The Crash in One Paragraph

This WSJ piece is worth reading, but this paragraph really stood out:

The 2001 recession might have ended the bubble, but the Federal Reserve decided to pursue an unusually expansionary monetary policy in order to counteract the downturn. When the Fed increased liquidity, money naturally flowed to the fastest expanding sector. Both the Clinton and Bush administrations aggressively pursued the goal of expanding homeownership, so credit standards eroded. Lenders and the investment banks that securitized mortgages used rising home prices to justify loans to buyers with limited assets and income. Rating agencies accepted the hypothesis of ever rising home values, gave large portions of each security issue an investment-grade rating, and investors gobbled them up.

After spending months trying to figure out what is happening, that really seems to be the best one paragraph description I have seen of what we are currently experiencing. Also, if you have the time, read Andrew Rosenfield in the Times on how to let a bank fail.

Also, here is a piece I read over the weekend called It Really Is All Greenspan’s Fault that you might find interesting.

Share On Facebook
Share On Twitter
Share On Google Plus
Share On Pinterest
Share On Reddit






100 replies
  1. 1
    Alan says:

    Yeah, that was the era of "no more recessions". Monetary policy could keep the economy purring. Greenspan was a genius.

  2. 2
    DougJ says:

    Greenspan was a genius.

    I believe the word is “maestro”.

  3. 3
    Napoleon says:

    There is no doubt about it, if you had to name one single person that was most responsible it is Greenspan with his liquidity in the face of what was obviously a housing bubble forming.

  4. 4
    wilfred says:

    Rating agencies accepted the hypothesis of ever rising home values

    Hypothesis? More like a communique from cloud-cuckooland. Who can take comments like that seriously?

  5. 5

    The push to expand homeownership played no role in steering money towards the real estate bubble.

    60% of the subprime loans in the GSEs’ portfolios were refinances – what does that have to do with expanding homeownership?

    Everything else in that paragraph – the loose money policy resulting in money chasing investments instead of vice-versa, rising home values masking the effects of riskier lending practices, leading to ratings agencies screwing up their assessments, investors diving into MBSs and related derivatives – all hang together. They’re part of a coherent narrative. What’s more, they all obviate the need for any action on the government’s part to be part of the explanation.

  6. 6
    harlana pepper says:

    Teh Grande Ownership Societeh

  7. 7
    Alan says:

    @Napoleon:

    Greenspan combined with the deregulation of the investment banking system is what did our economy in.

  8. 8

    Also, Greenspan lowering rates during the recession in 2001 was nothing special. That had been done dozens of times since World War II.

    His sin was in not raising them again, or enough, when the recovery got going. He raised them when the recovery got going in the early-to-mid 1990s (ie, under a Democratic president), but for SOME reason, in 2003-2004, he decided that the economy needed an extra jolt. For some, inexplicable reason. The world will never know.

  9. 9
    Bill Teefy says:

    I think righties will stop reading after…

    …credit standards eroded.

    and go right to ACORN or some other talking point…but it is about as simple and as clean an overview of what seemed to happen.
    Sadly, many lower-middle and middle class buyers did jump in to the hot market thinking they would be the winners. I don’t think they were blameless but you had to fight hard not to follow the spin that magic rainbows were real.

  10. 10
    Shygetz says:

    The thing that bothers me on a personal level about this crisis is the fact that, no matter how much I read and watch on the crisis, I still haven’t the foggiest beginnings of a feeling for a credible solution to solve the problem. For example, I read the Times op-ed that John linked to, and thought "Hey, that sounds reasonable." But I have zero doubt that I could read a rebuttal that pans this idea as unworkable, and think "Hey, that’s a good point." My own rank ignorance on this topic forces me to just pick someone and trust their opinion on the matter, which leaves me feeling helpless. Moreso because, when it comes to economics, I trust neither party to look out for my interests–although the Dems come closer, it’s not by terribly much.

  11. 11

    ACORN runs first-time homebuyers seminars, in which they teach people about predatory lending, dangerously-structured loans, and how to determine if loans are affordable. They also lobby for stronger regulation of predatory lenders, and great transparency in lending.

    Seeing them blamed for a problem they actively worked to prevent is heartburn-inducing.

  12. 12
    Kathy says:

    Fareed Zakia on his CNN program promoted his favorite explanation of the crisis from a Financial Times writer. Zakia says you can get the link at CNN.com. What is says in a nutshell is that there are 4 traditional ways to get money from finance (as opposed to work, selling something.)
    1) Commerical banks. Money is guaranteed and a capital reserve is mandated.
    2) Traditional insurance polices. Money is also guaranteed and a capital reserve is mandated.
    3) Gambling. If you win, the money is guaranteed and legal casinos must maintain a capital reserve.
    4) Stock Market. Your investment is not guaranteed and therefore there is no need for a capital reserve.
    Credit Default Swaps introduced a completely new option where a payback is guaranteed but no reserve is mandated. That is what is causing the havoc. The way to reform then lays in requiring CDS to have the same standards as Casinos.

    Interesting and makes sense. (I so love Fareed :)). Of course this doesn’t clean up the current mess. Any thoughts?

  13. 13
    Punchy says:

    in 2003-2004, he decided that the economy needed an extra jolt. For some, inexplicable reason. The world will never know.

    Except we do know. It’s called the 2004 U.S. Presidiential Elections.

  14. 14
    JG says:

    My issue with Rosenfield’s article is that he doesn’t even address the complexities underlying why those banks haven’t just been allowed to fail as he purports to describe in his article. They aren’t just "banks" as we traditionally think of them, they are hydras whose other heads can’t be cut off by federal regulators under existing authority.

    Say you let one of the commerical banks that is part of Citi/Chase/Wells/BofA, etc. fail – what do you do with their investment arm and the various businesses of the holding company? Letting the commercial bank fail doesn’t change that the other parts are still in trouble (and the failure of the commercial bank will likely tank any value remaining in the holding company stock and freak out creditors who might use that to demand payment).

    This just doesn’t seem so "simple" to me. Given the love the administration has lavished on FDIC resolutions, you’d think if that was a viable option they’d have already done it.

  15. 15
    Rick Taylor says:

    Also, if you have the time, read Andrew Rosenfield in the Times on how to let a bank fail.

    I read this. Their seem to be two groups. One argues as this article does taking the bigger failing banks into receivership is straightforward and it should have been done already. The other argues it’s practically and politically impossible. I have no expertise to judge which is correct.

    This article wasn’t clear; it seemed to be saying that AIG could be taken into receivership and restructured as well, but I’m not sure if it is. The economist at Angry Bear has said the same thing. The only argument I’ve found that it made sense to honor AIG’s contracts on derivative protection, paying 100% (not to mention any promised bonuses to employees), was that because they weren’t a bank receivership was impossible, and bankruptcy would have been a disaster.

  16. 16
    Jasper says:

    "Both the Clinton and Bush administrations aggressively pursued the goal of expanding homeownership seeing how many items on the bank lobby wish list they could check off…."

