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  • Service-Based Economy Is Progress? Show Me the Money
    "The Failure of credit market is a failure of government. Government intervention to put poor people in their own homes 'the American Dream.'"

    Hmmm...

    "The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed.

    "It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

    "'Expect fallout, expect foreclosures, expect horror stories,'" California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

    "Bowing to aggressive lobbying—along with assurances from banks that the troubled mortgages were OK—regulators delayed action for nearly one year.

    "By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

    "'These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages,'" David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006.

    "Two years later, WaMu became the largest bank failure in U.S. history.

    "The administration's blind eye to the impending crisis is emblematic of a philosophy that trusted market forces and discounted the need for government intervention in the economy.

    "Its belief ironically has ushered in the most massive government intervention since the 1930s.

    "'We're going to be feeling the effects of the regulators' failure to address these mortgages for the next several years,'" said Kevin Stein of the California Reinvestment Coalition, who warned regulators to tighten lending rules before it was too late.

    "Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come.

    "Many executives remain in high-paying jobs, even after their assurances were proved false.

    "In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans.

    "Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

    "* Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.
    "* Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.
    "* Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.
    "* Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.
    "* Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

    "Those proposals all were stripped from the final rules. None required congressional approval or the president's signature.

    "'In hindsight, it was spot on,'" said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending.

    "Federal regulators were especially concerned about mortgages known as 'option ARMs,' which allow borrowers to make payments so low that mortgage debt actually increases every month.

    "But banking executives accused the government of overreacting.

    "Bankers said such loans might be risky when approved with no money down or without ensuring buyers have jobs but such risk could be managed without government intervention.

    "'An open market will mean that different institutions will develop different methodologies for achieving this goal,'" Joseph Polizzotto, counsel to now-bankrupt Lehman Brothers, told U.S. regulators in a March 2006.

    "Countrywide Financial , at the time the nation's largest mortgage lender, agreed.

    "The proposal 'appears excessive and will inhibit future innovation in the marketplace,' said Mary Jane Seebach, managing director of public affairs.

    "One of the most contested rules said that before banks purchase mortgages from brokers, they should verify the process to ensure buyers could afford their homes.

    "Some bankers now blame much of the housing crisis on brokers who wrote fraudulent, predatory loans.

    "But in 2006, banks said they shouldn't have to double-check the brokers.

    "'It is not our role to be the regulator for the third-party lenders,'" wrote Ruthann Melbourne, chief risk officer of IndyMac Bank.

    "California-based IndyMac also criticized regulators for not recognizing the track record of interest-only loans and option ARMs, which accounted for 70 percent of IndyMac's 2005 mortgage portfolio.

    "This summer, the government seized IndyMac and will pay an estimated $9 billion to ensure customers don't lose their deposits.

    "Last week, Downey Savings joined the growing list of failed banks.

    "The problem: About 52 percent of its mortgage portfolio was tied up in risky option ARMs, which in 2006 Downey insisted were safe—maybe even safer than traditional 30-year mortgages.

    "'To conclude that 'nontraditional' equates to higher risk does not appropriately balance risk and compensating factors of these products,'" said Lillian Gavin, the bank's chief credit officer.

    "At least some regulators didn't buy it. The comptroller of the currency, John C. Dugan, was among the first to sound the alarm in mid-2005.

    "Speaking to a consumer advocacy group, Dugan painted a troublesome picture of option-ARM lending.

    "Many buyers, particularly those with bad credit, would soon be unable to afford their payments, he said. And if housing prices declined, homeowners wouldn't even be able to sell their way out of the mess.

    "It sounded simple, but 'people kind of looked at us regulators as old-fashioned,' said Brown, the agency's former deputy comptroller.

    "Diane Casey-Landry, of the American Bankers Association, said the industry feared a two-tiered system in which banks had to follow rules that mortgage brokers did not. She said opposition was based on the banks' best information.

    "'You're looking at a decline in real estate values that was never contemplated,'" she said.

    "Some saw problems coming.

    "Community groups and even some in the mortgage business, like Welch, warned regulators not to ease their rules.

    "'We expect to see a huge increase in defaults, delinquencies and foreclosures as a result of the over selling of these products,'" Stein, the associate director of the California Reinvestment Coalition, wrote to regulators in 2006.

    "The group advocates on housing and banking issues for low-income and minority residents.

