52
   

AMERICAN CONSERVATISM IN 2008 AND BEYOND

 
 
cicerone imposter
 
  1  
Reply Tue 3 Mar, 2009 12:29 pm
@Foxfyre,
From Foxie's article:
Quote:
We on Wall Street feel somewhat compelled to take at least some responsibility. We used excessive leverage, failed to maintain adequate capital, engaged in reckless speculation, created new complex derivatives. We focused on short-term profits at the expense of sustainability. We not only undermined our own firms, we destabilized the financial sector and roiled the global economy, to boot. And we got huge bonuses.


Like I said, it was "greed."
0 Replies
 
cicerone imposter
 
  2  
Reply Tue 3 Mar, 2009 12:30 pm
@old europe,
Just another one of those Foxie contradictions that she fails to admit to or see.
0 Replies
 
Cycloptichorn
 
  1  
Reply Tue 3 Mar, 2009 12:30 pm
@old europe,
old europe wrote:

Foxfyre wrote:
I ran across this piece by Mr. Ritholz that supports just about everything I've said on this so far, however.


Well, that's an interesting starting point. Because his main argument seems to be that there was just not enough oversight, that the market became too deregulated so companies could just go ahead and exploit those loopholes.

That seems to contradict your earlier point that the government, by interfering with the market too much and imposing too many regulations, implicitly caused the current crisis. So now you're saying that the government, by not regulating the market enough, caused the crisis?


Yeah, that kinds threw me for a loop as well.

Cycloptichorn
0 Replies
 
Foxfyre
 
  1  
Reply Tue 3 Mar, 2009 12:34 pm
@old europe,
old europe wrote:

Foxfyre wrote:
I ran across this piece by Mr. Ritholz that supports just about everything I've said on this so far, however.


Well, that's an interesting starting point. Because his main argument seems to be that there was just not enough oversight, that the market became too deregulated so companies could just go ahead and exploit those loopholes.

That seems to contradict your earlier point that the government, by interfering with the market too much and imposing too many regulations, implicitly caused the current crisis. So now you're saying that the government, by not regulating the market enough, caused the crisis?


It isn't just a starting point. It is crucial to understand the problem. Now Mr. Ritholz comes from a strongly leftist perspective and he still got it at least mostly right though he starts in the middle instead of at the beginning.

There is a difference between regulation and oversight. There is a difference beteen the intent of the law and the misuse of the law. That is the parts I am interested in discussing and the part that you and Cyclop and perhaps some others have been unable to acknowledge or understand.

Here is a perspective from the right, also from a heavily credentialed attorney/economist type. The essay is quite lengthy and I have posed only the opening paragraphs. The remainder is available from the link.

Quote:
The True Origins of This Financial Crisis
By Peter J. Wallison from the February 2009 issue

Two narratives seem to be forming to describe the underlying causes of the financial crisis. One, as outlined in a New York Times front-page story on Sunday, December 21, is that President Bush excessively promoted growth in home ownership without sufficiently regulating the banks and other mortgage lenders that made the bad loans. The result was a banking system suffused with junk mortgages, the continuing losses on which are dragging down the banks and the economy. The other narrative is that government policy over many years--particularly the use of the Community Reinvestment Act and Fannie Mae and Freddie Mac to distort the housing credit system-- underlies the current crisis. The stakes in the competing narratives are high. The diagnosis determines the prescription. If the Times diagnosis prevails, the prescription is more regulation of the financial system; if instead government policy is to blame, the prescription is to terminate those government policies that distort mortgage lending.

There really isn’t any question of which approach is factually correct: right on the front page of the Times edition of December 21 is a chart that shows the growth of home ownership in the United States since 1990. In 1993 it was 63 percent; by the end of the Clinton administration it was 68 percent. The growth in the Bush administration was about 1 percent. The Times itself reported in 1999 that Fannie Mae and Freddie Mac were under pressure from the Clinton administration to increase lending to minorities and low-income home buyers--a policy that necessarily entailed higher risks. Can there really be a question, other than in the fevered imagination of the Times, where the push to reduce lending standards and boost home ownership came from?

