing: I do sense, however, that while we perhaps agree that the Republicans provided inadequate regulation
The notion that this crisis is a redult of inadequate Republican regulation is a canard. Should you wish to really understand this try reading Peter Wallison’s article in Bloomberg, Deregulation Not to Blame for Financial Woes.
Repeal of portions of the Glass-Steagall Act in 1999 — often cited by people who know nothing about that law — has no relevance whatsoever to the financial crisis, with one major exception: it permitted banks to be affiliated with firms that underwrite securities, and thus allowed Bank of America Corp. to acquire Merrill Lynch & Co. and JPMorgan Chase & Co. to buy Bear Stearns Cos. Both transactions saved the government the costs of a rescue and spared the market substantial additional turmoil.
None of the investment banks that got into financial trouble, specifically Bear Stearns, Merrill Lynch, Lehman Brothers Holdings Inc., Morgan Stanley and Goldman Sachs Group Inc., were affiliated with commercial banks, and none were affected in any way by the repeal of Glass-Steagall.
It is correct to say that there has been significant deregulation in the U.S. over the last 30 years, most of it under Republican auspices. But this deregulation — in long-distance telephone rates, air fares, securities-brokerage commissions, and trucking, to name just a few sectors of the economy where it occurred — has produced substantial competition and innovation, driving down consumer costs and producing vast improvements and efficiencies in our economy.
The Internet, for example, wouldn’t have been economically possible without the deregulation of data-transfer rates. Amazon.com Inc., one of the most popular Internet vendors, wouldn’t have been viable without trucking deregulation.
– Republicans have favored financial regulation where it was necessary, as in the case of Fannie Mae and Freddie Mac, while the Democrats have opposed it. In 2005, the Senate Banking Committee, then under Republican control, adopted a tough regulatory bill for Fannie and Freddie over the unanimous opposition of committee Democrats. The opposition of the Democrats when the bill reached the full Senate made its enactment impossible.
I’m afrtaid that you don’t know what you’re talking about on these financial issues.
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Thorn post 119,
if the only people being harmed were the wall street compaines and their managers, I would agree with you.
Perhaps, however, you haven’t looked at your 401K recently.
Perhaps you have not tried to get a new car loan.
Did you try to purchase a new house?
Watch your creidt cards and in particular your creidt limit.
Are you taking out loans for a child in college?
Do you work for effectviely any company in the U.S.?
What is interesting is that the economy appears to behave much as has been described as the “tragedy of the commons” problem. No individual owns the commons and yet if the commons is destroyed everyone suffers.
We are watching the commons being destroyed. We can “punish” those who rapaciously used the commons, but that does not bring the commons back.
Peculiarly since this is a capitalist system, it is the capitalists who actually operate the market and without them we watch the market slowly disappear. The government becomes the only force left to rebalance the situation.
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Peter Leavitt post 124,
so lets be simple: how was deregulation not a factor in the economic problem?
Were the subprime mortgages regulated?
Were the mortgage backed securities regulated?
Were the rating agencies regulated?
Were Freddie Mac and Fannie mae adequately regulated?
And your argument here?
You yourself suggested that failures to regulate Fannie Mae and Freddie Mac in 2003 and 2005 contributed to the problem, so your argument so far seems inconsistent.
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Thorn post 120,
you might look up the material on Sovereign bank. Interestiongly Sovereign recently unloaded all their mortgage backed securities: at a $136M loss.
The loss they incurred on these bonds and the overall market volatility has not resulted in their stock price to drop by about 75% and their viability is now in question.
This is a simple clear case where you can examine the impact of the mortgage backed securities.
If you read further you will read of most of the major financial companies are having billion dollar writeoffs due to mortgage backed securities.
And of course all financial insitituions are highly leveraged. Freddie mac and Fannie Mae were apparenlty leveraged about 60:1 if I remember correctly.
The economy runs on credit. Extending credit is based on ability to repay which in part is based on balance sheets, and balance sheets are very bad right now.
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llama post 121,
while I disagree with your prescription you and I are finally in agreement with the math: $11T or so at risk.
It has taken us a long time to get here but we seem to be here.
