The curruption will (did) prevail - rant
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The News Hour had three economics professors on tonight...all said the bailout plan being debated is bubkus: scary amount of spending power to one man with no accountabily and a toss up if it will work at all. One was totally against any action at all, or at the least not at this time, and in defense of this revealed some interesting things (one I hadn't heard from any of the other media): Besides Lehman Bros. and others being purchased just days after declaring bankrupcy, so their "scary" situation self corrected, AIG TURNED DOWN 3 BIDS TO BUY THEM HOPING THE GOVERNMENT WOULD MAKE A BETTER OFFER (THREE!) Since we didn't, several of the major stockholders have already joined forces to buy the company back.
What kind of crap is that...?
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The root of the problem (in the US) comes down to leftist politicians who required banks to lend more money more often to higher-risk borrowers* (originates in the 1970s under Carter, expanded under Clinton in the 1990s).
More (unqualified) borrowers looking to buy houses fueled a housing construction boom.
The boom created a large demand for labor and materials, causing the cost (and valuation) of homes to rise higher than inflation (the bubble). About this time, conservative politicians started to see the end result on the horizon, and pushed to scale back the high-risk lending requirements and more closely regulate the high-risk instruments. The liberals (pocketing money from the pseudo-government companies pushing and insuring the high-risk instruments) said everything was fine, leave it alone (around 2005).
The housing boom eventually led to an oversupply of houses, though this was not so obvious quite yet, as people kept buying.
Expanded crude oil demand from China, India, and other developing nations (plus a growing number of less-efficient vehicles in the US) resulted in higher oil prices.
Rising fuel prices caused the price of everything to increase (due to shipping, raw materials costs, etc).
Rising interest rates caused borrowers with initially low variable-interest-rate loans to pay more each month to service their excessive debt.
The combination of inflated prices of fuel, goods, services, and debt repayment caused the overextended borrowers to default because they could not pay their monthly bills.
As the homes went into foreclosure, it became clear that there were more homes than people to buy them, thus there was no relief for the banks left holding the property - no way to liquidate the assets, since there was no one willing (or able) to buy them.
The banks then lost share price (and thus more liquidity) as it became obvious that the defaults were destroying shareholder dividend profits.
The losses exceeded the ability of some banks to absorb, causing those banks to fail.
However, the free market can take care of itself - Citibank is purchasing Wachovia, Chase is purchasing WaMu, and other deals will likely be in the works. They are doing this without $780 billion from the government.
The bottom line is interest rates will go up for a while, the economy will slow down for a while, the dust will settle, and life will go on. The free market works fine if the government will refrain from meddling with it in stupid attempts to create "legacy" for a few selfish, greedy politicians.
*** Higher-risk borrowers are of any income level where their debt-to-income ratio and/or creditworthiness are insufficient for a prudent lender to expect the borrower to be able to repay the loan without defaulting. Anyone of any income level could become overextended, not just the poor.**
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@unknownuser said:
I know this will stir a few but I cant help it. The stock market, like most religion these days has grown to have such legitimacy when really it is all smoke and mirrors.
@unknownuser said:
Short-selling involves borrowing a company's shares, selling them at a lower price, and pocketing the difference.
@unknownuser said:
"The emergency order temporarily banning short-selling of financial stocks will restore equilibrium to markets."
Actually, short selling is borrowing shares to sell immediately at the current higher price, then purchasing at a lower price to replace the borrowed shares. This involves as much (or more) risk as normal stock purchases, because if the price does not drop enough (or the price goes up) before the deadline to settle the short, the investor loses money.
One investor buys, expecting the price to go up so he can sell and make a profit. Another investor borrows and sells, expecting the price to go down so he can buy and return, and make a profit. In both cases, the goal is to sell at a higher price than the purchase price - one investor just buys before selling, the other after selling.
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I find all this finger pointing halirious. What we are witnessing here isn't a new phenonmena. People have short memories. The Boom & Bust cycle is a natural part of the capitalist system. If you mobilise capital to a individual level (often concentrated in the hands of few) people are going to over invest in boom times to maximise profit and withdraw investment when the tables are turned, no fancy equations just pure common sense. Without intervention free market economies tend to go heads up every now and then. I find it really funny how people have short memories, have you forgotten the economic turmoil of the early Ninties? What about the Oil Crisis at the end of Seventies? The Great Depression anyone? It ruins people's financial security and is no way for civilised and responsible good governance to behave. This rediculous belief that somehow the free market is going sort out everything is profoundly superstitious. Anyone who advocate it is either one of those few who have the most capital who are in a position to benefit most from this economic cycle or a brain-washed twit who doesn't question the status quo and deserve a good kicking up the groin.
