The German invasion of Europe resumes

[Gob]

A leaked plan from the German government proposes a eurozone "budget commissioner" to take control of Greece's tax and spending, reports say.

The Financial Times, which has a copy of the plan, calls it an "extraordinary extension" of EU control.

Greek Education Minister Anna Diamantopoulou called the German plan "the product of a sick imagination".

The European Commission said the budget "must remain the full responsibility of the Greek government".

A German official told the Associated Press eurozone finance ministers were discussing the plan.

The leaked document is a draft and the European Commission has already voiced its unease. But it clearly reveals the direction of German thinking: much tighter control of Greek policy-making. To control big economic decisions is to control much else.

But questions arise: what if a decision by a democratically elected government in Athens were vetoed by an unelected budget commissioner in Brussels, perhaps seen as the voice of Berlin? How might a decision be enforced?

The German government believes the nub of the Greek situation is that the government in Athens has over-spent, so must cut its spending.

But politics may be less black and white. Democratic legitimacy plus the feeling of ordinary people are also factors - in a potent political mixture.

Greece has failed to meet targets set by its international lenders.


http://www.bbc.co.uk/news/world-europe-16773974

[rubato]

In the auld days of red-meat capitalism a lender was expected to price risk appropriately (charge interest based on likelyhood of default) and if they failed to do so it was tough shits for them.

In the brave new world of the present if they fuck up and make wholly-stupid decisions about risk we will affix moral blame on those who took the loans instead and indemnify the brave lenders of capital and let them fuck the borrowers into the next century.

Where the hell did you learn about financial risk?

yrs,
rubato

[dgs49]

Although I'm not 100% certain that I'm reading him correctly, I think I agree with rubato.

Greece wants (needs) to be bailed out six ways from Sunday because of its financial stupidity and unwillingness to accept reality, yet doesn't want anyone interfering with its decisionmaking.

What to do with a "failed state"?

[Scooter]

What he is saying is rather the opposite - lenders advanced money to a country that they knew was spending beyond its means, in order to generate high returns on normally secure sovereign debt, and now they expect their irresponsibility to be reward by a bailout plan that will not result in substantial losses for them. Not unlike many mortgage lenders in the U.S. who are now having their apologists whine for them about how they were supposedly forced by government policy to make unsound loans.

[dgs49]

OK, my head is starting to spin.

It was "irresponsible" for the other Euro governments to lend Greece a mountain of money, so it is unreasonable for the lending countries to now demand that Greece take reasonable measures so that the debt can eventually be repaid. Is that it?

And when banks lend money to questionable borrowers at government's insistence, and with assurance that government was going to buy the dubious paper, it is the banks that ought to absorb the losses.

Must be Canadian logic. I don't get it.

[Scooter]

It wasn't "other Euro gov'ts" who lent the money, it was financial institutions intent on making a profit, and who now expect that their risk taking have absolutely no consequences and that their losses should be covered. Euro gov'ts are now insisting that Greece take measures to ensure repayment, in order to protect their own economies from collapse.

And perhaps you could provide some specifics on how governments have "insisted" that banks lend money to "questionable" borrowers, because mandates to increase lending to those of below average income to purchase homes of below average price does not make the borrower "questionable".

[Liberty1]

Sheeeesh, not again.

How many times do I have to explain this.. As usual, unintended consequences from leftest social engineering.

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.


The top priority may be to ask more of Fannie Mae and Freddie Mac. The two companies are now required to devote 42% of their portfolios to loans for low- and moderate-income borrowers; HUD, which has the authority to set the targets, is poised to propose an increase this summer. Although Fannie Mae actually has exceeded its target since 1994, it is resisting any hike. It argues that a higher target would only produce more loan defaults by pressuring banks to accept unsafe borrowers.

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

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.

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.

And the Reps tried to stop it..

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.


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.

In their on words

http://www.youtube.com/watch?v=_MGT_cSi7Rs



And our current CIC sues over it.


http://www.mediacircus.com/2008/10/obam ... bad-loans/

THE seeds of today’s financial meltdown lie in the Community Reinvestment Act – a law passed in 1977 and made riskier by unwise amendments and regulatory rulings in later decades.

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 .

The Woods Fund report makes it clear Obama was fully aware of the intimidation tactics used by ACORN’s Madeline Talbott in her pioneering efforts to force banks to suspend their usual credit standards. Yet he supported Talbott in every conceivable way. He trained her personal staff and other aspiring ACORN leaders, he consulted with her extensively, and he arranged a major boost in foundation funding for her efforts.

And for a pretty golod timeline of the whole fiasco.

http://pjmedia.com/rogerkimball/2008/09 ... epression/

[Scooter]

You keep repeating it, and I keep pointing out that what it says is completely different from your and Dave's warped interpretation of it. This:

In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers.

did not in any way induce lenders to extend mortgages to borrowers with bad credit or on terms that left them improperly secured. "Low to medium income" does not bear any resemblance to "high risk".

[Liberty1]

Then they should have had no problem, or help needed getting a loan.

[Scooter]

Except that it takes less time, effort and expense for a bank to make a single mortgage for $1 million than five mortgages of $200,000, so three guesses where they are going to focus their energies unless they are given a push...

