105 Comments

1. Doug:

Here’s the Truth from
La la Liberland:

Partisanship Is a Worthy Foe in Debate on Stimulus
—

I wasn’t aware at the time, but key to Rudy cleaning up NYC was his understanding what he was dealing with:
Alinsky tactics.

Doubt if any of the other candidates had heard of him, much less already had EXPERIENCE in dealing with them as a US Prosecutor.

Given that, in retrospect I think it is clear that Rudy would have been just the man for the job.

Feb 7, 2009 - 3:31 pm 2. Doug:

““In the end, the Republicans will decide based on politics alone, and he might not get very far,” Robert D. Reischauer, president of the Urban Institute, a Washington research group, said of Mr. Obama.

“But I think he’s making a significant impression with the American public that he is following through on his promise to try and be as bipartisan as he can.””

…if you define “the American Public”

As, “We Won”

Feb 7, 2009 - 3:37 pm 3. Doug:

viktor silo said…

“Have you seen the movie “No Country for Old Men”? There’s a scene where Sheriff Bell is talking to an old friend:

Ellis:

All the time you spend tryin to get back what’s been took from you there’s more goin out the door. After a while you just try and get a tourniquet on it. …Your granddad never asked me to sign on as a deputy. I done that my own self. Loretta says you’re quittin. How come’re you doin that?

Bell:

I don’t know.
I feel overmatched“

Feb 7, 2009 - 3:47 pm 4. slade:

Nobody wants to talk about which government policies got us into this problem in the first place.

I noticed that. In my view, it was always a one-two punch – CRA policy facilitated by “structured investment vehicles” (aka derivatives). The focus now is one the latter. The former are footnotes in history.

Feb 7, 2009 - 3:50 pm 5. Mike Sylwester:

I can’t see how the Republicans might turn this around. Apparently, the Democrats can’t be stopped from running up huge deficits every year through the Obama Administration, which apparently will last eight years. The consequences will not become obvious until aferwards.

If the economy recovers during the Obama Administration, then he will receive all the credit for the recovery. If the economy declines further, then he will spend even more. Everything is justified by the “stimulute the economy” argument.

Since the young voters voted for Obama overwhelmingly, I don’t care that they will have to suffer the consequences through the rest of their lives.

If there is anybody here who wants to feel even more depressed about this sitution, I invite him to go to the last link in Wretchard’s article (acknowledged it) and then read the text of Obama’s speech and then read the comments below the speech.

We Republicans really might as well nominate Rush Limbaugh for President in 2012. It’s not enough to just counter-attack with effective arguments. We need a candidate who can help us laugh through this miserable situation.

Feb 7, 2009 - 3:51 pm 6. whiskey:

The problem with the Emmanuel approach is that increases political risk.

Obama is saying he needs all power to fix things.

UNLESS he produces a go-go bubble economy by 2010, along the standards of 1997-98, he is likely to pay a serious political price.

First, the attack on populist lines, that the Obama/Dem coalition is nothing more than privileged elites milking the system of money extorted from Joe Average, with “No White Men Need Apply” ala Robert Reich, pulls the populist strings in a way that totally undermines Obama’s populist stance. It makes him look like a liar/betrayer and the enemy of Joe Average.

Second, pushing all the spending spree stuff carries the risk that without real results, i.e. people back at work making money, the spending decisions will prove symbolically deadly. More Willie Hortons, or Condoms for Kindgergartners, or what have you, spending decisions that show the people in power are screwing over Joe Average (again) to privilege the connected and powerful.

Only if all avenues of protest are shut down will this work, witness the Fairness Doctrine. But it in turn will produce political warfare, as powerful interests in a big country make war on Obama/Dems to preserve their earnings in a recessionary economy. News Corp, Sirius, various Radio syndicators, will all make war on him and his people, early in his administration, and there will be scandal aplenty as we’ve already seen.

Meanwhile the people themselves expect results NOW. Not ten years from now. NOW.

If anything the probable collapse of Obama and Dems will leave the nation open to a third party candidate unconnected to anyone. We’ve already seen that in the figures of Jessie Ventura and Arnold Schwarzenegger. Imagine a Ross Perot who won.

Feb 7, 2009 - 3:54 pm 7. Doug:

“The consequences will not become obvious until aferwards.”
—
One thing is already certain:

ACORN will be Flush with Cash far beyond Soro’s wildest dreams.

Feb 7, 2009 - 3:54 pm 8. Doug:

“The former are footnotes in history.
”
—
The Actors from that play now make, and enforce, the rules.

Feb 7, 2009 - 3:57 pm 9. RWE:

It is said that the difference between a Socialist and a Communist is that a Socialist looks at Capitalism as a cow to be milked while a Communist looks at Capitalism as a cow to be slaughtered.

The problem with both of these philosophies is that they depend on the cow submitting. Or as Margaret Thatcher puts it, “The problem with socialism is that sooner or later you run out of other people’s money.”

But the current crop of Socialists in power have a big problem aside from that inherent in their ideology. They have allied themselves with Greens, who think the cow is basically evil, feminists, who are upset that the cow is female, or are more upset that it is not, Unions, who think it is their cow, or ought to be, and Minorities, who want a cow of their own to be provided by somebody.

And nobody asked the cow, who is getting pissed.

Feb 7, 2009 - 4:21 pm 10. Doug:

Elijah said,
It’s all about the Narrative

Feb 7, 2009 - 4:32 pm 11. nullification?:

i have spent my last Peso at LL Bean. It’s just a small stand against Vichy Maine.

Feb 7, 2009 - 4:39 pm 12. rrpjr:

Completely agree about Rudy. He was operating in a separate universe of understanding about the Left. And still no one gets it. I talk to educated people who don’t even know what a “leftist” is. What a tragedy. But is it surprising? Who has controlled education for the past several generations? I went to a well-regarded liberal arts college and not once in four years did I hear an analysis or critique of leftist ideology. This was their worldview: on one hand, the rapacious, heartless and soul-stifling corporate American culture, and on the other, the noble underdog resistance. The latter was never labeled the Left, and never examined with honesty or depth enough to reveal its true ugliness and malignity.

Good essay but we can cut to the chase. There isn’t the substance or character in this administration worth all the words. This guy and the people around him don’t have the slightest interest in studying why or how or where government (or for that matter, anybody) went wrong. They are totally incurious individuals and totally implacable as to their intent: to exploit this moment in history to get what they’ve dreamed of forever, and to a degree never dreamed of: power and control to change the fundamental orientation of American life.

Feb 7, 2009 - 4:48 pm 13. Gordon:

There should be limits to all this spending in the sense that, Where’s the money going to come from?

Taxes? When 40% of the population pay no federal income tax, what will the other 60% do? After all, they are the ones with the money. Will they spend it to protect themselves?

Print money? Inevitable high inflation sooner or later and it hits everybody but, once again, the 60% are in a better position to protect themselves–I remember the ’70s.

Borrow? From whom? Europe? Asia? Why would anybody loan us any when we’ve made a mess for ourselves?

Any of these, or a combination, and the 60% who are already unhappy with their rising taxes will convince the 40% that their declining purchasing power is a bad deal. Cuts in the budget due to less borrowing power (can you say ‘defense budget’ ten times as fast as possible?) will sooner or later embarrass us–in the non-emotional meaning of the word–overseas and/or domestically.

The only exception will be a burst of spending to lay certain sociopolitical foundations, then throttle back to just below the critical level. Tax, spend, elect–a winning formula for decades.

How I miss Reagan.

Feb 7, 2009 - 5:06 pm 14. joe , nancy, harry, and barry:

…insert fingers into ears here and mouth….LA LA LA LA LA LA LA…..

Feb 7, 2009 - 5:09 pm 15. Yes We Did:

We won, you lost.

Get over it and get with the program.

Feb 7, 2009 - 5:13 pm 16. Kevin T. Keith:

This appears to be just a superficially sophisticated exercise in finger-pointing. But your claims are not more exact or defensible than those you criticize, and they arise from a fundamentally distorted description of the events in question.

Regarding “political risk”, the locus of blame couldn’t be more obvious: the lenders and financial wizards who risked hundreds of billions on worthless assets, in deals structured to pay themselves up front and shift the risk to other parties. It may have been a political decision to encourage mortgage lending on more liberal terms, but nobody required lenders to make loans that it was mathematically impossible to pay off, nobody required them to continue lending on inflated assets in the run-up of what everybody was saying at the time was an obvious housing-price bubble, nobody required them to bundle bad loans with good ones and sell them to speculative investors who had absolutely nothing to do with the mortgage industry, nobody required fund managers to go in over their heads on “derivative” investments that had virtually no relationship to actual assets, and (somewhat tangentially) nobody required multi-millionaire dipshits to invest their entire personal wealth with a fund manager who explicitly refused to tell them what assets the fund owned (and which turned out to be almost nothing). Given the chance to make money the old-fashioned way – by duplicitously enticing less-sophisticated people into betting their life savings on debts that had (relatively speaking) no tangible assets at bottom, then executing fast paper trades that involved no actual work or production but left third parties holding the bag when the bills came due on assets that weren’t worth what was claimed – they started a feeding frenzy in which the explicit aim of their “business activities” was to get out from under their own bad-faith deals and let someone else take the hit. Lenders and speculators built trillion-dollar industries out of trading percentage points on the prices of assets they knew nothing about, didn’t care about, never inspected or valued objectively, and had no intention of owning longer than necessary to make the next trade – in some cases on assets they themselves couldn’t even identify. And they did it not because some sort of “political risk” forced them into it – they did it out of greed for gain in absence of actual value provided, and were able to do it because the political oversight that is the only thing that keeps them behaving in any way honestly or prudently was lifted.

As for “more regulation”, of course not just any regulation is the cure, but nobody but you imagines that “just any” regulation has been proposed. Specific regulations addressing specific types of activity have been proposed, mostly by experienced regulators who opposed the lifting of those same regulations before the crash. If you have a particular objection to a particular policy, you should start by saying what that policy actually is, and then give a detailed argument. Until then, you can be sure of one thing – the regulators who are attempting to address this mess are nowhere near as reckless as the de-regulated Masters of the Universe who created it. (We know that because they created it after being de-regulated.)

