“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Monday, September 22, 2008

The Democrats Caused This Financial Mess

The Black Democratic Congressional Caucus.

Let there be no misunderstanding, there would be no financial meltdown without the absurd lending sponsored, aided and abetted by FannieMae and FreddieMac. These government spawned agencies were in the political pocket of the Democrats who fold on queue for the Congressional Black Caucus.

Now that is straight talk you will not hear, because the American public has been humbled and silenced by the black political thuggery establishment in Congress.

How the Democrats Created the Financial Crisis: Kevin Hassett
Commentary by Kevin Hassett

Sept. 22 (Bloomberg) -- The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

Turning Point

Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Greenspan's Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

Mounds of Materials

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)

To contact the writer of this column: Kevin Hassett at

Last Updated: September 22, 2008 00:04 EDT


  1. Funny, if partisan, stuff.

    No mention of the 2000 Budget Act, wherein Mr Gramm made regulating derivitives off limits for the Federal regulators.

    No names of the
    ... few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.

    And even more telling, if this was all so evident, in 2005 why the

    Republicans, ... couldn't even get the Senate to vote on the matter.

    No mention of the previous S&L ctisis, wherein family members of Mr McCain recieved over $250,000 from Charles Keating, convicted master of fraud and fancy.

    No mention of why the Republicans did not advance the matter in House, if it was so evidently clear to all. That would have put even more pressure on the Senate to act, but never happened.

    The crisis dod not form in 2005, but back in 1999 and 2000, a simple fact that those at the American Enterprise Institute would like to ignore.

    As that reality is not politically expedient, for their team. Instead, they'd like to blame the Black Congressmen and Senators.

    Of which there were how many, in the Senate, other than freshman Senator Obama?

    This entire episode, laid at the feet of a freshman Senator, how telling.

  2. If Mr Obama could wield such influence, in the Senate, in his first year...
    Well, he deserves to be President.

    But the fact is he did not.

    But reality, that wouldn't play well, for Team Maverick.

  3. The messiah holds no real cards in the current issue...

    he was and is a do nothing politican

    HOWEVER under Clinton and then Bush, our government sought to level the lending playing field...

    sort of getting rid of "redlines" and becoming PC...

    How dare you ask questions like, how much did you actually save? earn? your debt levels?

    We had an unspoken deal with the unworthy...

    If you want a house, you got a house, even if you only had a low wage bullshit job, you got a house...

    Now that the house of cards are exposed we will return to the early 90's, 20% down and proof of income...

    Now the MESSIAH will seek to turn college educations into what the housing issue was....

    EVERYONE gets a degree... thus creating a worthless diploma, but the Messiah will be happy....

    the road to hell is paved with good intentions

  4. It does not fall at the feet of Obama, and in a perverse way Obama could be uniquely qualified to reign in the excesses and special privileges reserved for the black caucus.

    That really is besides the point. The point is the financial prowess of the United States was humbled and diminished by the foolishness of political correctness. Any local banker in any American city knew where to lend money if you did not want to get repaid. Congress demanded that they do it.


  5. i'm sorry but i think condi should be in that photo. she should have been replaced long ago but is in the "untouchable" status so george wouldn't dare. someone else far more suited for her position would have made his legacy more

  6. Folks, what everyone is missing, I Believe, is that those sub-prime loans had very high interest rates upon "Reset." They're NOT All Defaulting.

    I, honestly, believe that if the Government sticks to it's knitting, here, and doesn't go way beyond what has already been outlined it is liable to end up making a hell of a "Trade."

  7. Rufus, you are correct.

    The object is to notch it down just enough to get those that want to fight to save their homes, do so. If that happens, the excess housing will be absorbed, prices will stabilize and resume a normal rate of appreciation.

    Over a reasonable period of times, ten to fifteen years, the incremental increase in debt will have been offset by additional tax revenues and repayments.

  8. question. are they only dealing with active foreclosures or anyone with a sub prime rate? if sub prime, will they be automatically corrected?

  9. Dunno, Slim. I'm guessing, "all of them."

    Look, I haven't even looked around for anecdotal evidence, so this is a lot of Wild Ass Guessing; BUT, I'm going to guess that the lending banks are losing between 30, and 40% on the loans that go into foreclosure. However, most of these loans Will Not go into foreclosure.

    If "Uncle" steps in and buys the lot at forty or fifty cents on the dollar we should come out "way ahead." It Seems to Me.

    It looks to me as if we've got the blue-suede, ARM-selling Crooks by the short-hairs; and, I'm, somewhat, enjoying the moment.

    Of course, the possibility is that "I'm Batshit Crazy," also.

  10. The "Minnesohhtans" done woke up to the fact that McCraazy wants to put their farming industry out of business. Rasmussen has Obamassiah up by a Ton in the Dairy State.

    Watch out for Indian. It is Absolutely, Positively Impossible for a Republican to win the White House w/o winning Indiana, and Missouri (and, for all practical purposes Ohio.) These are all turning into "Ethanol States."

    The Nutty One has, already, blown off Iowa, and any chances at Mn, or Wi.

    I'm telling you, this dumb bastard really does NOT have the Brains to be President.

  11. It is pretty amazing watching all these (you) free marketers overnight become socialists.

    rufus wrote:

    "f "Uncle" steps in and buys the lot at forty or fifty cents on the dollar we should come out "way ahead." It Seems to Me."

    Why do you presume that they will buy the securities at roughly half their face value? If they did the purchase at that price would it actually provide enough capital to the banks to keep them solvent? Can they really afford that much of a write-down?

    Even if they bought these securities at roughly half their face value what suggests that the are worth more then that? If they are indeed worth more then that what are the operating costs going to be of these 'entities' funded by the government to work out these securities? Hank is asking congress for carte blanche and it is entirely possible he will buy the securities at face value, the tax payer will take a huge loss not only in the value of the security but in the cost of working it out but Hank and his corporate finance friends can continue looting the federal treasury for years to come. Why the heck should we trust this bunch given their track record?

    Also, note, the Hank hasn't suggested he wants the feds to buy only mortgage backed securities but rather a whole host of distressed paper.

    It is not simply a mortgage and related securities problem. The rot goes much deeper. The basic problem is the institutions lack capital. Blaming the dems for it is ridiculous. It isn't a very good political strategy either given McCain's S&L history and things like:

    "he two government-chartered companies run a highly sophisticated lobbying operation, with deep-pocketed lobbyists in Washington and scores of local Fannie- and Freddie-sponsored homeowner groups ready to pressure lawmakers back home.

    They’ve stacked their payrolls with top Washington power brokers of all political stripes, including Republican John McCain’s presidential campaign manager, Rick Davis;"

    "At least 20 McCain fundraisers have lobbied on behalf of Fannie Mae and Freddie Mac, netting at least $12.3 million in fees over the past nine years.

    Political insiders Arthur B. Culvahouse Jr., picked by McCain to vet his vice presidential nominees"

    "And for years, Rick Davis served as president of an advocacy group led by Fannie Mae and Freddie Mac that defended the two companies against increased regulation."

  12. It's a game, Ashley. Only the most blind partisans still buy into it. The only difference between "team A" and "team B", is that "team A" accuses "team B" of wrong doing, while "team B" accuses "team A" of wrong doing. The net effect is to bamboozle the public that there exists a difference. But in reality, the system is gamed. It's all a masquerade.

  13. You see where compassion gets us, Ash. :)

    If you'd been in Congress you would have been at the forefront and supported all these ideas of getting folks into housing. You'd have called it creative capitalism or some such. And when it didn't work out you'd be looking for someone else to blame.

    When we bailed out Chrysler we came out smelling like a rose, eventually.

    I think Rufus is right, it might work out ok. The housing stock is still there, not blown over by a hurricane, though it's probably trashed up good, some of it.

  14. Headlines--

    Israeli intelligence: Iran halfway to first nuclear bomb...

    Chief inspector: Iran may be hiding secret nukes...

    Soon this housing crisis will be back section news, in the papers.

  15. and, Mats, Team A and Team B both promise tax cuts - isn't America Amazing: You get your cake and you can eat it too.


