Insights from the Anti-Krugman

[quaddriver]

Dont kid yourself, there is *no one* on either side running, or contemplating a run, that has any idea how to fix it.

Not a single economics background.

Not a single successful CFO.

No offense to the resident barristers, but putting lawyers in charge is not a good idea. There is nothing in the JD course of study that prepares a person to manage an economy.

[dgs49]

No easy solutions, that's true, but...

Gargantuan government spending (as advocated by Mr. Krugman) has brought nothing more than mountains of additional debt...

An out-of-control Federal Bureaucracy (EPA, DOL, DOE, etc) has created a business climate where investors are reluctant to expend significant capital, because prospects of business success are severely compromised under the current administration...

Obamacare mandates are starting to snowball into a huge financial albatross on the American economy...

No matter how you slice it, borrowing money to keep superfluous government employees on the job is simply stupid...

Borrowing money to fix marginal infrastructure is not entirely wasteful, but doing it under the restraints of Davis Bacon is a travesty to the taxpayers...

Optimism (a key component of recovery) is hard to come by when the only people that the President is fighting for are the ones who are directly or indirectly living off the taxpayers...

...And we have a president who has never had a real job.

Unfortunately, the prosperity of the Bush43 years was illusory, fueled by phony real estate appreciation fueled by government (Democrat) stupid lending policies. I think a "double-dip recession" is the BEST we can hope for at this point.

[Econoline]

The Republicans pretty much had their way with the country for eight years, and it led to the worst recession in eighty years.

Why would anyone think that returning to the policies of the Bush administration will make things better?

Oh, yeah...

they have locked up the stupid vote for the next 50 years.

[Gob]

Can Obama jobs plan pass?

In his speech to Congress the other day, President Obama sounded like an old-time preacher with his thumping refrain "pass this bill". Today, in Ohio, his call got a response.

"Pass this bill," chanted the crowd right on cue.

The president had waved a copy of his hefty American Jobs Act and told them the USA had to catch up with the likes of China and North Korea in spending on high-speed rail and education.

There's little wonder he is warning America could be left behind. There were more bad statistics out today.

There are 43.6 million people living in poverty in the USA now. Not just the highest number but the highest proportion - 15.1% - for 17 years. Mr Obama needs to inspire.

"Lift your voice," he told the Ohio crowd. "Call and email and tweet your congressman. The time for games and gridlock is over."
“Start Quote

Mr Obama is portraying a series of pretty partisan, controversial proposals as plain common sense that no-one of goodwill could resist”

He built to a crescendo: "If you want construction workers back in work what do you do? 'Pass this bill!' If you want teachers back at work, what do you do? 'Pass this bill!'"

One first-time voter in the crowd should be pleased by the power of the speech.

The president was talking at Fort Hayes art and design college and one pupil, 18-year-old Mel Dodge, told reporters he was an aspiring lyricist and admires Mr Obama's skills.

"He chooses his words so beautifully," said the teenager. "That's why I came out here today, just to hear that in person."

He wasn't so certain about the politics, unsure that the president's jobs plan would work. He wanted to look at the Republican field as well before he decides how to cast his first vote.

If Mr Dodge is not convinced, it won't be through lack of White House effort. Senior advisor David Plouffe is just the latest to offer to answer questions by tweet.

I've just got a detailed White House email on the beneficial impact of the act on Montana. Why Montana, I know not, but I am sure 49 similar missives will soon be in my inbox.

The president will, I guess, be on the road until this is done or dead.

The objective is not just to persuade Americans of the merit of his plan. It is to paint his opponents as wreckers.

He is portraying what is a series of pretty partisan, controversial proposals as plain common sense, that no-one of goodwill could resist.

In fact, there is intense debate about his ideas.

He got backing on Tuesday for more spending from the Congressional Budget Office's director, who warned cuts could damage recovery.