    Home ownership for "first time homebuyers" was just a cover for letting the banks do EXACTLY what they wanted (and paid $5 billion in lobbying/campaign contributions to get), which was maximize profits extracting fees from overpriced products pitched to the masses.

  17. 17

    This piece is excellent and this also jumped out at me:

    There is a simpler, sounder and fairer way to recapitalize an insolvent bank. The government should seize it, as it is already authorized — indeed, compelled — to do.

    I have been spending a lot of time studying the financial crisis, it’s roots, causes and fraud. Watch this episode of Bill Moyers Journal with William K. Black a respected authority on economics and you might be persuaded as well. Read Black’s follow up to a criticism of his appearance on the show. It’s devastating and well worth the time.

    I’ve come to the regrettable conclusion that Geithner is part of the problem and should be fired. Today. A replacement secretary must be brought in with no ties to Wall Street. None. Geither is far to sympathetic to this crowd of thieving criminals and should be let go. The plan he proposes is a cover up for some very bad actors. The Obama administration is creating more problems than it’s solving by allowing the people who should have seen this coming continue at attempts to "fix" the problem. Well the fix is in. And it ain’t going to change one goddamned thing if they continue down the current path. They are kicking the can down the road. I am very disappointed and expect more from these very smart people.

  18. 18
    schrodinger's cat says:

    Rating agencies accepted the hypothesis of ever rising home values,

    Anyone with a slightest common sense could see that home prices would not keep rising indefinitely, that they would eventually hit a ceiling. I can’t believe the rating agencies were that irresponsible. Did they profit from this dereliction of duty? Who is going to believe in the ratings these agencies put out now?

  19. 19
    Leelee for Obama says:

    Seeing them blamed for a problem they actively worked to prevent is heartburn-inducing

    And yet, as predictable as sunrise. If the Republicans/Conservatives can’t find a poor, or dark-skinned someone to blame their messes on, then it must be God’s judgement. Or a liberal plot. I am not excusing the Dems here; the ones that went along should get horse-whipped, but the basic math is pure Milton Friedman. Road to Serfdom my ass!

  20. 20
    schrodinger's cat says:

    I wrote a rather long comment which I think is stuck in moderation because I used a different email address than the one I usually use on this site.

  21. 21

    Home ownership for "first time homebuyers" was just a cover for letting the banks do EXACTLY what they wanted (and paid $5 billion in lobbying/campaign contributions to get), which was maximize profits extracting fees from overpriced products pitched to the masses.

    This goes for the privatized, publicly-traded, shareholder-value-maximizing Freddie and Fannie, too. They didn’t suck up hundreds of billions of dollars in cash-out refinances and equity lines on suburban McMansions so that Tyrone Washington and his family could move out of the walk-up they were renting.

  22. 22
    Napoleon says:

    @joe from Lowell:

    His sin was in not raising them again, or enough, when the recovery got going. He raised them when the recovery got going in the early-to-mid 1990s (ie, under a Democratic president), but for SOME reason, in 2003-2004, he decided that the economy needed an extra jolt.

    As someone else noted it was about the 2004 election, but to add some context he did not raise them in the early to mid-90s under a Dem but began that under Bush I and when Bush I lost to Clinton, Greenspan came under heavy fire from the right for sinking Bush by causing a recession (at least that was the complaint).

    PS – in case it is not obvious from my comment, my thesis would be that Greenspan did everything he could to avoid being blamed for a reelection campaign loss by Bush II, so he opened up the money flow unlike the responsible course he took when Bush I was pres.

  23. 23
    BenA says:

    Anytime anyone suggested it might be a good idea to raise rates… you’d hear them trot out the inflation meme… trying to scare people… meanwhile an insane housing bubble was being produced.

  24. 24
    4tehlulz says:

    Obviously, if the Community Reinvestment Act didn’t force banks to give loans to blacks and Mexicans, this would never have happened.

    /lou dobbs

  25. 25
    Michael says:

    Tying so much capital into real estate (particularly residential) does nothing to maintain the dynamics of a market economy. Once structures are built on the land, the benefit to society in terms of economic activity tails off, as the captured capital is literally imprisoned for the indefinite future.

  26. 26
    aimai says:

    The best reporting on all this has been done by This American Life first in their standout hour on Alan Greenspan and then on an amazing hour I just heard this weekend on the crash of developer based housing in Chicago. Basically, as we know but as the WSJ and others refuse to admit, the real crash starts with Developers in a cozy relationship with Cities and with Banks taking out massive loans to overbuild and then looting those condo and housing units and going bankrupt and leaving the homeowners’ with the detritus. Its ridiculous to argue that loans to sub prime borrowers, at the behest of poor people and the government, created this mess. The most money of all went to developers (who themselves were often leveraging the imaginary value of their properties or their own homes) to create and flip properties to innocent or unworldly home owners. In the case of the Chicago overbuilding/rehab boom apparently partially built or partially sold condo associations were a cash cow for developers while mortgage and other development credit were free flowing. As long as the unit wasn’t over 75 percent sold the developer also had free access to all the escrow money. Half occupied or half owned buildings are now being left in literal limbo while the developers decamp and the banks refuse to take on the role of owner/maintenance person.

    I wish people would also stop talking about how the banks were deceived and ripped off by the poor people who shouldn’t have bought homes. The whole point of a mortgage loan is that the "real" estate which you are buying serves as a backstop for the bank. If you don’t pay the mortgage they are *supposed* to repossess the house and resell it. If the Banks didn’t grasp that this could happen, or failed to accurately calculate the rate of defaults and the cost of foreclosure, that’s because they were stunningly at fault in running their own businesses. Not because of something poor people did to them.

    aimai

  27. 27
    jayackroyd says:

    Nah. It leaves out the fraud part. that ran all through this. Mortgages with initial negative amortization schedules with no down payment. AIG issuing derivatives they knew to be wastepaper. ("Toxic waste" wasn’t a critic’s coinage.) Moody’s rating toxic waste AAA. This wasn’t starry eyed fools believing that trees grow to the sky. This was people flat out stealing, banking on the govt bailing them out when the music stopped.

    And they were right.

  28. 28

    @ Napoleon

    Thanks for the background. I hadn’t realized that.

    @ aimai

    I wish people would also stop talking about how the banks were deceived and ripped off by the poor people who shouldn’t have bought homes.

    Seriously. They love to trot out "people lied to the banks on their mortgage applications." The banks could have required pay stubs and W-2 any time they wanted, but didn’t want to.

    Gee, why would a lender not want documentation of the claims made on a mortgage form? What could the answer possibly be?

  29. 29
    wasabi gasp says:

    This display of Mr. Greenspan’s unflagging exuberance is what sent us down this roller coaster.

  30. 30
    idahogie says:

    The paragraph leaves out the most important contributing factor, in my mind. It should discuss the creation of the secondary derivative market, the lack of any regulation or oversight of that market, and the leveraging effect that it had. Had it not been for the disappearance of that $70 trillion market, we’d be in a small and manageable real estate downturn. Instead, we’re on the brink of depression.

  31. 31

    BTW, if anyone tries to tell you this was somehow unforeseeable, you can point ’em to Daniel Davies calling it exactly in 2002, in hardly more words than that WSJ piece.