You do seem to be expounding on what might be interpreted by some as a form of anarchy. I had not thought of you as an anarchist. Is this indeed your political philosophical position?
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llamam post 121,
I am unsure how we are going to vote out both Obama and McCain. This would indeed be a very puzzling election were this to occur.
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I wonder what website there is to find out how our Reps voted on this “bailout” and also how they voted on this spending package.
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Theophilus post 130,
This appears to be a list of the voting for the bailout bill:
Bailout Bill voting list
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Musing, I learned in school and college that on any subject one is best advised to find the best authorities in any field of interest. The fellow whom I linked to above, Peter Wallison, whom I happen to know personally, a graduate of Harvard College and Harvard Law, is a senior Fellow at the American Enterprise Institute. The following comes from his AEI bio.
A codirector of AEI’s program on financial markets deregulation, Wallison studies banking, insurance, and Wall Street regulation. As general counsel of the U.S. Treasury department, he had a significant role in the development of the Reagan administration’s proposals for the deregulation of the financial services industry. He was also general counsel of the Depository Institutions Deregulation Committee and later served as White House counsel to President Ronald Reagan. His latest book is Competitive Equity: A Better Way to Organize Mutual Funds (AEI Press, 2007)
Mr. Wallison knows more about financial regulation in this country than you could ever begin to know. His deregulation of markets in the Reagan years has been widely acknowledged to have been verysuccessful. Unlike Barney Frank anbd Chris Dodd he had nothing to do with the loosening of mortgage-credit standards that are at the heart of the current financial crisis.
Since you didn’t give me the courtesy of seriously addressing Mr. Wallison’s views in that link, I shall take a by in getting involved in some sort of risible, logic-chopping discussion with you on a subject about which you clearly are poorly informed.
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Peter leavitt post 13,
I also leanred to look for the best authorities and I suggest that perhaps my schooling was of a similar quality to yours.
But I also learned that even the best authorities make key asumptional errors which must not be overlooked.
So I listen to authorities, then I personally test their ideas and data.
It drives them nuts.
I have often found that they have made errors.
Indeed my professional career has been based on finding errors in what is otherwise thought of as the conventional wisdom in several different fields of activities. History has generally shown that my models were more correct than the current conventional wisdom and a few minor versions of my improved understandings have been incorporated into the new conventional wisdom.
So I love authorities.
I don’t trust any of them.
And if I can’t reproduce the arugment on my own, I am unsure of the quality of the argument.
And to be honest, given the present situation I am disinclied to consider experts from the American Enterprise Institute as valid experts right now: they helped bring us here.
So if their data and models do not pass my sense of testing, then I am more than happy to reject them.
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Peter Leavitt post 132,
now simply put if you argued that the efforts to regulate in 2003 and 2005 absolve Bush and McCain of blame, then you have also implicitly accepted that regulation would have assisted us.
As posed, this is a fairly simple logic problem.
Now you can of course show me how failing to get regulation absolves Bush and McCain of responsiblity for the problem BUT regulation would not have manged the problem.
I am all ears.
Alternatively you can withdraw your attempts to absolve Bush and McCain by arguing that they pushed regulation in 2003 and 2005 and we can move forward as well. Then your argument regarding Wallison might have some logical consistency.
Your choice.
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In re: 125
Musing,
My credit is superb. Most recently I received a 2500 dollar credit line from Sony Financial to purchase a 56″ tv for 0% 0 payments for 12 months. It will be paid off shortly.
I currently dont own a home, I rent. My car is paid off.
I stand a very good chance of getting a loan whenever I feel ready to purchase anything substantial say house or car. However, I will most likley buy a used car and will pay cash. A house and house loan for ownership are NOT a necessity or a right.
I dont own a 401k. I work for the state, which has a retirement fund which last year still achieved over 8% return. Over the last ten years its averaged almost 10% i believe. In addition to it though I invest in several funds (none associated directly with this fiasco) via deffered comp. I’m 28. Most of the funds are more agressive growth at this point.
When I get a few years from actual retirement, I’ll move my additional retirement funds into low risk/fixed investments.
Its not that hard. Its simple living within my means and planning for the future, and I’m willing to accept any mistakes I make along the way, or the risk involved.