But the president's plan is ideologically objectionable to most Republicans, even more so now that he has revealed how it would be paid for: by taxing what they would describe as "wealth creators" and what Obama would call the rich, oil companies and corporate-jet owners.

This is bound to get messy. The White House has confirmed that they will accept parts of the bill being passed.

The danger for Obama is a loss of his simple message.

He could get drawn into the wrangling and the less attractive aspects of compromise. He needs all the clarity his lyricism and beautiful words can conjure.

[Liberty1]

Problem is, no democrats have yet to sponsor his bill, therefore it's not really a bill, just a pipe dream.

The Republicans pretty much had their way with the country for eight years, and it led to the worst recession in eighty years.

First you seem to forgat the Dems ran Congress for the 2 years prior to the current recession. And your totally giving the Dems a pass on the real reason for the meltdown, forcing lenders to lend money who neve should have gotten it. Banks will find a way to make money either way, even if forced to make sub-prime loans, you just won't like the end result.

More unintended consequences from the do-gooder left.

[Econoline]

Dems forced investment banks to invent collateralized debt obligations and credit default swaps, and made sure those things stayed unregulated, and got the credit rating agencies to go along???? That's news to me, and the collapse never would have happened without those factors.

(For that matter--as AndyH [remember him?] detailed at length while the crisis was unfolding--the invention of risky types of sub-prime mortgages had nothing to do with the federal government [which by the very definition of "sub-prime" couldn't touch anything "sub-prime"] and everything to do with international financial markets the banks' invention of new and unregulated ways of selling others the mortgages they knew were too risky to keep.)

[Liberty1]

http://articles.latimes.com/1999/may/31/news/mn-42807

All of this suggests that Clinton's efforts to increase minority access to loans and capital also have spurred this decade's gains. Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat "redlining" by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. The bottom line: Between 1993 and 1997, home loans grew by 72% to blacks and by 45% to Latinos, far faster than the total growth rate.

Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac--the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more.

In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. It has aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae has agreed to buy more loans with very low down payments--or with mortgage payments that represent an unusually high percentage of a buyer's income. That's made banks willing to lend to lower-income families they once might have rejected.

http://www.nytimes.com/1999/09/30/busin ... nding.html

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's

http://www.nytimes.com/2003/09/11/busin ... e-mae.html

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

''There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,'' Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.

Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.

The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws.

[quaddriver]

Banks will find a way to make money either way, even if forced to make sub-prime loans, you just won't like the end result.
.

Those perps at mae/mac, goldman et al were not republicans to boot.

Chris Dodd, the senator who stood to profit the most, had as his young prodigy.....

[quaddriver]

(For that matter--as AndyH [remember him?] detailed at length while the crisis was unfolding--the invention of risky types of sub-prime mortgages had nothing to do with the federal government .)

yes and no...he was purposefully vague even when directly asked (by me) why 2 GSEs who charter by wording prevented them from participating with non conforming loans, were doing such. Not surprising, follow the money, andyHs project, well guided or not and I have no reason to believe they were not, directly benefitted from non-conforming loans. Biting the hand of the paymaster is a difficult biz...

[dgs49]

Nice work, Liberty1. Those articles speak for themselves.

Had the Federal Government just stayed out of the mortgage business, the "bubble" would never have occurred. Banks would have, as always, confined loans to those who demonstrated an ability to repay them.

My own bank, PNC bank of Pittsburgh, saw the whole thing as a smelly can of sardines, and got out of the mortgage business. They simply refused to lower their lending standards, but saw that the Feds would be on their backs incessantly if they tried to act conservatively, like the prudent bankers they are.

Now they are back in it, with the same underwriting standards they always had: 20% down, mortgage payments no more than 20% of gross monthly income.

What a concept.

[quaddriver]

My old bank, National City, with a heavy pittsburgh presence, got into them, and went into the red. PNC purchased them for effectively $0 and 0 cents. Now Im a PNC customer. whoo hoo

[Andrew D]

There's a thing called a filibuster. Have you heard of it?