  32. 32
    Kat says:

    This explains the crash much better than that pathetic paragraph. ;-)

    ‘Courting’ disaster: Disfunctional female robots caused the global financial crisis.

  33. 33
    The Other Steve says:

    60% of the subprime loans in the GSEs’ portfolios were refinances – what does that have to do with expanding homeownership?

    Shoot, I no longer have access to stats. But the GSEs were not the primary issuers of subprime. You really have to look at Countrywide, GMAC, WaMu, etc.

    Everything else in that paragraph – the loose money policy resulting in money chasing investments instead of vice-versa

    BINGO! The supply and demand chain was inverted. The problem was too much money going after too few opportunities, creating a bubble.

  34. 34
    Corner Stone says:

    @The Grand Panjandrum

    I’ve come to the regrettable conclusion that Geithner is part of the problem and should be fired. Today. A replacement secretary must be brought in with no ties to Wall Street. None. Geither is far to sympathetic to this crowd of thieving criminals and should be let go. The plan he proposes is a cover up for some very bad actors.

    But don’t you think they know that? Don’t you think they knew who he was?
    Geithner is a useful foil, and nothing more. He is implementing (or allowing to be implemented) exactly what has been agreed upon. Nothing more or less.

  35. 35

    I’m with you, the Other Steve. During the bubble period, the big investment houses all but chased Freddie and Fannie out of the subprime market.

    My point is that even to the degree that the GSEs were in the subprime business, they were doing it for the same reasons as Wall Street – because it was lucrative.

  36. 36

    @Corner Stone: Are you saying this is a political calculation (bringing Geithner on board) on the part of the Obama administration? If so, then it is cynical and downright reprehensible if true. They are throwing trillions of dollars down a shit hole so they can protect the bankers and Wall Street crowd. Is this an intentional cover up for these thieves?

  37. 37

    I agree that the paragraph from the Journal is very good, but it can be boiled down further. All of the Journal’s points have one root. I can describe the crash in one sentence:

    “The crash is the result of the erosion of professional ethics.”

    This is why Sully Sullenberger should be appointed to the Presidency, or at least the position of Treasury Secretary. He had checked out a book on professional ethics from the library that was in his cargo hold. He called up the library after his daring water landing, and told the librarian that he could not return the book because it was ruined. Sully is cool under pressure, a highly-skilled Veteran, honors professional ethics, and can speak without a teleprompter.

    Developers, bankers, government officials, and credit rating agencies worked as a team to put together attractive investment packages in the run up to the crash. This is wrong on all levels. If Sully Sullenberger had been in charge, this would not have happened. Sully would be honest with us about the state of the banking industry.

  38. 38
    Rick Taylor says:

    Bill Black spoke about the role of fraud in the current crises on Bill Moyer’s journal, and in another article argues that it’s not a choice; the law mandates that insolvent banks be taken into a receivership.

    P.S. Whoops. I rushed my post because I’m on my way out, and now I see the Grand Panjandrum beat me to it, and included a follow up by Black.

  39. 39

    Spot on, BoB.

    Sully’s also a big union guy.

  40. 40
    NonyNony says:

    @Kathy:

    Credit Default Swaps introduced a completely new option where a payback is guaranteed but no reserve is mandated. That is what is causing the havoc. The way to reform then lays in requiring CDS to have the same standards as Casinos.

    My understanding is that CDSs are basically a form of insurance, not actually a completely new option given the ones that are outlined there. They aren’t called insurance, and are structured in a manner that allows them to avoid being regulated like insurance, but the form of the "investment" is that if there’s a default, the CDS pays out. If there’s no default, there’s no pay out. That’s insurance – a hedge against the possibility of a future failure. So the real answer is to regulate them like insurance and if this makes them less lucrative to the industry then so be it. If having a mandated capital reserve requirement makes them unprofitable then they’re basically just a big pyramid scheme and not a useful product for the industry to be flogging anyway.

    @The Grand Panjandrum:

    I’ve come to the regrettable conclusion that Geithner is part of the problem and should be fired. Today. A replacement secretary must be brought in with no ties to Wall Street.

    Yeah. Good luck with that. Even if you could get a replacement secretary with no ties to Wall Street through the confirmation hearings (a doubtful proposition even in these times), there’s nothing that says that the fools who own the banks would have to listen to him. And most of these guys sound like they’re content to let their banks fail rather than take any kind of temporary limits on their paychecks – even if letting their banks fail would mean crashing the global economy. A problem, I suppose, when you put hired guns who only care about their 7+ figure salaries in charge of your operation.

    We’re stuck with Geithner. If he needs to be replaced any time soon, he’ll be replaced with someone who is pretty much the same. The only way that dynamic changes is if things get worse – much worse – and if the folks on The Street continue to act like none of this is their fault and they are still the Masters of the Universe. Then public sentiment might turn enough that you could get a non-Wall Street person through the confirmation process, and it might be bad enough that he could force the authority on the banks, but it’s going to have to get really bad before either of those things happen, I suspect.

  41. 41
    El Cid says:

    No, this is only a look at the home mortgage side of the issue. We’re having an investment and banking crisis, not just a mortgage crisis.

  42. 42
    clone12 says:

    I think it is a bit of a strange omission as to why interest rate was inexplicably low in 2002.

    While the Fed was not above blame, and indeed they deserve a great deal of criticism, I think it is important to remind ourselves thet we as a nation made a lot of really bad decisions in response to 911, and the irrationally low interest rate that remained months after that day I think is one of those bad decisions.

  43. 43
    Brachiator says:

    … so credit standards eroded. Lenders and the investment banks that securitized mortgages used rising home prices to justify loans to buyers with limited assets and income.

    This is OK, but too passive. It is more correct to say that lenders deliberately disregarded their own rules, rules which had years of historical data behind them that suggested that making large numbers of loans to people without regard to their credit ratings was a bad idea.

    The article is also disingenuous. Banks figured out that they could make huge profits on fees related to mortgages.

    And again, trying to place some responsibility on Clinton (or even Bush) on this is pointless, since international banks got in on this early on. German banks did not become big holders of Cleveland, Ohio mortgages because they agreed with Clinton and Bush administration home ownership policies.

    Rating agencies accepted the hypothesis of ever rising home values, gave large portions of each security issue an investment-grade rating, and investors gobbled them up.

    As others have noted, this was simply insane. What was it that Greenspan said about "irrational exuberance?"

    In other words, the irrational greed of lenders was just crying out for a bitchslap from the Invisible Hand, and we are all now reeling from the sting.

  44. 44
    Karmakin says:

    The problem with the Black interview, is that I don’t think he gets the bigger point.

    He’s accusing the financial industry of fraud. Which is, to a degree true. But who is it fraud against? Is he talking about fraud against the homeowners? Fraud against the shareholders? What? Who is the victim here?

    I’m assuming that he means that the ultimate victim here is the shareholder. That these financial companies turned into a house of cards that have no chance of prospering long-term. What Black doesn’t get, or doesn’t talk about…this isn’t a special case.

