Analysis of the economic crisis

[Supergirl]

Once again, the New Yorker magazine provides some of the most insightful, well-researched political commentary out there...

http://www.newyorker.com/talk/comment/2008/09/29/080929taco_talk_cassidy


Some excerpts...

"For months, Obama had struggled to promote the sense—which was not altogether confirmed by the official statistics—that the economy was in real trouble. Back in March, in New York, he gave a thoughtful speech, tracing the sub-prime crisis to lax oversight, and calling for a major overhaul of regulatory policy. The serious newspapers reported the event, and that was that. By Labor Day, the McCain campaign had managed to reframe the economic debate—in as much as there was one—around gas prices, offshore drilling, and Obama’s purported plan to raise taxes on ordinary Americans. (Actually, his tax plan would leave more than ninety per cent of households paying less money to the government.)"

"No matter who wins the election, the economy has undeniably entered a new phase. John Kenneth Galbraith’s comment that in America the only respectable type of socialism is socialism for the rich has never seemed more apt."

"As Obama noted last week, it is no accident that the country is confronting its worst financial crisis since the Depression. Gullibility and greed caused this latest calamity, but what allowed those basic human traits to combine to such catastrophic effect was a legal and institutional framework that resulted from deliberate policy actions. Something new, from a new Administration, is needed. A new deal, you might say. "

[Yonivore]

Once again, the New Yorker magazine provides some of the most insightful, well-researched political commentary out there...

http://www.newyorker.com/talk/comment/2008/09/29/080929taco_talk_cassidy


Some excerpts...

"For months, Obama had struggled to promote the sense—which was not altogether confirmed by the official statistics—that the economy was in real trouble. Back in March, in New York, he gave a thoughtful speech, tracing the sub-prime crisis to lax oversight, and calling for a major overhaul of regulatory policy. The serious newspapers reported the event, and that was that. By Labor Day, the McCain campaign had managed to reframe the economic debate—in as much as there was one—around gas prices, offshore drilling, and Obama’s purported plan to raise taxes on ordinary Americans. (Actually, his tax plan would leave more than ninety per cent of households paying less money to the government.)"

"No matter who wins the election, the economy has undeniably entered a new phase. John Kenneth Galbraith’s comment that in America the only respectable type of socialism is socialism for the rich has never seemed more apt."

"As Obama noted last week, it is no accident that the country is confronting its worst financial crisis since the Depression. Gullibility and greed caused this latest calamity, but what allowed those basic human traits to combine to such catastrophic effect was a legal and institutional framework that resulted from deliberate policy actions. Something new, from a new Administration, is needed. A new deal, you might say. "
March? Bush was trying to do that in 2003. McCain in 2005.

[Yonivore]

H5tZc8oH--o
Enjoy

[RandomGuy]

March? Bush was trying to do that in 2003. McCain in 2005.


Bush was trying to do no such thing in 2003. I know the news story you are trying to base that statement on, and it doens't say what you think it does.

[Supergirl]

March? Bush was trying to do that in 2003. McCain in 2005.

Did you forget to read the rest of the article where it also points out that Obama was talking about the potential for this to happen LAST WEEK? You know, when McSame was busy saying the "fundamentals of the economy are strong"?

[RandomGuy]

... and if you are going to try and tell me that Bush "tried" to prevent this problem, starting in 2003, and could not accomplish that with 3 years of a friendly GOP controlled congress, I would easily argue that it obviously wasn't a high priority of his, was it?

The 2003 article was about a half-assed political ploy to make it look like the administration was doing something about the accounting scandals that were in the news, ala Enron, etc. Freddie and Fannie got embroiled in those at that time.

You can in no way prove that Bush was all gangbusters in 2003 to prevent shitty mortgages, not only because it is fasle, but because that would have been a government interference in the private sector, and nobody would believe that this administration would advocate that when as recently as last month "everything was fine".

