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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: sandintoes who wrote (34178)	3/17/2009 12:59:11 PM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 71588

Yep... I posted that a couple of days ago, (And I speculated about a month ago - over on the old Bush thread - that that was the EXACT REASON why the government was being so secretive about the Credit Default Swap pay-outs --- because they knew that the American public would NOT BE HAPPY to lean that so much money had gone to Goldman, BAC, and several foreign banks.)

To: sandintoes who wrote (34178)	4/9/2009 11:39:28 PM
From: Peter Dierks	Read Replies (1) \| Respond to of 71588

You Can't Rush a Recovery While small business struggles, Goldman Sachs was protected from its AIG mistakes. APRIL 9, 2009, 1:29 A.M. ET By AMAR BHIDé The U.S. has already committed nearly $3 trillion to rescue the financial system and domestic auto makers, according to a recently released report by a special inspector general. Treasury alone has announced plans to fork over more than $600 billion in TARP funds, and Treasury Secretary Timothy Geithner seems to announce a scheme a week to jump-start the economy. Unfortunately, just as vigorous thumping won't accelerate -- and can even disrupt -- the rebooting of a computer, unpredictable interventions and improvised initiatives jeopardize rather than hasten robust economic recoveries. Sustainable recoveries cannot be rushed because individuals and firms can't instantly pick the best possible alternative. We can't immediately auction off our labor to the highest bidder, for instance. Rather we must devote time and effort to finding a suitable job. Once we find a position that satisfies us and learn to do it well, we are loath to leave. But miscalculations may end presumptively permanent arrangements: We may be laid off from a job we thought was safe because our employer built a new plant to satisfy demand that did not materialize. Then we not only have to search for a new job but also unwind old arrangements -- negotiating severance or selling our home if we have to move to a new city. Similarly, our employer has to figure out how best to downsize or redeploy excess capacity. And in a recession, searching for new arrangements and the unwinding of old ones -- and anxiety that our turn may be next -- is widespread. Our government plays an important ameliorative role. Unemployment benefits stop major dislocations from creating the widespread hunger and homelessness experienced in the Great Depression. They also prevent the anxiety of more than 90% of the workforce that remains employed from turning into a panic. Bankruptcy laws and courts facilitate the orderly unwinding of obligations that individuals and businesses can no longer meet or easily resolve through bilateral negotiations (as is often the case when a troubled business faces many creditors with different kinds of claims). A bankruptcy code that quickly salvages the greatest possible value from failure is crucial for our economic dynamism. The Federal Deposit Insurance Corporation (FDIC) immediately assumes the liabilities of failed banks and then gradually disposes of their assets -- a process that has ended the bank runs that used to trigger depressions until the 1930s. But beyond amelioration and providing the judicial (or in the case of the FDIC, quasi-judicial) procedures for reorganization, there is little more that the government can do to accelerate the unwinding and renewal necessary to put the economy back on an even keel. The process involves a sequence of negotiations and experiments that cannot be truncated by throwing in more resources. As Frederick Brooks wrote in his celebrated book on software development, "The Mythical Man-Month: Essays on Software Engineering": "When a task cannot be partitioned because of sequential constraints, the application of more effort has no effect on the schedule. The bearing of a child takes nine months, no matter how