    This is really no different than slashing your R&D budget or redirecting it to short-term rather than long term trends, or getting cheap with the quality of the parts you use, or firing your experienced sales/support staff to save on wages.

    All these things that have been done at one time or another by…probably most public companies. All this is basically the same sort of fraud. In not all cases has it hurt somebody, but all these cases have equally put these companies at risk.

    The financial system rewards short-term over long-term rewards. This is what has to change. This leads public companies to act in short-sighted manners to raise stock prices in the short term, but to create huge problems internally that will cost more money in the long run.

    Raise capital gain taxes. A lot. This type of income should not be rewarded, in fact, the opposite. Lower taxes on dividends, to encourage long term buy and hold stock ownership in truly successful and stable companies.

    Put limits on most forms of pay for the leaders of these companies. Across the board. Make it part of the SEC requirements. MOST forms. They can get a really great pension and be set for life…as long as the company remains profitable after they are gone!

    As well, the jobs are NOT coming back. So the labor market has to be reformed for a 30 hour work week or so. And as productivity continues to march forward, this number will have to be reduced.

  45. 45
    Captain Goto says:

    Agree with others above that this article is too ingenuous, by half.

    Taibbi has another great piece in Rolling Stone, a roundup of the whole clusterf**k, going back to the 90’s. I read it in the dead tree edition this weekend; trying to find a linky.

  46. 46
    Bill H says:

    @Kathy: Cash backing for CDS’s

    I saw that bit too, and considered it a bit simple-minded on the part of Fareed Zakia. The reason they were called "Credit Default Swaps" rather than the "Insurance Policies" that they actually are was specifically to avoid the cash backing requirements that the latter instruments require. AIG is an insurance company that sells insurance policies. The new division of the company was created specifically to allow them to sell instruments far beyond the boundaries of the cash reserves maintained to cover the insurance they were issuing. If they could have backed them with cash they would have called them insurance policies and sold them as such. So his solution is simply saying, "Well we shouldn’t have done it in the first place." Duh.

  47. 47
    Svensker says:

    @BenA:

    Anytime anyone suggested it might be a good idea to raise rates… you’d hear them trot out the inflation meme… trying to scare people… meanwhile an insane housing bubble was being produced.

    I also remember Greenspan marveling at the booming real estate market and saying that maybe there really was a new paradigm and maybe there would be no more recessions, ever. My husband and I were both agog and aghast when he said it.

  48. 48

    Bob Reich has an interesting take on Geithner’s self-proclaimed willingness to fire bankers.

  49. 49
    Captain Goto says:

    Aha!!

    "People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations."

  50. 50
    The Moar You Know says:

    @Brick Oven Bill: My dad trained Sully back when they both were working at PSA. He is a hell of a pilot. He is not Jesus Christ come back from the dead.

    More importantly, he is not an economist.

  51. 51
    Stooleo says:

    My brother, who is a pilot (US Air), told me that the rumor was, that after Sully Sullenberger’s daring water landing, he walked the aisles of the plane 3 times, after that he walked around the plane twice.

  52. 52
    Alan says:

    OT: Earthquake pics from Italy for those interested.

  53. 53
    Brian J says:

    Sadly, many lower-middle and middle class buyers did jump in to the hot market thinking they would be the winners. I don’t think they were blameless but you had to fight hard not to follow the spin that magic rainbows were real.

    There seem to be a lot of people who think that it’s either owning a home that’s out of your price range or only possibly in your price range and not owning a home at all. Does it need to be like that? Why can’t people who have poor credit histories, for whatever reason, have access to credit without overloading themselves on it? I don’t know how much of the market this would encompass, but it doesn’t seem unreasonable to think there are a fair amount of people who simply wanted a relatively inexpensive home but decided to go with something that was out of their reach. Of course, was that even possible, if the market kept going up and up, beyond what some thought was reasonable?

    But what caused them to think it was within their reach? Was it shoddy standards and misleading promises of contracts they didn’t fully understand? Was it pressure to sign the contracts? Nobody can force you to sign documents for a mortgage, but pressure from the wrong angles can make a difference.

    I guess this my very long, imprecise way of saying that as much as individuals are to blame, they were many other factors at work. It’s also, I think, unreasonable to blame the whole idea of subprime lending as long as it doesn’t mean both more expensive credit and massive debt.

  54. 54
    Brachiator says:

    @Karmakin:

    The problem with the Black interview, is that I don’t think he gets the bigger point. He’s accusing the financial industry of fraud. Which is, to a degree true. But who is it fraud against?

    Agreed. I watched the Moyers piece and found the entire thing to be unsatisyfying, but typical of a certain type of knee-jerk "progressivism" that is always looking for someone to punish, but is not really interested in solving the problem. Black did not strike me as someone who knew or cared much about the underlying economic issue — how to get credit markets working again. And some of his proposals struck me as insubstantial, irrelevant or unworkable.

    Raise capital gain taxes. A lot. This type of income should not be rewarded, in fact, the opposite.

    Why shouldn’t capital gains be rewarded?

    Lower taxes on dividends, to encourage long term buy and hold stock ownership in truly successful and stable companies.

    Dividends are already low. For this year the effective tax rate on some dividends was ZERO.

    Put limits on most forms of pay for the leaders of these companies.

    This is absolutely irrelevant to the overall behavior of financial companies.

    As well, the jobs are NOT coming back. So the labor market has to be reformed for a 30 hour work week or so.

    Didn’t France try this? It was a spectacular failure.

  55. 55
    Rick Taylor says:

    @NonyNony:

    That’s insurance – a hedge against the possibility of a future failure.

    If the party purchasing the hedge owns the security they are betting against, then it’s reasonable to call it insurance. But from what I understand, there was no requirement that the people who bought these hedges had to own the security in question. If you anticipated the housing meltdown, you could make billions on an investment of millions by buying a CDS. That to me is gambling. I have nothing against gambling, I just don’t think we the taxpayers should be paying off these bets when the party that sold them (and whose executives have already walked off with the rewards) is unable to do so.

    From what I understand, the same securities were sometimes "insured" in this manner multiple times. I’d like to see more details about this, especially about the parties that AIG payed off with our money.

  56. 56
    valdivia says:

    sorry guys the name is Fareed Zakaria, not Zakia.

    I think that this idea that you can just poof take a bank holding company over as if it were a bank is totally deluded. These companies are *not* like the S&L’s of the 80s, if it were that easy it would have happened already. Beware of magic bullet solutions.

  57. 57
    Brian J says:

    Seriously. They love to trot out "people lied to the banks on their mortgage applications." The banks could have required pay stubs and W-2 any time they wanted, but didn’t want to.

    Maybe this isn’t the best thing to admit, but I’ve embellished my income on a credit card application. Granted, I have great credit, particularly for someone my age and income status, but still, it’s not unheard of to lie a little in these matters. But as you said, these matters can be checked.

    To me, the more ludicrous claim was that these institutions were pressured or even forced into giving out loans, as if people walked in with a gun and demanded a mortgage. After all, we all know that if there’s one thing that scares massively powerful and wealthy financial firms and their workers, it’s powerless minorities with no money.

