My view on why our economy is pure shit.

[samjones]

Say what? Read what I said, don't make shit up.

Except when the government tells you to make the loans to be "fair" and promises to guarantee them.

The notion that Fannie/Freddie were forcing banks to make subprime loans is simply not accurate..... it doesn't even make sense. Everyone was securitizing these loans anyway (remember that whole mess) and so it was Wall Street that took the biggest hit. And Uncle Sam bailed them out.

It is true that HUD and other government entities set lending goals for Fannie. Banks were making subprime loans well before Fannie got into the action. It was profitable. "Safe as houses" were those bonds. If the borrower defaults, don't worry. You just kick them out and sell the house at fair value.... which will be more than they paid for it anyway.

It was willful ignorance on the part of our lending institutions as a whole.... don't worry, they haven't learned anything.

 

[FireFly]

Say what? Read what I said, don't make shit up.

Except when the government tells you to make the loans to be "fair" and promises to guarantee them.

The notion that Fannie/Freddie were forcing banks to make subprime loans is simply not accurate..... it doesn't even make sense. Everyone was securitizing these loans anyway (remember that whole mess) and so it was Wall Street that took the biggest hit. And Uncle Sam bailed them out.

It is true that HUD and other government entities set lending goals for Fannie. Banks were making subprime loans well before Fannie got into the action. It was profitable. "Safe as houses" were those bonds. If the borrower defaults, don't worry. You just kick them out and sell the house at fair value.... which will be more than they paid for it anyway.

It was willful ignorance on the part of our lending institutions as a whole.... don't worry, they haven't learned anything.

Notice the date of the articles I link to:

GSE's & the Fed are the enablers of this type of disaster. This has happened over & over again. Mitt Romney's dad let this happen in the 1970's. Then we had the Long-Term Capital Management bailout. They keep getting better at screwing us. Bill Clinton knew exactly how to blow up the subprime realestate bubble when he set Fannie to do it back in 1997.

 

[TakeAStepBack]

Except... wait for it... not necessarily. The hidden proviso there is "lowered interest rates below the natural rate". But the natural rate is unobservable

No shit. It's impossible to observe natural rates when they are deliberately manipulated.

Show me where Krugman made his prediciton in 2005.

Peter Schiff and Ron Paul were saying it in 2003.

 

[TakeAStepBack]

Recently on his blog, Paul Krugman claimed that he predicted the recent housing bubble as early as 2004. His cited 2005 op-ed certainly does speak of an impending housing bubble. But whatever credit he deserves for seeing it should be revoked because by his own admission he was calling for the Fed to maintain low interest rates, which was a major cause of the housing bubble. (For more information, see this course by Yaron Brook. For more general information on the impact of central banks on boom-and-bust cycles, read up on Austrian Business Cycle Theory, which is most famously advanced by Ludwig von Mises and Friedrich Hayek.)

http://http://blog.aynrandcenter.org/paul-krugman-housing-bubble-instigator-not-predictor/

 

[FireFly]

The GDP number was a huge miss today. Growth was way lower than forecast. The DOW was way up until that news hit, then a huge reversal. They have been lying about how shitty the economy is. The US economy is pure shit.

 

[TakeAStepBack]

it's all about keeping confidence. Which is why they keep pushing these "positive" growth reports. If people lose confidence and there are runs, we're gonna meet the bottom of this race.

 

[EdwardBaiamonte]

The notion that Fannie/Freddie were forcing banks to make subprime loans is simply not accurate..... it doesn't even make sense.

If you read "Reckless Endangerment" you get a 400 page blow by blow account of how FanFred dominated the industry. They have 50% of all mortgages and control the rest!!!

Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . .

Pelican Parts:
Mr. Mozilo and Fannie essentially were business partners in the subprime business. Countrywide found the customers, while Fannie provided the taxpayer-backed capital. And the rest of the industry followed.


Bloomberg 12/21/11 on SEC action:

The truth is that Fannie and Freddie engaged in far greater financial-reporting abuses, which couldn’t have happened without the government’s knowledge and cooperation.
Fannie and Freddie continued to maintain they were adequately capitalized, as did their regulator, until they were placed into conservatorship in September 2008. This farce wouldn’t have been sustainable had the two companies been forthright about their earnings and asset values.

