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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (356111)	10/26/2007 8:02:17 AM
From: Road Walker	Read Replies (1) \| Respond to of 1572920

A Catastrophe Foretold By PAUL KRUGMAN “Increased subprime lending has been associated with higher levels of delinquency, foreclosure and, in some cases, abusive lending practices.” So declared Edward M. Gramlich, a Federal Reserve official. These days a lot of people are saying things like that about subprime loans — mortgages issued to buyers who don’t meet the normal financial criteria for a home loan. But here’s the thing: Mr. Gramlich said those words in May 2004. And it wasn’t his first warning. In his last book, Mr. Gramlich, who recently died of cancer, revealed that he tried to get Alan Greenspan to increase oversight of subprime lending as early as 2000, but got nowhere. So why was nothing done to avert the subprime fiasco? Before I try to answer that question, there are a few things you should know. First, the situation for both borrowers and investors looks increasingly dire. A new report from Congress’s Joint Economic Committee predicts that there will be two million foreclosures on subprime mortgages by the end of next year. That’s two million American families facing the humiliation and financial pain of losing their homes. At the same time, investors who bought assets backed by subprime loans are continuing to suffer severe losses. Everything suggests that there will be many more stories like that of Merrill Lynch, which has just announced an $8.4 billion write-down because of bad loans — $3 billion more than it had announced just a few weeks earlier. Second, much if not most of the subprime lending that is now going so catastrophically bad took place after it was clear to many of us that there was a serious housing bubble, and after people like Mr. Gramlich had issued public warnings about the subprime situation. As late as 2003, subprime loans accounted for only 8.5 percent of the value of mortgages issued in this country. In 2005 and 2006, the peak years of the housing bubble, subprime was 20 percent of the total — and the delinquency rates on recent subprime loans are much higher than those on older loans. So, once again, why was nothing done to head off this disaster? The answer is ideology. In a paper presented just before his death, Mr. Gramlich wrote that “the subprime market was the Wild West. Over half the mortgage loans were made by independent lenders without any federal supervision.” What he didn’t mention was that this was the way the laissez-faire ideologues ruling Washington — a group that very much included Mr. Greenspan — wanted it. They were and are men who believe that government is always the problem, never the solution, that regulation is always a bad thing. Unfortunately, assertions that unregulated financial markets would take care of themselves have proved as wrong as claims that deregulation would reduce electricity prices. As Barney Frank, the chairman of the House Financial Services Committee, put it in a recent op-ed article in The Boston Globe, the surge of subprime lending was a sort of “natural experiment” testing the theories of those who favor radical deregulation of financial markets. And the lessons, as Mr. Frank said, are clear: “To the extent that the system did work, it is because of prudential regulation and oversight. Where it was absent, the result was tragedy.” In fact, both borrowers and investors got scammed. I’ve written before about the way investors in securities backed by subprime loans were assured that they were buying AAA assets, only to suddenly find that what they really owned were junk bonds. This shock has produced a crisis of confidence in financial markets, which poses a serious threat to the economy. But the greater tragedy is the one facing borrowers who were offered what they were told were good deals, only to find themselves in a debt trap. In his final paper, Mr. Gramlich stressed the extent to which unregulated lending is prone to the “abusive lending practices” he mentioned in his 2004 warning. The fact is that many borrowers are ill-equipped to make judgments about “exotic” loans, like subprime loans that offer a low initial “teaser” rate that suddenly jumps after two years, and that include prepayment penalties preventing the borrowers from undoing their mistakes. Yet such loans were primarily offered to those least able to evaluate them. “Why are the most risky loan products sold to the least sophisticated borrowers?” Mr. Gramlich asked. “The question answers itself — the least sophisticated borrowers are probably duped into taking these products.” And “the predictable result was carnage.” Mr. Frank is now trying to push through legislation that extends moderate regulation to the subprime market. Despite the scale of the disaster, he’s facing an uphill fight: money still talks in Washington, and the mortgage industry is a huge source of campaign finance. But maybe the subprime catastrophe will be enough to remind us why financial regulation was introduced in the first place.