many women are assigned." "Brooks's Law" suggests that increasing the size of software teams may delay development. The wide variety of problems and circumstances in an economic downturn precludes the effective use of a single solution. And the federal government doesn't have the capacity to determine adjustments on a case-by-case basis. The late Nobel Laureate Friedrich Hayek taught that the "man on the spot" with the appropriate local knowledge was much more capable of making good investment decisions than a central planner. Similarly, the men and women who are closest to the situation have a huge advantage in unwinding the consequences of past miscalculations. The terms of a problem loan are best renegotiated by the borrower and the bank that made the loan. How to cut costs and excess capacity in the automobile industry is best figured out by management, the UAW, bondholders and creditors, under Chapter 11 if necessary. Ad hoc interventions in the financial markets by the executive branch and Federal Reserve that override private renegotiations and judicial procedures have done serious, long-term harm. Brokering the bailout of Long-Term Capital Management in 1998 by invoking the specter of systemic collapse encouraged banks to ignore the risks of trading with overextended counterparties and laid the groundwork for our current debacle. The folly was compounded by the bailouts of Bear Stearns and AIG. The bailouts also undermined vital public confidence in the fairness of our system. While small businesses struggle to recoup bills owed by failed customers, the likes of Goldman Sachs, which miscalculated the creditworthiness of AIG, were made whole -- and could thus pay bonuses amounting to many times the incomes of most taxpayers. Former Treasury Secretary Henry Paulson's Super-SIVs and TARPs eroded rather than helped restore confidence by promoting the belief that things must be really awful for the government to suspend due process and operate in secrecy. The schemes also delayed the actual cleaning up of the balance sheets of large banks. It did so by insulating them from FDIC discipline, and by creating the expectation that the next taxpayer-funded initiative would offer even more cash for their trash. Mr. Geithner, who was closely involved with the AIG bailout, offers no change we can believe in. His latest scheme is called the Public-Private Partnership Investment Program. But there is actually very little private skin in this game: It gives a handful of wealthy financiers huge nonrecourse loans to enable them to purchase toxic assets that the market supposedly won't buy at a "fair" price. As the housing crisis has shown, providing subsidized nonrecourse loans creates asset bubbles, not true price discovery. And bribing buyers to ramp up prices smacks of market manipulation. Suppose that, when the financial crisis broke two years ago, our leaders had shown a Churchillian steadfastness and allowed the normal realignment to play out under a predictable judicial and regulatory regime. The prices of stocks, bank debt and houses would still have crumbled and unemployment risen. Although recovery wouldn't have been immediate, we'd at least have progress, instead of a sullen paralysis and futile efforts to turn the clock back. More loans would have been renegotiated and foreclosed properties auctioned off. The FDIC would already be engaged in finding a good home for the loans and deposits of a megabank or two. That agency, now operating with about one-third the staff it had in the 1980s, could also have used some of the bailout money that helped pay for bonuses at AIG and its counterparties to recruit, train and retain more employees. Best of all, more entrepreneurs and innovators, who capitalize on the opportunities to be found in the midst of turmoil, could have been building the foundations of a prosperous future. Mr. Bhidé is a professor at Columbia Business School and author of "The Venturesome Economy" (Princeton University Press, 2008). online.wsj.com