:
WSJ/12/21/11 on SEC action against Fanny Freddie

Fanny degraded its underwriting standards to increase its market share in the sub prime loans... Fanny led private lenders into the sub prime market loans... by the mid 2000's other mortgages lenders developed other similar reduced documentation loans.....Fanny hid the risk of sub prime loans to investors... Fannie said its Alt. A exposure was 11% of its portfolio, when it was closer to 23% - a 341 billion difference...Dallavecchia told investors that Fanny's sub prime exposure was
"immaterial".... we see part of our mission to make mortgages available to people who don't have perfect credit...the Freddie record was similarly incriminating...private lenders could never have done as much harm if Fan and Fred weren't providing tens of billions in tax payer subsidized liquidity to lend on easy terms to borrowers who couldn't[t pay it back...Congress created the 2 mortgage giants as well as their affordable housing mandates.

Sen. Christopher Dodd (D., Conn.): I, just briefly will say, Mr. Chairman, obviously, like most of us here, this [Fanny Freddie] is one of the great success stories of all time. And we don't want to lose sight of that and [what] has been pointed out by all of our witnesses here, obviously, the 70% of Americans who own their own homes today, in no small measure, due because of the work that's been done here. And that shouldn't be lost in this debate and discussion. . . .
Rep. Waters: However, I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn't broke. Housing is the economic engine of our economy, and in no community does this engine need to work more than in mine. With last week's hurricane and the drain on the economy from the war in Iraq, we should do no harm to these GSEs.[Fanny Freddie] We should be enhancing regulation, not making fundamental change.

Mr. Chairman, we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact, the GSEs have exceeded their housing goals. . . .

Rep. Frank: Let me ask [George] Gould and [Franklin] Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?

Mr. Raines?

Mr. Raines: No, sir.

Mr. Frank: Mr. Gould?

Mr. Gould: No, sir. . . .

Mr. Frank: OK. Then I am not entirely sure why we are here. . . .

Rep. Frank: I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.

* * *
Senate Banking Committee, Oct. 16, 2003:

Sen. Charles Schumer (D., N.Y.): And my worry is that we're using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie's mission. And I don't think there is any doubt that there are some in the administration who don't believe in Fannie and Freddie altogether, say let the private sector do it. That would be sort of an ideological position.

The Washington Post reported Frank, who is openly gay, had a relationship with Herb Moses, an executive for the now-government controlled Fannie Mae. The column revealed the two had split up at the time but also said Frank was referring to Moses as his “spouse.” Another Washington Post report said Frank called Moses his “lover” and that the two were “still friends” after the breakup.

Frank was and remains a stalwart defender of Fannie Mae, which is now under FBI investigation along with its sister organization Freddie Mac, American International Group Inc. (NYSE:AIG) and Lehman Brothers (NYSE:LEH) – all recently participants in government bailouts. But Frank has derailed efforts to regulate the institution, as well as denying it posed any financial risk. Frank’s office has been unresponsive to efforts by the Business & Media Institute to comment on these potential conflicts of interest.



While the relationship reportedly ended 10 years ago, Frank was serving on the House Banking Committee the entire 10 years they were together. The committee is the primary House body which along with the Office of Federal Housing Enterprise Oversight (OFHEO) has jurisdiction over the government-sponsored enterprises.



Just a month before, Frank had aggressively thwarted reform efforts by the Bush administration. He told The New York Times on Sept. 11, 2003, Fannie Mae and Freddie Mac’s problems were “exaggerated,” a gross miscalculation some five years later with costs estimated to be in the hundreds of billions.


“These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis,” Frank said to the Times. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

. J. Bridges says:

Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.

For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.
Warren Buffett: "There are significant limits to what regulation can accomplish. As a dramatic illustration, take two of the biggest accounting disasters in the past ten years: Freddie Mac and Fannie Mae. We're talking billions and billions of dollars of misstatements at both places".

Now, these are two incredibly important institutions. I mean, they accounted for over 40% of the mortgage flow a few years back. Right now I think they're up to 70%. They're quasi-governmental in nature. So the government set up an organization called OFHEO. I'm not sure what all the letters stand for. [Note to Warren: They stand for Office of Federal Housing Enterprise Oversight.] But if you go to OFHEO's website, you'll find that its purpose was to just watch over these two companies. OFHEO had 200 employees. Their job was simply to look at two companies and say, "Are these guys behaving like they're supposed to?" And of course what happened were two of the greatest accounting misstatements in history while these 200 people had their jobs. It's incredible. I mean, two for two!

