# Bailout Rejected



## pichao (Apr 13, 2008)

Why was the 700 billion dollar bailout rejected?
Does anyone have a plausible explanation


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## scubasteve (Aug 20, 2008)

it was an unpopular bill amongst the people. You look at the congressmen who are "in jeorpardy" of losing their seat (according to the news) and their votes were overwhelmingly negative.


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## jackmccullough (May 10, 2006)

The Democrats delivered more than half of the Democratic caucus, the Republicans only about a third, after promising

I'm not sure if it's plausible, but there's this:

Republicans said Pelosi may have lost votes with a floor speech they considered too partisan. "We could have gotten it if it were not for this partisan speech that Speaker Pelosi gave," Boehner said.

Added Rep. Chris Shays, a Connecticut Republican who also voted for the bill: "Nancy blew it."
https://www.politico.com/news/stories/0908/14050.html

And this:

McCain takes credit for bill before it loses
By: Mike Allen 
September 29, 2008 04:11 PM EST

Sen. John McCain (R-Ariz.) and his top aides took credit for building a winning bailout coalition - hours before the vote failed and stocks tanked.

The rush to claim he had engineered a victory now looks like a strategic blunder that will prolong the McCain's campaign's difficulty in finding a winning message on the economy.

Shortly before the vote, McCain had bragged about his involvement and mocked Sen. Barack Obama for staying on the sidelines.

"I've never been afraid of stepping in to solve problems for the American people, and I'm not going to stop now," McCain told a rally in Columbus, Ohio. "Sen. Obama took a very different approach to the crisis our country faced. At first he didn't want to get involved. Then he was monitoring the situation." 
McCain, grinning, flashed a sarcastic thumbs up.


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## pichao (Apr 13, 2008)

*Effects?*

What will be the effects of rejecting the bailout plan?


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## jbmcb (Sep 7, 2005)

Excellent news. I'd see rather a few more months of recession to let the markets sort themselves out, than a hacked-together piece of political legislation try to haul the economy out of the gutter at the expense of more pain later.


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## hurling frootmig (Sep 18, 2008)

pichao said:


> What will be the effects of rejecting the bailout plan?


So far the result are a 777 plus loss for the DOW (according to my google finance page as of 4:26 Eastern Time). The S&P went down about 8.7 percent.

Who's to say what tomorrow brings. I was just telling someone that I remember when the DOW went over 10,000 the first time and that the way the market is going we will see 10,000 again.

My view is that a deal will get done. The polls that I have seen indicate that a majority of people want something to get done. Like many people, I'm not happy with the costs involved and think that any plan that bails out Wall Street needs to have conditions attached to it that benefit tax payers and provides for improved oversight.

Pelosi would have been better off talking about the house coming together for the good of all Americans than taking shots at the failures (many though they are) of the Bush administration. McCain should know better than to ever take credit for something before all the votes are counted. And if Republicans really did vote against the bill due to what Pelosi said then they need to re-examine their manhood. The real loser in all of this was the country and the sooner all these idiots in congress figure that out the better.


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## playdohh22 (Dec 4, 2007)

It This would have been very "Un-American" like, if the bailout was approved. Also, this would make us communists...


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## Relayer (Nov 9, 2005)

jackmccullough said:


> The Democrats delivered more than half of the Democratic caucus, the Republicans only about a third, after promising


The most interesting bit in the article you linked:

"There were immediate recriminations on both sides. A switch of just 12 members would have reversed the outcome, and 95 Democrats, many from the left wing of the party, contributed to the defeat."

The Democrats could have easily passed this bill all by themselves with no Republican votes. Pelosi couldn't deliver. She's a terribly incompetent Speaker.


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## TMMKC (Aug 2, 2007)

Relayer said:


> Pelosi couldn't deliver. She's a terribly incompetent Speaker.


I regularly use far less kind words to describe the Speaker of the House!

As an earlier poster wrote, we need to let the market figure out this one. As a fiscal conservative, I cringe over the thought of even more deficit spending to fund yet another unpopular scheme (the first one in recent years being the Iraq war, IMO).