To: TimF who wrote (356111)	10/27/2007 2:32:46 PM
From: tejek	Read Replies (2) \| Respond to of 1572920

More complicated analysis from the right guaranteed to confuse the issue so that no one knows what the truth is. However, the right knows and they want to keep it quiet, don't they Tim? We Just Don't Have Enough Taxes I propose a survey. We will ask 500 CEO's of large company's and 500 small business owners just one question 1. Do you agree/disagree with the following statement: In order to make my business more competitive in international markets, the federal government needs to raise taxes and expand its scope How many out of the 1000 would answer "Agree?" Well, at least the number won't be zero, as long as you ask the NY Times: …the taxes collected last year by federal, state and local governments in the United States amounted to 28.2 percent of gross domestic product. That rate was one of the lowest among wealthy countries - about five percentage points of GDP lower than Canada’s, and more than eight points lower than New Zealand’s. …the meager tax take leaves the United States ill prepared to compete. From universal health insurance to decent unemployment insurance, other rich nations provide their citizens benefits that the U.S. government simply cannot afford. …revenue will prove too low to face the challenges ahead. Its true.........US revenues can't keep up with spending. The American deficit has gone from $4.5 trillion to $9.5 trillion in the last 6 years. The US is spending way more than we take in and we don't even have universal health insurance. Meanwhile, the EU limits its member states to a deficit that's 3% of GDP. In 2006, the US's GDP is $13.13 trillion. GDP x 3% is a deficit of $3.9 trillion. We exceed that figure by nearly $6 trillion. I love the part about unemployment insurance particularly -- other countries are more competitive than we are because they pay their citizens more not to work. Huh? Daniel Mitchel responds: The editorial conveniently forgets to explain, though, how America is less competitive because of supposedly inadequate taxation. Is it that our per capita GDP is lower than our higher-taxed neighbors in Europe? No, America’s per capita GDP is considerably higher. That's an average........it doesn't begin to address how the money is distributed per individual nor address the issue that the rich are getting richer in this country. Is it that our disposable income is lower? It turns out that Americans enjoy a huge advantage in this measure. On the surface that's true but after you pay for rent, car insurance, health insurance.........the advantage is all gone. Is our economy not keeping pace? Interesting thought, but America’s been out-performing Europe for a long time. Not in the last 5 years. Could higher rates of unemployment be a sign of American weakness? Nice theory, but the data show better job numbers in the United States. Huh? After six months, people in the US fall off the unemployment rolls. Truth is we don't know how many unemployed we have but I guarantee you its far worse than 4.5%. I also would point out the general direction of net immigration, which has always been towards the US from nearly every country in the world rather than the other direction. Other countries limit net inmigration in order to maintain their standard of living. However, we cater to the industry in this country by providing them with cheap labor. Its benefits the industries but I am not sure it benefits the rest of Americans. The favorite argument du jour for more taxes is that the US has more income inequality than other countries. Well, that is sort of true. Our rich are richer than theirs. But are our poor poorer? In fact, as I posted here, the data (from a liberal think tank) shows that they are not. The poor in European countries have a higher percentage of a lower median wage. When you normalize European income distribution numbers to percentages of the US median wage, you can see our poor do at least as well as those in Europe, while our middle class and rich do better. The US poor still trail countries like Switzerland, but that is because of very different immigration realities. The US numbers for the bottom quartile are weighed down by tens of millions of recent immigrants (both legal and not) whereas those of Switzerland and Norway are not. If you left out recent immigrants, my guess is that the US poor would be the richest in the world. The chart is so fukked who can figure out what its saying. However the Swiss would take issue with you that they have far fewer legal and illegal immigrants. In fact, they had a referendum last week to deal with the immigration problem in their country. Meanwhile your friends say the poor in this country are doing better. How come then the numbers of homeless are greater here? How come our prison population is so much greater? How come crime is so much higher here? How come our life expectancy is lower? How come our slums are so much bigger here? Per usual, your friends are full of it, Tim!