  58. 58
    El Cid says:

    After all, we all know that if there’s one thing that scares massively powerful and wealthy financial firms and their workers, it’s powerless minorities with no money.

    Well, I think you’re forgetting the awesome fear inspired by Barney Frank. With Barney Frank in the Congress, the banksters were helpless.

  59. 59
    Joe Buck says:

    I think, though, that if there had been limits on the trickier derivatives and if credit-default swaps were treated as insurance (meaning that the issuing company would have the same capital requirements as an insurance company to prove that it could cover the default), the crisis would have been far smaller. We’d have a couple of trillions in bad debt instead of ten times that amount in bad "assets".

  60. 60
    The Moar You Know says:

    @joe from Lowell: That’s a great article. I can assure you every word is true. I think my dad got about 8 cents on the dollar after USAir had finished looting their pensions funds.

    The part about urging their children not to become pilots is also true.

    Air travel is going to get a lot less safe in the next few years as they keep putting people with fewer and fewer flight hours (because they are cheaper) in the captain’s seat.

    Just don’t make the mistake of assuming that pilots are all progressive, pro-labor union guys. Every one of them I knew was in support of Reagan firing all the air traffic controllers. Pilots are very pro-their union, not anyone else’s.

  61. 61
    Brian J says:

    Well, I think you’re forgetting the awesome fear inspired by Barney Frank. With Barney Frank in the Congress, the banksters were helpless.

    Is it because Barney Frank "is really, really gay…as in, he blows dudes"? Sadly enough, I know someone who seemed to think that was a relevant factor in what transpired.

  62. 62
    gex says:

    @The Moar You Know:

    Pilots are very pro-their union, not anyone else’s.

    That’s textbook conservative, then.

  63. 63
    Brian J says:

    Air travel is going to get a lot less safe in the next few years as they keep putting people with fewer and fewer flight hours (because they are cheaper) in the captain’s seat.

    So it’ll be like when Circuit City decided to let its most senior employees with the most knowledge go to save a little on labor, except with possibly more deaths because of plane crashes?

  64. 64
    Corner Stone says:

    @Brachiator

    This is absolutely irrelevant to the overall behavior of financial companies.

    Are you suggesting that how the big money earners were incentivized is irrelevant? That the people who had the most to gain and nothing to lose didn’t make their decisions based on short term reward?

  65. 65
    Brachiator says:

    By the way, the WSJ article has a wonderful little nugget that is just gold for the statistics minded:

    Yet the housing portion of the CPI for those same 12 months rose only 2.4%. How could this happen? In 1983, the Bureau of Labor Statistics began to use rental equivalence for homeowner-occupied units instead of direct home-ownership costs. Between 1983 and 1996, the price-to-rental ratio increased from 19.0 to 20.2, so the change had little effect on measured inflation: The CPI underestimated inflation by about 0.1 percentage point per year during this period. Between 1999 and 2006, the price-to-rent ratio shot up from 20.8 to 32.3. With home price increases out of the CPI and the price-to-rent ratio rapidly increasing, an important component of inflation remained outside the index.

    By the way, this CPI adjustment was not a grand conspiracy, but was done in part so that comparisons of the housing markets in the US and foreign countries could be made more easily.

    The only problem is that making this statistic easier to follow made it less relevant as a realistic measure of home prices.

    This also meant that any financial model that used this over-simplified measurement was fatally flawed.

    I love this stuff! It is too bad that the WSJ and other papers are better at analyzing this stuff after the fact, but couldn’t have been more proactive when this crap was going down.

  66. 66
    sfbevster says:

    I’m reading Nomi Prins’ Other People’s Money, which was published in 2004 but could have come out last week. Just replace "2001" with "2008", and "Enron" with "AIG". Incredible.

  67. 67
    Corner Stone says:

    @ The Grand Panjandrum

    Are you saying this is a political calculation (bringing Geithner on board) on the part of the Obama administration? If so, then it is cynical and downright reprehensible if true. They are throwing trillions of dollars down a shit hole so they can protect the bankers and Wall Street crowd. Is this an intentional cover up for these thieves?

    Honestly, my Snark-o-meter has been way off lately so I’ll just take this question as a legit one.
    Of course that’s what I’m saying. Based on all observable evidence, what other conclusion can one deduce? Geithner isn’t the boss.
    It’s easy to call him out, and easy for the administration to let him dangle, but he’s just a distraction.
    As I’ve said before, this is all kabuki.

  68. 68
    jayackroyd says:

    @Karamakin

    He’s accusing the financial industry of fraud. Which is, to a degree true. But who is it fraud against? Is he talking about fraud against the homeowners? Fraud against the shareholders? What? Who is the victim here?

    It’s fraud in violation of laws regulating reserves and accurate financial reporting. It’s illegal to misstate a balance statement, and there were side agreements that recognized that no payment would be made in any case. Both parties added non-existent assets to their balance sheet–the CDS issuer the fees and the the CDS recipient the backed liability.

    So shareholders and potential shareholders, and, ultimately the taxpayer. One would have thought that the taxpayer exposure would be limited to FDIC insured banks, but apparently not–uninsured, unregulated derivatives issued without underlying reserves are also apparently the taxpayers’ responsibility.

    Strip the shareholders (who can sue the managers), give the bondholders a haircut, rake back the fraudulently acquired "bonuses" and put some people in jail. That’s how it would work if we weren’t operating like, as Simon Johnson has remarked, like an emerging market oligarchy.

  69. 69
    passerby says:

    @The Moar You Know:

    Air travel is going to get a lot less safe in the next few years as they keep putting people with fewer and fewer flight hours (because they are cheaper) in the captain’s seat.

    Brian J @ 63:

    So it’ll be like when Circuit City decided to let its most senior employees with the most knowledge go to save a little on labor, except with possibly more deaths because of plane crashes?

    Yes, and apply this to hospitals. So many industries are pushing the envelope on competency, doing things on the cheap. Depending on the service provided, it’s real risky business with regard to public safety.

  70. 70
    passerby says:

    @jayackroyd:

    …and put some people in jail.

    Hear hear! This aspect is what I wish the media would be asking questions about. Is a member of the Whitehouse press pool only allowed to ask strawman questions? and are their talking-head counterparts only allowed to discuss the drama du jour?

    This is what I don’t get about the media. Don’t their realize that discussing the legality of these financial shennanigans would be ratings gold, Jerry.

    Put some people in jail.

    [raises pitchfork to the sky]

  71. 71
    Elie says:

    #67

    So Corner Stone lets cut to the chase. From your viewpoint, Obama is nothing but a shill to continue the status quo with the financial industry. He is not trying to balance the safe shrinkage of both power and actual shrinking of the whole industry as far as jobs, revenue, taxes, etc while keeping the rest of this thing going with as little upheaval as possible. From that point of view, he might as well be McCain or the previous boy blunder.

    I think that your cynicism and impatience may blind you to the process of having to govern through a huge transition without having a complete bloody revolution and disolution of the current system under less than smooth means. Is that what you want? Would that make you feel better?