Oh so you're saying the party that is now spouting of comprimise, the one that ran obamacare down the countries throat, was so unwilling to comprimise on some pet bill of yours to even get it to a vote.

No, I am pointing out the fact, a fact which no serious person genuinely disputes, that your party -- the minority party -- obstructed the will of the American people at every opportunity.

Fact: The leaders of the Republican party got us into this mess.

Fact: The leaders of the Republican party got us into this mess on purpose.

Fact: The leaders of the Republican party do not want an economic recovery, at least not until after November of 2012.

Fact: The only thing that the leaders of the Republican party care about is getting one of their own into the White House, and if millions of Americans must be impoverished to achieve that result, that gived the leaders of the Republican party not even the slightest pause.

Fact: Voting Republican is voting against America, even though most people duped into voting Republican -- which is to say, 95% of the people who vote Republican -- intend no such thing.

[Scooter]

We know we have entered the Twilight Zone when giving banks more freedom of action to make the sorts of loans they wished to, at their express request, is characterized as government forcing banks to make unsound loans.

[dgs49]

Scooter, you are an idjit.

The Federal Government (in effect) agreed to buy the Banks' mortgage paper at full face value, REGARDLESS OF THE QUALITY OF THE LOANS. This is analogous to DoD going to GM and saying it will buy up all the Hummers they can make, regardless of whether they run or not. Do you think GM will make as many Hummers as possible, and not care about quality?

Further, the Government leaned on the banks to lend money to customers who were not creditworthy - basically, to ignore their historical lending standards, then promised to buy the mortgage paper at full value once the loans were made.

This pumped oceans of money into the real estate market, from the bottom levels on up, which led to extreme housing inflation, and oceans of funny money flooding the economy. False prosperity.

This is not giving banks, "freedom of action." It is incentivizing them to act in a manner which otherwise would be against their best interests. Causing them to do things that they otherwise would not do.

The whole bubble and resulting crash are the result of perverse government incentives and EVERYONE taking advantage of them. If the government had not stepped into the mortgage market in the way they did, the bubble would never have happened.

Andrew, I think your illness has attacked your brain. You have forgotten the distinction between fact and opinion.

[Scooter]

Re-read the piece liberty1 posted to see where the pressure to guarantee subprime loans came from (hint - putting "loans to low to medium income borrowers" and "subprime" in the same sentence doesn't make them synonymous). If you look at Fannie Mae/Freddie Mac's total portfolio, subprime mortgages were a small fraction of their business. To claim that government fuelled the expansion of the subprime market is to re-write history. The vast, vast, vast majority of subprime loans never qualified for FM/FM.

No one put a gun to the head of any lender and forced them to make a subprime loan. And no one certainly forced them to do their very best to obfuscate the terms so much that many borrowers did not understand the obligation they were committing themselves to down the line. And no one forced them not to care whether the borrower could actually afford it, because they believed that even if the borrower defaulted, they would get their money out of foreclosure in a housing market that appeared poised to continue growing indefinitely. Their greed managed to induce them into that behaviour all on its own.

[Scooter]

Pop quiz - what percentage of subprime residential mortgages were NOT held or guaranteed by Fannie Mae/Freddie Mac:

a) 13%

b) 38%

c) 62%

d) 87%

When you learn the answer, ask yourself how stupid it sounds to claim that government interference caused the subprime crisis.

[Grim Reaper]

This is not giving banks, "freedom of action." It is incentivizing them to act in a manner which otherwise would be against their best interests. Causing them to do things that they otherwise would not do.

Right. Their "best interests" that they apparently lobbied against to be able to make these loans.

Andrew, I think your illness has attacked your brain. You have forgotten the distinction between fact and opinion.

Well this is a textbook example of the pot calling the kettle black.