[RandomGuy]

Bush was trying to do that in 2003.

I call bullshit. Source this statement.

If you have a USA today story from that time period, you will need more than that one bit, because I will show quite easily that the article doesn't mean what you claim it does.

[RandomGuy]

Did you forget to read the rest of the article where it also points out that Obama was talking about the potential for this to happen LAST WEEK? You know, when McSame was busy saying the "fundamentals of the economy are strong"?

Quite a few Conservative Avengers would forget about anything that:

1) might make a democrat look good

or

2) might make a republican look bad

[Yonivore]

Did you forget to read the rest of the article where it also points out that Obama was talking about the potential for this to happen LAST WEEK? You know, when McSame was busy saying the "fundamentals of the economy are strong"?
First of all, Obama is way late to the game and second, fundamental are strong...even in this single-sector crisis.

[Purple & Gold]

and second, fundamental are strong...even in this single-sector crisis.

:wow :wow :wow

[Yonivore]

From the New York Times archives for September 11, 2003

New Agency Proposed to Oversee Freddie Mac and Fannie Mae (http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B 63&sec=&spon=&&scp=1&sq=New%20Agency%20Proposed%20to%20Oversee%20Freddi e%20Mac%20and%20Fannie%20Mae&st=cse)


The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

''There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,'' Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.

Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.

The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws.

The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.

After the hearing, Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration's proposal. Industry executives said Congress could complete action on legislation before leaving for recess in the fall.

''The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,'' Mr. Oxley said at the hearing. ''We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,'' the independent agency that now regulates the companies.

''These irregularities, which have been going on for several years, should have been detected earlier by the regulator,'' he added.

The Office of Federal Housing Enterprise Oversight, which is part of the Department of Housing and Urban Development, was created by Congress in 1992 after the bailout of the savings and loan industry and concerns about regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.

At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve. Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families. This year, however, the chances of passing legislation to tighten the oversight are better than in the past.

Reflecting the changing political climate, both Fannie Mae and its leading rivals applauded the administration's package. The support from Fannie Mae came after a round of discussions between it and the administration and assurances from the Treasury that it would not seek to change the company's mission.

After those assurances, Franklin D. Raines, Fannie Mae's chief executive, endorsed the shift of regulatory oversight to the Treasury Department, as well as other elements of the plan.

''We welcome the administration's approach outlined today,'' Mr. Raines said. The company opposes some smaller elements of the package, like one that eliminates the authority of the president to appoint 5 of the company's 18 board members.

Company executives said that the company preferred having the president select some directors. The company is also likely to lobby against the efforts that give regulators too much authority to approve its products.

Freddie Mac, whose accounting is under investigation by the Securities and Exchange Commission and a United States attorney in Virginia, issued a statement calling the administration plan a ''responsible proposal.''

The stocks of Freddie Mac and Fannie Mae fell while the prices of their bonds generally rose. Shares of Freddie Mac fell $2.04, or 3.7 percent, to $53.40, while Fannie Mae was down $1.62, or 2.4 percent, to $66.74. The price of a Fannie Mae bond due in March 2013 rose to 97.337 from 96.525.Its yield fell to 4.726 percent from 4.835 percent on Tuesday.

Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.

''The regulator has not only been outmanned, it has been outlobbied,'' said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ''Being underfunded does not explain how a glowing report of Freddie's operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.''

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.
Not exactly USA Today

[2centsworth]

From the New York Times archives for September 11, 2003

New Agency Proposed to Oversee Freddie Mac and Fannie Mae (http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B 63&sec=&spon=&&scp=1&sq=New%20Agency%20Proposed%20to%20Oversee%20Freddi e%20Mac%20and%20Fannie%20Mae&st=cse)


Not exactly USA Today

game, set, match.

[Yonivore]

:wow :wow :wow
What? We've had few banks go down. Anyone remember how many Savings and Loans went under? Thousands.