The fact is that neither political party, and no administration, is blameless; the honest answer, as outlined below, is that government policy over many years caused this problem. The regulators, in both the Clinton and Bush administrations, were the enforcers of the reduced lending standards that were essential to the growth in home ownership and the housing bubble.


THERE ARE TWO KEY EXAMPLES of this misguided government policy. One is the Community Reinvestment Act (CRA). The other is the affordable housing “mission” that the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac were charged with fulfilling.

As originally enacted in 1977, the CRA vaguely mandated regulators to consider whether an insured bank was serving the needs of the “whole” community. For 16 years, the act was invoked rather infrequently, but 1993 marked a decisive turn in its enforcement. What changed? Substantial media and political attention was showered upon a 1992 Boston Federal Reserve Bank study of discrimination in home mortgage lending. This study concluded that, while there was no overt discrimination in banks’ allocation of mortgage funds, loan officers gave whites preferential treatment. The methodology of the study has since been questioned, but at the time it was highly influential with regulators and members of the incoming Clinton administration; in 1993, bank regulators initiated a major effort to reform the CRA regulations.

In 1995, the regulators created new rules that sought to establish objective criteria for determining whether a bank was meeting CRA standards. Examiners no longer had the discretion they once had. For banks, simply proving that they were looking for qualified buyers wasn’t enough. Banks now had to show that they had actually made a requisite number of loans to low- and moderate-income (LMI) borrowers. The new regulations also required the use of “innovative or flexible” lending practices to address credit needs of LMI borrowers and neighborhoods. Thus, a law that was originally intended to encourage banks to use safe and sound practices in lending now required them to be “innovative” and “flexible.” In other words, it called for the relaxation of lending standards, and it was the bank regulators who were expected to enforce these relaxed standards.

MORE HERE. . . .
http://spectator.org/archives/2009/02/06/the-true-origins-of-this-finan
genoves
 
  1  
Reply Tue 3 Mar, 2009 12:35 pm
Cyckops wrote in answer to Foxfyre:

What you call 'did-too' stuff is a judgment that your position is lacking in evidence or logic. Seeing as you have been shown to not really understand the problem - not knowing that AIG was basically committing fraud and everyone knew it - sort of proves that you are really, really wrong on this issue. Your stubborn insistence that you are correct is only digging the hole deeper.

***********************************************

I await with anticipation the PROOF that Foxfyre's position is lacking in evidence or logic. Cyclops never posts and evidence or documentation as Foxfyre does. It is Cyclops who merely makes charges that the" position is lacking in evidence or logic". He never proves it.
0 Replies
 
Cycloptichorn
 
  2  
Reply Tue 3 Mar, 2009 12:43 pm
@Foxfyre,
Your author creates a straw-man in order to knock down and promote his own theory -

Quote:
One, as outlined in a New York Times front-page story on Sunday, December 21, is that President Bush excessively promoted growth in home ownership without sufficiently regulating the banks and other mortgage lenders that made the bad loans.


That is not the argument that I and others are making. And I cannot take seriously a piece which ends with this line -

Quote:
PREVENTING A RECURRENCE of the financial crisis we face today does not require new regulation of the financial system.


It absolutely, 100% does. The lack of regulation of the credit-default swap market, twice the size of our stock market, was by far the biggest factor in our collapse. For the author to fail to recognize this is amazing to me.

Cycloptichorn
0 Replies
 
Foxfyre
 
  1  
Reply Tue 3 Mar, 2009 12:51 pm
No it does not require new regulation. It requires enforcement of the old regulation in which banks were allowed to make market decisions on what is and is not a good risk and were required to demonstrate and utilize sound lending pratices. When that was the case, the U.S. banking system was among the strongest in the world.

Conservative values applied to banking are what kept it strong. When modern liberal values were interjected into the system, that's when our troubles began.