Not bailing out these companies, is not a form of government reprimand or punishment. Its refusing to reward them and cover their choices and mistakes. Punishment would be going beyond what naturally happens to them, by inflicting whatever proposed penalties.
Your punishing everyone else if you bail them out, especially thsoe who have acted wisely and responsible with their accounting and money and who they give loans too. The commons has been built up on a foundation of fantasy and lies over the last years. Sure itll come crashing down, but right back to where belongs. That is why the market is still so volatile, its waiting for the dust to clear and the foundation to be restored to REALITY. Not bailouts and more fantasy money.
If you continue to support the fantasy its only going to make the crash much worse later on. Clean house, let the market restore and rebuild its commons. Recession is coming either way, but its only in a recession from fantasy and lies. The remaining damage (like to the 401k only owner) is he might have to work another year or two…oh darn.
I guarantee banks, lenders, those that still wanna make money, will still be lending to the sure bets. They want to make a living and earn money like the rest of us with responsible credit history, and business practices. If you continue to obscure that with monopoly money, supporting bad debt, it keeps the the fantasy foundation of your commons. You can not restore the commons by adding more fiction to its foundation.
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Peter Leavitt post 132,
so lets consider Wallison point by point.
I don’t believe you will find anywhere where I argued that repeal of Glass-Stegall in 1999 was part of the problem. If I have, please point it out ot me.
I have said that comingling of uninsured instruments in insured insitituions have gotten us into part of this trouble: see the various stories of Sovereign to realize that I am not making this point up.
Wallison balmes democrats for the 2005 regulation failure of Freddie Mac and Fannie mae. I suggest that based on the control of congress and the presidency, this argument is untenable. You have yet to refute me on this point.
Wallison does agree that it is the sub-prime mortgages which are at fault. They were bought by far more than Fannie Mae and Freddie Mac, but it is the lack of regulation on these bonds which comes through as the issue when one looks at Wallsion.
In short:
1) I agree with the bulk of Wallison’s facutal statement although I demur on the details of the 2005 regulation effort
2) I suggest that he does not contradict any statements I have made with the possible exception of the analysis of the 2005 regulation effort
If you are going to criticize my analysis based on Wallison’s material I suggest it is as follows: I have been using the term deregulation much as was used by Wallison in the article. More correctly perhaps the term should be failure to regulate as in failure to regulate:
1) the creation of sub-prime mortgages
2) the failure to regulate creation of morgage backed securities
3) the failure to regulate rating agencies (there is a wonderful recording of Cox in front of congress on this issue)
4) the failure to regulate the comingling of insured and uninsured assets
So my error which I will admit is using the term dergulation when I should have used failure to regulate. I do note that Wallison shows a similar conflating of the two terms.
And I stick with my previous comments in previous posts: Wallison appears to have made some key assumptional errors regarding key areas which should have been regulated.
Given the ideological stance of the American Enterprise Institute we can then perhaps discuss the reason for these assumptional failures in Wallison’s article.
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thorn,
I am glad to hear your credit is good. So is mine.
But you did just get credit: notably before the present crisis.
So you are actually part of the problem AND if you intend to do this again in the modest term future, we better get a bailout bill of some sort.
Your state retirement account just got hit, almost no matter what position they had taken. If the situation continues to deteriorate, the retirement income will depend on tax levies and not the investment income.
And we can continue.
That you use credit (in this case for $2.5K) means you indeed will be at risk if this does not get corrected.
The only people not at risk would seem to be:
1) those with no debt whatsoever
2) who own their critical assets outright (home etc.)
3) who can generate their sustenance using these assets
Otherewise you are at risk.
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thorn,
the following article discusses this further:
Credit crisis hits mainstreet
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MUSING: Wallison blames democrats for the 2005 regulation failure of Freddie Mac and Fannie mae. I suggest that based on the control of congress and the presidency, this argument is untenable. You have yet to refute me on this point.
Thank you.
There’s a real question about whether the Federal Finance Housing Reform Act of 2005, which passed the House, or the Federal Housing Regulatory Reform Act of 2005 which was reported out of the Republican-controlled Senate Banking Committee but never voted upon by the Senate, were intended to deregulate rather than regulate as a response to the accounting scandals of the previous year. You’d have to read the bills and the committee transcripts.