Berkshire Hathaway's confidence in buying Goldman Sachs debt is an indicator of how Buffet thinks this is going to play out.

[Yonivore]

I call bullshit. Source this statement.

If you have a USA today story from that time period, you will need more than that one bit, because I will show quite easily that the article doesn't mean what you claim it does.
Well?

[Anti.Hero]

Obama Good. McCain Baaaad.

Yes we can. Yes we can. 4 mo years. 4 mo years.



Got it.

[Ya Vez]

McCain Cosponsored Federal Housing Enterprise Regulatory Reform Act of 2005; Reform of Fannie and Freddie

In 2003, Senator John McCain co-sponsored the Federal Housing Enterprise Regulatory Reform Act of 2005. (Text of bill and related information.) The reform, due to Democratic resistance, never became law. Here was a statement John McCain made in support of the Federal Housing Enterprise Regulatory Reform Act of 2005:

Statement by John McCain Sen. John McCain [R-AZ]: Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 1 90, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. I urge my colleagues to support swift action on this GSE reform legislation."

This legislation went nowhere, thanks to Barack Obama and other Democrats.

[RandomGuy]

From the New York Times archives for September 11, 2003

New Agency Proposed to Oversee Freddie Mac and Fannie Mae (http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B 63&sec=&spon=&&scp=1&sq=New%20Agency%20Proposed%20to%20Oversee%20Freddi e%20Mac%20and%20Fannie%20Mae&st=cse)


Not exactly USA Today

The article pretty much says the same thing.

It is simply talking about the reserve requirements, and the accounting practices. Fannie and Freddie fought the administration, with the help of the Democrats, to NOT have their reserve ratios raised to be on par with other financial institutions issuing similar debt.

There is no mention about the underlying valuation of the complex assets and shitty mortgages they were buying. No fight against predatory lending or stupid borrowing.

Sorry.

Your assertion that the Bush administration was concerned about these practices does not hold up.

All the articles you posted were about fannie and freddie, and never about any broader "financial sector".

This does not indicate an administration who was seeking to fix lending practices, as if that were the case, then you should have an article that specifically addresses lending practices and complex derivatives among not just those two agencies, but among all the institutions putting this stinky mess together.

[RandomGuy]

McCain Cosponsored Federal Housing Enterprise Regulatory Reform Act of 2005; Reform of Fannie and Freddie

In 2003, Senator John McCain co-sponsored the Federal Housing Enterprise Regulatory Reform Act of 2005. (Text of bill and related information.) The reform, due to Democratic resistance, never became law. Here was a statement John McCain made in support of the Federal Housing Enterprise Regulatory Reform Act of 2005:

Statement by John McCain Sen. John McCain [R-AZ]: Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal.
The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 1 90, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. I urge my colleagues to support swift action on this GSE reform legislation."

This legislation went nowhere, thanks to Barack Obama and other Democrats.


Didn't say "shitty lending practices" didn't say "unwise borrowing" didn't say "complex, hard to value derivatives".

It was in response to the accounting scandal, as I have outlined already, not the coming housing bubble.

This was over the reduced level of reserves that Fanny and Freddie were allowed.

Troubling? Yes.

Was this a good thing for McCain to do, and a bad thing for Democrats to oppose? Yes on both counts.

Was this the cause of our current crunch, and somehow indicative of wily insight?

No.

[RandomGuy]

I take that back a bit. If the reserve requirements for the two institutions had been raised, it would have deflated the bubble somewhat.

It would have caused them to pull back and build up capital, limiting the run-up in housing to at least a small degree due to their sheer size.

BUT

Fannie and Freddie were not the only institutions issuing such debt.

AND

The purpose of the bill was not to stop the coming housing bubble. You cannot support that assertion. The warnings were there at least as far back as 2003, but nothing was really done about that.

[spurster]

Do I have to mention again that another reason for the bill to fail was that Democrats wanted an affordable housing provision and the Republicans didn't?