    "The government's banking agencies spent nearly a year debating the rules, which required unanimous agreement among the OCC, Federal Deposit Insurance Corp., Federal Reserve, and the Office of Thrift Supervision—agencies that sometimes don't agree.

    "The Fed, for instance, was reluctant under Alan Greenspan to heavily regulate lending.

    "Similarly, the Office of Thrift Supervision, an arm of the Treasury Department that regulated many in the subprime mortgage market, worried that restricting certain mortgages would hurt banks and consumers.

    "Grovetta Gardineer, OTS managing director for corporate and international activities, said the 2005 proposal 'attempted to send an alarm bell that these products are bad.' After hearing from banks, she said, regulators were persuaded that the loans themselves were not problematic as long as banks managed the risk.

    "She disputes the notion that the rules were weakened.

    "In the past year, with Congress scrambling to stanch the bleeding in the financial industry, regulators have tightened rules on risky mortgages.

    "Congress is considering further tightening, including some of the same proposals abandoned years ago."

    www.cnbc.com/id/279980...
    Dec 01 18:29 pm |Rating: +1 0 |Link to Comment |View article
  • Service-Based Economy Is Progress? Show Me the Money

    Your belief that BRK was appropriately valued at all times during a 5-day period that saw it dip and regain 20% pretty much says it all. The fact is that the free market is constantly making valuation errors; the difficulty (some say impossibility) lies in understanding and capitalizing on them.

    "The risk-adjusted return is highest [in China and India] because their markets have suddenly been allowed the freedom to self adjust and correct."

    Um, no. Returns are higher there because those economies are growing at a faster rate. You have demonstrated no knowledge of the burdens and limits placed on foreign capital; you simply assume that the growth is due to new-found freedom.

    "Unemployment is very safe."

    Thank you for destroying your own argument. If we had "government encouraged labor cartels(UAW, AFL-CIO etc.)" we would inevitably have higher unemployment, like Europe, right?

    "From Wikipedia - 'A cartel...'"

    Try Random House: "1. an international syndicate, combine, or trust formed esp. to regulate prices and output in some field of business."

    Try American Heritage: "1. A combination of independent business organizations formed to regulate production, pricing, and marketing of goods by the members."

    "(firms here being Labor Unions)"

    Stretch.

    "(here the product is labor. They especially are Labor cartels.)

    Streeeeeeeetch.

    Unions are by definition not cartels.


    "'> And yet our taxes are lower than...'
    "In the 80's maybe.

    No, as I said, the tax burden of the United States is NOW lower than every OECD nation except Iceland and Ireland.

    "During the campaign it was stated that corporate taxes are the 3rd highest in the world."

    First off, is that your best effort at substance? "During the campaign it was stated that..."? Secondly, you were broadly talking about taxation, not specifically about corporate taxes. Thirdly, the marginal tax rate is not the same as the effective tax rate. The effective tax rate is 27%, and the corporate tax burden as a percentage of GDP, compared to the OECD states, is lower. (www.smartmoney.com/inv.../)

    "We constantly tell ourselves how low are taxes are."

    Compared to most of the world, our taxes are low. Please do some research if you'd like to refute the statement.

    "'> We do [tax what we don't want]. But this could quite obviously not be the source of a meaningful amount of revenue.
    "Meaningful to who, bureaucrats."

    Sigh. Please state specifically what you think should be taxed, at what level, to produce what revenue. Oh, I'm sorry, I forgot that you anti-tax types can't produce any real numbers.

    "Tax revenue double (sic) under Reagan."

    This isn't any more true than the last time you wrote it. Even without adjusting for high inflation, even with the economy recovering from a deep recession, this doesn't hold true. Individual and corporate income tax revenue: 1981 - $347M; 1989 - $549M. [It's almost true for Social Security taxes, which Reagan RAISED enormously: 1981: $183M; 1989 - $359M.] Factor in inflation, and the increase in revenue diminishes substantially: nominally during Reagan's two terms, income tax revenue increased 58%; in real terms it was 16%. (source: EROP tables B-80 and B-60)

    "During his term Democrats complained loudly about cuts to future spending."

    Really? Examples, please.

    "Those deficits clearly belonged to Democrats."

    Don't know why you think Reagan should get credit for tax cuts, but not take blame for deficits. They're all part of the same budgeting process. And, by the way, Reagan's original budgets were LARGER than those passed by Congress.

    "Are you say (sic) the more one pays in taxes the more civilized one is?"

    I guess you'll need to look up "civilized" and "civilization.&qu...