It’s nonsense to say that “nobody wants to talk about which government policies got us into this problem”. First, people have been talking about the effects of specific policies, and the mechanisms of the recession, ever since it started. Second, as I pointed out, it wasn’t government oversight but the lack of that made it possible for the speculators to screw up as badly as they did. To reiterate that point: no matter what government policies were in place, nobody forced businesses to make bad deals. Even high-risk mortgage lending, which (despite revisionist myth-making) was not a government requirement anyway, did not collapse the major lenders. It was their insane greed that caused them to lend against obviously artificial market valuations, to treat people’s homes and mortgages not as an important physical asset but as some sort of exotic commodity “derivative”, and to speculatively purchase mortgage debts in bulk without regard for the actual value of the assets they nominally represented. When the crash came, it had nothing to do with mortgage defaults – the value of the defaulted loans was a minimal part of the paper losses of the investment banks that had been trading them around like poker chips – it was the long-overdue drop in average housing prices (which had increased 150% in 10 years while your genius lenders were aggressively pushing adjustable-rate second mortgages on low-income homeowners) that put the lenders upside down. But after all that, it’s easy enough to identify at least some government policies that need changing: specifically, the ones that removed the regulation that had previously blocked that kind of behavior. More particular fine-tuning for present circumstances can also be done, and has long been under discussion.

Your basic capitalist self-delusion has been gutted until it’s hollow. Your argument here is simply the old self-serving claim that heroic business executives will always do what is right and prudent out of self-interest if they are simply left to their own devices – they will never cheat their customers, never take unmanageable risks, and never give away assets without getting value in return, or knowingly sell assets at misleadingly inflated prices – and therefore regulation can only make things worse. History has shown time after time that they’ll do all that and much worse if they’re given a chance – and do it eagerly, and on a colossal scale, if they’re allowed to hoodwink others into buying their bad assets off them before they have to pay the reckoning for their own deals. God spare us any more “creative destruction”.

Feb 7, 2009 - 5:13 pm 17. Willie G:

So, Kevin, the proper solution is to let the folks who mucked all this be the ones to attempt the repair?

“Once bitten, twice shy.”

Feb 7, 2009 - 5:25 pm 18. RWE:

“…nobody forced businesses to make bad deals.”

YES THEY DID!

The CRA required banks to “get with the program” or else they were not allowed to add new branches, buy other businesses, and expand into new areas.

It was NOT simply that there was no regulation. It was that the regulations REQUIRED businesses to make bad decisions and that imposing normal regulations on Fannie and Freddie was stopped by the purchased politicos of Congress.

The deritatives were all response to this stacked deck of cards. You try to sell the dead horse the Mob put in your bedroom to a butcher.

Feb 7, 2009 - 5:35 pm 19. Jay:

We moved from industrial capitalism to financial sort of capitalism with false mathematical models, ignorant or corrupt regulators, boomers who wanted it all now and poorly educated college graduates with inflated grades and next to no discipline.
The political elites became corrupt over the last 30 years.
Kevin creative destruction is coming and you will not not like it. But it is going to be a nasty and brutish destruction for the most part.
We are at the mercy of the Japanese banks and the Chinese government to buy our treasuries. Otherwise interest rates will shoot up and we will repudiate our debt leading to social and economic chaos.
This is a world wide crisis and playing partisan games is fine for an evening entertainment but the coming reality will be stark. The future sill not be like the past.

Feb 7, 2009 - 5:36 pm 20. Josh:

Y’all want a real cynical view of the meltdown, it’s that once enough capital accumulated in a few unfortunate places (eg, China, mideast), “the system” would do whatever was necessary to reduce the value of their holdings. As has now occured. The End.

Feb 7, 2009 - 5:50 pm 21. steveaz:

Yup, Kevin, listen to RWE:
“YES THEY DID! The CRA required banks to “get with the program”…”

Yessiree. And those banks complied, or left – or else they got picketed by a “community organization,” called “racist,” and deluged with bad media. Often, city aldermen with “influence” would intervene to twist some arms, too. Most of the lenders “got with the program,” or just stopped lending in the neighborhood altogether.

It’s ugly, really ugly, how this shake-down of the taxpayer took place. But the cover-up for it could be just as warty.

Feb 7, 2009 - 6:21 pm 22. Insufficiently Sensitive:

RWE has nailed it. Once the government mandated that banks MUST lend their depositor’s precious capital to folks who were at higher risk of default than the banks traditional policies would stomach, the foundation was laid for the wreck.

It was a very cynical ploy by the Carter and Clinton administrations – trumpet the concept of ‘affordable homes’ for the downtrodden social victims, and conceal that the risks of default were to be taken by those suckers who deposited their own money in banks for safety. We might recall here that one of ACORN’S early operations was to disrupt a Congressional committee by riot and thuggery, to prevent an examination of this crooked scheme.

Without the CRA, and the blase securitization of those poisoned loans into anonymity by Fannie and Freddie, the real estate bubble built on speculation – once everyone and his brother realized they could cash in on PikAPay loans, the same as the economic pobrecitos – was guaranteed to burst as soon as prices quit rising.

The crisis simply could not have happened had banks continued to do their proper due diligence on lending to risky customers.

Feb 7, 2009 - 6:32 pm 23. joe buzz:

Is there any way to learn the % of good to bad loans made by Fannie and Freddie? Or is that why the former employee was caught trying to wipe the drives? Ive read the alarming 1999 NY times article and seen the vids of Franks and others claiming that the lending was sound….and policy just. Is wanton democracy bleeding the once great Republic to a slow death?

Feb 7, 2009 - 6:55 pm 24. Brock:

But that’s not the point; not the point at all. And it’s a shame BHO doesn’t realize it and a greater shame if he does. The real question is whether current government solutions to the crisis contribute to political risk or reduce it.

If you’re one of the little people who has to live with the consequences of political risk, then sure. But such folk neither run the government nor have representation there. Washington, D.C. is a government of the connected, by the connected, for the connected. They’re different from you and me.

Feb 7, 2009 - 7:09 pm 25. rrpjr:

It’s more than a cynical ploy, it’s a case study of bad faith out of Alinky’s playbook. Rig the system with perverse incentives, then blame the system — or “capitalism run amok” — for the degradation. Exploit the imperfection of freedom in the cause of your illusory perfection of the state. It’s the freedom in the system — including the freedom to overreach and screw up, which given time the natural play of forces corrects — that the grubby statists despise, for every space filled with freedom is a space they cannot fill.

Feb 7, 2009 - 7:13 pm 26. Craigicus:

If it is a cynical step to pack together a jumbo bill with all of the Democratic favorites being paid — then it was a cynical step for GWB to spend out the coffers ahead of him.

Credit is due Regan, GHWB, and Clinton for having the discipline to tame the deficit and get the financial house in the direction of good order. If GWB would have been alot more stingy, the Iraq occupation may not have been as successful, the economy might have taken a real dive in 2002. W might have been sent packing by the electorate in 2004 because he came across as ineffective or too conservative.

Now it only seems right for BHO to pay off his Democrat roots. I have some hope that he’ll use that payoff to gain support to move hard to center. I suspect his compromising will be down the road.

But the Democrats are supposed to be the tax and spend folks; Everyone agrees. So what Emmanuel says makes perfect sense, and if you happened to share his ideology, you’d agree they are the words of a leader who isn’t passive.

Some of the plans aren’t going to be that great. Some will. In all cases another trillion-plus will gurgle through the porous institutions and into the general economy.

As citizens, let’s all observe this very carefully and call out when the outcome is really bad. But wait and make your calls when you have something that is convincing to most americans. Don’t just stand on your conservative perch and scream the same old tired partisan rants. You won’t run BHO out that way.

Feb 7, 2009 - 7:45 pm 27. Leo Linbeck III:

Kevin T. Keith,

If you have a particular objection to a particular policy, you should start by saying what that policy actually is, and then give a detailed argument.

OK, challenge accepted.

The Federal Government has, for the last 20 years, had a clear and explicit policy of promoting home ownership. There are many reasons why such a policy was promoted (by both parties), but the primary claim was that home ownership had all sorts of positive externalities. The evidence trotted out in support of this claim included things like home owners had higher incomes, more stable families, better jobs, were more educated, paid more taxes, contributed more to their communities, voted more regularly, etc. The premise was that if we could increase home ownership, all of these great things would happen.

This premise was, of course, a case of reverse causality. Home ownership did not cause these great things, but instead these great things caused people to own homes. But the power of the American Dream[TM] was too alluring to politicians of all stripes to pass up.

The facilitate home ownership, the Federal Government undertook an number of initiatives. It chartered Government Sponsored Entities like Fannie Mae and Freddie Mac, providing an implicit government guarantee to their activities (a guarantee that later became explicit). The GSEs were created to make the issuance of mortgages easier, primarily by creating underwriting standards for mortgages, and activating those standards by purchasing mortgages from the issuers. There were, of course, others who were buying mortgages on the secondary market, but GSEs, by virtue of their implicit guarantee, were able to command an increasing share of the market because of their lower cost of capital.

So, you have a government entity creating underwriting standards for lenders. It was only a matter of time, then, before politicians began exerting influence on those standards to favor politically valuable groups (i.e. voters). Easy underwriting standards meant readily available, cheap money, which voters like. So, new GSE programs were created to expand the availability of credit to those who, previously, were not able to afford a home. But it was not just these new programs that were effected; even prime mortgages were easier to get due to lax underwriting standards. As just one example of a lax standard, it used to be that you had to have the down payment to qualify for a loan. But, under government pressure, the GSEs started buying loans in which the down payment was either borrowed from family, or was “granted” to them by a third-party. This change was motivated by the noble intention of making it easier for “non-traditional” borrowers to buy a home. But noble or not, it weakened underwriting standards.