[Scooter]

Oh yeah, to say nothing of redlining, which was just a lazy way of assessing risk based solely on where a loan applicant lived (or what race they were), regardless of their individual creditworthiness.

[dgs49]

Probably no reason to go over this again, but I personally know mortgage lenders and a Board Member of a local credit union who were literally threatened with regulatory harrassment if they did not start making loans to minorities and in failing communities.

Concurrently, they were made aware that the often-cited quasi-government mortgage companies would be willing to buy the loans regardless of the quality of the paper (so to speak).

Some lending institutions declined and actually got out of the mortgage business, while others saw it as an opportunity to make a killing with minimal risk, and acted accordingly.

IF THE FEDS HAD NOT INTERVENED, the nation's banks would have continued doing business as they always had, requiring that borrowers put a percentage of the price down, that they prove sufficient disposable income to repay, that they demonstrate a reliable work history, and so forth. They would have insisted on realistic appraisals of the homes being mortgaged, to ensure that (a) the borrowers had some skin in the game, and (b) the bank could recover its investment if the borrowers shat the bed.

HAD THE FEDS NOT INTERVENED, with their "compassionate" desire that every American own his own (fucking) home, there would have been no hyperinflation of home values, no bank crisis, etc., etc., ,etc.

One cannot deny that various studies indicated minorities were not being treated equally by lenders, and that lenders were blacklining certain neighborhoods for reasons that might not have withstood rational examination. But the solution is not to give loans to any asshole who walks in the door; the solution is to require that lenders develop quantitative criteria for lending that cancels out any racial or irrational geographical bias.

Ironically, there remain many geographical areas where real estate values are inflated beyond any rational level, which constitutes yet another "bubble" that will inevitably burst, causing much wailing and gnashing of teeth.

[Gob]

Any see the discussion on Greece and the EU I left somewhere about here

[Scooter]

Probably no reason to go over this again, but I personally know mortgage lenders and a Board Member of a local credit union who were literally threatened with regulatory harrassment if they did not start making loans to minorities and in failing communities.

Still failing to see how that constitutes pressure to make risky loans.

Oh, wait. (insert non-white race of choice) all have bad credit, I guess.

One cannot deny that various studies indicated minorities were not being treated equally by lenders, and that lenders were blacklining certain neighborhoods for reasons that might not have withstood rational examination. But the solution is not to give loans to any asshole who walks in the door

That was a solution that lenders came up with all on their own. Why? Because in a rising market they figured they couldn't lose, even if the borrowers defaulted, so they simply didn't give a shit so long as they kept seeing money to be made. Why is the most obvious explanation so difficult to accept, such that basic capitalist profit-seeking behaviour needs to be explained away by recourse to conspiracy theories about big bad government forcing banks to make loans that they knew were a bad risk?

[rubato]

There was no pressure to make risky loans at all. That is a stupid lie. Wells Fargo made almost no risky loans. Their portfolio had very few defaults by comparison.

The entire problem was caused by the tidal suck of private mortgage-backed securities which provoked people like Wa-Mu and others to write crappy loans. And it was that tidal suck which was created by a lack of regulation of the financial sector.

yrs,
rubato

[Rick]

Any see the discussion on Greece and the EU I left somewhere about here

No

Just trying to be helpful

[Gob]

Twenty-five of the EU's 27 member states have agreed to join a fiscal treaty to enforce budget discipline.

The Czech Republic and the UK refused to sign up. UK Prime Minister David Cameron said his government would act if the treaty threatened UK interests.

He still has "legal concerns" about the use of EU institutions in enforcing the fiscal treaty, he said.

The Czechs cited "constitutional reasons" for their refusal, France's President Nicolas Sarkozy said.

Czech President Vaclav Klaus, a Eurosceptic, may be reluctant to sign the treaty, analysts say.

The goal is much closer co-ordination of budget policy across the EU to prevent excessive debts accumulating.

Germany - the eurozone's biggest lender and most powerful economy - was particularly keen to get a binding treaty adopted to enforce budget rules.
http://www.bbc.co.uk/news/world-europe-16803157

[BoSoxGal]

We are so USA-centric!

USA! USA! USA!



Honestly, I think if Greece wants bailed out by Germany, Greece needs to accept some conditions. I keep following the story on NPR and it seems like the Greeks are a bit . . . challenged as to financial acumen.

NOT that I'm one to judge.

I guess I am just very anxious about the whole European financial situation because we seem to just be seeing a glimmer of improvement here and now talk is that the European mess could drag the whole world economy back into depression.

I've quit reading The Economist and The Nation, so I admit to not 'getting' all the nuances of all this.

Are the MOTU going to inherit the Earth?

[Gob]

Are the MOTU going to inherit the Earth?

Not if Super Edi, Beffudlement Boy, and Ginger Witch have anything to do with it!!

Edited to add;

How 'Europe' became a dirty word in the US election

[Scooter]

Greece has implemented a number of austerity packages over the past couple of years. They don't seem to be doing the job. Combinations of tax increases and cuts to social programs have caused significant hardship, causing some to go so far as to put their children up for adoption because they cannot afford to care for them. I'm not suggesting that nothing should have been done; Greece has been living beyond its means for decades, but you can't get blood out of a stone.