See #8 in http://www.spurstalk.com/forums/showthread.php?t=105520

Earlier, see #10, #11, #12, #30, #31 in http://www.spurstalk.com/forums/showthread.php?t=105018

To sum: The differences between the extra provisions that the parties did or did not want resulted in not passing the main provision of stronger regulation on Freddie and Fannie. By not compromising, both parties made it worse.

[Yonivore]

Your assertion that the Bush administration was concerned about these practices does not hold up.
Where'd I say that?

Are you asserting that if the GSE Oversight agency Bush had asked for in 2003 hadn't been blocked by Democrats, the "shady" practices would have gone unnoticed? Do you think the president's idea would have possibly uncovered those practices?

Fact remains, the President saw trouble in 2003 with Fannie Mae and Freddie Mac and tried to do something. Democrats obstructed.

[Yonivore]

Fannie and Freddie were not the only institutions issuing such debt.
You're right but, if I'm not mistaken, they were the only GSE's doing so.

[RandomGuy]

Do I have to mention again that another reason for the bill to fail was that Democrats wanted an affordable housing provision and the Republicans didn't?

See #8 in http://www.spurstalk.com/forums/showthread.php?t=105520

Earlier, see #10, #11, #12, #30, #31 in http://www.spurstalk.com/forums/showthread.php?t=105018

To sum: The differences between the extra provisions that the parties did or did not want resulted in not passing the main provision of stronger regulation on Freddie and Fannie. By not compromising, both parties made it worse.

Nope, I already mentioned that.

[RandomGuy]

Where'd I say that?

Are you asserting that if the GSE Oversight agency Bush had asked for in 2003 hadn't been blocked by Democrats, the "shady" practices would have gone unnoticed? Do you think the president's idea would have possibly uncovered those practices?

Fact remains, the President saw trouble in 2003 with Fannie Mae and Freddie Mac and tried to do something. Democrats obstructed.

These practices were widely known enough by 2004 to be picked up on in the business press. One would be hard pressed to prove that if the accounting reforms had gone through, it would have led to some earth-shaking revelation.

The dems did indeed obstruct the accounting reforms in 2003, and the President and Republicans did a "let's-bring-it-up-right-at-the-end-of the session when we know nothing will really happen" thing, and were right there with it.

I actually remember this bit quite clearly, because we were studying accounting scandals at the time for my advanced audit class.

The president and GOP congress wanted to look like they were doing something, and that is what they succeeded in doing. Look like they were doing something.

Did the president support a review of lending practices at banks at ANY time in the last few years?

There were rumblings as far back as 2004 about this.

[RandomGuy]

Thread on how some of the crisis developed in the online press:

http://www.spurstalk.com/forums/showthread.php?t=105779

Browse yourself through the news of the last few years with this search of news articles with the words "housing bubble" in the title. (http://search.yahoo.com/search;_ylt=A0geu.GjVd1IE2oAaExXNyoA?p=intitle%3Ah ousing+intitle%3Abubble&y=Search&fr=ush-news&ei=UTF-8&n=100&vm=p&vf=all)

The first real mentions start in 2004, pick up steam in mid 2005, and get more alarming after that.

[Yonivore]

These practices were widely known enough by 2004 to be picked up on in the business press. One would be hard pressed to prove that if the accounting reforms had gone through, it would have led to some earth-shaking revelation.

The dems did indeed obstruct the accounting reforms in 2003, and the President and Republicans did a "let's-bring-it-up-right-at-the-end-of the session when we know nothing will really happen" thing, and were right there with it.

I actually remember this bit quite clearly, because we were studying accounting scandals at the time for my advanced audit class.

The president and GOP congress wanted to look like they were doing something, and that is what they succeeded in doing. Look like they were doing something.

Did the president support a review of lending practices at banks at ANY time in the last few years?

There were rumblings as far back as 2004 about this.
And I suppose Democrats wanted to look like they were obstructing...got it.