[quaddriver]

Pop quiz - what percentage of subprime residential mortgages were NOT held or guaranteed by Fannie Mae/Freddie Mac:

a) 13%

b) 38%

c) 62%

d) 87%

When you learn the answer, ask yourself how stupid it sounds to claim that government interference caused the subprime crisis.

the number, is *supposed* to be "100%"

scooter might be acting a little fast and loose with the truth:

In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.

Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.

Housing experts and some congressional leaders now view those decisions as mistakes that contributed to an escalation of subprime lending that is roiling the U.S. economy.

The agency neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending[\b] subprime loans are targeted toward borrowers with poor credit, and they generally carry higher interest rates than conventional loans.

Today, 3 million to 4 million families are expected to lose their homes to foreclosure because they cannot afford their high-interest subprime loans. Lower-income and minority home buyers -- those who were supposed to benefit from HUD's actions -- are falling into default at a rate at least three times that of other borrowers.

"For HUD to be indifferent as to whether these loans were hurting people or helping them is really an abject failure to regulate," said Michael Barr, a University of Michigan law professor who is advising Congress. "It was just irresponsible."

Congress is expected to vote before its Fourth of July recess on legislation that would strip HUD of its regulatory authority over Fannie and Freddie and give it to a stronger regulator.

Fannie and Freddie finance about 40 percent of all U.S. mortgages, with $5.3 trillion in outstanding debt. Owned by private shareholders but chartered by Congress, they are exempt from state and local taxes and receive an estimated $6.5 billion-a-year federal subsidy because they can borrow money more cheaply than other investors. In return, they are expected to serve "public purposes," including helping to make home buying more affordable.

HUD officials dispute allegations that the agency encouraged abusive lending and sloppy underwriting standards that became the hallmark of the subprime industry. Spokesman Brian Sullivan said the agency and Congress wanted to increase homeownership among underserved families and could not have predicted that subprime lending would dominate the market so quickly.

"Congress and HUD policy folks were trying to do a good thing," he said, "and it worked."

Since HUD became their regulator in 1992, Fannie and Freddie each year are supposed to buy a portion of "affordable" mortgages made to underserved borrowers. Every four years, HUD reviews the goals to adapt to market changes.

In 1995, President Bill Clinton's HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans. HUD expected that Freddie and Fannie would impose their high lending standards on subprime lenders.

sounds like the govt did all the 'forcing' as stated.

[quaddriver]

and of course

In 1995, the GSEs like Fannie Mae began receiving government tax incentives for purchasing mortgage backed securities which included loans to low income borrowers. Thus began the involvement of the Fannie Mae and Freddie Mac with the subprime market.[120] In 1996, HUD set a goal for Fannie Mae and Freddie Mac that at least 42% of the mortgages they purchase be issued to borrowers whose household income was below the median in their area. This target was increased to 50% in 2000 and 52% in 2005.[121] From 2002 to 2006, as the U.S. subprime market grew 292% over previous years, Fannie Mae and Freddie Mac combined purchases of subprime securities rose from $38 billion to around $175 billion per year before dropping to $90 billion per year, which included $350 billion of Alt-A securities. Fannie Mae had stopped buying Alt-A products in the early 1990s because of the high risk of default. By 2008, the Fannie Mae and Freddie Mac owned, either directly or through mortgage pools they sponsored, $5.1 trillion in residential mortgages, about half the total U.S. mortgage market.[122] The GSE have always been highly leveraged, their net worth as of 30 June 2008 being a mere US$114 billion.[123] When concerns arose in September 2008 regarding the ability of the GSE to make good on their guarantees, the Federal government was forced to place the companies into a conservatorship, effectively nationalizing them at the taxpayers' expense.

Of all the things I can find today, proof that the govt did NOT force or entice the GSEs into this illegal behaviour is not among them. Wy am I not surprised?

[Grim Reaper]

Government: Hey banks, make loans more available.

Banks: Hmm, the more loans we make, the more money we get. Loans for everybody!

Quaddriver: But the government forced the banks to give loans to any Joe Schmoe off the street!