Expanded credit then drove increased demand for housing. It was this increased demand that caused prices to rise, especially in communities where land use was heavily regulated, and therefore supply could not react quickly. You claim that lenders lent against assets that were hopelessly overvalued; and yet, in each of those communities, there were homes sold at those higher prices, because of the artificially high demand. It was not the prices that were the problem; it was the demand. And the demand was caused by easy money, which was caused by government influence over the market through the GSEs.

This is not to say that greed was not at work here. It was, and always has been. But people are no greedier now than they were 30 years ago; why the meltdown now? If you go back and actually look at what was happening, it was not because of a greed “surge,” but rather a series of politically-motivated regulatory changes that eroded the quality of credit and increased its supply.

So, there it is – a brief overview of how government policy interfered with the normal operation of the market to create an asset bubble that, when it burst, caused all hell to break loose. If you’d like to see more complete explorations of this issue, I suggest you search earlier discussions here at The Belmont Club where more detailed explanations were proffered.

Like it or not, creative destruction is inevitable. The question is whether the destruction is postponed by government intervention resulting in a massive failure, or the market is allowed to function and lots of small failures allow the system to be constantly adjusted and tuned to reality.

And one final question: if these “Masters of the Universe” were so smart and greedy, why are so many of them now bankrupt, unemployed, or otherwise financially decimated? You claim they knew, as you claim everyone knew, that there was a housing bubble. If that’s true, why didn’t their greed and smarts tell them to stop before it was too late?

Your arguments are ahistorical, counterfactual, contradictory, and hollow.

Other than that, I enjoyed reading your piece.

Cheers,
L3

Feb 7, 2009 - 8:20 pm 28. RWE:

Yes, I started to add what Stevaz did.

Aside from government regulators holding the bank’s feet to the fire over the CRA (which included not only witholding approval for bank business plans but also civil liabilities and punative fines if “discrimination” could be proved), there were oragnizations such as ACORN that were willing to picket banks and hurl charges of Racism (example: “Requiring minorities to make down payments is racist.”)

But the Boston Fed became a champion of “flexible lending standards” as well, as did certain academics. Ultimately, the new standards became the industry standard. Not enough income? No money for a down payment? No problem! It does not matter said Bear Stearns (RIP) or Countrywide (RIP) or IndyMAC (RIP).

But while the true loans to the poor were a problem, what really tore things apart was the 25% plus of loans made to speculators, house flippers, who were not poor but not rich either. There are people around where I live that bought as many as 5, 6 or 7 homes, intending to sell them after a year or even less. And the builders stupidly went along with the drunken party. The city of Palm Bay, Florida has 3500 houses in foreclosure. mainly bought by house flippers looking to make a quick buck.

Reference: http://www.independant.org “Anatomy of A Train Wreck”

Feb 7, 2009 - 8:27 pm 29. wretchard:

But after all that, it’s easy enough to identify at least some government policies that need changing: specifically, the ones that removed the regulation that had previously blocked that kind of behavior. More particular fine-tuning for present circumstances can also be done, and has long been under discussion.

The loans to people who were unable were the feature, not the bug, of government regulation. So it is the case that some government regulations can be iatrogenic. The irony is that very people who pushed this type of risky undertaking are now in even great positions of power. I don’t believe that the CRA, by itself, was the sole and complete cause of the financial debacle. But clearly is was one of them.

It is interesting that you should say, “if you have a particular objection to a particular policy, you should start by saying what that policy actually is, and then give a detailed argument”. This is an inversion of the normal process. The onus is on the regulator to demonstrate a compelling public interest before imposing a regulation. The default mode is no regulation. It is not the case that the public should stand before a flood of regulation until someone can muster a detailed argument against a particular one.

Feb 7, 2009 - 8:35 pm 30. Derek:

>If the economy recovers during the Obama Administration,

then this whole discussion is academic. Just a matter of taste.

I don’t think anyone can honestly say that it will. Or that the ’stimulus’ is going to fix anything.

This is one of those generational learning moments. Can government fix things? Can an isolated and proudly self-interested bunch of politicians and hangers on do anything in the interest of the nation? Can a problem caused by unwise lending, borrowing and very risky investment strategies be fixed by unwise lending and borrowing and risky investment strategies?

We will learn. We will learn the hard way. It took a decade last time to end a depression by world war. The decade was marked by the entrenchment of power structures, not by economic genius. Things happen much quicker now.

Derek

Feb 7, 2009 - 8:42 pm 31. Unsk:

Kevin-
To second, third, and fourth RWE, Steveaz and insufficently sensitive:

Guys like you are exactly the reason why tens of millions of Americans and hundreds of millions around the world are most likely to lose their job and go broke. You’re pushing the same ol big lie that all murdering leftists around the world dole out before they screw their people, ” the free market did us wrong”. What a disgusting, despicable jerk!

You wrote:It may have been a political lending on more liberal terms, but nobody required lenders … to pay off, nobody required them to continue lending on inflated assets … nobody required them to bundle bad loans with good ones …, nobody required fund managers to go in over their heads… etc.

Nobody required them? Wrong on every count. You leftists have obviously never been dealt with a hostile government auditor or inspector with a leftist agenda accompanied by a some leftist edict empowering him or her to crucify you. Happens all the time in the real world pal, particularly over the last fifteen or so years in the financial world.

The Democrats rigged the system and threatened the banks unless they play ball. Period. They also conveniently created a second tier of lending qualifications where members of the victim class got lower financing costs and more liberal qualifications. There actually was a map circulated to lenders and mortgage brokers by census tract where those in low income census tracts were eligible for better treatment. Franklin Raines a few years back actually crowed he was going to give out a trillion dollars in mortgages to the oppressed victim classes.

The damage done by derivatives was a multiplication of the original monumental crime done by CRA and the appointed democrats at Fannie and Freddie. But the system was allowed by those same regulators to be manipulated without reform or punishment. BTW, those democrats like Franklin Raines, Jaime Gorelick et al, in charge of Fannie and Freddie. made tens of millions of dollars in their schemes. So did the people funding Air America.

Feb 7, 2009 - 8:42 pm 32. joe buzz:

How, pray tell will the porous institution Acorn spend their millions of stimuls? I doubt that they will use any of these funds to lawyer up in defense of the pending suits of voter fraud…

Feb 7, 2009 - 8:43 pm 33. Derek:

>It’s nonsense to say that “nobody wants to talk about which government policies got us into this problem”.

And Barney Frank has been driven from power? Did I miss that?

Seems that he has another market regulation in the offing.

Derek

Feb 7, 2009 - 8:48 pm 34. Mongoose:

L3: I do not k ow why you bother, but I guess the public refutation has merit, not to mention the amusement of the public humiliation. Nonetheless, this jerk is not amiable to rational argument or even plain common sense. The ironic thing is is that he will probably have a much worse situation under the coming regime than the rest of us. It is usually the incompetents that go first, after power has been consolidated.

The usually keep around the competent, at last for a while.

Feb 7, 2009 - 9:11 pm 35. Doug:

“They are totally incurious individuals and totally implacable as to their intent: to exploit this moment in history to get what they’ve dreamed of forever, and to a degree never dreamed of:

Power and Control to change the fundamental orientation of American life. ”

That about sums it up.

Feb 7, 2009 - 9:29 pm 36. Mongoose:

Your basic capitalist self-delusion has been gutted until it’s hollow.

An odd assertion. capitalism has lifted billions out of poverty and tyranny.

Socialsim has murdered hundreds of millions of human beings and blighted the lives of hundreds of millions more. Socialism has never succeeded. Anywhere.

It is socialism that is “hollow”, in any sense of the word. History repeats this story over and over again. This is irrefutably true to any rational person informed with the facts of the matter.

It is stealth socialism, nad regulation, and cronyism andcollusion between Hill Democrats and Wall St. democrats that has brought this mess on. A good case can be made that the actual trigger was intentional and that this trigger was pulled to help Obama and company.

Clearly the three major causes essentially are CRA (and legislation like it),the derivatives and pseudo-insurance instruments that enabled CRA, and wrong headed regulatory practices such as the mark to market rules and other shenanigans that fell out of the Enron case.

This is all do to socialistic impulses and policies of government, and those indulge these things” are the ones who are self-deluded, not “capitalism”.

Kevin, to maintain at this late date that capitalism is not by far the most successful technique to manage resources is, to be charitable, self-delusional on your part. Likewise, to be charitable, it is a grotesque self-delusion for you to believe that socialism is anything other than one of the worst outrages and depravities ever inflicted on the human race.

You need to sit down with some immigrant that has actually lived in a fully socialistic society and talk to them at some length. Odds are that they would laugh at you, when they we not shaking their heads or weeping.

It is a sad day when a young American thinks that socialism is preferable to capitalism. you sould be ashamed of yourself. Wait until we really get to that sort of tyranny. You are not going to like it at all.

Feb 7, 2009 - 9:37 pm 37. Mongoose:

nad regulation=bad regulation

Feb 7, 2009 - 9:39 pm 38. Doug:

Kevin, as others have said, it’s rather foolish to try to write out the Govt.
…if you have any interest in describing reality.
Are Dodd and Frank blameless?
I guess as long as they are in charge, we’ll pretend they are.

185. buddy larsen:

Cure-by-disease file: first read the link @ # 167, now, Cox of SEC, on board just in time for SHTF and now gone, was installed by SEC predecessor William Donaldson, founder of brokerage Donaldson Lufkin Jenrette, which was bought by Credit Suisse in yr 2000, connected [just friends?] to Bernie Madoff [search the two names] –and just appointed to the new Economic Recovery Advisory Board.

Please, re-read the above six times, and i promise you will scream.

Feb 7, 2009 - 9:54 pm 39. Doug:

“There actually was a map circulated to lenders and mortgage brokers by census tract where those in low income census tracts were eligible for better treatment. ”

Unsk,
You remind me about a lady that worked in that environment.
She had actual quotas to fill with the demographically appropriate individuals.

Feb 7, 2009 - 10:00 pm 40. Doug:

“BTW, those democrats like Franklin Raines, Jaime Gorelick et al, in charge of Fannie and Freddie. made tens of millions of dollars in their schemes.
So did the people funding Air America.”