 

[samjones]

The GDP number was a huge miss today. Growth was way lower than forecast. The DOW was way up until that news hit, then a huge reversal. They have been lying about how shitty the economy is. The US economy is pure shit.

Are you smoking drugs? Honestly, I'm wondering? I'm wondering not because I want to argue with you about whether the economy is "pure shit" or not, but because I'm wondering how you arrive at the conclusion that:

1. The GDP number was a "huge miss". It was a little disappointing but it was still the largest growth of the year.
2. The DOW was "way up". How do you define "way up" exactly?
3. Then there was a "huge reversal". Huge? Says who?
4. "They" have been lying.... they who?

Are you just smoking doobs and posting pure bullshit? Cool enough if you are.... I'm just trying to make some sense.

 

[EdwardBaiamonte]

The notion that Fannie/Freddie were forcing banks to make subprime loans is simply not accurate..... it doesn't even make sense.

For instance, as George Mason University economist Russ Roberts explains in his paper “Gambling with Other People’s Money”:

Fannie and Freddie bought 25.2% of the record $272.81 billion in subprime MBS [mortgage-backed securities] sold in the first half of 2006, according to Inside Mortgage Finance Publications, a Bethesda, MD-based publisher that covers the home loan industry.

In 2005, Fannie and Freddie purchased 35.3% of all subprime MBS, the publication estimated. The year before, the two purchased almost 44% of all subprime MBS sold.

In addition, lawmakers in both parties enacted policies directed at increasing home ownership rates, resulting in lower mortgage underwriting standards for Fannie and Freddie. Roberts notes that from 2000 on, Fannie and Freddie bought loans with low FICO scores, loans with very low down payments, and loans with little or no documentation

 

[kwc57]

Recently on his blog, Paul Krugman claimed that he predicted the recent housing bubble as early as 2004. His cited 2005 op-ed certainly does speak of an impending housing bubble. But whatever credit he deserves for seeing it should be revoked because by his own admission he was calling for the Fed to maintain low interest rates, which was a major cause of the housing bubble. (For more information, see this course by Yaron Brook. For more general information on the impact of central banks on boom-and-bust cycles, read up on Austrian Business Cycle Theory, which is most famously advanced by Ludwig von Mises and Friedrich Hayek.)

http://http://blog.aynrandcenter.org/paul-krugman-housing-bubble-instigator-not-predictor/

Ever notice how Krugman looks like the crazy guy who catches flies in mid-air and eats them? The guy has creepy eyes.

 

[EdwardBaiamonte]

Ever notice how Krugman looks like the crazy guy who catches flies in mid-air and eats them? The guy has creepy eyes.

Krugman is a liberal more than an economist. He uses what he knows about economics only to deceptively promote liberalism.

 

[Big Fitz]

Recently on his blog, Paul Krugman claimed that he predicted the recent housing bubble as early as 2004. His cited 2005 op-ed certainly does speak of an impending housing bubble. But whatever credit he deserves for seeing it should be revoked because by his own admission he was calling for the Fed to maintain low interest rates, which was a major cause of the housing bubble. (For more information, see this course by Yaron Brook. For more general information on the impact of central banks on boom-and-bust cycles, read up on Austrian Business Cycle Theory, which is most famously advanced by Ludwig von Mises and Friedrich Hayek.)

http://http://blog.aynrandcenter.org/paul-krugman-housing-bubble-instigator-not-predictor/

Ever notice how Krugman looks like the crazy guy who catches flies in mid-air and eats them? The guy has creepy eyes.

AAAaaaaannd this is about how sane Krugmann is as well. Change 'blood' for 'money'... and you got it. The question remains... who is the master HE waits for?

 

[Toddsterpatriot]

If you look at the existence of NINJA loan, obviously banks weren't keeping those on their balance sheets. Being able to extend more credit due to an inflated balance sheet doesn't explain banks making loans they knew they wouldn't possibly be able to recover.

I agree - but there's this big ugly tree called subprime loans and it's preventing you from seeing the housing bubble forest that it's in.

Housing prices dropped across the board.... some places worse than others and there's an obvious fallout of suprimers making the banks take the hit, but there are alot more of us who simply gnash our teeth and keep making that mortgage payment because even with the huge drop we still have more equity than the note is worth. That doesn't mean we didn't lose money and that doesn't mean that we aren't affected. Ultimately this is what is responsible for the collapse of the housing market and the ripple effect into the rest of the economy.