But I'll go along with your argument if we HAVE to say scrapping those new regulations and reinstating the old regulations would constitute new regulation, then okay we need new regulation. I understand how the liberal mind works and am willing to make certain accommodations for that.
genoves
 
  0  
Reply Tue 3 Mar, 2009 12:53 pm
Cyclops wrote:

It absolutely, 100% does. The lack of regulation of the credit-default swap market, twice the size of our stock market, was by far the biggest factor in our collapse. For the author to fail to recognize this is amazing to me.

Cycloptichorn
SAYS WHO? CYCLOPS? EVIDENCE PLEASE!
0 Replies
 
genoves
 
  0  
Reply Tue 3 Mar, 2009 12:54 pm
Foxfyre wrote:

No it does not require new regulation. It requires enforcement of the old regulation in which banks were allowed to make market decisions on what is and is not a good risk and were required to demonstrate and utilize sound lending pratices. When that was the case, the U.S. banking system was among the strongest in the world.
0 Replies
 
old europe
 
  1  
Reply Tue 3 Mar, 2009 01:02 pm
@Foxfyre,
Foxfyre wrote:
No it does not require new regulation. It requires enforcement of the old regulation in which banks were allowed to make market decisions on what is and is not a good risk and were required to demonstrate and utilize sound lending pratices.


Due to deregulation during the Clinton and Bush administrations, companies like AIG they were not required to demonstrate and utilize sound lending pratices.

They were, however, allowed to make market decisions on what is and is not a good risk. They just decided that holding billions of dollars of risk in subprime mortgages was not a problem, and rated them AAA.


Now, does the result of those market decisions - e.g. the hundreds of billions of dollars bill that American taxpayers will have to foot for the failed policies of AIG alone - call for more "market decisions on what is and is not a good risk", or for more regulation?
okie
 
  1  
Reply Tue 3 Mar, 2009 01:05 pm
@Foxfyre,
Foxfyre wrote:

No it does not require new regulation. It requires enforcement of the old regulation in which banks were allowed to make market decisions on what is and is not a good risk and were required to demonstrate and utilize sound lending pratices. When that was the case, the U.S. banking system was among the strongest in the world.

Conservative values applied to banking are what kept it strong. When modern liberal values were interjected into the system, that's when our troubles began.

But I'll go along with your argument if we HAVE to say scrapping those new regulations and reinstating the old regulations would constitute new regulation, then okay we need new regulation. I understand how the liberal mind works and am willing to make certain accommodations for that.


Great post, Foxfyre. We need a return to sound conservative fiscal policy, good old fashioned freedom, capitalism, and free markets, wherein people reap the benefits of their own success, AND THEIR OWN FAILURE.
cicerone imposter
 
  0  
Reply Tue 3 Mar, 2009 01:07 pm
@okie,
okie, Our country "lived" under sound conservative policies for the past eight years, and look where it's gotten us? Blind, deaf, dumb, stupid, ignorant, etc., etc., etc....are perfect adjectives for all of you!
0 Replies
 
Foxfyre
 
  1  
Reply Tue 3 Mar, 2009 01:12 pm
@old europe,
If the original (conservative) policy of lending money to good risks had been retained, the market would have been much less likely to get caught up in a unstoppable snowball of inflated and distorted profits. The old regulations provided the atmosphere for the market to work as it should. Government meddling with NEW regulation/interpretation/mandates is what skewed the system and drove it off course.

Definition of 'good risk': Those who are willing to put their own money into the investment and who have a history of repaying their debts and who have a reasonable expectation of ability to repay their current debt.

When people have nothing to lose, when they have no moral scruples about obligations, and/or when they cannot demonstrate that they have to ability to replay their debts, they are poor risks. It was government initiatives pressuring banks to take on risky debt and pressuring Fannie Mae and Freddic Mac into underwriting it that caused all the rest. It was interpretation of the CRA that provided the legal cover for the government to do that.
genoves
 
  0  
Reply Tue 3 Mar, 2009 01:13 pm
@okie,
Okie- Here is an enlargement of what Foxfyre wrote--

If you do a search on CRA and ACORN, you will discover that they got their real power to intimidate banks during the CLINTON YEARS.