Kevin attributes that to the evils of the capitalist impulse.

…like Al Franken enriching himself at the expense of widows and orphans.

Feb 7, 2009 - 10:04 pm 41. lorenzo (from downunder):

The link is to an article by Tony Abbott, not Peter Costello.

Feb 7, 2009 - 10:32 pm 42. buddy larsen:

How to screw shareholders and yet collect (what was it) 20 million and 5 million in bonuses, by Raines and Gorelick and the DC Dem Suppressed News Agency Pubslushing Co.

1) Take your turn as out-of-office Democrat at the Fannie and Freddie Gold Mine Rest Home. Assign yourself to the compensation committee (always remembering, there is no ‘vulgar’ in DC).

2) Set unusually high performance bonuses, with high F&F earnings goals being the justificant of high personal bonuses.

3) Have great sales & marketing innovative ideas (exploit political power hard)

4) Use these ‘great innovations’ (”ninja” loans –No Income, No Job, no Assets)to meet the performance goals and collect the bonuses

5) Manage the ‘waste’ earnings (earnings over level needed to qualify the bonus)via slush fund to collect from high earnings periods the ‘waste’ dollars and then add them to ‘miss’ periods (inevitable with bonuses set to ‘croesus maximus’), in order to presto! make that bonus after all!

6) if get caught, claim obliviousness to any controlling authority, confusion over policy, ice tea, et cetera et cetera, walk away with the dough and no harm other than another (cough) ‘controversial event’ on the resume (which, trust, will not hurt, but will help, future DC prospects).

Feb 7, 2009 - 11:11 pm 43. Leo Linbeck III:

Mongoose,

I do not know why you bother.

Good question. I normally avoid feeding trolls. But after two weeks of being told that we need to be saved from the free market, I must have snapped. To paraphrase Cervantes, From too many pundits and too little sleep, his brain shriveled up and he lost his wits.

I guess that makes me a victim.

Cheers.

L3

Feb 7, 2009 - 11:16 pm 44. NahnCee:

Love it how the little left dweebs parachute in, leave their feces pile behind them, and then are never heard from again. It must be daunting to be a loser in Real Life, a maybe-power house KosKidz on the internet, and then try to sell yourself in a place like Belmont Club where people have factoids and experience at their fingertips *and* the mental ability to twirl those facts and figures around like light sabers nipping and zapping at the uninformed but adament progressive who dared to start the argument in the first place.

Feb 7, 2009 - 11:48 pm 45. NahnCee:

And … to “We Did It” who declares “we won so get over it”, let me introduce you to the concept of “impeachment”. You may have won yesterday but that doesn’t mean you’ll stay won tomorrow.

And, I can practically guarantee you won’t still be won next year at this time because Obama should have derailed by then and you’ll be scrambling to save yourself from his trainwreck that you helped to cause.

Feb 7, 2009 - 11:50 pm 46. Kirk Parker:

Wretchard,

“It is not the case that the public should stand before a flood of regulation until someone can muster a detailed argument against a particular one.”

In a socialist polity it is.

Feb 8, 2009 - 12:47 am 47. Mongoose:

L3″ well I finally snapped too…my apologies. Good wishes to you, BTW.

Feb 8, 2009 - 3:48 am 48. Dennis D:

In 2 short weeks America has learned alot about Obama and are gradually pouring their Koolaid down the drain..

Feb 8, 2009 - 4:48 am 49. slade:

I do not know why you bother – Mongoose to L3

Keep bothering Leo. It is responses like yours that make the case. Blogger in another thread posted the very long list of programs being funded under proposed package released by House to Senate as “evidence” that the bill will “create jobs” and “stimulate the economy.” Job creation and spending clearly called out on line 1542, again on 1607, and again on 2143, and on and on. Because it’s in print, it is so. The debate is being held hostage to ideological paradigms, reduced to talking points for media-driven consumption, which is either intentional or inevitable and probably some combination of both. Tax cuts are reduced to a “Republican mantra”. while “spending” has been reduced to “that’s the point” accompanied by the soon-to-be-famous and unreproducible wave of the unflappable hand.

Political discourse is a self-sustaining environment where facts are treated as inconveniences to be ignored, discredited, or revised for fit, like the ugly kid at the school dance. As noted elsewhere, metrics to describe economic performance become immediately contaminated once they enter the realm of policy. Capitalism might not be dead but political capitalism may well be another failed experiment. I don’t know. Leverage as a means of defining and exercising power will not go quietly into the night. It seems that USA is relearning the lesson of “eternal vigilance.”

Mongoose – your writing is great and I understand your contempt but these folks have to be engaged on a level where the thinking can be untwisted. It won’t be easy I know. I just listened to Mrs O’s first speech about weather-proofing low-income homes putting 200 or 2 people to work for a good 3 months. That’s a righteous relief.

Feb 8, 2009 - 5:19 am 50. slade:

OTOH Mongoose, keep bothering as well. The more I read – between the lines – the more I understand the insidious pervasiveness of socialist thought as the silent thunder behind Michelle’s weather-proofing and the intractable commitment to spending-is-the-point. An unregulated and non-transparent financial industry was allowed to go global. The legacy of the F/F crowd in Washington is that they pushed the apple cart.

Feb 8, 2009 - 6:36 am 51. slade:

1000 stories in the Naked City:

The electric utility in my home town got some government funding in the 1970’s. I don’t have the detailed objectives of the legislation but I have been told by the old-timers who climbed the poles that they were told to install transformers that weren’t connected to anything, certainly not an electrical grid. That lengthy list of programs distributed across sectors and geography – well – it’s the same smell test. Just bigger.

And more feel-good.

Feb 8, 2009 - 6:46 am 52. 3Case:

“We won, you lost. Get over it and get with the program.

In 2000 and 2004, we won, you lost…now we follow your example. Get over it.

Amazes me that the people who say to the Pope, “You no playa da game, you no maka da rules.” want to make the rules for “a game” about which they have less than no clue. The”Stimulus Bill” is nothing more than more money for government, it’s minions, lackies and lickspittles. It should prbably be properly called “the Spoils Bill”.

Feb 8, 2009 - 6:57 am 53. 3Case:

To L3 and W:

“Never try to teach a pig to sing. It frustrates you and annoys the pig.”

Feb 8, 2009 - 7:09 am 54. Mongoose:

Slade: you are right, L3 should keep it up, in fact he of all people here should: he has the technical n=knowledge and the right heart.

I was just being grumpy, and I apologize

(oh, and thanks for the compliment).

Feb 8, 2009 - 7:19 am 55. Mongoose:

technical KNowledge*

Feb 8, 2009 - 7:21 am 56. 3Case:

Ever notice that drones (like KTK) never return after their yawps?

Feb 8, 2009 - 7:25 am 57. slade:

What’s the deal with the tax cuts and spending debate?

Just one last thing. I think Joe Biden and a couple other people have said there’s a fairly wide consensus among economists that fiscal stimulus in the form of a large spending bill is the way to go, and…

He said first that every economist thought that.

Well, that’s Joe Biden hyperbole. But what is the lay of the land there? Presumably there are economists out there that take this seriously. And then there are economists out there who think there’s a one-for-one crowding out with any government spending. And I guess, where does the profession fall on that spectrum?

Most economists haven’t really been thinking about this issue, they haven’t really focused on it. It’s not their specialty. Most economists today, they haven’t really been thinking about this kind of multiplier issue. Which goes back to that first question you asked about how come now we’re so worried about this. I don’t think most economists are focused on this, or that they’re familiar with the empirical evidence. I don’t think they’ve really worked on the theory. So I don’t know, maybe they have some opinion that they got from graduate school or something.

I think my sense is that the sentiment has been moving against this kind of approach both within the economics profession and more broadly. I think the initial view was that “yeah, this is a terrible situation” — which I agree with — “and we’ve got to do something about this, and maybe this will work.” I think there was support in that sense.

Are there any conditions under which you might think spending could have a positive effect on output or is it always going to be the case that as a relative matter that tax cuts are going to be better?

Tax cuts are bound to be better. I think the best evidence for expanding GDP comes from the temporary military spending that usually accompanies wars — wars that don’t destroy a lot of stuff, at least in the US experience. Even there I don’t think it’s one for one, so if you don’t value the war itself it’s not a good idea. You know, attacking Iran is a shovel-ready project. But I wouldn’t recommend it.

/////////////////////////////////////////////////////////////////

Graduate school? That’s encouraging.

Still waiting for the indictments in the mortgage industry and some common-sense “circuit-breaker” regulatory reform, like transparency in derivatives trading, reinstatement of uptick, suspension of mark-to-market valuation, etc. but that would require a responsible Congress, the subject of this thread.

As well as investigating some of the issues NahnCee raised, the complete absence of which leads me to suspicion about competence/intent. So keep the heat up. Something not right about this new crowd. (no pun intended.) But the entertainment value is high.

[via Glenn Reynolds]

Feb 8, 2009 - 7:28 am 58. slade:

What’s the deal with the tax cuts versus spending debate? [see Glenn Reynolds for link]

An Interview with Robert Barrow by Conor Clarke, The Atlantic Magazine, Feb 5, 2009:

Just one last thing. I think Joe Biden and a couple other people have said there’s a fairly wide consensus among economists that fiscal stimulus in the form of a large spending bill is the way to go, and…

He said first that every economist thought that.

Well, that’s Joe Biden hyperbole. But what is the lay of the land there? Presumably there are economists out there that take this seriously. And then there are economists out there who think there’s a one-for-one crowding out with any government spending. And I guess, where does the profession fall on that spectrum?

Most economists haven’t really been thinking about this issue, they haven’t really focused on it. It’s not their specialty. Most economists today, they haven’t really been thinking about this kind of multiplier issue. Which goes back to that first question you asked about how come now we’re so worried about this. I don’t think most economists are focused on this, or that they’re familiar with the empirical evidence. I don’t think they’ve really worked on the theory. So I don’t know, maybe they have some opinion that they got from graduate school or something.