Bottom-line, banks shouldn't be legally allowed to finance a bubble. Whether they're loaning money on speculative real estate prices, tech stocks or tulips. The investor should be free to gamble his money in whatever way pleases him. The financier should be more cautious.... especially when it's being financed with my deposits.

Bottom-line, banks shouldn't be legally allowed to finance a bubble.

OMG! That's hilarious.

You had community organizers (like you know who) suing the shit out of anyone they felt wasn't giving enough loans in poor neighborhoods. So the banks gave in. A bubble started and grew larger, as bubbles often do. Now the same clowns who complained the banks didn't loan enough now complain that they loaned too much. Let's sue those nasty banks for loaning those poor poor people too much money.

Now the banks reduce their underwriting and the same clowns I mentioned above bitch that the banks "took" taxpayer money and now won't lend it (ignoring, of course, that the banks long ago repaid the loans).
If only the banks make enough (bad) loans, Obama would cruise to reelection.
Sorry, the banks aren't going to fall for that trick again.

 

[Toddsterpatriot]

Bottom-line, banks shouldn't be legally allowed to finance a bubble.

Which leads us right back to the root cause of the government meddling thru their progressive programs, policies and regulations.

The root-cause of government meddling is that banks can't be trusted to do the honest thing. That's true. And if the a bank profits by being dishonest then other banks will feel obligated to do so to remain competitive.

This is true.

You said it best, KWC.

Banks saddled Americans with housese they couldn't afford and then turned around and securitized those loans and sold them to other Americans who were mislead as to the risk and this is what collapsed the automotive sector. American taxpayers were obligated to jump in and finance a bailout of the entire mess and like you said - there's no way we can hold any bank or banker accountable because they're trying to run a business and make a profit and screw America is we don't understand that.


Me.... I'm still trying to understand that. So screw me, I guess, right?

The root-cause of government meddling is that banks can't be trusted to do the honest thing.

Exactly! Thank goodness we had Barney Frank and Chris Dodd to rein in those banks (and GSEs) to make sure nothing bad happened. Thier wisdom saved us countless times from a financial disaster.

 

[Toddsterpatriot]

The problem being that at any point in time it's extremely difficult to tell if there is a bubble and we still don't actually understand what causes them. And what laws would have to prevent banks contributing to bubbles?

Read my lips. Abolish mark to market accounting for primary residences and return to historical valuations.

It's up to you as a depositor to monitor your bank's risk taking and remove your deposits accordingly.

No - it's up to FDIC, but that's beside the point. If a banks is making bad loans it's reasonably easy to flesh it out. If the banking system is misvaluing the properties that it's loaning on then we have a serous problem.... unless the prices are depressed, which they are, then there's no problem at all..... unless the prices go back up, which they will.

Somehow I like to think that we learned our lesson on the subprimes and we'll be able to do a better job next time around.... I dunno, maybe I'm wrong but I like to think that. We haven't done anything at all about mark to market accounting.

Read my lips. Abolish mark to market accounting for primary residences and return to historical valuations.

What would that accomplish? Spell it out. What is "historical valuations"? And why are they helpful?

 

[DSGE]

Except... wait for it... not necessarily. The hidden proviso there is "lowered interest rates below the natural rate". But the natural rate is unobservable

No shit. It's impossible to observe natural rates when they are deliberately manipulated.

...it's impossible to observe them full stop. How do you figure natural rates are being manipulated? The natural rate is the rate which equilibrates saving and investment. It's determined by real factors and can't be manipulated.

 

[DSGE]

Recently on his blog, Paul Krugman claimed that he predicted the recent housing bubble as early as 2004. His cited 2005 op-ed certainly does speak of an impending housing bubble. But whatever credit he deserves for seeing it should be revoked because by his own admission he was calling for the Fed to maintain low interest rates, which was a major cause of the housing bubble. (For more information, see this course by Yaron Brook. For more general information on the impact of central banks on boom-and-bust cycles, read up on Austrian Business Cycle Theory, which is most famously advanced by Ludwig von Mises and Friedrich Hayek.)

http://http://blog.aynrandcenter.org/paul-krugman-housing-bubble-instigator-not-predictor/

Yeah I'm very familiar with the Austrian School. It's got great popularity on the internet since it's intuitively easy and not especially rigorous (and it confirms the bias of all the internet libertarians), but I'm gonna stick to doing real economics thanks.