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I think Rick Wilson has summed this mess up. I would add that both Clinton and President Bush both touted the "ownership" society, further compounding the subprime problem. And, as I mentioned in another thread, the repeal of the Glass-Stegall Act in 1999 contributed. There is plenty of blame to go around on BOTH sides of the aisle.
Nancy Pelosi makes me sick. She should be horse whipped! Same for Barney Frank. Do a search on You Tube for Frank and you'll find a Committee hearing in which he, Maxine Waters and others were ridiculing those who feared Freddie Mac and Fannie Mae were heading for trouble.
President Bush has be embarrassingly absent. It's too late now, but he should have come out and calmed the nation and explained things. Instead we were all left to get our information from the internet and other media, and we know how objective they are. We needed a "Kennedy" moment from him, but he is incapable of such things.
This bailout will pass creating more of a bloated and gluttonous federal government than we already have. This is why I'm voting Libertarian. I get the feeling I'm not alone.
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Rick, Ron: this situation now was caused by creed, fraud, and conspiracy...no need to stretch so far for lame political blame. This situation now will be fixed by once again acknowledging there are vile crooks everywhere...and all aspects of society need to be policed.
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One thing few seem to pick up on is the fact that in a normal economy banks would not be allowed by the competition authorities to merge in the way that they do right now. Banks are caching in on the opportunity to create new super-banks with less competition which will be to the detriment of the consumer when the fracas settles down.
The real losers in all this will be anybody considering retirement now or in the next 3-5 years. Some pensions may take a decade to recover from the hit taken over the last 12 months.
Many will be forced to work until they die. In countries where retirement is mandatory at a certain age, folks are going to find themselves between a rock and a hard place.
Nobody seems to be talking about a bailout plan for these people. -
Banks aren't stupid (generally). There were reasons why they had to be coerced by the government into lending to high-risk borrowers, and that is they didn't want to lose money. Surely you've heard the old adage, "the bank won't lend you money unless you don't need it."
But having been coerced into making more high-risk loans, their only recourse was to do the best business they could to cover their potential losses. The problem is that their best wasn't good enough - especially for those who decided to specialize in those high-risk instruments/borrowers, and didn't have enough legitimate investments to cover their risk.
I will say this, though, that in Carter's case, I have no doubt that he had nothing but good intentions when he signed the "Community Reinvestment Act", even though the banking community vehemently opposed it (so much for the corporate greed theory). And even then, there wasn't the level of potential disaster there was in the '90s when it was expanded by Clinton.
The irony is that the libs who opposed (and defeated) the 2003 proposal for stricter oversight over Fannie Mae and Freddie Mac claimed they were protecting the ability of people to get "affordable housing" - while their policies were forcing housing prices up and out of reach, causing more people to be high-risk borrowers.
All in all, considering a government program opposed by the banking sector started this process of failure, I'd say political responsibility is valid. No stretching necessary, and it certainly lacks lameness - it has the weight of history behind it.
@unknownuser said:
"These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
"I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing," Mr. Watt said.
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@tomsdesk said:
I repeat: creed, fraud, and conspiracy! If you want to call the politicians stupid for not anticipating corruption...no argument from me. But this problem was caused by crooks!
Crooks who reside on Wall Street, Main Street AND K Street.
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Rick, I believe you are reaching over all these recent morgage backed security shemes and scams that allowed outside individuals to skim off the capital that is needed now. I think you are ignoring the accompanying rut of fraudulant morgage qualifications, given to people who couldn't/shouldn't legally have been accepted into the programs you mentioned, in order to create more monopoly-money to play with.
I repeat: creed, fraud, and conspiracy! If you want to call the politicians stupid for not anticipating corruption...no argument from me. But this problem was caused by crooks!