    The banks and insurance companies are short of capital. Traditionally if an entity injects capital into a corporation they get ownership interest. This bailout is injecting capital into the firms (by buying their junk paper) without gaining the leverage afforded by ownership. As Paulson says, the reforms will come later, riiiight. Meanwhile the execs and shareholders get their cash, well not their cash, but more cash and YOU, the taxpayer, gets left holding the bag. Rufus, ever the optimist, thinks the bag will hold a bunch of goodies - I'm considerably more skeptical.

  16. bobal wrote:

    "Soon this housing crisis will be back section news, in the papers."

    If it were only a housing crisis it would be as rufus posited long ago - a small thing.

    If the Iranians are only halfway to getting a nuke how could they be hiding secret nukes? If it took the this long to get "half way" well, we got a millennium or so before they get the other half ;)

  17. In Florida==

    The largest was the crowd — an estimated 60,000 according to the fire chief. Some people had to wait in line about 90 minutes just to park their cars. Biden’s largest crowd during a visit earlier this month was about 2,000.

    If McCain wins he's got Palin to thank.

    Dole is behind in North Carolina Senate race.

    It's a lot bigger than Chrysler I admit. And I admit some of 'details' are somewhat beyond me at this point.

  18. RCP has Indiana in a toss up status now. Wasn't it leaning McCain before?

  19. Ash, I'm sorry I misled you.

    I've got NO Freakin' Idea what's in the Bag. I said: "I'm Guessing." Let me expound on that. I'm Really, Really, Really Freakin' Guessing.

    I simply think that we "might" end up buying some assets, Cheap. Maybe.

    As for "getting warrants?" Great. If you can get'em, Get'em. You won't hurt my feelings. Actually, I'm encourage to hear that there's a little horse-trading going on. That means the situation isn't, maybe, quite as "Dire" as we feared.


  20. If you think the economic problems are uncomfortable right now give a guess at what they'd be like if we started a hot war with Iran right now. Gas prices a little higher, no problem, right? A few more hundreds of billions spent on military stuff, no problem, right?

    As I said long ago, get used to a nuclear Iran.

  21. I think the Hoosiers are, just now, starting to listen to what McCain's saying, Bob.

    Indiana has Always been a "Given" for the Pubs. If it ain't they got BIIiiiiiiig Problems.

  22. As I said long ago, get used to a nuclear Iran.

    I don't think so.

  23. Rufus, there is definitely some good in there amongst those assets. Loads and loads of people are paying their mortgages every month it's just that they are all mixed up with those who aren't. If you were a banker and the government opened up a window to buy whatever you wanted to sell them would you sell them the good stuff or the bad? The bankers holding the bags have some inkling of what's in each bag. They don't know what's in there but they've got a reasonable idea on some of it.

  24. I don't think there really is much choice Mats, like it or not but reality does have some influence.

  25. No, Ashley. Reality is created. And your reality is wholly different than mine.

  26. If it were created mat we'd be living in Nirvana all the time.

  27. I read the article at Wizbang, it's a little tough to plow through--

    September 20th, 2008 7:43 pm

    Gallup’s Internals and Our Nation’s
    Support Pajamas Media; Visit Our Advertisers
    Over at Wizbang, a fascinating look inside the raw numbers of the lastest Gallup Organization’s polls.

    Skip the opening paragraphs about “trolls,” and dive into the numbers he dissects. If you look at the raw numbers, McCain is significantly ahead of Obama and his support is steady or growing in all categories. Meanwhile, Obama is steady or falling in all categories.

    But Gallup reports Obama up over McCain by two points. Why? The weighting of voters–basically a guestimate about voter turnout–has changed over at Gallup, favoring Republicans during their convention but now favoring the Democrats. All polling organization weight the numbers. The question is how.

    Now, here is where it gets fascinating. Wizbang re-weights the numbers to match ratios established by exit polls (polls of voters exiting the voting booth) in the past few presidential contests. Result: Obama 39%, McCain 45%.

    Could Wizbang be right? If voter turnout doesn’t change substantially, yes, he could be right. Read his post and decide for yourself.

    One hypothesis I would add: Republican and Republican-leaning independents are now favoring McCain because they took his pick of Palin as a signal that he will govern as a conservative, not a RINO.

    And that, of course, is why liberals hate Palin. They wanted an election between two liberals, a hard and soft option. And now they are disappointed. So they want to punish McCain through Palin.

  28. Ash said...
    If it were created mat we'd be living in Nirvana all the time.

    This man hasn't read a stitch of theology.

    A world with troubles and difficulities might not be a burden but a positive good to a creature who has been created to grow.

  29. This is all "Way Over" my head. However, I still maintain that the numbers of subprime foreclosures are just too small to cause anywhere near this amount of carnage.

    It just looks to me like Wall and Broad went totally, batshit crazy (ala, tulipmania) with the CDO's, CDS's, etc. They're so "jammed up" that they have to sell some weak assets (subprimes) for way below value to recapitalize, and get their mess cleared up.

    It seems to me that if we'll keep our collective feet on their scrawny, little, thieving necks we might come out okay. Maybe.

  30. This man hasn't read a stitch of theology.

    No, Bob. She subscribes to a different theology, that of the Crystal Palace. A utopian ideal peddled by her Imam.

  31. Bob, I don't pay a lot of attention to anyone but Rasmussen. However, when HE tells me the upper Midwest is Gone, and Indiana's in jeopardy I take "serious" notice.

    All People, Everywhere, walk into the Polling Booth and Vote Their Self-Interest, as THEY See it.

    All those people in all those small towns across Indiana, Ohio, and Iowa are starting to see that it is Against the Interests of their Resurgent Economies to Vote for the "old white guy."

  32. Ash, it's said, to the enlightened mind, nirvana and samsara are one. No difference. The imperfect is our paradise. Being rests in the bosom of becoming,so to say. And there's always something more.
    A tough saying, to be sure.

    There was an old Henry Fonda movie, name unrecalled, that my mom liked, that made this point well.

  33. Rasmussen is my main read too, Rufus.

    It's going to be close, is all I am (pretty) sure of.

  34. As I said long ago, get used to a nuclear Iran.

    I recall you saying Iran wasn't working on a nuclear weapon at all, Ash. Nice kindly Iranians, just wanting some electricity.

    So, you've come to realize they are, at least.

  35. bobal, I don't think you are following the conversation very closely. Mats suggested that WE (i.e. not God) create reality. I suggested that if this were true we would create a nice comfortable world.

    Rufus, I think you are correct, it is not simply sub-prime mortgages causing the problems. The rot goes much much deeper.

  36. No, Bobal, I do not know either way whether they are trying to create a bomb or not. They maintain that they are simply trying to harness the nuclear cycle to create electricity which is what they are allowed to do under the NPT.

  37. Here is what Palin was going to say in New York, before she was disinvited.

    'He must be stopped'

  38. Mats suggested that WE (i.e. not God) create reality. I suggested that if this were true we would create a nice comfortable world.

    No. We've already worked thru these issues.

    What are the major objections to living in the Crystal Palace, the perfect world? It is that individual freedom and utopianism necessarily conflict. This is why in Judaism there is no abstract or metaphysical concept of Heaven and Hell. There are only degrees of closeness to God. The closer one is to God, the less individual freedom reason and personality one retains.Satan, according to Jewish mythology/philosophy, is not an evil creature. Satan (One who questions/provokes) is the precursor to man as a thinking rational analytic creation.

  39. America is already unimpressed with the Pelosi-Reid Congress. This is, with a few changes, who President Obama would be making laws with — a House Ways and Means chairman who doesn’t understand the tax laws he writes, a House speaker who does freelance diplomacy with dictators, a House Judiciary chairman who speculates in public about the “retroactive impeachment process,” and a House Transportation chairman whose immediate response to the bridge collapse in Minneapolis was to raise the gas tax to establish a bridge-repair trust fund. (Never mind that federal investigators later concluded the cause of the collapse was a design flaw, not insufficient maintenance.)

    In the Senate, President Obama will have Robert Byrd holding the purse-strings in Appropriations, ensuring that most of the new president’s national initiatives will be based out of West Virginia. On the Banking Committee, Chris Dodd will watch the financial markets as carefully as he has for the past two years, while Barbara Boxer gets to put her stamp on climate-change legislation.

    If Obama Wins

    On this optimistic note--gotta run.