 

[FireFly]

The GDP number was a huge miss today. Growth was way lower than forecast. The DOW was way up until that news hit, then a huge reversal. They have been lying about how shitty the economy is. The US economy is pure shit.

Are you smoking drugs? Honestly, I'm wondering? I'm wondering not because I want to argue with you about whether the economy is "pure shit" or not, but because I'm wondering how you arrive at the conclusion that:

1. The GDP number was a "huge miss". It was a little disappointing but it was still the largest growth of the year.
2. The DOW was "way up". How do you define "way up" exactly?
3. Then there was a "huge reversal". Huge? Says who?
4. "They" have been lying.... they who?

Are you just smoking doobs and posting pure bullshit? Cool enough if you are.... I'm just trying to make some sense.

1. It was during the holiday season. Of course it was the largest growth of the year.
2. The Dow futures were up 70 points from 12,650 in early trading to 12,720. Then the GDP data came out.
3. The Dow futures had reversed it's 70 point rise, dropped 110 points from there by the time the market opened & continued down another 50 points from there. It was a sudden 160 point reversal on that GDP mis news.
4. The current administration & it's minions.

 

[DSGE]

The GDP number was a huge miss today. Growth was way lower than forecast. The DOW was way up until that news hit, then a huge reversal. They have been lying about how shitty the economy is. The US economy is pure shit.

Are you smoking drugs? Honestly, I'm wondering? I'm wondering not because I want to argue with you about whether the economy is "pure shit" or not, but because I'm wondering how you arrive at the conclusion that:

1. The GDP number was a "huge miss". It was a little disappointing but it was still the largest growth of the year.
2. The DOW was "way up". How do you define "way up" exactly?
3. Then there was a "huge reversal". Huge? Says who?
4. "They" have been lying.... they who?

Are you just smoking doobs and posting pure bullshit? Cool enough if you are.... I'm just trying to make some sense.

1. It was during the holiday season. Of course it was the largest growth of the year.

The data is seasonally adjusted. I don't know why people here keep ignoring that; the data is always seasonally adjusted.

 

[MikeK]

So, I have realized that since the Occupy movement, quite a few people do not understand capitalism. OWS was convinced that capitalism was the cause of their problems and personal failures. Unfortunately, they succumbed to mistaking capitalism for corporatism. If you do not know the difference, please google it. If you think corporatism is capitalism, you will seek government intervention in a way that surpasses corporatism, and that is socialism. These OWSers have it backwards, as do many of Americans.

Capitalism is not the problem, it is the solution. Capitalism has not existed for a century. How about we give it another shot? Get government out of the subsidy game, get government out of anything involving business. Government's only job is to regulate currency and they can't even get that right (see article 1 section 8).

Corporatism is not capitalism...and socialism is not the answer. Get the government out. Restore capitalism.

Thank you.

I'm afraid it is you who has it backward.

Unrestrained (laissez-faire) capitalism leads directly and unavoidably to corporatism, which naturally evolves as fascism. The ideal system is that which prevailed in the U.S. from the 40s through to the 80s, which was capitalism held in check by socialist regulations. Our most destructive economic problems began when Ronald Reagan, the man from General Electric, began de-regulating our system which immediately led to the Savings and Loan debacle -- which didn't stop him, or Bill Clinton, or George W. Bush from continuing to de-regulate. As the removal of socialist regulations continued, the natural consequences followed, and we are now seeing and feeling the ultimate effects.

If you wish to learn more about the destructive effects of switching from demand-side economics to the supply-side version, which is precisely how Pinochet commenced the destruction of the Chilean economy and the drift toward fascism via unrestrained capitalism, read Naomi Klein's supremely informative book, The Shock Doctrine. And if you want to top off the education obtain a copy of Inside Job, a two hour video documentary which clearly explains exactly how unregulated capitalism nearly collapsed our economy and tells you who did what to bring it about.

And if that brief but substantive course of study doesn't change your mind about capitalism, do some research into why Denmark, a socialist nation, is considered the happiest country in the world.

Bottom line: Greed is the engine of un-regulated capitalism. And greed is a personality disorder which is recognized and denounced by all major religions.