AMERICAN CONSERVATISM IN 2008 AND BEYOND

You guys asked how they got into the mortgage mess--you obviously couldn't explain it when I asked you--and I gave you the best explanation I had.

Well what you posted appears to have been written by a blogger named Milton Berle who referenced a three-line snippet out of context by Robert Gordon who, if memory serves me, is that guy who makes a career of smearing, trashing, and writing derogatory commentary on Republicans. Usually writes for the American Prospect I think.

Now if you can find something on this written by Barry Ritholz, with his signature line, that could be instructive. That is if he actually is an economist. The only guy with that name I pulled up is an attorney, but I suppose he could have credentials in economics too. The bio just didn't mention any.

Curriculum Vitae

A frequent commentator on CNBC, Barry L. Ritholtz is a regular guest on Kudlow & Company, Power Lunch and Fast Money. He has guest-hosted Squawk Box on numerous occasions, and also appears regularly on Bloomberg, Fox, and PBS¹. Mr. Ritholtz was profiled in the Wall Street Journal’s Quite Contrary column (August 3, 2004; Page C3). His market perspectives are quoted regularly in the Wall Street Journal, Barron’s, Forbes, Fortunes, and other print media².

He is deeply honored to be the dedicatee of the The 2007 Stock Trader’s Almanac’s 40th Anniversary edition. Mr. Ritholtz is the author of the forthcoming book, Bailout Nation, published by McGraw Hill in the first quarter of 2009. He is a sought after speaker at conferences and panels, and regularly appears on radio and television.

Beyond his weekly commentary and published articles, Mr. Ritholtz also authors The Big Picture " a leading financial weblog. The Big Picture covers Investing & Trading to Macro Economics, and everything else in between. The blog has quickly amassed over 35 million visitors.

Media accolades have poured in for The Big Picture from the NYT (“Trenchant economic commentary”) and the WSJ (”What the In-Crowd Knows). The Journal cited The Big Picture as the Economic “Blog Insiders Read to Stay Current;” Business Week noted its “insightful calls on the direction of the stock market” (Blogging For Dollars). CNBC’s Larry Kudlow described it as “very helpful and addictive " the best stock market blog there is.” Numerous traffic sites rank The Big Picture as the most trafficked Markets/Economic’s blog on the web.

Ritholtz’ longstanding interest in media and technology led him to Burst.com, a publicly traded software firm focusing on faster-than-real-time audio and video streaming over the internet. He has served on the firm’s Board of Directors for the past 4 years. His expertise in digital media has led top tier Newspapers and Magazines to consult with him on the development of their online strategies.

Mr. Ritholtz is CEO and Director of Equity Research at Fusion IQ, an online quantitative research firm. For the first time, the company is making their institutional grade research product available to individual traders and investors.

Recently, Mr. Ritholtz was Chief Market Strategist for Maxim Group a New York Investment bank, managing over $5 Billion in clients assets. Applying his model to the broader investing environment, Mr. Ritholtz wrote weekly Market Commentary for the firm’s brokers and institutional clientele.

Mr. Ritholtz is the author of the popular “Apprenticed Investor” columns at TheStreet.com, a series geared towards educating novice and intermediate investors. Mr. Ritholtz also publishes more formal analyses, often at The Wall Street Journal, Barron’s, or RealMoney.com3.

Hailed as a “bright and savvy fellow” by Alan Abelson’s Up and Down Wall Street column (Barron’s), he is one of handful of Strategists who participate in BusinessWeek’s annual market forecast. He teaches a course on The Economy of America for New York University’s School of Continuing & Professional Studies.

Mr. Ritholtz performed his graduate studies at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, where he focused on Economics, Anti-Trust and Corporate Law. He was a member of the Law Review, and graduated Cum Laude with a 3.56 GPA.

His undergraduate work was at Stony Brook University, where on a Regents Scholarship, he focused on Mathematics and Physics, graduating with an Associates degree in Political Science. He was a member of the Stony Brook Equestrian Team, and competed successfully in the National Championships (1981) of the Intercollegiate Horse Show Association. In addition to writing the National Affairs column for the campus weekly (The Stony Brook Press), he was elected Vice-President of the student body.

When not bemoaning the New York Knicks‘ all-too-frequent offensive lapses, Mr. Ritholtz is a vintage sports car enthusiast. He and his wife Wendy, an artist and teacher, and their hairy dog Max, live on the North Shore of Long Island, New York.

So what is Mr. Ritholz's take on the CRA as the fuse or catalyst that started the snowball rolling that has resulted in the current financial crisis?

The CRA is not remotely one of the proximate causes of the current credit crunch, Housing collapse,and mortgage debacle. As I detailed in Barron's, there is plenty of things to be angry at D.C. about -- but this ain't one of them.