  40. Blogger Ash said...

    I don't think there really is much choice Mats, like it or not but reality does have some influence.

    Mon Sep 22, 12:17:00 PM EDT

    Blogger Mətušélaḥ said...

    No, Ashley. Reality is created. And your reality is wholly different than mine.

    Mon Sep 22, 12:19:00 PM EDT

    There are the comments verbatim. I'm suggesting that there is a reality outside our desires which influences us whether we like it or not. Mat, well, he's off in la la land.

  41. Has anyone else noticed Oil is up over $9.00, today?

  42. There are the comments verbatim. I'm suggesting that there is a reality outside our desires which influences us whether we like it or not. Mat, well, he's off in la la land.

    Reality is a function of perception. According to your reality, there is no choice. I'm saying this is false, and that choices do exist. Your "reality" is a lie, created to serve your political and religious partisanship.

  43. Well rufus, that leads, by a tad, the rise in GOLD

    It is now up to $905, up $34.10 per oz.

  44. We did the numbers a few weeks ago, the sub-prime and other foreclosures amounted to $50 billion in outstanding paper, of which at least half would be recoverable.

    The "bad" mortgage exposure, about $25 billion bucks.

    A far cry from the $700 billion that Mr Paulson says he needs, without any oversight.

  45. if they (banks, investment banks ect.) took that 50 billion and levered it 30 times you've got 1.5 trillion.

  46. Big "Short Squeeze" in the front oil contract which expires today. Other months up, but only about half as much.

  47. "How can I make this into a metaphor that everyone can understand? Remember in mob movies, how they'd set up a front business to launder money, run as much through as they could, run the business into the ground, torch the place, and then collect the insurance? Well. There it is. "


    "The Republican Party amounts to today's Whigs. Their candidate for president, John McCain, is trying to run away from his own party -- as one might shrink away from a colony of importuning lepers. I am actually not kidding when I label the Republicans "the party that wrecked America," because I believe that is truly how the popular strain of history will regard them when (maybe if) the wreckage of their ministrations ever clears. But history doesn't repeat exactly. The current figure from Illinois, Barrack Obama, has yet to offer a truly crisis-clarfying rhetoric, though he labors under the expectation of being able to do so. Like his long-ago predecessor, he is mocked by the coarser elements of what we call "the media" these days -- Fox News and the moron-rousers of talk radio.
    Some of the issues yet-to-be-clarified concern the behavior of the American public in the broad sense. We have obdurately resisted the reality of the energy crisis that hangs over everything we do (as slavery hung over the 1850s), from the way we inhabit the landscape to the way we do daily business in our 240-million-plus fleet of cars and trucks that ply the ribbons of asphalt and the lagoons of parking that now run from sea to shining sea where the fruited plain was replaced by the Wal Marts.
    Mr. Obama isn't kidding either when he alludes to the change America faces, though history has not yet rhymed enough for his rhetoric to really set forth the terms of this change in its stark particulars. And even if he is able to articulate these things, he won't forestall the convulsion anymore than Lincoln held back a war between the states. That prior crisis was when America learned good and hard how tragic life could be, and it colored our national character for a century -- until we chucked it all to become a society of overfed clowns, with God Almighty replaced by Ronald McDonald. That pageant of happy idiocy is now ending. Like everyone else in this fraught and nervous land, I'm standing by to see what transpires in the days just ahead."

  48. The ambulance has passed the hospital, and is on it's way to the Morgue. Monster "Short Squeeze" on the Front Month Oil Contract.

    Great, now I guess we'll have to Bail these bastards out.

  49. Hey, Rufus:
    Maybe Maxine Waters was ahead of her time:

    If we Socialize Oil, maybe we'll all get PAID by the Govt, as in Alaska, instead of screwed.

  50. jerry:

    I am afraid that people are missing the real story here. The pressure to withdraw the invitation to Governor Palin has little to do with her. It is all about a President Obama’s foreign policy objectives. He could have sent Biden to the Ralley. He could have asked Senator Clinton to go. An Obama adminstration intends to flip US policy in the region from a pro-western/pro-Israel orientation to a pro-Iranian one. He has been surrounded by anti-Semites for his entire political career and in the guise of seeking “justice’ for Palestinians he is indifferent to the fate Israel and its people

    Sep 22, 2008 - 5:04 am

    We have obdurately resisted the reality of the energy crisis that hangs over everything we do

    You got it there, Ash.

    The Democrats and the enviros have stiffed every proposal for drilling and nuclear power from time out of mind.

  51. Maxine Waters: Ahead of her time

    hmm, yep, that must be it.


  52. "One would hope for more independence from bloggers . Indeed, there has been some excellent analysis and criticism of the candidates’ positions based on bloggers’ ideological point of view. But there has not been nearly enough side by side comparison of the candidates’ positions. Meanwhile, there has been too much devotion to mudslinging and the minutia of political gamesmanship.

    I can recall when it was believed by the new media gurus that the advent of blogs would change politics forever. They were right — but obviously not for the reasons they believed. Blogs have helped coarsen and trivialize politics.
    Few in the blogosphere can hold their heads high and say otherwise.
    ...and he left out DRUDGE:

    He of the weeklong Siren Headlines, raking in the cash while not even updating them like mainstream papers.
    If it screams "hit me"
    It Leads.

    ...and Drudge leads the hit list.

  53. Rathergate was the high point.
    It's been downhill since.

    Meanwhile, Salon, Slate, Huffpo and Kos are doing just fine, thank you.

  54. Hey, Rufus:

    Listening to Ingraham saying Goldman will now be subject to commercial bank regulatory structure.

    How about outlining the implications of that for us? thing's for sure, DC is more in control than ever.

    Pelosi/Reid/Franks/Dodd/Obama '08!

  55. Pelosi/Reid/Ash/Franks/Dodd/Obama '08!

  56. OK, it's offical. I am a member of the "courser element" of society. Ash says so, it must be true.

  57. DR - don't know how you got $50 billion as the total subprime market, or maybe you mean that that was the amount within the subprime market that was at risk of default - not sure. Anyway, the Bloomberg article quoted above mentions:

    "As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home."

    Clearly by mid-year 2007, huge amounts of these subprime mortgages had also been "distributed" to investors worldwide.

    Don't know what the total is, but would guess it is trillion+ to trillions.

  58. Rufus: The ambulance has passed the hospital, and is on it's way to the Morgue. Monster "Short Squeeze" on the Front Month Oil Contract.

    Oh, is that all? I thought you were going to say "Peak Oil".

  59. Just don't Peak Behind the Curtain.

  60. Hank,
    the Most Powerful Man in the World!
    The Wizard of the Universe.

  61. "Clearly by mid-year 2007, huge amounts of these subprime mortgages had also been "distributed" to "investors" worldwide."
    Later Day Ponzi Supporters.

  62. From this document, which comes from a reliable source, State Foreclosure Prevention Working Group, one can infer the size of the subprime market to be approximately 1.4 trillion (13 loan servicers reported $803 million in subprime loans; these 13 were estimated to comprise 58% of the subprime market)

    The State Working Group consists of representatives of the Attorneys General of 11 states (Arizona, California,
    Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio, and Texas), two state bank
    regulators (New York and North Carolina), and the Conference of State Bank Supervisors.

    Other interesting observations by the authors:

    - For example, the rating agency Fitch recently reviewed a small sample of loans that defaulted within the first 12 months after securitization
    and concluded that fraud played a major role. Fitch concluded that “poor underwriting quality
    and fraud” may account for as much as 25% of the defaults.9 Fitch further commented that,
    “[t]here was the appearance of fraud or misrepresentation in almost every file.”

    - This data highlights the fact that there is still a large pool of subprime loans facing their
    first reset in 2008 and 2009, with the biggest spikes in the third and fourth quarters of this year.
    Time is running out on implementing systemic solutions to enable the modification of many of
    these loans into a more sustainable loan product. (illustrated vividly in report's chart)

    - In addition to the schedule for resetting loans, Reporting Servicers provided information
    regarding the current payment status of these loans prior to the first reset. Approximately 31%
    of these loans are currently delinquent by 30 days or more. This data shows that a significant
    number of homeowners with subprime loans are currently experiencing difficulty in paying their
    loan prior to any increase in monthly payment associated with payment shock. This high
    delinquency rate for loans early in their loan term reflects the impact of weak underwriting and
    fraud in the subprime loan origination system. For example, over 21% of homeowners who will
    not experience their first payment reset until the third quarter of 2009 are already experiencing
    difficulty in making their mortgage payments.