Quote:

CRA was meant to encourage banks to make loans to high-risk borrowers, often minorities living in unstable neighborhoods. That has provided an opening to radical groups like ACORN (the Association of Community Organizations for Reform Now) to abuse the law by forcing banks to make hundreds of millions of dollars in “subprime” loans to often uncreditworthy poor and minority customers.
Any bank that wants to expand or merge with another has to show it has complied with CRA - and approval can be held up by complaints filed by groups like ACORN.
In fact, intimidation tactics, public charges of racism and threats to use CRA to block business expansion have enabled ACORN to extract hundreds of millions of dollars in loans and contributions from America’s financial institutions.
Banks already overexposed by these shaky loans were pushed still further in the wrong direction when government-sponsored Fannie Mae and Freddie Mac began buying up their bad loans and offering them for sale on world markets.
Fannie and Freddie acted in response to Clinton administration pressure to boost homeownership rates among minorities and the poor. However compassionate the motive, the result of this systematic disregard for normal credit standards has been financial disaster.
Foxfyre
 
  1  
Reply Tue 3 Mar, 2009 01:17 pm
@genoves,
Genoves, if that is from a credible source, it is a brilliant post. Unfortunately, your propensity to not provide your sources and links to access them weakens your argument considerably.
genoves
 
  0  
Reply Tue 3 Mar, 2009 01:20 pm
@Foxfyre,
I will,of course,comply with your request, Foxfyre. I never invent material.
0 Replies
 
genoves
 
  0  
Reply Tue 3 Mar, 2009 01:28 pm
@Foxfyre,
I will,of course,comply with your request, Foxfyre. I never invent material.
There are literally dozens of sites which report the CRA and ACORN mess. One of them is the one I will give you now.

SEND TO A FRIEND | PRINT ARTICLE | Comments

September 30, 2008
ACORN, Obama, and the Mortgage Mess
By Mona Charen

link--www.realclearpolitics.com/articles/2008/09/acorn_obama_and_the_mortgage_m.html - 38k -

The financial markets were teetering on the edge of an abyss last week. The secretary of the Treasury was literally on his knees begging the speaker of the House not to sabotage the bailout bill. The crash of falling banks made the earth tremble. The Republican presidential candidate suspended his campaign to deal with the crisis. And amid all this, the Democrats in Congress managed to find time to slip language into the bailout legislation that would provide a dandy little slush fund for ACORN.

ACORN stands for the Association of Community Organizations for Reform Now, a busy hive of left-wing agitation and "direct action" that claims chapters in 50 cities and 100,000 dues-paying members. ACORN is where Sixties leftovers who couldn't get tenure at universities wound up. That the bill-writing Democrats remembered their pet clients during such an emergency speaks volumes. This attempted gift to ACORN (stripped out of the bill after outraged howls from Republicans) demonstrates how little Democrats understand about what caused the mess we're in.

ACORN does many things under the umbrella of "community organizing." They agitate for higher minimum wages, attempt to thwart school reform, try to unionize welfare workers (that is, those welfare recipients who are obliged to work in exchange for benefits) and organize voter registration efforts (always for Democrats, of course). Because they are on the side of righteousness and justice, they aren't especially fastidious about their methods. In 2006, for example, ACORN registered 1,800 new voters in Washington. The only trouble was, with the exception of six, all of the names submitted were fake. The secretary of state called it the "worst case of election fraud in our state's history." As Fox News reported:

"The ACORN workers told state investigators that they went to the Seattle public library, sat at a table and filled out the voter registration forms. They made up names, addresses, and Social Security numbers and in some cases plucked names from the phone book. One worker said it was a lot of hard work making up all those names and another said he would sit at home, smoke marijuana and fill out the forms."

ACORN explained that this was an "isolated" incident, yet similar stories have been reported in Missouri, Michigan, Ohio, and Colorado -- all swing states, by the way. ACORN members have been prosecuted for voter fraud in a number of states. (See www.rottenacorn.com.) Their philosophy seems to be that everyone deserves the right to vote, whether legal or illegal, living or dead.