I think my sense is that the sentiment has been moving against this kind of approach both within the economics profession and more broadly. I think the initial view was that “yeah, this is a terrible situation” — which I agree with — “and we’ve got to do something about this, and maybe this will work.” I think there was support in that sense.

Are there any conditions under which you might think spending could have a positive effect on output or is it always going to be the case that as a relative matter that tax cuts are going to be better?

Tax cuts are bound to be better. I think the best evidence for expanding GDP comes from the temporary military spending that usually accompanies wars — wars that don’t destroy a lot of stuff, at least in the US experience. Even there I don’t think it’s one for one, so if you don’t value the war itself it’s not a good idea. You know, attacking Iran is a shovel-ready project. But I wouldn’t recommend it.

/////////////////////////////////////////////////////////////////

Graduate school? That’s encouraging.

Still waiting for the indictments in the mortgage industry and some common-sense “circuit-breaker” regulatory reform, like transparency in derivatives trading, reinstatement of uptick, suspension of mark-to-market valuation, etc. but that would require a responsible Congress, the subject of this thread.

As well as investigating some of the issues NahnCee raised, the complete absence of which leads me to suspicion about competence/intent. So keep the heat up. Something not right about this new crowd. (no pun intended.) But the entertainment value is high.

[via Glenn Reynolds]

Feb 8, 2009 - 7:54 am 59. Instapundit » Blog Archive » HERE I COME to save the day! When asked whether the stimulus package had turned into a spending s…:

[...] HERE I COME to save the day! [...]

Feb 8, 2009 - 8:52 am 60. peterike:

I add my name to the list that says folks like KTK need to be addressed. It is one thing to ignore the barely literate imbeciles who occassionally yap here. But Mr. Keith comes in with a well constructed (gramatically speaking) argument, chock full of widely believed Leftist nostrums. It is well worth attacking him as it educates us all, and it was a great pleasure to watch, as poor Mr. Keith ended up looking like a rabbit that stepped into a lion’s den.

Yet don’t expect it to affect him. If you follow his link to his own blog, you’ll find he is a teacher of medical ethics and is working on his PhD. Ahhh yes, an academic! What else?

His blog is concerned primary with health-care issues from a “moral perspective.” Glancing through some of his postings this seems to translate to “abortion, all the time, no matter what.” In any case, he’s a hopelessly delusional Leftist. Check out some of these choice bits. He actually believes this stuff.

Systemic sexual abuse occurs not merely in prisons but in the military, among the “contractors” of KBR in Iraq, between priests and congregants, in the workplace, and throughout society…..

The manifold horrors of the Bush years are finally behind us, and President Obama is already taking steps to end their ravages and wipe away the stains they have left upon the United States. In the area of reproductive autonomy, he has sent encouraging signals that he will repeal the odious “Gag Rule” and “Conscience Clauses” and oppose legislative attempts to further intrude upon women’s freedom….

There is good reason to be hopeful, as, barely days into the Obama Presidency, a new sense of decency emanates from Washington [bwah ha ha ha!] and the most egregious crimes of the recent past are repudiated and undone. There is little reason to be ecstatic, however – and those who value women’s autonomy know too well that women are always the first to be thrown overboard for political expediency, and that women’s bodies and lives are of little weight in the traditional political balance.

Yes, it’s a grim, nightmare world out there for “women’s freedom” in America. I suspect Mr. Keith sees little significant difference between how women are treated in New York City or Saudi Arabia or the hinterlands of China or anywhere else you care to name.

How long would it take to bring someone like this around? I don’t think it can be done. But the exceptionally well done repudiations of his post may, just may, help some others see the light.

Feb 8, 2009 - 9:15 am 61. Gekkobear:

“That’s the point. Seriously, that’s the point.”

Spending is the goal, because every dollar spent (however it gets spent) is 1.5 dollars in the economy. Although this isn’t the most efficient way to get the economy going if you believe the previous statement.

The best way?
http://easyopinions.blogspot.com/2009/02/lets-counterfeit-our-way-to-wealth.html

Legalize counterfeiting. Sure the counterfeit money is fake, but the 50% boost still happens so it helps the economy.

Surely counterfeiters don’t save money; so it’s always directed into spending ASAP, never a penny saved and that is what I’ve been told we need. Counterfeiting is the greatest good possible, and the best thing for the economy from a Keynesian perspective… I wonder why it is still illegal.

Must just be an oversight, I’m sure this will be corrected soon. Or is this somehow not the point now? If only we had legalized counterfeiting years ago our economy would be in super shape right now.

Anyone believe that? Given the 1.5 multiplier to all frivolous spending it must be true; I’m just curious of anyone believes that.

Feb 8, 2009 - 10:26 am 62. ajacksonian:

The problem in doing the ’social good’ of home ownership and mandating that those who cannot afford normal loans to get loans is that they are unlikely to be good stewards of their property: to have the money to get a loan requires steady income and the willingness to pay the annual overhead cost of maintaining a structure. If you can afford the loan, you likely have enough income to afford the maintenance. The ‘American Dream’ is for those who can afford it by having a good and steady source of income and working to maintain that so they can have a roof over their heads.

As for getting government out of an area where it is in, we have had one President who got rid of entirely crony ridden and corrupt public institution and did so to try and keep the solvency of the federal government and allow the common man not to suffer while political sycophants profited at their expense. He suggested that if it was such a good thing to have, then let ordinary citizens take it over as they are likely to have the best interests of the Nation at heart, rather than politically appointed bureaucrats. While he would have his own problems with standard corrupt practices, the removal of the institution that Hamilton wanted was a landmark in economic reasoning by a President. Yet we do not hear of this President who did more than Ronald Reagan ever did to limit the size and scope of government… it can be done in America because it has been done here before. Let us apply that reasoning to Fannine and Freddie and all these other institutions that get federal funds and ask for OUR shares in them given TO US to be PAID OFF to each and every American Citizen directly. Let us use the wisdom of the greatest crowd on the planet when we are the ones stuck with the IOU and not the government. Because I do not trust those who sit Upon the HIll in Incumbistan.

Feb 8, 2009 - 11:09 am 63. HatlessHessian:

With evidence of perpetual fools determined to buy the latest Obama witch doctor magic, I want to opt out. I’m mid-way through my career, have no meaningful accumulation of capital having been the beneficiary of government economic intervention twice resulting in the destruction of my capital. I’m willing to forgo on social security, medicare, medicaid, welfare coverage, etc. in exchange for being freed from the confiscation from my paycheck.

I’ll pass on Obama’s stimulus benefits in exchange for being removed from the obligation to repay them. I don’t want a loan that gives me $20 a paycheck and seizes $2000. In most parts of the world, people that extract kind of money are not terribly well regarded and I’d hate for Obama to suffer such damage to his reputation.

Let’s support two systems, opt-in and opt-out. I’ll pay toll for my roads and fees for the other minimal government services that must be provided (civil and national defense, enforcement of contracts). Other than that, let me off the bus.

Feb 8, 2009 - 11:28 am 64. Unsk:

Leo-

I think your comment ” But after two weeks of being told that we need to be saved from the free market, I must have snapped” sums up what is going through the minds of hopefully millions of people right now, and it is a good thing.

For too long, too many of us preferred polite political discourse or too often submissive silence in the face of these leftists with their higher “moral perspective”. Leftists like Kevin, and there are millions like him, are the underpinning foundation responsible for this unfolding huge economic tragedy. Unless more peop[e “snap” and publicly get in the face of these despicable leftists, the Obamas of the world will continue to force this ruinous socialist intervention down the throats of ordinary Americans.

I was at an government sanctioned public meeting the other day, which was “monitored” by some loser chick from an organization called “Obama 30″. Her intent purpose was to continue the objectives of the Presidential campaign or some such marxist/ fascist rot. Their desire to control people’s lives knows no bounds. With more and more people’s lives dependent of the government the effect could be chilling.

The time is now to say what you honestly believe whether in anger or not, because the window where real freedom of speech is allowed could be closing.

Feb 8, 2009 - 11:34 am 65. FredR:

Kudos to all. Well said and great discussion. Sad to say that most liberals will place their fingers in their ears and yell in order to not hear what is being said.

Feb 8, 2009 - 12:09 pm 66. Hoping For Change - Because it feels like 4 years already:

[...] and the future of America. You’d think they understand the risks and the role of government, but they really don’t: When asked whether the stimulus package had turned into a spending spree, President Obama [...]

Feb 8, 2009 - 12:25 pm 67. Whitehall:

I’m with Josh – this is a foreign policy play. I’ve said so here and elsewhere on the net – like Econbrowser and others.

So we’ve run up trillions in debt to foreign nations. High oil prices pumped billions a day into our enemies’ treasuries.

So we could lean out and repay our debt while empowering Iran, Chavez, and Putin but this has disadvantages.

The easy way out is to inflate. That crushes world-wide demand for oil and hence the resources for those that would do us harm and makes all that debt in China and elsewhere less valuable. No way but that the “stimulus” will devalue the dollar since it will all be paid for with printed and/or borrowed currency.

And what can they do about it? The US is still the center of the economic universe and still the preeminent military, intellectual, and economic power. The relative positions of the US vis a vis other countries should improve. $40 a barrel oil is no bonanza to exporters and China’s economic position as a debt holder is diminished and is now a threat to its internal stability.

Of course, the actual tactics and specifics make a difference on internal American politics but remember – Bush started it now Obama wants to cut the Democrats a bigger piece of the pie.

Feb 8, 2009 - 12:42 pm 68. dtmack:

I’m probably too late to get in on this thread, but it intrigues me, and it’s obvious that there are a couple of commenters here who have some expertise in high finance. I don’t, so let me ask a question.

From my reading I think that a good part of the problem here was that these securitized mortgages were rated AAA by the credit ratings agencies, and then tlese various financial intermediaries were selling each other CDS as a hedge against losing on the investment.

I think of CDS as an insurance policy that was written by one entity to another, based on fradulent credit ratings, where the issuing entity had no way to truly assess risk if widespread default were to occur.