    There are no down sides in your perspective — only your righteousness and no trust. Folks with your perspective and attitudes have taken over the reigns many times through history. Its not a clean flip to a new system. There is a transition and how bloody and painful that is does matter. But maybe not to you.

    So I can live with the fact that you and many of the knee jerk progressives think that this administration are sell outs to the financial sector. Geithner, has been a lifelong government bureaucrat — but we know he is not the one calling the shots. Its Obama all the way. I am comfortable with his approach and his values. Not so sure about yours, but then I didnt vote for you.

  72. 72
    Corner Stone says:

    @Elie
    I think you need to try a little decaf once in a while.
    Your semi-coherent screed is a little hard to follow but I’ll try and answer your challenge.
    Of course he’s trying a balancing act, never denied or suggested otherwise. I’m not saying he should walk in guns blazing or whip out his Sword of Omens.
    But I will continue to contend that this is all playacting. A result has been agreed on. An outcome has been determined. All the actions taken now, all the leaks to the press, all the quotes where he’s talking tough to banksters – that’s all drivel.
    The balancing act is can he keep people like you stringing along long enough?
    I’ll have to come back to this in a little bit – RL haz happened again.

  73. 73
    The Moar You Know says:

    That’s textbook conservative, then.

    @gex: I’ve been around pilots my entire life. I have yet to meet one that is a registered Democrat.

  74. 74
    HyperIon says:

    shorter than a paragraph summary:

    we fucked up.

    that was the punchline of a little video (line drawings?) that was circulated about 8 months ago IIRC and was commented on here. it was one of the first attempts to "explain" what had happened/was happening. i first saw it a calculated risk. but that was back when almost nobody had ever heard of CDOs or CDSs.

  75. 75
    Karmakin says:

    @Brachiator: I fully admit I’m on the far edge of things right now.

    But all the same, I agree with Corner Stone. I don’t see how that you can’t see that how top executives are paid might very well just have something to do with how they run the company. Most companies build bonuses around short term rather than long-term performance, because right now, most of the value is tied into the stock price, and not long term profit.

    That’s the problem.

    A shorter work week was tried in France, but it was done far too early. The theory is that in order to maintain a balanced labor market (meaning that to some degree employers have to compete for workers), the amount of labor per worker will need to be constantly adjusted due to changing factors such as demographic changes (the retirement of the boomers) and productivity increases/decreases.

    The going by a strict 40+ hour work week as is done in North America is just as myopic as the French going for their strict 30 hour work week.

  76. 76
    Elie says:

    Corner Stone — I don’t think that I presented a "screed", but whatever — I respect your opinion but I am challenging it. Is that screed?

    Your response seems to imply that there is an alternative to "stringing people like [me] along". What is it?

    You project a certainty that I am curious about. If on one hand you state "I’m not saying he should walk in guns blazing or whip out his Sword of Omens." But you also seem to deride what we observe him doing by labeling it "playacting". So if you think its ok not to have guns blazing, but nix more subtle manipulation or political sleigh of hand — where does that leave you? Just wondering…

  77. 77
    Brachiator says:

    @Corner Stone:

    Are you suggesting that how the big money earners were incentivized is irrelevant?

    Yeah. It’s a side issue. Maybe salaries need to be controlled somehow. But this has been tried in the past and hasn’t really worked. This kind of thing is easy for most people to understand, so they latch onto it as a solution to the problem. But it is just not a key issue.

    But all the same, I agree with Corner Stone. I don’t see how that you can’t see that how top executives are paid might very well just have something to do with how they run the company. Most companies build bonuses around short term rather than long-term performance, because right now, most of the value is tied into the stock price, and not long term profit.

    The problem had been building for years, so it was more than a short term issue. And some of these people deluded themselves into thinking that the profit train would run forever because housing prices would rise forever. Even had these guys been making only a dollar a day, their essential false assumptions still would have guided their decisions.

  78. 78
    guest omen says:

    @The Moar You Know:

    I’ve been around pilots my entire life. I have yet to meet one that is a registered Democrat.

    there’s one who frequents atrios blog.

    and capt. sullenberger testified before congress protesting wage cuts and loss of pensions.

  79. 79
    TenguPhule says:

    But it is just not a key issue.

    I beg to differ.

    When there is no risk to a multimillion golden parachute from fucking the company into the ground, the company is not well served.

    Mandatory clawbacks triggered by common sense measures need to be required by federal law to keep the idiots in check.

  80. 80
    srv says:

    @The Moar You Know:

    I’ve been around pilots my entire life. I have yet to meet one that is a registered Democrat.

    Evolution in action.

  81. 81
    binzinerator says:

    @clone12:

    we as a nation made a lot of really bad decisions in response to 911

    You have ignored that the nation was given a lot of really bad information upon which to base its decisions.

    This was intentional. Much of the information we were repeatedly given was manufactured expressly for this purpose. How many times did Bush and Cheney claim or insinuate that Iraq was responsible for 9/11? How many times did the right insist the economy was sound? The good information and even information that could have provoked an examination of what we were being told was ignored or suppressed.

    It is a horrifying irony that the credibility of good information or even good questions, even the credibility of the people who were asking them, was systematically undermined and or destroyed to prevent it from rightfully undermining and destroying the lies.

    I think few people realize just how vast a criminal conspiracy the past 8 years of conservatism was.

    Like a dupe you are propagating the right’s idea that now we must collectively share the blame for what they knowingly did.

    This idea is nothing more than the right’s core belief in privatizing the profits and socializing the losses, but as applied to responsibilities and culpability.

    And you can stop with this "we" shit. Quite of few of us disagreed strongly with those bad decisions, we knew what was going on though unable to become a majority.

  82. 82

    @Corner Stone: It was a legit question because I just wanted to make sure I understood what it was you were driving at. While I think Geithner is giving to much cover to Wall Street I don’t believe it is a political calculation. Geithner knows many of these bankers personally, therefore making it easier to provide some cover for them. Isn’t it always easier to hand out "tough love" to those you don’t know?

    But, I will concede that you could very well be correct. I just don’t think it is the only logical deduction.

  83. 83
    guest omen says:

    speaking of geithner, i thought this was a good point:

    Geithner has proposed a bill (which would need to be taken up and actually introduced by someone in Congress) to give the government the authority over bank holding companies, insurance companies like AIG, and other large financial companies that are currently outside the reach of the FDIC. Oddly enough, I saw very little discussion of this on the blogs of nationalization supporters, even though it would be necessary (as that diary describes) in order to actually nationalize these companies like people want.

  84. 84
    Brachiator says:

    @Karmakin:

    A shorter work week was tried in France, but it was done far too early.

    Huh? For fun, just do a google search on "France 35 hour work week" and all kinds of fun stuff comes up, including the fact that France has been experimenting with this since February 2000 (e.g. The 35-hour working week).

    And even though the socialists loved it, it just hasn’t produced its intended results (French voters split on working week).

    But despite the apparent consensus, the days of "reduced working time" – as it is officially known – could be numbered. A silent but powerful hostility has been growing for years, and whoever ends up running France may have to make wrenching changes.