    Let's round these #'s off for ease of use: as of October 2007 (A YEAR AGO) $1.5 trillion in total subprime mortgage principal outstanding, 1 out of 3 was more than 30 days delinquent PRIOR to the initial rate reset (resets peak in Q3 and Q4 2008); 1 out of 5 of the total was more than 90 days delinquent; 1 out of 4 was in foreclosure.

    Not hard to see how one can arrive at a $700 billion to 1 trillion workout. BUT, as Rufus noted and Deuce seconded, it is a workout, not a writeoff. Those interested should look at the loss mitigation results included in the report.

    Remember - all this data is from October, one year ago. Also, a glance at the Rate Reset by Quarter chart fully explains why this is transpiring now.

  63. I think Ruf and Ash are right. The real problem here are the derivatives. This was problem foreseen back in 1998 and left to metastasize. Both parties will be blamed and they should be but it was the "adults" the Republicans who tipped the balance. Democrats have long been untrustworthy with a dollar but when the Republicans joined them, well, look at where we are today. It's one thing to buy the real estate but worthless paper? I rather not, thank you. The Feds and our Masters in Congress though seem to think that the house of cards will tumble unless the taxpayers are put on the hook. Well, this taxpayer can see the value in real houses but a house of cards is still a house of cards, I don't care how much glue you put on it.

    The market is so spooked it's not funny but I just pray that our "Masters" are not getting spooked into rash decisions.

  64. The number of Homes already upside down is astounding.

    People walk, the neighborhood goes to Hell, more homes turn upside down.

    In poor neighborhoods, the vacant homes are then looted for the wiring and plumbing.
    A significant number of them vandalized by the "owners" on exit.

    Getting Even.

  65. j. willie:

    Assuming your numbers are good, we need to look at these loans to see how to keep the homeowners in these houses. This may involve renegotiating some "predatory" rate escalations.

    I still think the biggest problem is with the investment banks and the derivatives. Otherwise, why would there be so much concern over the Investment Banks?

  66. Look at J. Willie's numbers, Whit:
    Fannie and Freddie did their part.
    McCain's man Coumo had his part @ FHA.
    Greenspan played a role.
    Dodd, Obama, Franks, Hillary, Bubba, Mudd, and the Congressional Black Caucus.
    ...on, and on.

  67. Mr. Mudd kissed Black Caucus Ass on his arrival.
    Now he lives in a 22 Room Mansion.

  68. My nephew's boss @ New Century was Indian.
    Indians know a bit about the basics of banking.
    Jindal for Czar!

  69. Has anyone read Gingrich yet?
    (Laura's reading him.)

    The Fannie and Freddie Report is Secret.
    Must be pretty.

  70. I did go back and look at them again. Lenders are reporting higher delinquencies even before a rate reset. Many of those people got into those homes with no money down, so I am less sympathetic to them losing their homes. Looks to me like we're going to have excess housing for awhile. Also, I wonder how much vacant unsold inventory figures into those numbers.

    Well, we had a hell of a sixteen year run. Now, we're all going to take some castor oil.

    The positive side of all this is that housing prices may once again become realistic.

    Right now, we're having a credit crisis and an energy crisis. If the contagion can be confined to those two sectors, maybe the economy can weather the tempest.

  71. j willie, the $50 billion was the value of the paper on the homes actually in foreclosure.
    Not the total of the sub-prime market, most of which is current.

    The value of the underlying houses, while no longer what they were, is still at least half of the debt, on average.

    The market decline has been about 25% and the other 25% is consigned to other slippage and fees.

    It is not an exact accounting, by any means, but a ballpark figure.

    There could be more trouble in the pipeline, but ...

    To give the Treasury Sec. $700 Billion USD, and exempt that money from review or oversight, as the Paulson Plan does (per USA Today, this morning), is insane.

    Especially if Obama and Company win, in November.

  72. Houses were so overpriced it was ridiculous. The entire country was in an unsustainable feeding frenzy. If prices come down by 50% in some areas, that will be a good thing.

    So what if the market dropped 3.something% today? I hate to see us rush into a really bad deal...

  73. This comment has been removed by the author.

  74. (to Whit's Rush)
    It was amazing to watch from here, as Olathe, Kansas, reached California level prices.
    Olathe looked like my hometown when I was there.
    With worse weather.

  75. This article mentions some additional safeguards and oversight.

    Given j. willie's numbers, I suspect the Dems could be grandstanding on the foreclosure protection aspects.

  76. Or it was reported when the $50 billion USD number seemed accurate.

    But if it really is 25% of 1.5 trillion, that'd be a tad larger, wouldn't it.

    The number of homes in foreclosure was not 25%, but just a couple of points of all mortgages outstanding, when we discussed weeks ago, back when it was not considered to be as grand a crisis as it seems to be, now.

    Then again, maybe a decimal point was in the wrong spot.

  77. Did you see my Florida figures a couple of days ago, Whit?
    Said Condos tanking as houses still rising.

  78. No, I didn't Doug. The condo market was for flippers. Most buyers never intended to close. In south and central Florida, the traditional boom and bust market, house prices have also fallen considerably from their highs. In other areas of the state, prices have dropped but not as dramatically.

  79. I don't see house prices rising.

  80. So Florida condo market:
    Perhaps nowhere is the carnage -- as well as the opportunities and risks of condo bottom-fishing -- more evident than in Miami-Dade County, where about 25,000 condos are currently for sale, according to Multiple Listing Service statistics. That number could well surge: Cranes needle the city's skyline, and though several projects have been mothballed, new condo towers in various stages of completion rise everywhere. By most estimates, 12,000 to 15,000 more condo units will become available over the next 18 to 24 months. Given that about 10,000 condos are sold in a typical year in the area, the supply overhang means prices may fall further.

    That doesn't mean that bargains litter the beach or that prices are as low as some buyers hope. Alicia Cervera Lamadrid, chief executive of Miami real-estate firm Related Cervera Realty Services, says too many buyers call nowadays "expecting to pay 50 cents on the dollar, and they're not going to find that." For the most part, prices are back to about 2003 levels, meaning they're down 10% to 40%, depending on building and location.

  81. I think the rising homes must be in selected locations.
    That's the way the Bay Area was, in CA.
    ...until it wasn't.

  82. How did all this happen and where do we go from here? We tackle those questions and others below:

    Q: What's behind the financial crisis?

    A: The latest woes are a continuation of the housing meltdown and the resulting "credit crisis" that have been bedeviling the U.S. Home prices have been tumbling and foreclosures soaring since the bursting of the housing bubble just over a year ago -- and the effects extend throughout the economy.


    Q: How could conditions deteriorate so quickly that companies rushed to sell themselves or couldn't survive without U.S. help?

    A: Part of the problem has been a crisis of confidence. Lending markets that form the backbone of the capital markets froze up.


    Q: What does this financial-industry meltdown mean for the broader economy?

    A: "Companies and consumers alike are finding it more difficult to borrow," which likely will crimp business activity, says Jeff Fishman, who runs JSF Financial, a Los Angeles-based financial-advisory firm. "This could lead to an uptick in bankruptcies, which we've already seen, and the attendant job losses, cuts in consumer spending and confidence."

    What's Next

  83. Who is Mr Paulson, what is his record of success in picking winners and losers and why should he be given $700 billion bucks, to do with as he pleases, without oversight or review?

    Would or should we trust Mr Gramm, if he were to become Tres. Sec. to pick the right buys, or Mr Obama's choice, if it comes to that?

  84. At least I'm not the only one that thinks giving Mr Paulson a $700 billion USD check is nuts.

    Paulson's Folly

    The current Wall Street rescue plan has some serious failings. Will congressional Democrats (and Republicans) stand up to the treasury secretary?