Proximate cause is the primary cause of an injury. It is not necessarily the closest cause in time or space nor the first event that sets in motion a sequence of events leading to an injury. Proximate cause produces particular, foreseeable consequences without the intervention of any independent or unforeseeable cause. It is also known as legal cause.

The CRA was like loading the gun that was then placed in a drawer where it caused no problems until somebody decided to use it for corrupt or imprudent uses.

Opinion noted Cyclop, and until you provide something other than did too-did not stuff, I will move on.

MONDAY, SEPTEMBER 29, 2008
OTHER VOICES
A Memo Found in the Street
By BARRY L. RITHOLTZ

Uncle Sam the enabler.
To: Washington, D.C.
From: Wall Street
Re: Credit Crisis

Dear D.C.,

WOW, WE'VE MADE QUITE A MESS OF THINGS here on Wall Street: Fannie and Freddie in conservatorship, investment banks in the tank, AIG nationalized. Thanks for sending us your new trillion-dollar bailout.

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.

But here's a news flash for you, D.C.: We could not have done it without you. We may be drunks, but you were our enablers: Your legislative, executive, and administrative decisions made possible all that we did. Our recklessness would not have reached its soaring heights but for your governmental incompetence.

THIS MEMO PROVIDES A BRIEF HISTORY OF your actions that helped create this crisis.

1997: Federal Reserve Chairman Alan Greenspan's famous "irrational exuberance" speech in 1996 was somehow ignored by, um, Fed Chairman Greenspan. The Fed missed the opportunity to change margin requirements. Had the Fed acted, the bubble would not have inflated as much, and the subsequent crash would not have been as severe.

1998: Long Term Capital Management was undercapitalized, used enormous amounts of leverage to purchase all manner of thinly traded, hard-to-value paper. It failed, and under the authority of the Federal Reserve a "private-sector" rescue plan was cobbled together. Had these bankers suffered big losses from LTCM, they might have thought twice before jumping into the exact same business model of undercapitalized, overleveraged, thinly traded, hard-to-value paper. Instead, they reaffirmed Benjamin Disraeli's famous aphorism: "What we learn from history is that we do not learn from history."

1999: The Financial Services Modernization Act repealed Glass-Steagall, a law that had separated the commercial-banking industry from Wall Street, and the two industries, plus insurance, came together again. Banks became bigger, clumsier, and hard to manage. Apparently, risk-management became all but impossible, even as banks had greater access to larger pools of capital.

2000: The Commodities Futures Modernization Act defined financial commodities such as "interest rates, currency prices, and stock indexes" as "excluded commodities." They could trade off the futures exchanges, with minimal oversight by the Commodity Futures Trading Commission. Neither the Securities and Exchange Commission, nor the Federal Reserve, nor any state insurance regulators had the ability to supervise or regulate the writing of credit-default swaps by hedge funds, investment banks or insurance companies.

2001-'03: Alan Greenspan's Fed dropped federal-fund rates to 1%. Lulled into a false belief that inflation was not a problem, the Fed then kept rates at 1% for more than a year. This set off an inflationary spiral in housing, and a desperate hunt for yield by fixed-income managers.

2003-'07: The Federal Reserve failed to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned such standards as employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability. The borrower's ability to repay these mortgages was replaced with the lender's ability to securitize and repackage them.

2004: The SEC waived its leverage rules. Previously, broker/dealer net-capital rules limited firms to a maximum debt-to-net-capital ratio of 12 to 1. This 2004 exemption allowed them to exceed this leverage rule. Only five firms -- Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley -- were granted this exemption; they promptly levered up 20, 30 and even 40 to 1.

2005-'07: Unscrupulous home appraisers found that they could attract more business by inflating appraisals. Intrinsic value was ignored, so referrals kept coming in. This helped borrowers obtain financing at prices that were increasingly unsupportable. When honest appraisers petitioned both Congress and the bureaucracy to intervene in the widespread fraud, neither branch of government acted.

THERE'S ACTUALLY A LOT MORE we could add to these items. We could mention impotent supervision of Fannie and Freddie by the Office of Federal Housing Enterprise Oversight; the negligent oversight on ratings agencies; the Boskin Commission's monkeying around with how inflation gets measured; the "Greenspan Put," etc.

We could mention former Fed Governor Edward Gramlich, who warned about making home loans to people who could not afford them, and who said the runaway subprime-mortgage industry would create problems in housing and the credit markets. But Gramlich was up against a Fed chairman who apparently believed that markets can regulate themselves. (Gramlich died last year, three months after the housing bubble started to deflate.)

We on Wall Street do not deny our part. We created these securities, we rated them triple-A, we traded them without understanding them. Now that they have gone bad, we are real close to getting the rest of the country to take them off our hands.

Thanks, D.C. None of this would have been possible without you.
http://online.barrons.com/article/SB122246742997580395.html

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