So in my mind, both CDS and unrealistic ratings had one true reason to exist, and that was to disguise the actual risk that an entity was taking, so they could continue to take more. Basically bookeeping shenanigans. Is this wrong?

This sort of thing should be regulated, and I think it is the Gov’ts obligation to regulate these sorts of practices.

Feb 8, 2009 - 12:44 pm 69. Leo Linbeck III:

dtmack,

A few thoughts on the question of ratings and insurance, FWIW.

First, I think we need to be careful about ascribing causality too cleanly. If I appear to be drawing the edges too sharply, please don’t take my narrative literally. Our economy and financial system are huge, complex, non-linear beasts, replete with scads of feedback loops, both positive and negative. This makes assigning causality difficult, even in the best of circumstances. My point above about promoting home ownership should be understood as a major policy theme that drove behavior that led to the meltdown, rather than a simple cause-and-effect relationship like “Fannie and Freddie caused the meltdown.” This statement, to the extent it’s true, is nevertheless incomplete.

The same can be said of your point about ratings and insurance. The practices you describe were definitely part of the picture. However, I don’t think they were the major contributors to the mess. Differential analysis helps here: there are lots of markets where ratings work pretty well (interestingly, state-regulated insurance systems being one of them), and a huge property and casualty insurance market that is pretty stable and solvent. After all, even huge losses like Katrina and Andrew didn’t sink the insurance business. So, it’s hard to pin primary responsibility on ratings and insurance.

That being said, there were some special problems that arose in the mortgage and mortgage securitization markets which exacerbated the problem. CDSs added to the problem, although not in the way most people think. Many folks think CDSs had a multiplier effect on losses. This is not true. The total loss was still the loss associated with the underlying default, plus some transaction costs. To be sure, there were huge transfers of wealth associated with CDSs, but they were just that: transfers. For every speculative loser, there was a speculative winner. CDSs did not make the total loss bigger.

But what CDSs did that hurt the system was that they made it difficult to figure out where the loss would land. The fundamental problem was that CDSs were traded in an opaque, non-standardized market. This fact made it difficult to know whether a particular company was a winner or a loser, which added a lot of uncertainty and, therefore, perceived risk to the system. Banks, scared out of their wits by the possibility that another bank could have some huge losses, stopped lending to other banks, and everyone stopped lending to hedge funds (where a lot of CDSs were supposedly held). This brought the credit market to its knees, as credit has to flow freely for the system to maintain its efficiency, and without efficiency credit is a bad deal (they only make a little bit on each loan, so “friction” alone can eat up all of its profits).

The good news is that the credit markets appear to be unfreezing. Interbank lending is flowing again (you can see this in LIBOR rates – LIBOR stands for London Interbank Offering Rate -which have steadily fallen over the past couple of months), and overall spreads are beginning to narrow. You can also see this in the way mortgage rates are falling, which means home lending credit is again starting to flow, although mainly for refinancings (the easiest stuff to underwrite).

Ratings, on the other hand, are a more interesting and difficult question. Having given a fair amount of thought to this of late, I’ve begun to formulate a hypothesis of what happened to ratings.

First, you have to understand that ratings agencies have two very strong and opposed incentives: the want to see lots of issuances, which generate fees, and they don’t want failures, which undermine their brand and makes it harder for new issuers to get to to the market. So, contrary to what many folks think, they’re actually pretty reluctant to overrate bonds; a series of failures or downgrades can shut off new issuances in a heartbeat, and they can see their revenues plummet as a result (that’s exactly what’s happening now). And the speed with which this can happen means that it’s not some far-off event, but potentially next quarter. Thus the incentive to abandon their historic discipline for current earnings and bonuses is not all that great.

But, if you accept that as true, what happened? I think this is a classic example of a model failing in the face of reality.

Ratings agencies use statistical models to analyze risk. The idea is to estimate the likelihood of default, and use that estimate to assign a rating. But what if the model is wrong?

Let’s try a thought experiment: let’s assume that all of the statistical models used by ratings agencies are based upon Gaussian distributions (these are things like the famous “bell curve” normal distribution, and its cousin, the log-normal distribution). These distributions have a very fat middle, and very small tails, and in the case of a normal distribution, it’s symmetric – the behavior of really, really good events is the same as the behavior of really, really bad events.

Now lets say that reality isn’t really Gaussian. Let’s say that, in fact, the tails are pretty fat, and that the “bad” tail are fatter than the “good” tail. This means that the likelihood of bad things happening is actually much greater than in a normal distribution. Let’s say your analysis calculates that default is a 6-sigma event (an event that is six standard deviations below the mean – a really, really bad event). In a normal distribution, the chances of this happening are about 10 million to 1. This is a pretty low probability event, so you’d probably give this a AAA rating.

But let’s say, in reality, the chance of such an event is actually 100 to 1. (To convince yourself that this is possible, think how many times in your life you’ve read about the occurrence of a 500-year flood – and I’m assuming you’re not Methuselah.) If you were a rating agency, and you really thought there was a 1% chance of a default, you would probably assign a lower rating – let’s say this kind of risk is BBB. (I’m not exactly sure this is the actual rating at 1%, but am using it for illustrative purposes.)

It’s not all that hard to convince yourself that such a condition could exist. However, in a normally-functioning market, you’d have lots of people running lots of analyses, and those who had the wrong model would experience small failures and they’d adjust their views over time, or go bankrupt. But the rating agency business is very concentrated; there are only three agencies worth noting (S&P, Moody’s, and Fitch). So it’s very likely that their models were all Gaussian, and they all mispriced this risk.

This, to me, is the interesting philosophical/policy question: when does a mathematical model become so prevalent that the model starts to determine behavior? There is a famous equation – the Black-Scholes formula – for pricing options. Before its introduction, options were traded, and traders had developed a sense of how to price them. They were never totally confident of their sense, however, so they constantly tweaked their views as they got more information from trading activity.

But Black-Scholes spread like wildfire through the options world, to the point where practically everyone uses it, or a close variant, for pricing options. The model, rather than being a tool for analyzing a security, became the defacto pricing model. Everyone believes that Black-Scholes is accurate, so everyone uses it to price options. And everyone is very confident that this formula is right.

But Black-Scholes is based upon a Gaussian (log-normal) distribution for estimating stock price. What if that assumption is wrong? Intriguingly, there is mounting evidence that Black-Scholes misprices the true value of options, probably because stock prices are not normal. Here is a classic article by a couple of academics at UCLA that makes this argument:

http://www.springerlink.com/content/0g2610831ul23167/

What this means is that market can get pretty far out-of-whack, since all the buyers and sellers are trading at values that don’t reflect the true risk-return profile of the security. And when it corrects, it corrects big, since the entire market must be repriced.

Soooo, my operating hypothesis at this point is that the ratings agencies did indeed misprice risk (which is sort of obvious in retrospect, of course). But that mispricing was not because raters were committing fraud, but because they all relied on models that did not accurately reflect reality, and there was not enough diversity in the models, since they were all based on the same fundamental assumptions (Gaussian distributions). These facts meant that the market would eventually have to correct, and the combination of leverage and opacity led to a panic once the correction started.

WRT your comment about regulation – I don’t think regulatory changes will help much, with two exceptions:

1. Traders should be required to disclose trades, preferably through some sort of centralized clearing function. This is already starting to happen voluntarily in the CDS market – an example where failure causes learning which causes change, without government assistance. But disclosure of trading activity is always a good thing for efficient functioning of markets.

2. The government should either eliminate the licensing of ratings agencies, thus allowing many more firms to emerge, or adopt a policy of limiting the concentration of ratings firms – essentially an anti-trust function.

Anyway, sorry for the long post, but I’ve been giving this some thought lately, and it seemed like a good opportunity to toss this out to the Club.

Cheers,

L3

Feb 8, 2009 - 2:56 pm 70. buddy larsen:

dtmack, you’re spot on. Search Waxman hearings from last fall. The way i read the event of the hearings, Waxman HAD to do something, and he went deep enough to avoid going obviously not deep enough, and the press covered it just barely well enough to avoid obviously not covering it well enough, and Waxman’s conclusive thesis sentence, that the story is “…a story of colossal failure” is harsh enough to avoid obviously having done a superficial show hearing.

Feb 8, 2009 - 3:35 pm 71. buddy larsen:

damn, L3 –you’re good –

Feb 8, 2009 - 3:38 pm 72. 3Case:

dtmack,

I say to a CPA friend regularly (starting back during the Clintoon admin) that if people really understood what was going on, the Shakespeare quote would be “First thing we do, we kill all the accountants.” He laughs like a madman when I say it.

Feb 8, 2009 - 3:45 pm 73. Leo Linbeck III:

buddy,

There once was a poster named Leo
Who most folks had thought was a zero

But buddy he read
And it went to his head

Now he blushes when praised by his hero.

Thx, and cheers.

L3

Feb 8, 2009 - 3:47 pm 74. slade:

Soooo, my operating hypothesis at this point is that the ratings agencies did indeed misprice risk … [b]ut that mispricing was not because raters were committing fraud, but because they all relied on models that did not accurately reflect reality – Leo

I have a medium-sized quibble. The technical modeling issue is undoubtedly tributary to the meltdown (what was the original argument for stock prices being normally distributed? – there’s nothing natural/Gaussian about the phenomenon at all.)

But I can’t forget the S&P email from 2006 (?) about the “house of cards about to falter.” The ratings agencies KNEW in their guts, if not their models, that the excessive leverage (a banking issue really) combined with the opacity of the suddenly popular structured investment vehicles (fancy name for specialized derivatives – the CDS’s, CMO’s, MBS’s, etc.) were toxic overhang in a down market. The rating agencies KNEW the risk profile was excessive – an outlier in the Gaussian space of the models, but the financial community told them that the markets would still self-correct. This was a major error. I like the newish term “circuit breakers”. The markets need them.

Feb 8, 2009 - 4:27 pm 75. Leo Linbeck III:

slade,

Good quibble.