    Robert Kuttner

    The Democrats will be joined by some odd bedfellows. Many leading Republicans in Congress are very skeptical of this deal -- though most want less bailout for Wall Street rather than more relief for Main Street. Rep. Jeb Hensarling, a Republican from Texas, told The Wall Street Journal that a number of Republican conservatives "may very well" oppose the plan. Rep. Mike Pence of Indiana said Friday, "Now's the time for us to be dealing with the root causes of this economic downturn and not simply opening the cash window at the Federal Reserve and writing one bailout check after another."

    Speaking on CBS' "Face the Nation" Sunday morning, House Financial Services Committee Chairman Barney Frank said he would want to add several features to the Paulson plan, including relief for homeowners, a new stimulus package, and limits on CEO compensation. Said Frank, "It would be a grave mistake to say that we're going to buy up the bad debt that resulted from the bad decisions of these [private sector] people and then allow them to get millions of dollars on the way out. ... It's kind of hard to tell the average American that we're going to continue to have foreclosures that destabilize neighborhoods and deprive cities of revenues they need, but we're going to buy up the [banks'] bad paper."

    The ranking Republican on the Senate Banking Committee, Richard Shelby, appearing with Frank, sounded if anything even more radical than Frank, accusing Paulson of "lurching from crisis to crisis" and helping Wall Street, but doing nothing for the homeowner. Shelby, whose support is crucial to the plan, later issued a written statement that he "remains at this point unconvinced" of the proposal's merits.

    The deal proposed by Paulson is nothing short of outrageous. It includes no oversight of his own closed-door operations. It merely gives congressional blessing and funding to what he has already been doing, ad hoc. He plans to retain Wall Street firms as advisers to decide just how to cut deals to value and mop up Wall Street's dubious paper. There are to be no limits on executive compensation for the firms that get relief, and no equity share for the government in exchange for this massive infusion of capital. Both Obama and McCain have opposed the provision denying any judicial review of decisions made by Paulson -- a provision that evokes the Bush administration's suspension of normal constitutional safeguards in its conduct of foreign policy and national security.

  85. I got a letter today saying my household has been chosen to participate in the Nielson tv ratings.

    Since I watch almost zero tv, are there any programs I should dis?

  86. duece asked why the Federals pushed the banks to lossen lending requirements, in a reverse redlining, of sors.

    To expand the "Ownership Society", of course.

    The Pubs and Dems were both for it, for different reasons, perhaps, but it was a bi-partisan effort.

  87. "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

    The bailout crafted by Bush actually says that.

  88. Paulson has a pretty good record at Goldman Sachs I believe but, given the source of the problem, it is kind of like putting the Fox in charge of the Hen House. He rose to prominence through the rise of the very derivative instruments and use of leverage that are causing us grief today.

    I guess you could say he was an architect of the destruction.

  89. Biden catches on---

    Biden Criticizes Obama Ad

    September 22nd, 2008

    Joe Biden today criticized the Obama ad that mocked John McCains war injuries, saying “I didn’t know we did it and if I had anything to do with it, we would have never done it.”

    Asked by CBS’s Katie Couric about an ad Obama released earlier this month mocking John McCain for not being able to use a computer, Biden criticized the commercial and suggested it had been aired without his knowledge.

    “I thought that was terrible by the way,” Biden said of the computer ad in an interview broadcast tonight on the CBS Evening News.

    This blogger is happy to see there is at least one adult in Obama Land. It’s just too bad he’s out of the loop and has no influence.

  90. and may not be reviewed by any court

    Nice language but doubt the court would agree with it.

    Marbury v Madison

  91. ms t,

    Ironic the rightwinger in you should key on this. They are using their conduct of the war and prisoner detention as precedence for this legislation"

    "More interesting are the reasons why these right-wing polemicists have decided they have real doubts about the wisdom of the Paulson plan. In opposing the plan, each of them cited -- with alarm -- the provision which vests full, unfettered and unreviewable discretion in the Treasury Secretary to determine how the $700,000,000,000 is allocated: Levin (plan gives "essentially unlimited power to use $700 billion to make purchases the scope of which is defined very loosely and vaguely"); Gingrich ("We are being reassured that we can trust Secretary Paulson 'because he knows what he is doing'. Congress had better ask a lot of questions before it shifts this much burden to the taxpayer and shifts this much power to a Washington bureaucracy"); Kristol ("There are no provisions for — or even promises of — disclosure, accountability or transparency"); Malkin (Washington is demanding we "fork over $700 billion to Treasury Secretary Henry Paulson and allow him to dole it out to whomever he chooses in whatever amount he chooses -- without public input or recourse").

    Apparently the same political faction that has cheered on every instance of unchecked, absolute executive power over the last eight years -- which demanded that the President, and he alone, decide which citizens, including Americans, can be spied on, detained, even tortured, and that no oversight or disclosure was needed for any of that -- has suddenly re-discovered their desire for checks on federal government power. The reason? They say it themselves: with the looming prospect of an Obama presidency, they may no longer be in charge of that Government and these "small government conservatives" have thus suddenly re-awoken to the virtues of checks and balances, oversight and other restraints."

  92. embrace your inner wingnut ms T!

  93. Obama rally falls short in Green Bay--

    GREEN BAY, Wis. — Hoping to shore up support in his suddenly undependable backyard, Democratic presidential nominee Barack Obama flew here Monday to talk about how he’d handle economic crises as president.

    Recent polls have shown that Wisconsin — once pretty solidly in Obama’s column — is now a statistical dead heat between Obama and Republican John McCain.

    “You all know that you hold this election in your hands,” Sen. Russ Feingold, a Democrat who said he worked on ethics legislation with Obama, told a crowd of about 6,000 cheering Obama fans in the arena next to Lambeau Field. “We just barely won this state for Al Gore in 2000 and we just barely won this state for John Kerry in 2004.”

    The numbers in Wisconsin and Minnesota are getting close enough that the Obama campaign closed its 11 campaign offices in North Dakota and moved the 50 staffers there to these two states.

    Just a week ago, John McCain and his vice-presidential nominee Sarah Palin — who can bring out crowds the way Obama can — appeared in this same stadium, Resch Center, to a crowd of 10,000 fans. There were an uncharacteristic amount of empty orange seats for Obama’s rally.

  94. Obama Vows To Slash Spending!

    Well what a relief, and here I thought he was just another tax and spend, tax and spend, and say anything to get elected (like Reverend Wright said he was) liberal.

  95. ya wanna talk about spending look to you hero Dubya for the all time record drunkin' sailor spening binge especially if you add in the current bailout proposals.

  96. W is not my hero.

    NDEs in the News An IANDS Member Service

    Near-death experiences continue to take worldwide center stage as the discussion of mind-body issues heats up.

    Major international media outlets have reported this past week on a large new research study on NDEs being spearheaded by Dr. Sam Parnia from the University of Southampton in the United Kingdom, who is currently a Fellow at New York's Weill Cornell Medical Center. Time Magazine describes the study, called AWARE (AWAreness during REsuscitation), in last week's edition which can be read at,8599,1842627,00.html.

    The AWARE study was formally announced at a UN symposium on September 11 titled “Beyond the Mind-Body Problem: New Paradigms in the Science of Consciousness.” The symposium featured several NDE research physicians involved with IANDS and was an especially exciting gathering of international leaders in the field of mind-body science. The day-long program included two keynote presentations and two panel discussions with leading voices from the fields of near-death, paranormal and spiritual experiences. Almost the entire symposium is available as a webcast at

    Of special interest are the four IANDS-related physicians: the morning keynote address with Sam Parnia (see above); the afternoon keynote address by Andrew Newburg, University of Pennsylvania, who describes the challenges of studying spiritual and religious experiences; Mario Beauregard, University of Montreal, a panelist in the morning session; and Bruce Greyson, University of Virginia, in the afternoon.

    We highly recommend that readers listen to as much of this symposium as possible. The material is engrossing for anyone interested in the subject of NDEs and is well worth the time.

    Please pass this message along to others who might be interested.

    A service of the International Association for Near-Death Studies (

  97. Indeed, many executives might have swallowed hard after McCain’s primary debate performance and maintained their partisan preference if that were as bad as it got.

    Turns out, it wasn’t. Many executives were stunned when McCain released a new advertisement crowing about how he “took on the drug industry.”

    And there went their giving.

    Veering to the Left

  98. oh I see Bobal he's not your hero. I guess you are just a partisan hack then.