    Here, the French just added to their own problems instead of solving them:

    The idea was to resolve France’s entrenched unemployment problem by sharing out work, while at the same time indulging the nation’s taste for fun and leisure…. A decade on, the system is under attack. Economists say employment is not a fixed quantity to be shared out. The best way to create jobs, they say, is growth – and France has very little of either. It has the slowest growth of any large EU economy and unemployment remains high. Given this sorry record, it is hardly surprising that no other country has adopted the 35-hour week. France’s European partners – notably Nordic countries – have moved in the opposite direction, making labour markets more flexible, and have seen their economies improve as a result.

    The 35 work week is a job killer. I don’t believe in bashing the French, but this is one idea that they can keep.

  85. 85
    Corner Stone says:

    @Elie
    You essentially called me a Mussolini-the-Lesser:

    Folks with your perspective and attitudes have taken over the reigns many times through history.

    Actually, I’m not really sure what that means but at first blush it certainly didn’t sound positive.
    You use the word "certainty" but I reject that because it connotes "belief". I don’t have a belief other than what’s clearly observable to this point.
    The meme that the only people who can get us out of this mess are the ones that got us into it. The statement from Summers that contracts are contracts and there’s just nothing to be done. The fact that AIG paid dollar for dollar on it’s committments to other multi-national banks. The leak that Obama’s admin is "keeping the pitchforks at bay".
    I could go on but it certainly seems evident to me that it’s all pretty choreographed so far.
    If Obama wanted to he could’ve appointed any number of very talented, smart people as Sec Treas. He picked Geithner for a reason. Now we see people being led down the path that "Geithner’s too close to the banks", and "Geithner’s gotta go". The administration is using Geithner as a prop, and the banks are too.
    To be sure, we’re in a very complicated situation. Obama has to keep the banks from being too brazen in their end goal, and simultaneously he has to keep enough public opinion behind him to facilitate the banks end goal. This is the same shakedown we saw in TX during the S&L crisis but on a larger scale. IMO, the S&L crisis served as a blueprint for what is occurring now.

    So if you think its ok not to have guns blazing, but nix more subtle manipulation or political sleigh of hand

    I contend events are happening just as they are planned to happen. Otherwise, why would Obama have Summers so close to him? A man at the very forefront of deregulating these entities a decade ago.
    Why would he have Geithner instead of someone who could make headway? Geithner has now proposed the same plan Hank Paulson put forth 3 separate times. Except this time it’s going to go through – mainly because Obama has the public’s approval where the Bush admin did not.

    I guess my overall point is that Obama doesn’t want to "solve" the financial crisis – at least not with a solution that’s beneficial to the taxpayer. He wants to be "seen" as solving the crisis. The banks/owners will walk away from this richer and more powerful than ever, not diminished. Sure, some will be tossed to the wolves but it’s all part of the show.
    Ack, RL again but I think this is enough for now.

  86. 86
    guest omen says:

    @The Grand Panjandrum:
    you quoted wsj:

    There is a simpler, sounder and fairer way to recapitalize an insolvent bank. The government should seize it, as it is already authorized — indeed, compelled — to do.

    then said:

    Read Black’s follow up to a criticism of his appearance on the show. It’s devastating and well worth the time.

    this is starting to get above my pay grade, but i didn’t see willam black counter sheila bair’s contention, as cited by phoenix woman:

    sheila bair: While the depository institution could be resolved under existing authorities, the resolution would cause the holding company to fail and its activities would be unwound through the normal corporate bankruptcy process. Without a system that provides for the orderly resolution of activities outside of the depository institution, the failure of a systemically important holding company or non-bank financial entity will create additional instability as claims outside the depository institution become completely illiquid under the current system.
    In the case of a bank holding company, the FDIC has the authority to take control of only the failing banking subsidiary, protecting the insured depositors. However, many of the essential services in other portions of the holding company are left outside of the FDIC’s control, making it difficult to operate the bank and impossible to continue funding the organization’s activities that are outside the bank. In such a situation, where the holding company structure includes many bank and non-bank subsidiaries, taking control of just the bank is not a practical solution.

    this is why geithner was arguing before congress that they need to legislate giving him more authority.

  87. 87
    guest omen says:

    @The Grand Panjandrum:

    Reich has an interesting take on Geithner’s self-proclaimed willingness to fire bankers.

    why does reich target getting rid of bank of america’s ceo? is it a failing bank? i thought they were one of the stronger ones. as phoenixwoman points out, nobody knows what the viability of banks are yet when the stress tests haven’t been completed.

  88. 88
    liberal says:

    @Corner Stone:

    Very well said. Just one comment:

    I don’t have a belief other than what’s clearly observable to this point. The meme that the only people who can get us out of this mess are the ones that got us into it.

    Agreed. The contortions which commenters on this blog—particularly the "it takes a thief to catch a thief" BS, when the better proverb would be fox/henhouse—go through to give Obama et al. the benefit of the doubt is amazing. Often the simplest hypothesis is the best hypothesis, all else being equal, and it would certainly seem so in this case.

  89. 89
    guest omen says:

    @liberal:

    when the better proverb would be fox/henhouse

    do you have an anecdote to cite to show how geithner enriched himself from guarding the henhouse?

  90. 90
    Max says:

    Rating agencies accepted the hypothesis of ever rising home values, gave large portions of each security issue an investment-grade rating, and investors gobbled them up.

    That’s about the time that I discovered the least expensive properties here in Los Angeles were total crap-shacks in the absolute worst areas of the city, with asking prices north of half a million dollars. I’m not exaggerating.

  91. 91
    Corner Stone says:

    @binzinerator
    I answered your last weak ass comment on the other thread where I contend that Obama’s doing the prop dance.

  92. 92
    Corner Stone says:

    @Brachiator

    Even had these guys been making only a dollar a day, their essential false assumptions still would have guided their decisions.

    I just fundamentally disagree with this sentiment. IMO, false assumptions about housing prices had nothing to do with their decision making. In fact, ISTM that they *knew* the house of cards would come down, and knew what they were doing the whole time. The crisis we have now is a feature, not a bug. They knew perfectly well what would happen, and as I’ve argued before the TX S&L crisis was their proof of concept. Change the rules and regs if you can, break the rules if you can’t. Run with the ball as fast as you can until you’re caught. Then turn around and say, "Whocouldanode?" and "Damn me Congress but I am heartbreakingly sorry. Our company did not perform the kind of due diligence we should’ve. Our bad."
    To my mind, the quick reward based on false returns is exactly why we are where we are. We’ve been pushing home ownership for what now, 4 or 5 decades? If you can leverage off of the American Dream itself, and subsequently get so big that you can’t be allowed to fail lest the American Dream itself fail…well that’s just pure gold.
    If these people had been compensated based on normal metrics there would not have been the incentive to push risk and leverage to 100 : 1. They would not have risked so much without the chance of reward. If their bonus could get no bigger than X each year, no matter how well the bank did do you think they’d been pushing so aggressively?
    If the penalty for failed risk was to be fired, and they actually needed their salaries?
    There’s a reason they wanted the regulations changed, and it’s not because they wanted to prove / disprove their false assumptions.
    Again, this is the largest transfer of wealth in history and was planned very well.