    "Socialism is not Civilization and thats what our liberal friends arguing for when the quote Holmes, socialism."

    Here, let me help you, since you clearly don't know what socialism is, either: "a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole." (Random House)

    There are two American policies that have been the closest to socialism: semi-nationalization of banks under George W. Bush, and wage and price controls under Nixon. No Democrat's policies or positions even comes close to these.

    "The Failure of credit market is a failure of government. Government intervention to put poor people in their own homes 'the American Dream.'"

    Again, such a weak understanding. Without the completely unregulated credit default swap market and the terrible handling of mortgage backed securities, the damage from sub-prime and other failed mortgages would not have spread into the financial system as a whole. There is plenty of blame to go around on this one.

    "The predominant economic theory in practice today is Keynesianism."

    Really? What does that mean, "in practice"? Do you think the Bush White House is full of Keynesians?

    "Through Keynes the argument is made for government to grow and spend us out of trouble."

    You're missing half the story. Keynes argued that government action should be counter-cyclical, using deficit spending to boost a sagging economy but doing the opposite during expansions. We lost the discipline the second half of the equation requires during the 1980s, appeared to get it back in the 1990s, and blew it out of the water in the 2000s.

    "Isn't that exactly what Obama is planning now?"

    If you mean massive deficit spending, yes. The real question is how.

    "We need to tax cut our way out of this. And not by cutting taxes of those who don't pay them now, but those who pay the bulk of them."

    Keynes would argue that lowering taxes on those who create jobs won't help end this crisis quickly, as these economic actors are not likely to increase investment until they see consumer markets improving. If the economy is in as bad shape as it appears, Keynes would argue that government spending to boost aggregate demand would be better, as it would improve market conditions more quickly, which would lead to the supply side of the economy ramping up again more quickly.

    Another argument made by Keynes is that government spending is not necessarily wasteful. For example, the vast majority of infrastructure projects are necessary and proper, and running deficits to fund them during this downturn would fit well with Keynesianism. I believe this is the kind of spending Obama's been talking about.
    Dec 01 09:05 am |Rating: +1 0 |Link to Comment |View article
  • Service-Based Economy Is Progress? Show Me the Money
    "The free market is always right."

    Hardly. Ask Ben Graham (well, okay, he's dead) or Warren Buffett (well, okay, you couldn't possibly). At any time, the markets are full of inefficiencies, improper valuations, and opportunities. When was the market right: when it valued Berkshire Hathaway shares at $95,000 on 11/18 and 11/25, or when it valued it at $75,000 on 11/20?

    "Capital and investment flow to where the market is the most free. Oddly, that is China and India(at least more than us). "

    Nonsense. You clearly have no idea of the conditions the Chinese typically place on non-Chinese companies. Capital flows not to where the market is "most free," but to where the risk-adjusted return is highest. Basic, basic capitalism.

    "We have government encouraged labor cartels(UAW, AFL-CIO etc.),"

    Which have created work conditions which are not as favorable to labor as exist in much of Europe. By the way, I think you need to look up the word "cartel."

    "We tax consumption and labor and savings and investment."

    And yet our taxes are lower than Germany, France, Canada, Austria, Belgium, Denmark, Finland, Greece, Hungary, Switzerland, Turkey, the UK, Portugal, the Czech Republic, Norway, Spain, Italy, Australia, New Zealand, Korea, Luxembourg, Poland, and of course Sweden. Of the OECD countries, only Ireland and Iceland have a lower tax burden.

    "We should be taxing what we don't want."

    We do. But this could quite obviously not be the source of a meaningful amount of revenue.

    "Our nations economist have not spoken with a unified voice to say 'taxes bad' ,'government spending bad', 'market intervention bad'."

    Funny that you didn't say "deficit spending bad"; how very Reaganesque of you. By the way, there's been no unified statement like you want because NOBODY BELIEVES IT. Economists tend to agree with Holmes' statement that taxes are the price we pay for civilization. And clearly, not all government spending is bad, and not all market interventions are bad.

    "I think we need this calamity, so that to remember Milton Friedman, and oust the Keynesian's. The strength of Keynesianism was it attempt to explain the success of the Soviet Unions command economy."

    You demonstrate once again that you don't know anything about Keynes' theories. Please, go ahead and make some connection between Keynesianism and the failure of the credit markets. I need something more to discredit.
    Nov 26 15:44 pm |Rating: +1 0 |Link to Comment |View article

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