I think the Gaussian assumption was made simply because it made the analysis easier. Kinda like assuming linearity, even though we know the world is non-linear.

The problem in these situations is that “hard” data tends to dominate “soft” judgments. It wouldn’t surprise me if an S&P analyst said that there was a huge risk to the system. But my guess is that the underwriter of a new issuance (a different guy in a different department on a different floor) still fed the same stuff into the same model and it spit out a AA- rating, and anyone who was involved in the review of this rating still believed that the model was just fine, thank you very much. After all, it had worked so far – like Taleb’s turkey.

Where things also went haywire was when the rating was then fed to a bond insurer who simply priced his AAA premium based upon the existing spread – probably using a 5-cell Excel worksheet that his MBA summer intern had built 10 years ago.

At the end of the day, though, the market is self-correcting. All of the bond insurers and most of the investment banks that drove this process are toast. Bond holders are taking huge write-downs. Equity is vaporizing, and the turkeys are coming home to roost (at least those who kept their heads).

I guess my fundamental point was that if you believe that fraud is the problem, you go after the people (e.g. Madoff). If you believe concentration is the problem, you go after the system. People make a much more convenient (for politicians) and dramatic (for the press) target, but if you simply put new people in an old system you’ll get the same results.

But systemic change is much trickier, mainly because no one understands the whole thing well enough to avoid unintended consequences. Better to have a few simple rules – transparency, liquidity requirements, leverage limitations, concentration limitations, etc. – than to add layer upon layer of rules that simply add to complexity and don’t really prevent the next meltdown since they only address the last one.

Cheers.

L3

Feb 8, 2009 - 5:02 pm 76. slade:

Leo -

RE: blaming people versus the system. That’s a good logistical point. Going after people fraud just soaks up the air waves while the technical fundamentals float beneath or above.

RE: systemic change. Otherwise known as “comprehensive reform.” I don’t particularly favor it – at least not before, the simple fixes are put in place (BTW the 12:1 leverage caps were removed by Donaldsen IIRC). I might reconsider if securities and finance reform were coupled with a flat tax, but, as I have stated before, I have been told that comprehensive tax reform is a literal impossibility within our present system. I think that is true.

As a footnote I think the finance community is afraid that “reform” will be presented as Sarbox II, III, IV, and on. I don’t doubt that is a legitimate concern, but in fairness, it remains to be seen. That part of the concern does seem heavily invested in political partisanship, but not without historical precedent.

Feb 8, 2009 - 5:38 pm 77. buddy larsen:

that email exchange showed two senior execs in the ratings industry –which means two companies, paid to rate binds BY the issuer of the bonds, who know they are perpetrating a fraud. They said it was a good thing they’d be retired soon, before the whole house of cards collapsed. this is a conversation between two people following orders taht they knew came from someone to whom it was pointless or worse to complain, because, what else could it be, the upper chain of command already knew they were selling fraud.

I mean, it was the ratings that covered every purchaser in the system, and justified the prices, the very warp and woof of the bubble. releasing the 12:1 to 30:1 and 40:1 may have had some technical justification but it’s also a dream come true for everyone who profited off the thus-induced crash. That leverage was driven as hard as possible almost as if the objective was to do exactly that, drive it until it sailed off a cliff. In fact, that’s the only thing that makes any sense –tho it may have been mass hysteria in the boardroom instead of anything sinister). Short players (and others who are just smrt and conservative) now sit on the sidelines with a USA GDP sized cash pile, waiting for bargains, waiting to see a bottom.

A special investigator would find out who was responsible for that ratings-agency disaster. the don’t rock the boat atmosphere that is being blamed, is you must admit the convenient, unassailable explanation. think of it, tho –the most sophisticated financial industry in the world produced this? The world financial system, containing the capital of the world, resting on a faulty model at S&P and Moody’s, and nobody hollered? we get just an amiable sotto voce from Greenspan every now and then about ‘risk’ and ‘conundrums’?

Anyhoo, Waxman quit examining the rating agencies at the point where he could call the crash a ”colossal failure” –like, what, an accident? –and could then disband the enquiry. maybe to get back onto roger Clemens, where he was when there was still time to avoid the panic crash.

Cramer wants a special prosecutor –not to hang people so much as restore confidence in the overall integrity of the financial industry. i agree. I’m still in the market, but what used to be a sunny notion of finding where my little dab of capital can get a little tad return, it’s now a dark duel with rattlesnakes.

Feb 8, 2009 - 6:58 pm 78. elby:

L3, many thanks and much kudos to your for your insightful and clear explanations of the financial debacle. You are a great teacher, and I have learned much from your posts.

Feb 8, 2009 - 6:59 pm 79. buddy larsen:

LOL –”rate binds” –frodoian slip

Feb 8, 2009 - 6:59 pm 80. Mongoose:

L3: great stuff, thanks.

Feb 8, 2009 - 9:13 pm 81. buddy larsen:

re blaming the system vs blaming people, here’s THE guy who glitched the capital, trading, and accounting rules of the outfits who then, in concert with Frank n Dodd among an astonishingly few others, used the glitches to wreck the global financial system in just the way that O is blaming ‘fat cats’ (read, ‘republicans’) for, and then this guy apprears on the president’s new board? why would O do that?

from his wiki, a snip:

In the 2004 rulemaking, the Commission under Donaldson decided to rely on the firms’ own computer models for determining the riskiness of investments, “essentially outsourcing the job of monitoring risk to the banks themselves.”[5] Donaldson and the other Commissioners who voted for the rule change were aware of the risks at the time, as indicated by the comment at the April 28, 2004 meeting by Commissioner Harvey Goldschmid. “If anything goes wrong,” said Goldschmid, who supported Donaldson in voting for the proposal, “it’s going to be an awfully big mess.”[6] A report by the SEC Office of the Inspector General[7][8] after the near-failure of Bear Stearns stated that the standards the Commission adopted under Donaldson in 2004 were inadequate to warn of the firm’s impending crisis.

The only briefing the Commission received that criticized the regulatory change prior to its adoption came from Leonard D. Bole, an information technology consultant, who found the risk models used by investors no better in 2004 than during the 1998 failure and bailout of the hedge fund, Long-Term Capital Management. At the time of the rulemaking the SEC took no action to contact Bole to follow up on the briefing that he submitted.[5]

Feb 8, 2009 - 9:42 pm 82. buddy larsen:

At the time of the rulemaking the SEC took no action to contact Bole to follow up on the briefing that he submitted.[5]

Now we have Harry Marcopolos’ testimony, which brings the words of Aeschylus

He who learns must suffer. And even in our sleep pain that cannot forget falls drop by drop upon the heart, and in our own despair, against our will, comes wisdom to us by the awful grace of God.

Of course, that ignored Bole Report pointed out, in 2004, the similarities with the conditions of the LTCM crisis, and the connected Asian Financial Crisis (in which Summers & Geithner appeared on stage to fix the mess of Soros offstage). Had the Bole Report been taken as Bole meant it, as a warning of a lethal bug, presumably a commentary would’ve arisen and a debate begun on the merits. But ignored, the report must lead one to slip under the tin hat and wonder if Boles’ bug that was in fact a feature.

Feb 8, 2009 - 10:25 pm 83. Unsk:

You know Buddy from your description of the warnings ignored, a lot of the blame should fall on Bush. He consistently backed mealy mouthed moderates and liberals no matter what, but would quickly sack a conservative who raised any kind of a ruckus. Bush seemed always afraid of vigorous debate and effectively submarined conservatives who wanted one. In that kind of environment, it’s no wonder that big problems were consistently swept under the rug. Ya sure he raised the issue a few times, but never forcefully. He never expended any political capital fighting Fannie and Freddie like he did for immigration reform or Social Security reform.

Changing the reserve requirements from 12 to 1, to 30 or 40 to 1 without a big debate, ( and there obviously wasn’t one) just fries me.

To my dumb way of thinking, the S&L crisis was really about the same thing; the feds let S&L’s exist with lesser reserve requirements than Banks long after the S&L’s Reg Q advantage was long gone. So the crooks got to be like kids in a candy store with the S&L’s. Same thing happened with Fannie and Freddie. History kinda sorta repeated itself but in unfortunately a much bigger way.

Feb 9, 2009 - 12:43 am 84. Doug:

Slumdogs Unite!
(Frank Rich!)
Even before the revelation of his tax delinquency, the new Treasury secretary was a dubious choice to make this pitch. Geithner was present at the creation of the first, ineffectual and opaque bank bailout — TARP, today the most radioactive acronym in American politics.

Now the double standard that allowed him to wriggle out of his tax mess is a metaphor for the double standard of the policy he must sell:
Most “ordinary Americans” still don’t understand why banks got billions while nothing was done (and still isn’t being done) to bail out those who lost their homes, jobs and retirement savings.

Feb 9, 2009 - 5:25 am 85. Doug:

Question from the Peanut Gallery:
What is the “concentration” L3 refers to?
(I’d say the CDOs made things way too diverse!)

Feb 9, 2009 - 5:40 am 86. Doug:

Sorry, I missed the rating agency mention, and obviously that was WAY too concentrated.

Feb 9, 2009 - 5:42 am 87. slade:

Cramer wants a special prosecutor –not to hang people so much as restore confidence in the overall integrity of the financial industry. – buddy

I’m more in a lynching mood myself, but, seriously, if I understand the general outlines of the public awareness, people will have to hang before confidence is restored. I don’t see that happening. Obama and Congress will either do “comprehensive reform” (shades of Hillary Clinton’s health care – too much, too fast, with entrenched interests too powerful) or layer on another veneer of feel-good reporting-type legislation.

I keep hammering the point why the debate between the “multiplier” associated with tax cuts versus spending. According to recent interview with Robert Barro (h/t Instapundit), most economists don’t specialize in this issue, suggesting “maybe they have some opinion that they got from graduate school”. Something to remember the next time we’re informed of the warm and fuzzy comity uniting the world of professional economists. Are these the people you want rewriting the regulatory code? Maybe better to stick with the basics from 70 years ago that “got mysteriously disappeared.”***

And if the new Washington team really wants good PR, forget the feel-good public works projects. I suggest some lynchings, er, housecleaning – what used to be called accountability.