  93. 93
    Elie says:

    Corner Stone –

    Mussolini? Where did that come from? Oh because you don’t have any real alternative but to have your idea of implementing some vague revolutionary dogma you read about somewhere. PLEEZZZ…

    Again, you are a little slippery though its quite clear now that you conclude just as I thought, that Obama is a shill for the same ol same ol.

    Since you are not clear enough in the consequences of what you DO believe in, I am assuming that you require some other kind of leader to take us through a revolution to your nicer, better system. And since you said you didnt expect a guns blazing scenario but eschewed some sort of political manipulation, strategy, positioning — I am not sure WHAT you mean. But no matter you of course KNOW that the administration is "playacting" and wants to reward the same ol stuff and what is your alternative to that? Uh, well — just something better, cleaner and implemented by political virgins who have never touched the unclean world of our economic system in the last twenty years.

    Oh that’s right, you don’t HAVE an alternative — what you have is an opinion. That’s wonderful and we should all have one, but I see read little in the way of practical knowledge of how to get anything done in the real world in your comments. Just snarky and contemptuous judgements that are absolute in their tenor…no half stepping maybes in your world….

    Unfortunately, the administration does have to actually try to figure this part out in the real world of politics and power where lots of folks actually could get hurt. Luckily you can just skip to the end in your "opinion based plan novella" — to the part where it says – "and it all went great, ta,ta,The end".

    Go learn some real civics instead of your vague quasi revolutionary mumbo jumbo. Your comments have little humility and even less intellectual honesty.

  94. 94
    Elie says:

    ..Corner Stone:

    One more thing. You may be right after all and Obama is just keeping the old system in place. That will be pretty hard to hide but after three months, I think that your cynicism is premature and undercuts the truth that how could you know all that you hold so negatively in so short a time. And that is where humility enters in. And that is what you do not show

    You will hopefully forgive those of us who would like to give it a try first. Three months and thats it, right? Not even hoping you are wrong…that is what gets to me and makes me very angry and sad

  95. 95
    Corner Stone says:

    @Elie
    Please point to one thing I said about revolution, revolutionary, or change in status quo.
    Please. And when you can’t I hope you re-evaluate your now multiple screeds against me when I’m only pointing out facts.
    AIG did pay dollar for dollar. Summers did cheerlead deregulation a decade ago. The banks are getting everything they want with the "bad bank" plan.
    As for intellectual honesty – it’s pretty clear you have little grasp on reality, and no ability to comprehend what you read.
    "vague revolutionary dogma" – WTF are you talking about? Again, please point to any specific piece of my contentions here that could even remotely be considered a quest for revolution. You can’t.
    Now you’ll excuse me while I go shake some of teh crazy off.

  96. 96
    Brachiator says:

    @Corner Stone:

    If these people had been compensated based on normal metrics there would not have been the incentive to push risk and leverage to 100 : 1.

    There is no such thing as "normal metrics" for compensation for corporate officers and others in finance.

    They would not have risked so much without the chance of reward.

    They rigged the game to minimize their risks until the whole thing crashed on them.

    If their bonus could get no bigger than X each year, no matter how well the bank did do you think they’d been pushing so aggressively?

    Yes, because they would have structured their pay to include stock options or some other combination of goodies — as had been done in the past.

    Again, this is the largest transfer of wealth in history and was planned very well.

    It wasn’t planned that well at. Banks went out of business. The financial system teeters on the edge of collapse. I agree that there has been a tremendous transfer of wealth, but it was neither planned nor executed well.

    But my larger point stands that simply focusing on pay and bonuses is irrelevant. The banks were determined to run up profits on subprime mortgages and other instruments. The compensation conduit was a secondary factor.

  97. 97
    Corner Stone says:

    But my larger point stands that simply focusing on pay and bonuses is irrelevant. The banks were determined to run up profits on subprime mortgages and other instruments. The compensation conduit was a secondary factor.

    That is not what I’m simply focusing on. However, I do believe wealth accumulation is the primary driving goal.
    Banks run up profits = massive compensation.
    These guys didn’t run up bank profits for the sake of the bank, they were rewarded for it. The compensation level is the whole reason for gaming the system.
    "They rigged the game to minimize their risks until the whole thing crashed on them."
    How so? ISTM that they didn’t give a damn about risk because they knew in the end they would be taking none when the crash came.
    "It wasn’t planned that well at. Banks went out of business. The financial system teeters on the edge of collapse. I agree that there has been a tremendous transfer of wealth, but it was neither planned nor executed well."
    I just disagree. We have yet to see the outcome or end result. Some of the bit players and also rans have tried to keep up and failed. My contention is that several entities and people will come out of this much better off than when they went into it. Citigroup may split, some CEO’s may move to different positions or titles but in the end it is my belief that the unbelievably vast amount of wealth will have been transferred from the taxpayer to an oligarchy.
    If personal compensation is a secondary factor then you are arguing that bank profit is the primary driver? Who does well if the bank profits in the ST? I’m confused.

  98. 98
    Elie says:

    Corner Stone —

    Let me apologize for excesses in expression and emotion…

    First — I have some experience with doing difficult things that people don’t think that you can do. I have been heavily involved in eco and clean water efforts where I live in the northwest and its been uphill all the way. That said, despite the people who threw their hands up, and continued to berate the "other side" – and believe me, there were plenty of other sides, we (a small group in our community) got the first storm water management regulation passed in our county. We even got a fee levied to use for water quality projects including salmon restoration (much needed). There is no magic and no perfection. Just hard bloody work with a lot of set backs, even as we continue to push forward. There are always the nay sayers and the people who say it can’t be done…but we know it can — even though its extremely disheartening to see our friends in the fight give in to the cynicism that I thought you echoed.

    Maybe I was wrong to see that in what you said. But whether you believe or don’t — either way you are probably right. I keep looking for the things in this life that I can affect and try to keep moving forward on. That is all I can do. I think that I see that effort – albeit very imperfect in this administration. It took us 5 yrs to get the regulation passed with a lot of set backs. I would have hated to be judged after 70 days when we were just finding out who all the players were and making our share of mistakes in strategy and who our friends and enemies were.

    Thats is all…

  99. 99
    Corner Stone says:

    No apology necessary, ever. From anyone.
    I applaud you for your time and hard work. We’re just going to disagree about a lot of other stuff.
    And I will continue to post non-humble comments. I can’t be stopped.

  100. 100
    Elie says:

    Corner Stone – fair enough. Just keep sharing what you think and feel and we have a hope to engage enough to actually get something done. One of our worst oponents, a developer — helps us a lot. Yes, we are wary of each other — but we try to find the things we can agree on to help start stuff up…I would rather have his "imperfect" views accompanied by engagement than all the easy going, sit on the couch enthusiasm of my so called sympathetic friends. They think they can mail it in with contributions…I can’t use their energy but I can definitely use his… cautiously.

Comments are closed.