  99. Doug asked:

    Hey, Rufus:

    Listening to Ingraham saying Goldman will now be subject to commercial bank regulatory structure.

    How about outlining the implications of that for us?

    Doug, all I can figure out is they've fucked the guys on that end of town all they can fuck'em; and Now they're coming for Us.

  100. Ash, my inclination is to let the whole house of cards fall down, and start over. If you bail the mo-fos out, you create a "moral hazard" that encourages the next round of abuses. Hell the next round might be the bailout itself, Paulson isn't going to be there forever, pretty soon you're gonna get Obama's guy as Secretary of Treasury, possibly. What if he wants to spend the money on hookers and blow for all of Obama's homies? Let's not rush this thing.

  101. Bobal: Please pass this message along to others who might be interested.

    One time I posted my skepticism of NDEs and bobal nearly killed me.

  102. Financial Meltdown - Where Does the Buck Stop

    “The biggest culprit, I think, is the implicit guarantee the government has always issued to Fannie Mae and Freddie Mac,” Richman said. “Something like 80% of the mortgages these days are held or backed by Fannie Mae or Freddie Mac,” he said, and “they get special treatment from the government like no other lender gets.”

    These factors, particularly the government guarantee, have brought about our current financial crisis, said Richman.
    But lack of oversight is hardly the problem, Richman said, because “the financial industry is regulated all over the place.” In Richman’s analysis, it is precisely the government guarantee of Fannie and Freddie that is “short-circuiting” the market.”

    That guarantee “removes market discipline,” emboldens banks to make bad loans, and encourages Fannie and Freddie to back them. This, Richman asserted, is a “moral hazard.”

    “It’s like if I invite you to Vegas and say the winnings are all yours and I’ll cover your losses,” Richman said.

    Under the Clinton administration, federal regulators began using the act to combat “red-lining,” a practice by which banks loaned money to some communities but not to others, based on economic status.
    “No loan is exempt, no bank is immune,” warned then-Attorney General Janet Reno. “For those who thumb their nose at us, I promise vigorous enforcement.”

    The Clinton-Reno threat of “vigorous enforcement” pushed banks to make the now infamous loans that many blame for the current meltdown, Richman said. “Banks, in order to not get in trouble with the regulators, had to make loans to people who shouldn’t have been getting mortgage loans.”

    This threat combined with the government backing of Fannie and Freddie set the stage for the current uncertainty, because the “banks could just sell the loans off to Fannie or Freddie,” who could buy them with little regard for negative financial outcomes, Richman said.

    However, the most harmful federal policy may not have been backing Fannie and Freddie per se, but bailing them out...

  103. Well said, Rufus!
    Concise and to the point!

  104. "One time I posted my skepticism of NDEs and bobal nearly killed me."
    Only so he could use you to demonstrate an NDE.

  105. Everybody on the right talks about Barry discarding Biden.
    Time better spent encouraging John to elevate Sarah and take the number 2 slot.
    Sacrifice for country by the patriotic (but dense)Warrior.

  106. Ash's inner idiot always has to make an appearance;

    "decide which citizens, including Americans, can be spied on, detained, even tortured, and that no oversight or disclosure was needed for any of that -- "


  107. "He plans to retain Wall Street firms as advisers to decide just how to cut deals to value and mop up Wall Street's dubious paper. "
    And for Balance, Dodd, Franks, and company handle the govt side.

    That way all the people that created the problem will be available to remedy it.


    Sep 22, 2008

    * Treasury seeks approval from Congress for $700bn plan to remove illiquid mortgage and other illiquid securities from banks' balance sheets. Similar 'bad bank' institutions in the past like the Resolution Trust Corp. (RTC) in the 1990s and the depression-era Home Owner Loan Corp. (HOLC) were expensive to the taxpayer upfront but yielded the government a positive return over time before they went out of business (see also other countries' experiences). A severe recession cannot be avoided at this time but this plan aims at cleaning the system of bad debt overhang. Different from past crises, the bad debt originates from the off-balance sheet sector that needs to be re-intermediated and for which there is not enough capital. Secretary Paulson: While authorities work out the legislation right away, the GSEs will buy additional MBS as outlined earlier this month in the GSE rescue package. Under the same authority, Treasury will also buy MBS.
    * Krugman: The real problem now is undercapitalization wrt off-balance sheet assets that need to be re-intermediated (see also Dudley.) Paulson's plan does not include a recapitalization provision, like e.g. purchase of preferred equity, for institutions that can't take the haircut from selling assets to the government at a discount. Is this because government plans to buy assets at inflated prices? Who checks? --> Congress should insist on accountability.
    * Roubini: The only real solution to the problem of over indebtedness is to reduce the value of the outstanding debt. We need more a depression-era Home Owners' Loan Corporation (HOLC)-type of institutions that buys illiquid mortgage assets at a discount from banks rather than an RTC that restructures assets from already defaulted banks. Let's call this new 'bad bank' HOME (Home Owners’ Mortgage Enterprise). Moreover, buying up mortgages assets at a discount may push some banks into insolvency as they would have to book the lower value and take the writedown against capital that might not be there at this point. This is why an HOME solution may need to be combined with a Residential Finance Corporation (RFC)-like institution for the recapitalization of undercapitalized financial institutions.
    --> in order to avoid the government overpaying for the bad assets an auction process should be adopted. Also, only the debt of first-time homebuyers whose income does not exceed a certain limit (means-tested) should benefit from debt reduction. Overly distressed mortgages should be foreclosed.
    --> strict rules must also govern the decision about which institutions should be recapitalized with government purchase of preferred shares (senior to everybody except deposit holders), and which should be allowed to fail.
    * BNP: Whether it is a good or a bad idea depends on the price at which government buys bad assets.
    * Sep 19 Hearings: White: The reason why HOPE NOW and FHA loan modification programs did not work is because it is voluntary and banks are reluctant to take the loan writedown as long as competitors don't follow suit--> nobody has incentive to move first.
    * Additional reactions:
    Pro: Former Fed vice chairman Alan Blinder says it's a ``giant step toward a cure'' for the financial crisis. Harvard University economist Kenneth Rogoff says Treasury Secretary Henry Paulson and other leading officials are doing a ``terrific job.''
    Con: Vanguard Group Inc. founder John Bogle says the U.S. government is ``punch drunk.'' Federal Reserve historian Allan Meltzer: "This is not taxpayers' problem. This is not a place exactly with a great big surplus that can afford to do these things."

    Associated Readings (14 Articles)

  109. I want to download all the comments & articles ever written on Elephant Bar, from jump street, but I don't want to get Mouse Finger, so I told my computer to do it for me:

    wget -E -r -k -p -w 5 -np

    The "-w 5" means wait five seconds between articles. That lets you good folks jump in with more comments while I'm hammering the server. Linux is so cool.



    The Treasury has been using the formula that it will buy assets at "fair market prices". As we have noted, there is simply huge amounts of cash ready to bottom fish in housing-related assets (we saw an estimate of $400 billion a couple of months ago). The issue is not lack of willing buyers; it's that the prospective sellers are not willing to accept prices that reflect the weak and deteriorating prospects for housing. Meredith Whitney, the Oppenheimer bank analyst who has made the most accurate earnings and writedown calls of her peer group, has noted how the housing market price decline assumptions used by major banks fall short of where the market is likely to bottom, given traditional price to income ratios and expectations reflected in housing futures prices.

    In addition to the factors that Whitney (and others) have cited, the duration of the 1988-1992 US housing bear market and major financial crises suggests that that a peak-to-trough decline of 35-40% is realistic (obviously, this average masks substantial variation across markets and housing types). We are thus only a bit more than halfway through, as measured by the fall in prices.

    Yet as we discussed, the plan makes no sense unless the Orwellian "fair market prices" means "above market prices." The point is not to free up illiquid assets. Illiquid assets (private equity, even the now derided CDOs were never intended to be traded, but pose no problem if they do not need to be marked at a large loss and/or the institution is not at risk of a run). Confirmation of our view came from a reader by e-mail:

    I worked at [Wall Street firm you've heard of], but now I handle financial services for [a Congressman], and I was on the conference call that Paulson, Bernanke and the House Democratic Leadership held for all the members yesterday afternoon. It's supposed to be members only, but there's no way to enforce that if it's a conference call, and you may have already heard from other staff who were listening in.