ACORN recognized very early the opportunity presented by the Community Reinvestment Act (CRA) of 1977. As Stanley Kurtz has reported, ACORN proudly touted "affirmative action" lending and pressured banks to make subprime loans. Madeline Talbott, a Chicago ACORN leader, boasted of "dragging banks kicking and screaming" into dubious loans. And, as Sol Stern reported in City Journal, ACORN also found a remunerative niche as an "advisor" to banks seeking regulatory approval. "Thus we have J.P. Morgan & Co., the legatee of the man who once symbolized for many all that was supposedly evil about American capitalism, suddenly donating hundreds of thousands of dollars to ACORN." Is this a great country or what? As conservative community activist Robert Woodson put it, "The same corporations that pay ransom to Jesse Jackson and Al Sharpton pay ransom to ACORN."

ACORN attracted Barack Obama in his youthful community organizing days. Madeline Talbott hired him to train her staff -- the very people who would later descend on Chicago's banks as CRA shakedown artists. The Democratic nominee later funneled money to the group through the Woods Fund, on whose board he sat, and through the Chicago Annenberg Challenge, ditto. Obama was not just sympathetic -- he was an ACORN fellow traveler.

Now you could make the case that before 2008, well-intentioned people were simply unaware of what their agitation on behalf of non-credit-worthy borrowers could lead to. But now? With the whole financial world and possibly the world economy trembling and cracking like a cement building in an earthquake, Democrats continue to try to fund their friends at ACORN? And, unashamed, they then trot out to the TV cameras to declare "the party is over" for Wall Street (Nancy Pelosi)? The party should be over for the Democrats who brought us to this pass. If Obama wins, it means hiring an arsonist to fight a fire.

0 Replies
 
old europe
 
  1  
Reply Tue 3 Mar, 2009 01:30 pm
@Foxfyre,
Foxfyre wrote:
If the original (conservative) policy of lending money to good risks had been retained, the market would have been much less likely to get caught up in a unstoppable snowball of inflated and distorted profits. The old regulations provided the atmosphere for the market to work as it should. Government meddling with NEW regulation/interpretation/mandates is what skewed the system and drove it off course.


Well, I have to admit that I'll agree with that assessment. However, I'll also have to notice that the new regulation/interpretation/mandates demanded less oversight, and deregulated the financial market.

So I'm not quite clear here what you're saying - is government interference in the market that consists of deregulation good, or is it bad?

And, if government interference that deregulates the market and that consists of less oversight is bad - does that mean that more regulation and better oversight is desirable?


Foxfyre wrote:
Definition of 'good risk': Those who are willing to put their own money into the investment and who have a history of repaying their debts and who have a reasonable expectation of ability to repay their current debt.


Okay. Well, AIG, an insurance company, apparently chose to AAA rate subprime mortgage CDOs. As an insurance company, they were in no way affected by the CRA either.

This would lead one to believe that AIG, for example, willingly insured 'bad risk', AAA rated it, and refused to pony up the money for the case of the occurance of the insured event.


Foxfyre wrote:
When people have nothing to lose, when they have no moral scruples about obligations, and/or when they cannot demonstrate that they have to ability to replay their debts, they are poor risks.


Yup.


Foxfyre wrote:
It was government initiatives pressuring banks to take on risky debt and pressuring Fannie Mae and Freddic Mac into underwriting it that caused all the rest. It was interpretation of the CRA that provided the legal cover for the government to do that.


That's debatable. You'll notice, however, that AIG was not subject to the CRA or changed regulations concerning the CRA.

I would say that the only thing that caused AIG to invest in the subprime mortgage market was greed. However, I'm willing to read an explanation of how government initiatives were pressuring AIG into multi-billion dollar investments in that sector.
genoves
 
  0  
Reply Tue 3 Mar, 2009 01:35 pm
Cicerone wrote-

Blind, deaf, dumb, stupid, ignorant, etc., etc., etc....are perfect adjectives for him!
0 Replies
 
genoves
 
  0  
Reply Tue 3 Mar, 2009 01:38 pm
@Foxfyre,
TRY

hotair.com/archives/2008/09/30/video-stanley-kurtz-on-obama-acorn-and-the-cra/ - 100k -
 

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