***In my view the banks are not and will not lend until the mark-to-market valuation issues over the bad/toxic mortgage securities is resolved. Furthermore, the horse-trading with powerful interests is being done between banker interests and – guess who’s representing the taxpayer??????

Not to worry. After your portfolio is gone, the government will knock on your door to weatherproof your worthless house.

Feb 9, 2009 - 7:55 am 88. ACJ:

The only high point in the Bush administration was the housing bubble. George’s State of the Union Address praised home ownership for all Americans.
Out-sourcing jobs to foreign markets, Reganonmics, tax breaks for the wealthy, and a trillion dollar war against alleged enemies caused the worst end result in American history.
Most economic laureates told George his policies would cause disaster for the country, and he failed to listen to them.
I can picture George sitting next to his twelve pack eating a bunch of ribs and wondering what this new idealistic visionary will do with the crap he left behind.
Way more of a challenge than what he started with- by golly!
I can without a doubt point the finger at republicans ideologies for the state that we are in right now.
Where is Monica and Bill? I was doing great back then!
How long will it take before we can be happy again?

Feb 9, 2009 - 8:11 am 89. buddy larsen:

Not to worry. After your portfolio is gone, the government will knock on your door to weatherproof your worthless house… and move a Witless Protection Program stockbroker, his wife, three teenagers and mother-in-law, his chauffer, chauffer’s six dogs, personal trainer and chef into your house with you, under FEMA’s new “National Living-Space Efficiency Plan”; rent to be paid directly to FEMA, but thankfully deducted from your $1000/sq ft Assessment in Abeyance (AKA the “Geithner Plan”) journal entry which opened a “GALS Account” (”Gov’t Allowed Living Space Account”) on all federal tax-district located domiciliary and domiciliary-like structures.

Feb 9, 2009 - 8:59 am 90. slade:

Aw heck buddy. That just makes my preliminary response look noodle-necked. The brick wall between left and right is pretty solid. Foolish of me to think that we could find common ground in the technical moat of facts and numbers. That just ain’t no fun.

Feb 9, 2009 - 9:10 am 91. slade:

BC writes encyclopedias of rants and raves, yet people like ACJ are still not convinced. Someone has to sit down and high school debate the talking points. The Conservative message is not getting through, (let alone resolving the contrasts between political parties and ideology – on both sides of the aisle.)

Short version:

Out-sourcing jobs to foreign markets: not black and white. The labor flux was real but the global economic growth from opening international markets was equally serious. do the math and figure it out.

Reaganomics: “deregulation” under Reagan did not include removal of leverage caps, suspension of up-tick rule or imposition of mark-to-market accounting, government-imposed loosening of mortgage underwriting standards to permit low-income home purchase under CRA pursuant to Democratic-sponsored policy correlating home ownership with social stability and increased earning power. Or NAFTA, which Reagan refused to do.

tax breaks for the wealthy: OK kids, ready, aim, sharpen your pencils.

a trillion dollar war against alleged enemies: spread out over five years compared to the $2T and counting additional debt to stabilize banks that tried to securitize low-quality mortgages imposed by Frank and Dodd et al. And the “alleged” component is in your backyard only. The intent of Muslim Jihad is very real in my backyard probably because the word “totalitarian” exists for me without quotes. Let’s review the concept once the venue changes from military to legal/diplomatic and the negotiators are surprised to see hatred staring at them from across the room.

Just as a footnote, Democratic strategist Keith Boynkin (spelling close) is citing a new poll claiming +60% of the American public approves Obama’s job performance, which, according to him, means they approve the stimulus plan.

Feb 9, 2009 - 9:33 am 92. slade:

I suggest some lynchings, er, housecleaning – what used to be called accountability.

I forgot to mention Obama’s Performance Czar, Nancy Killefer, had to resign for tax “irregularities.”

Not all that serious but funny as h^ll.

Feb 9, 2009 - 9:46 am 93. Doug:

I think at some point north of a trillion, all humor became gallows humor.

Could anyone please explain to me what that 9.7 TRILLION Screaming Headline Drudge links refers to in simple English?

On the one hand, I’m thankful I’m too simple to understand.
On the other hand…

Feb 9, 2009 - 9:59 am 94. Doug:

On the road, Rich Kaarlgard reports the 37% approval of the Spendulus is vastly optimistic.
He’s met NO ONE that favors it.
Plenty of normally reserved businesspeople calling for public hangings of Geithner, Thain, et-al.

Feb 9, 2009 - 10:04 am 95. slade:

The promises are composed of about $1 trillion in stimulus packages, around $3 trillion in lending and spending and $5.7 trillion in agreements to provide aid. – Mark Pittman & Bob Ivry on Bloomberg (via Drudge).

I’ll take a stab at it. The first two items are self-explanatory, although we don’t hear much about the $3T size of the total mortgage debt (amortized over time as a reminder). The third item “agreements to provide aid” just smells to high heaven and I’ll go out on a limb. I guess that’s the wiggle room between what banks want for their toxic mortgage assets and what the government has agreed to give them.

Apparently this is the hot button question on Capital Hill right now. I listened to a British financial person (last name Diamond) smile when asked how the Brits valued the toxic bank assets. He explained the great efforts they made to derive appropriate valuations – pages of computation and full transparency for anyone other than Doug (and me) who understands the lingo.

Other than that explanation, I have no clue.

Feb 9, 2009 - 10:11 am 96. Unsk:

ACJ,

My post was not necessarily to bash Bush. His Tax Cuts were absolutely necessary, and worked very well. In 2003, the percentage of tax revenue largely under the Clinton Tax Structure had fallen to 16%, the lowest level in post war history even though tax rates were still largely at the highest level since Carter. Those huge earlier deficits were caused because the rich were not making money as they used to at that time , because the high tax, highly progressive tax system of that time discouraged earning higher incomes and thus overall revenue. The Bush Tax Cuts were responsible for lowering the Budget deficit to about $154 billion in 2007, through raising revenue through lower taxes.

My problem with Bush is that he turned into a wimpy moderate on too many issues like immigration, taxes and Iran, after 2005. Check out the John Bolton interview in the Jerusalem Post of a view days ago linked by Doug or someone in else in a previous thread. It’s pretty devastating.

My problem is with moderates like Arlen Spector on the Stimulus today, who have repeatedly sold out Republicans and the country for reasons I just can’t comprehend.

Feb 9, 2009 - 10:11 am 97. Whitehall:

I always thought that Bush was trying to have it both ways in dealing with the 2001 recession. He want a supply-side solution (tax cuts) and had to accept a Keynesian solution (big deficits) too.

A bi-partisian solution to the 2001 recession – let that be a lession for us.

Feb 9, 2009 - 10:30 am 98. slade:

A camel is a horse designed by committee.

I have segued into flip so I will remove myself for awhile but it is worth considering when we become inundated with praise for the debate/committee/study/analyze approach to problem solving – Smart Conflict Resolution – not a magic pill and surely not a substitute for backbone that’s there when you need it – usually after you’ve studied history and lived to reach that certain age.

Feb 9, 2009 - 10:34 am 99. Doug:

I understand the “unprecedented” transparency that Nancy promised would come with her new House majority:

Never before has it been so transparently obvious that they will conceal whatever they want, whenever they want, from whomever they want, whenever they unilaterally decide they want to.

Feb 9, 2009 - 1:59 pm 100. Doug:

The Con Artists Have Taken Over the Asylum
Andrew Breitbart – Big Hollywood

Can we all agree that the “hope, “change” and “transparency” part of the Barack Obama media carnival is officially over, and it’s finally time that we start holding our new president accountable?

Consider the tale of the ubiquitous “Hope” poster that helped get Mr. Obama worshiped, inoculated and elected — and the anti-capitalist street artist who “created” it.

Shepard Fairey last week was sued for copyright infringement by the Associated Press, which claims he stole photographer Manny Garcia’s work and made it the basis of the iconic off-red, white and blue posters whose signed editions are being sold on eBay for thousands of dollars.

Chinese, Latin American and former Soviet Communist artists may also have a claim against Mr. Fairey, whose style is brazenly ripped off from the propaganda campaigns of totalitarian states. If regimes that murdered tens of millions of innocent human beings can be so revered and redeemed, can the swastika be reappropriated, too?

Mr. Fairey’s previous “street art” sensation was “Obey” posters that littered urban America for a good portion of the Bush administration. Mr. Fairey was artistically positioning someone to cleanse the body politic of corruption and cynicism.

“The whole concept of ‘Obey’ was getting people to question their obedience,” Mr. Fairey told Wired magazine.

Yet Mr. Fairey and his fellow artists are now part of a seemingly endless artistic vanguard pledging obedience to their new leader. Those who codified the slogan “dissent is patriotic” now march lockstep with the new president, no matter what he does, and use their elevated place in society to cast an evil eye on those who question his early blunders.

—Full article is in the Washington Times

Feb 9, 2009 - 2:29 pm 101. buddy larsen:

dammit doug, transparancy is transparancy –what do want her to do, be Opaque ?

L3 @ #71: now THAT’s a LIMERick!

Feb 9, 2009 - 3:01 pm 102. Roderick Reilly:

“”"”"”but nobody required lenders to make loans that it was mathematically impossible to pay off,”"”"”"”"

Actually, Mr. Keith (#16), you are wrong on that one. There is such a requirement (still). I worked at Fannie Mae, you didn’t.

Feb 9, 2009 - 3:52 pm 103. buddy larsen:

Besides that, with no law against any rate of price appreciation, there is no loan that would be “mathematically impossible to repay”. To say so is an attempt to impress the room with a dazzling observation –but it dint work i tink.

Feb 9, 2009 - 8:26 pm 104. Doug:

I was dazzled before I read it, so I’m worthless as a test case.

Feb 10, 2009 - 7:02 am 105. buddy larsen:

doug, wear sunglasses

Feb 10, 2009 - 10:26 am

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