    Anyway, I wanted to let you know that, behind closed doors, Paulson describes the plan differently. He explicitly says that it will buy assets at above market prices (although he still claims that they are undervalued) because the holders won't sell at market prices. Anna Eshoo pressed him on how the government can compel the holders to sell, and he basically dodged the question. I think that's because he didn't want to admit that the government would just keep offering more and more.

    I don't think that our leadership has been very good during this negotiation (or really, during any showdowns with this administration) at forcing the administration to own their position. If Paulson wants this plan, then he needs to sell it to the public, and if he sells a different plan to the public (the nonsense buying-at-market-price plan) then we should pass that. I'd rather see the government act as a market maker for the assets to get them transferred over to private equity firms and sovereign wealth funds and other willing holders. And if we need to recapitalize these companies, it seems like the cheapest way for the taxpayer is to go in and buy up the distressed debt and then convert that to equity.

    So unlike the Resolution Trust Corporation, which took on dodgy assets which had fallen into the FDIC's lap due to the failure of thrifts, and the Home Owners' Loan Corporation, which was established in 1934 after the housing market had bottomed, this program is going to swing into action with the clear but not honestly disclosed intent of buying assets at above market prices when future markets and the analysts with the best track records on forecasting this decline (you can add Robert Shiller, CR at Calculated Risk, and Nouriel Roubini to the list) believe it has considerably further to fall.

    As we said earlier, this is a covert, not particularly well designed, inefficient, and unduly costly recapitalization of the banking system.


  111. ...and doing to the Housing Sector what government intervention did for Medicine:

    Drive up the costs, so only with (more) government assistence will first time buyers be able to afford a home.

  112. "(private equity, even the now derided CDOs were never intended to be traded, but pose no problem if they do not need to be marked at a large loss and/or the institution is not at risk of a run)."
    Easier to deride a scapegoat than to give a full explanation which would out the bad actors.

    The recent past is littered with the wreckage of Pub attempts at a remedy, squashed by the very Dems most responsible for the problem.

    'Rat, like his hero, John, would rather blame Bush and big business than tell it like it is.
    (thus the Joke of having Dodd, Franks, and Hank [another Democrat] "solve" the problem.

    ...and OBAMA is *NUMBER 1* recipient of Money from Fred, if you take into account the fact that he just arrived.
    Why would that be?

  113. One time I posted my skepticism of NDEs and bobal nearly killed me.

    Talitha Cumi

    Jor-ge works in the damned used car lot, I found that much out today.

    Also went to the Moscow Ford dealer. Ford's got a $7,000 incentive, alright, with maybe another $500. What this means I ain't sure, as I never buy new cars. Maybe they raise the price 75hundred then lower it 75 hundred.

    How do you find out what a new car dealer actually pays for a car from Ford?

    A 4wd Supercab Ford F-150 can be gotten here for a littel under 20k now, I think.

  114. I want to download all the comments & articles ever written on Elephant Bar

    Teresita, er, are you, eh, all right?

    Have you eaten? Feeling faint lately?

  115. Ford's got a 6, a V-8 and a V-10 for the F-150. Not all three engines in the same truck.

    They also have a hybrid SUV.

  116. Biden says Hillary is better than he, Obama's ads suck, and is drawing crowds of around 200, 1/3 of which is local press.

    Obama would have been better off if he'd run alone, letting the Congress pick the vp, if he won.

  117. My, think of it.....

    By Jerome R. Corsi
    © 2008 WorldNetDaily

    Obama housing adviser Franklin Raines

    NEW YORK – Two Barack Obama advisers, Franklin Raines and James Johnson, received preferential home loans as industry favors, apparently in deference to their executive positions heading Fannie Mae.

    Raines and Johnson, as "friends of Angelo Mozilo," the chief executive of Countrywide Financial Corp. – the now bankrupt high-flying loan originator in the sub-prime mortgage debacle – were funneled millions of dollars for personal home loans. Mozilo himself made exceptions from Countrywide policy to provide the two Fannie Mae CEO's "sweetheart deals."

    Obama's outspoken criticism of Mozilo's exceptionally high compensation is again under attack as hypocritical in view of the preferential loans to Raines and Johnson and the degree to which Countrywide's failed sub-prime loans contributed to the government takeover of Fannie Mae and Freddie Mac and last week's mortgage-related crisis on Wall Street.

  118. John Mauldin at

    Betting on Financial Armageddon


    This Too Shall Pass

    I know that you probably are reeling from all that has happened the past few months and especially the past two weeks. Lehman and Mother Merrill gone? We the people own AIG? Fannie and Freddie? A new housing bailout which will cost hundreds of billions? The Fed creating whole new programs to provide liquidity? Did you notice they loaned some $250 billion this last week to banks all over the world? Stopping short selling?

    Want to see in graph form how bad it got and what spooked Paulson, Bernanke and company to act so quickly? Look at these graphs from my friends at Casey Research ( 30 day commercial paper went to 5% from 3% a week ago. The market was literally freezing. And the amount of paper issued is in free fall. Commercial paper is the life blood of the financial and business world. Without it commerce will soon grind to a halt.

    Commercial Paper Market Froze Up

    The Size of the Commercial Paper Collapsed

    It simply takes your breathe away. As President Bush said today, it does not help to find who is at fault today, we have to figure out how to get out of this mess. It is going to cost the taxpayers a lot of money. While I think the losses on AIG will be rather minor in the grand scheme of things, if you add up Fannie and Freddie and a new RTC, coupled with the stimulus package, you can easily get to $500 billion, and that is probably a low number.

    For such a price, we had better get a new regulatory scheme which requires reduced leverage. Want to get really mad? Up until 2003, all investment banks were allowed only 12 to 1 leverage. Then in 2004, the SEC basically gave five banks (and only five banks) the ability to lever up 30 or even 40 to 1. Bet you can guess the five banks. Bear, Lehman, Merrill, Morgan and Goldman. Three down.

    As Barry Ritholtz wrote: "So while the SEC runs around reinstating short selling rules, and clueless pension fund managers mindlessly point to the wrong issue, we learn that it was the SEC who was in large part responsible for the reckless leverage that led to the current crisis." (Don't get me started on blaming the short sellers. Let's not blame the people who leveraged up their companies 40 to 1 with bad investments.)

    We absolutely must move credit default swaps to a regulated exchange, no matter how much investment banks and hedge funds scream. Must be done. Do it now. Real rules about writing mortgages, although now that losses are in the hundreds of billions, underwriting rules are already becoming quite restrictive.

    And while we are at it, a thorough revamping of the rating agencies and the rules they use should be at the top of someone's list.


    But I suggest reading the whole piece.

  119. And Ric Edelman, my own financial advisor:

    Update Regarding the Financial Markets

    September 19, 2008

    Click here to download this special report (PDF)

    Note: The following special update was updated Friday at noon, Sept. 19th. It went through more than a dozen drafts; revisions were required to reflect new information. Because events are continuing to develop with unprecedented speed, the following information could be outdated by the time you read it. Therefore, we will issue updated information as warranted.

    Lehman Brothers, 158 years old and the nation’s fourth largest brokerage firm, has filed for bankruptcy, with the bulk of its assets purchased by Barclays, a British company. The nation’s largest brokerage, 94-year-old Merrill Lynch, is now gone, too, having been acquired by Bank of America (although BofA says it will continue to use the Merrill name). AIG, until recently the largest insurance company on the planet, has been taken over by the federal government. All this follows the demise of Bear Stearns, the nation’s 5th largest investment bank, having been ac-quired by JP Morgan Chase in a government-supported takeover. And Fannie Mae and Freddie Mac have been nationalized; taxpayers now own 80% of those firms.

    Two words come to mind regarding all these firms: comeuppance and good riddance.

    Okay, that’s three words.