Presumably, the bill was one of the casualties of a time schedule that was dominated by the Republican fascination with Terry Schiavo and of the deteriorating Iraq War. But we do know this:
Sen. Hegel was the sponsor, McCain only a co-sponsor.
McCain did not co-sponsor the Democratic version of this legislation which was introduced in 2007 and which Bush threatened to veto on grounds that he wanted to privatize, not regulate.
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The following is a series of discussions on the present situation:
http://es.youtube.com/watch?v=Wj_JNwNbETA
It discusses in detail the impact of the bad assets and why these toxic assets are so deleterious.
It is about 1 hour long, but it appears that the detail and discussion is worth the effort.
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scoop moth post 139,
as usual excellent additional detail.
Thanks!
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THORN (135): My credit is superb. Most recently I received a 2500 dollar credit line from Sony Financial to purchase a 56? tv for 0% 0 payments for 12 months. It will be paid off shortly.
MUSING (137):That you use credit (in this case for $2.5K) means you indeed will be at risk if this does not get corrected.
Frank: “At risk” of what? Not being able to buy a flat-screen TV until he has the cash?!
Nobody seems to be dealing with the fundamental (and inseparable) issues here:
1) A monetary system that is based on debt rather than backed by hard assets (i.e., gold and silver, as required per the US Constitution);
2) An economy which, at all levels — corporate, government and household — is based on borrowing, not saving.
3) The artificially low cost of borrowing money at all those levels, which results from artificially low rates set by the federal reserve.
I find it fascinating, incidentally, that so many of my fellow “conservatives” and “constitutionalists” here — whoI would expect to support the free-market system and oppose price-fixing, whether by industry or gummint — are all for the price-fixing that results when the cost of borrowing money is artificially held down by the Fed, rather than being allowed to seek its own level in the open markets.
IOW, loose credit has gotten us into this mess in the first place — and you want still looser credit?!
If we step back and take a breather, and keep the Treasury and Fed out of this (hell, abolish the Fed), there will most certainly be a contraction of credit and an increase in interest rates.
That will hurt many people and companies in the short run, but it will be a good thing over the long haul. Among other benefits, we will all have to learn again how to a) save, and b) live within our means.
But if we create over $1,000,000,000,000 in paper promises-to-pay (FRNs) or electronic credits — yes, I assume that our masters are lying about the $700,000,000,000 cost — in order to make the near term more comfortable, we will only drag out and create even more bad consequences for another 10 or 15 years.
Longer, most likely.
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Frank in Spokane post 142,
well first off, thorn now has creidt which is at risk. If he can’t repay it he is contributing to and will suffer form the increasing credit crunch.
Second, this credit crunch is spreading and is beginning to affect a range of normal sound businesses. It has affected his retirement account (evne though it is run by the state) and may very well affect his employment as the economy contracts.
You might listen to the lecture I posted in post 140. It nicely sets the ground work for us to continue this discussion. Perhaps we can talk after you have viewed it.
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Frank in Spokane,
but of course what you are arguing is that we need a severe recession. it folows directly from the comment on too much credit.
What is of more interest is whether this economic behavior wil result in a widespread devaluation of assetts. The lecture makes some interesting comments on the housing market with a prediction of 25% reduction in housing values coming based on future market valuations. And as strcutured this is going to affect the market cap of every company which is public, which also will result in devaluation of assets.
But lets talk more after yoyu have viewed the lecture.
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Peter Leavitt,
now the following lecture form Princeton may be of use in our discussion here:
http://es.youtube.com/watch?v=Wj_JNwNbETA
One possiblity which we have not considered is not that there was inadequate regulation, that is pretty much agreed to by all, but rather that perhaps we did not know what regulation was required.
It is a 1 hour lecture and based on your authorities in the field comment, should fit your model of material which should be considered.
We can then discuss the maturity mismatch and balance sheet issues which perhaps not understood and which perhaps should have been regulated. And standing back, it opens the question of how to control new and unknown financial instrumets i such a way that we do not stall growth BUT do not introduce excessive risk.
I would love to talk more with you after you have seen the video.
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