To: sandintoes who wrote (34178)	10/16/2009 2:22:28 PM
From: Peter Dierks	1 Recommendation Read Replies (1) \| Respond to of 71588

Barney Frank, Predatory Lender Almost two-thirds of all bad mortgages in our financial system were bought by government agencies or required by government regulations. OCTOBER 15, 2009, 9:55 P.M. ET. By PETER J. WALLISON Recent reports that the Federal Housing Administration (FHA) will suffer default rates of more than 20% on the 2007 and 2008 loans it guaranteed has raised questions once again about the government's role in the financial crisis and its efforts to achieve social purposes by distorting the financial system. The FHA's function is to guarantee mortgages of low-income borrowers (the mortgages are then sold through securitizations by Ginnie Mae) and thus to take reasonable credit risks in the interests of making mortgage credit available to the nation's low-income citizens. Accordingly, the larger than normal losses that will result from the 2007 and 2008 cohort could be justified by Barney Frank, the chairman of the House Financial Services Committee, as "policy"—an effort to ease the housing downturn through the application of government credit. The FHA, he argued, is buying more weak mortgages in order to help put a floor under the housing market. Eventually, the taxpayers will have to judge whether this policy was justified. Far more interesting than the FHA's prospective losses on its 2007 and 2008 book are the agency's losses on its 2005 and 2006 guarantees, when the housing bubble was inflating at its fastest rate and there was no need for government support. FHA-backed loans during those years also have delinquency rates between 20% and 30%. These adverse results—not the result of a "policy" effort to shore up markets—pose a significant challenge to those who are trying to absolve the U.S. government of responsibility for the financial crisis. When the crisis first arose, the left's explanation was that it was caused by corporate greed, primarily on Wall Street, and by deregulation of the financial system during the Bush administration. The implicit charge was that the financial system was flawed and required broader regulation to keep it out of trouble. As it became clear that there was no financial deregulation during the Bush administration and that the financial crisis was caused by the meltdown of almost 25 million subprime and other nonprime mortgages—almost half of all U.S. mortgages—the narrative changed. The new villains were the unregulated mortgage brokers who allegedly earned enormous fees through a new form of "predatory" lending—by putting unsuspecting home buyers into subprime mortgages when they could have afforded prime mortgages. This idea underlies the Obama administration's proposal for a Consumer Financial Protection Agency. The link to the financial crisis—recently emphasized by President Obama—is that these mortgages would not have been made if regulators had been watching those fly-by-night mortgage brokers. There was always a problem with this theory. Mortgage brokers had to be able to sell their mortgages to someone. They could only produce what those above them in the distribution chain wanted to buy. In other words, they could only respond to demand, not create it themselves. Who wanted these dicey loans? The data shows that the principal buyers were insured banks, government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, and the FHA—all government agencies or private companies forced to comply with government mandates about mortgage lending. When Fannie and Freddie were finally taken over by the government in 2008, more than 10 million subprime and other weak loans were either on their books or were in mortgage-backed securities they had guaranteed. An additional 4.5 million were guaranteed by the FHA and sold through Ginnie Mae before 2008, and a further 2.5 million loans were made under the rubric of the Community Reinvestment Act (CRA), which required insured banks to provide mortgage credit to home buyers who were at or below 80% of median income. Thus, almost two-thirds of all the bad mortgages in our financial system, many of which are now defaulting at unprecedented rates, were bought by government agencies or required by government regulations. The role of the FHA is particularly difficult to fit into the narrative that the left has been selling. While it might be argued that Fannie and Freddie and insured banks were profit-seekers because they were shareholder-owned, what can explain the fact that the FHA—a government agency—was guaranteeing the same bad mortgages that the unregulated mortgage brokers were supposedly creating through predatory lending? The answer, of course, is that it was government policy for these poor quality loans to be made. Since the early 1990s, the government has been attempting to expand home ownership in full disregard of the prudent lending principles that had previously governed the U.S. mortgage market. Now the motives of the GSEs fall into place. Fannie and Freddie were subject to "affordable housing" regulations, issued by the Department of Housing and Urban Development (HUD), which required them to buy mortgages made to home buyers who were at or below the median income. This quota began at 30% of all purchases in the early 1990s, and was gradually ratcheted up until it called for 55% of all mortgage purchases to be "affordable" in 2007, including 25% that had to be made to low-income home buyers. It was not easy to find candidates for traditional mortgages—loans to people with good credit records or the resources for a substantial downpayment—among home buyers who qualified under HUD's guidelines. To meet their affordable housing requirements, therefore, Fannie and Freddie reduced their lending standards and reached into the FHA's turf. The FHA, although it lost market share, continued to guarantee what it could, adding to the demand that the unregulated mortgage brokers filled. If they were engaged in predatory lending, it was ultimately driven by the government's own requirements. The mortgages that resulted are now problem loans for the GSEs, the FHA and the big banks that were required to make them in order to burnish their CRA credentials. The significance of the FHA's troubles is that this agency had no profit motive. Yet it dipped into the same pool of subprime and other nontraditional mortgages that the GSEs and Wall Street were fishing in. The left cannot have it both ways, blaming the private sector for subprime lending while absolving the government policies that created the demand for subprime loans. If the financial crisis was caused by subprime mortgages and predatory lending, the government's own policies made it happen. Mr. Walllison is a senior fellow at the American Enterprise Institute. online.wsj.com