    I feel like Stanley shaking his head while muttering to Ollie, “Well, here’s another nice mess you’ve got me into.” Many have noted the following: that we are in a recession; that home values have declined an average of 20% since 2006, according to the S&P Case Shiller Index, and are still dropping; that 6.4% of homeowners with mortgages are behind on their payments and 2.75% are in foreclosure, according to the Mortgage Bankers Association; that unemployment nationally is 6.1%, according to the Bureau of Labor Statistics; that oil prices recently hit an all-time high of $145/barrel, as have gold prices, at $1,002.95/ounce, according to The Wall Street Journal; that the dollar has fallen to an all time-low against the Euro, at $1.60, also according to the WSJ; that more than a dozen banks have failed, including Indy Mac (the 2nd largest bank failure in U.S. history) and that the FDIC says 117 more banks are on its problem list; that the personal savings rate is near its all-time low, according to the Federal Reserve; and that the stock market has fallen more than 20% from its highs of nearly one year ago, with many mutual funds and other investments faring far worse.

    And it’s Merrill’s fault. And Lehman’s and Bear Stearns’ and AIG’s (and some others, too). Fannie and Freddie are culprits as well, as is the entire mortgage industry. Add the real estate industry while you’re at it, including appraisers and home builders. And don’t stop there. Congress is also to blame — from former House Speaker Newt Gingrich to current speaker Nancy Pelosi and everyone in between. Also Bill Clinton and Alan Greenspan, as well as George Bush.

    The Wall Street brokerages and investment banks, with the encouragement of federal policy makers, have flooded America with cash. And to get that cash into society, lending rules were loosened so that virtually anyone could get a loan. When your parents bought their house, they were required to make a down payment of at least 20% and prove they had sufficient income and assets to afford a mortgage loan. They had to pay prevailing interest rates (usually in the neighborhood of 6%), too. But home buyers in the late 1990s and early 2000s suffered no such hassles.

    Because presidents love to brag that more people own homes than ever before, and because Congress loves the revenue generated by a growing economy, the rules were loosened. As a result, you could now buy a home with no money down — even the loan’s closing costs could be financed. The initial payment could be based solely on a 1.25% interest rate, even though that rate was not the loan’s real rate. If you couldn’t afford even that, you could simply pay a smaller amount of your own choosing. And if you still couldn’t afford it, well, no one would know because lenders were willing to grant you a loan without verifying that you had any income or assets at all. Loan officers started calling these mortgages “liar loans.”

    By 2003, it took less cash to buy a house than to rent an apartment, and the monthly payments were lower, too. It’s no wonder that, year after year, home ownership reached a new all-time high, just as the politicians wanted.

    With so many people flocking to these new, enticing loan products, lenders needed lots of capital to meet demand. After all, if a bank has $300,000 on hand, it can only lend that money once. So it needs to replenish that cash. Unable to attract enough CD deposits, lenders turned to Wall Street for help.

    And our nation’s biggest brokerages were only too happy to help.


    There's lots more.

  120. Ultimately, I believe, this whole situation will blow over and people will be wiser for it. We will see that quasi-private/quasi-public companies with government backing are not good situations.

    We will understand better what are and aren't good business practices, and when companies suffer for practicing them, we won't penalize taxpayers for the business's mistakes.

    This whole period highlights the unfortunate weakness of the system: Unethical people take advantage of their positions to earn money in questionable ways. But before everyone rushes to slap increased regulations and restrictions on the market, remember that is what might take away from the true strength of the system, the dynamism and opportunity it provides.

    Perfect Storm

  121. They all had a role to play, doug.

    But as Newt said on FOX News, Team43 was and still is running scared.

    I'll tell you that they have no stomach for a fight with the Dems, over anything but occupying Iraq.

    That was and is their highest priority. Nothing could get in their way, on that. Nothing did.

    Anything could, and was, sacrificed to Stay their Course.

    But what next, doug?

    Should we give Paulson ever more money for his old friends and associates, on Wall Street?

  122. Mat, in an attempt at ego enhancement, tries balancing an egg is space. Notice the two remnant failed attempts, left and right.

    All this sub prime mess and Freddie and Fannie and AIG is just a surreptitious attempt to set the stage for the introduction of the Amero.

  123. or. SpudPlanet, with SuckerSpuds.

  124. DR,

    That 25% in foreclosure - that was a YEAR AGO. Before all the resets began occurring in 2008, and which peak in Q3 and Q4 2008.

    But, if those numbers in that report are correct (and they supposedly comprised almost 60 % of the market), better than 95% of the "loss mitigation" (i.e. workout & restructuring) efforts resulted in peforming loan assets.

    The problem here is that nobody holds the entire mortgage, so nobody can speak for the mortgage in renegotiating with the borrower. See the Lewis Ranieri article I posted a day or two back, where he talks about tranches on top of tranches on top of tranches. These mortgages were place in an investment bank owned blender, sliced and diced, and out comes payments of interest years 1-2 to investor A, interest years 3-5 to investor B, principal years 1-5 investor C, and so on. So, how exactly do you restructure these loans to obtain performing assets. Based on the 2007 #'s, 95% of the borrowers can and want to pay, but they need some slack, and not a ridiculous amount. But the loan servicing company has no legal authority to speak on behalf of all the "investors" it represents. In fact, the idea of a portfolio has been turned upside down - the borrower now has a "portfolio" of payees, via the servicer.

    As Ranieri said in the referenced article, one would have to rent out the Nassau coliseum to get all of the various "investors" in a tranche of mortgages in the same building, and have myriad tax, accounting and legal professionals at their beck and call, to even get a waiver on behalf of a mortgagee, much less renegotiate them all. And then all sorts of esoterica regarding who is in "control" raises its head and the lawyers go batshit and BAM - all the shit hits the fan.

    Somebody has to position themselves as the gorilla in the room running these negotiations, and I guess that's Paulson and Bernanke's intent. So long as it is, in fact, Paulson, i would roll the dice with him, because he is one smart, tough motherfucker who is not in this any longer to make money, for lack of a better alternative and in spite of my deep desire for a better alternative. BUT, as DR notes, there's currently a 50/50 chance that Obama takes over in 4 months, in which case Paulson would not be allowed to complete the job (on his terms, at at minimum). So, I don't know - it's a big fucking mess and there's plenty of blame for all politicians, regardless of creed or color.

  125. Volatility again swept the financial markets Monday as investors grew nervous about an amorphous government plan to buy $700 billion in banks' mortgage debt. Stocks fell sharply, taking the Dow Jones industrials down more than 370 points, while investors sought safety in hard assets such as gold and oil, which at one point shot up more than $25 a barrel.


    "Con job," is what Rep. Maurice Hinchey, the Hurley Democrat who represents the 22nd Congressional District, called the administration's plan.


    Congress must force the administration to invest money in infrastructure and provide foreclosure assistance as well as stabilize the markets, Hinchey said.

    Remaining on Edge

  126. “Ninety percent of the politicians give the other ten percent a bad reputation.”
    Henry Kissinger

    from BC

  127. All this sub prime mess and Freddie and Fannie and AIG is just a surreptitious attempt to set the stage for the introduction of the Amero.

    Tue Sep 23, 01:47:00 AM EDT

    Shhhhhhhh. Loose lips sink the best laid plans o' mice and men.

  128. Rat cutting and pasting today's George Will in 5...4...3...2...

  129. Bob,
    Came across a website last night that purported to reveal the "true" cost to dealers of F-150s. Naturally I forget to bookmark it.

    I picked up the boy today in Yosemite and discussed trucks on the ride home. Asked him what he thought of an F-150. Said I was doing some research. Didn't mention Jorge. His answer was if we can't find the Tacoma of his dreams that he wants a Tundra. :-)

    I'll keep lookin' for the Ford info and let you know if I find anything. BTW, got a tankful of Chevron regular for $3.76/g on the way home. Lowest price in a long time. Might be even cheaper down the hill in the bright lights.

    I'm like you, I guess. Only bought 2 new cars in my life, and the last was in '85. My best deal seems to have been my $1300 '65 F-100 bought in '79. It's the most reliable of my fleet, it seems.

  130. Pakistan Fires On US Chopper

    I bought gas for $3.40 today. With the big rise in oil today, probably be higher tomorrow.

    I might know a little more about truck prices tomorrow, if so will post.

  131. If you've got a few hours to idle away, some of this

    The day-long program included two keynote presentations and two panel discussions with leading voices from the fields of near-death, paranormal and spiritual experiences. Almost the entire symposium is available as a webcast at

    at a UN symposium is quite interesting.