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@rickw said:
Actually, short selling is borrowing shares to sell immediately at the current higher price, then purchasing at a lower price to replace the borrowed shares. This involves as much (or more) risk as normal stock purchases, because if the price does not drop enough (or the price goes up) before the deadline to settle the short, the investor loses money.
One investor buys, expecting the price to go up so he can sell and make a profit. Another investor borrows and sells, expecting the price to go down so he can buy and return, and make a profit. In both cases, the goal is to sell at a higher price than the purchase price - one investor just buys before selling, the other after selling.
Isn't it still illegal to borrow money to buy stock? To gamble? So now you can even borrow stock to buy money?
Nonetheless: Isn't this the kind of thing that gets a gambler's fingers broken...? (Show me some fingers: I volunteer!)
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It's never been illegal to borrow money to buy stock--margin buying.
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It's worse than you think. This pig of a bill is over 400 pages; it started out with 3, from Paulson, grew to 106 at the House. Now it's bloated with pork spending. This is sickening.
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@unknownuser said:
It's worse than you think. This pig of a bill is over 400 pages; it started out with 3, from Paulson, grew to 106 at the House. Now it's bloated with pork spending. This is sickening.
Ron, now I agree with you.
Absolutely sickening!
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You know, had either Obama or McCain voted "NO" and come out and said: "Of all the bills the Senate has passed, this is NOT the one to contain pork", they would be the next president. The whole country should be pissed about this, and I think they are.
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I thought about that, and yes that would have been a real "maverick" move, however if indeed the bill does not pass and the 'DOOM' scenario they warned of did happen, then we would have a whole different scenario, who wants to chance that? Imagine if you are the candidate that voted against it and the economy did the belly-up, everyones 401's crashed, lending ceased, depression hit, brokers jumping from windows (you get the picture)... the gamble is too great, both candidates, hold on, all representatives hate the bill, but anyone got a better idea?
Personaly I have no debt, no mortgage, no credit card balances, a few blue chip investments (that seem safe so far) so why me worry?. I am a friggin liberal and I worry about the country as a whole, so yeah, I accept the losses and the hard to swollow tax increase (which will happen no matter who gets the White house)and hope that this is the last concession (seriously doubt it). I just want to see some regulation, some rules, some prevention for future situations. I am seriously pissed that it takes 'Pork spending' to pass this bill however.
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Your points are well taken.....but we need leadership not politicians, ya know? I say there is a decent chance the House will reject it because of public outcry and then we're back to square one for the second time...deja vu all over again.
The VP debate...................
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Don't forget the $500 or $600 billion we've already signed over in the past few weeks.
Even the economists who still don't think this will work are starting to climb on board the "hurry-up" wagon 'cause the gamblers are now jumping ship in droves...dumping what little assets that were left in the market into bonds. They think raising the FDIC safety net may at least stave off the JoeBlow bank runs that are just around the corner.
I swear, if my measley IRA drops any further I'm gonna start looking for yachts to defecate in...the simple pleasures my be all I have left.
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@tomsdesk said:
Rick, I believe you are reaching over all these recent morgage backed security shemes and scams that allowed outside individuals to skim off the capital that is needed now. I think you are ignoring the accompanying rut of fraudulant morgage qualifications, given to people who couldn't/shouldn't legally have been accepted into the programs you mentioned, in order to create more monopoly-money to play with.
I repeat: creed, fraud, and conspiracy! If you want to call the politicians stupid for not anticipating corruption...no argument from me. But this problem was caused by crooks!
Considering quite a bit of the fraud was occurring within Fannie Mae and Freddie Mac (government entities), who were paying of dems like Frank to block oversight that would avert future fraud, then there's still political causes.
I agree with you that greed played a huge part. I'm not trying to sound like I disagree. But the origins of the problem are political. The crooks just took the situation to its inevitable conclusion.
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My feeling is that we should prosecute the theft before we persecute the stupidity...above all, this outcome, especially the corrupted misuse of the legislation, was not the intent of the politicians (one would hope)...they just wanted to help a few more good people to qualify for the American dream.
This recent pervading attitude that the victim is somehow always complicit in the crime is pure Horse-Pucky: without criminals there is no crime...and without this mindset there would be far fewer criminals. These guys walking away with millions from this mess should be treated as Enemy #1...and until they are history will repeat.
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