Though I don't like prospects for the next several months as the ship rights itself (and it will), that last thing I want are my tax dollars going toward a Wall Street entitlement program to make up for its incompetence and greed.


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## hurling frootmig (Sep 18, 2008)

Relayer said:


> The most interesting bit in the article you linked:
> 
> "There were immediate recriminations on both sides. A switch of just 12 members would have reversed the outcome, and 95 Democrats, many from the left wing of the party, contributed to the defeat."
> 
> The Democrats could have easily passed this bill all by themselves with no Republican votes. Pelosi couldn't deliver. She's a terribly incompetent Speaker.


Now I'm not really a fan of Pelosi but I think if you feel she did not deliver the democrats then you must be even more disappointed in Boehner who couldn't even deliver a simple majority of house republicans on a plan that he participated in crafting. In fact he ended up with about a third of his caucus voting for it.

Again, the American people lost today. Hopefully they won't lose again tomorrow.


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## Relayer (Nov 9, 2005)

hurling frootmig said:


> Now I'm not really a fan of Pelosi but I think if you feel she did not deliver the democrats then you must be even more disappointed in Boehner who couldn't even deliver a simple majority of house republicans on a plan that he participated in crafting. In fact he ended up with about a third of his caucus voting for it.
> 
> Again, the American people lost today. Hopefully they won't lose again tomorrow.


I think they both blew it, but I'm really just countering the notion that it's all the Repulicans' fault. 12 votes switched was all Pelosi or the Republicans needed. Neither could deliver.


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## Quay (Mar 29, 2008)

Both sides of the aisle are responsible for today's events. The amount of money involved, the furious negotiations (including lobbyists who haven't slept in a week), and the astounding political and ideological implications of all this mess go way beyond general party politics.

All of our elected leaders and officials in Washington are culpable and the only congressperson I can think of capable of having slammed these folks together today to pass this bill would have been Lyndon Johnson, but he's busy right now and even if he wasn't probably wouldn't want to go back to the House.


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## Wayfarer (Mar 19, 2006)

I think any politician using this topic in an attempt to score points, should be drummed out of DC. I think any poster attempting to blame one side vs. the other should think again.

That is all.


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## thunderw21 (Sep 21, 2008)




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## walterb (Dec 24, 2006)

*A victory for the American people*

This bill was a complete outrage. It was designed by Henry Paulson the former CEO of Goldman Sachs largely to bail out 3 or 4 large Wall Street banks. It would do nothing to stimulate the economy or address the problems plaguing the housing market. It would do nothing to prevent the stock market from tanking either. It would however assure that the bankers who caused this mess would have a well funded (by taxpayers) bonus pool to divvie up next spring. Thank you to all of the House Republicans who did the right thing by the American people.


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## pcunite (Nov 20, 2006)

I am glad the Bill did not pass. Those in favor should take an economics class (I say this politely).

For the first time I have really seen the heart of the people in Washington. Both Obama and McCain wanted the bill to pass as I understand it. Really shocking that they could support this. It proves that the so called "American People" they speak of must really be thought of as idiot children.

It must be understood that taxes to pay for this is not on the books and the average America could not pay for it anyway. Thus the government is going to print money. This will cause the dollar to nose dive and inflation to suffocate the economy all the more. 

When you play the Wall Street and Loan Banking business you are in the gambling business. When losses occur they are for a very good correcting reason. We need to let it happen.

Sad that ever since American companies began getting cheaper laborers overseas, bringing their product back here and selling for a profit, that any competing company pretty much had to do the same.

Thus the majority of jobs left in the USA are service work. Do you really want to work at Taco Bell when you retire from McDonalds? I give the USA ten years before it succumbs to United Nations regulation.


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## chatsworth osborne jr. (Feb 2, 2008)

*Where is tightwad McCain now?*



thunderw21 said:


>


Huzzah (except for the admiring the President part)!
Speech by the less dashing man who should be the GOP nominee.


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## pcunite (Nov 20, 2006)

chatsworth osborne jr. said:


> Huzzah (except for the admiring the President part)!
> Speech by the less dashing man who should be the GOP nominee.


Thank you, thank you, thank you for this video!!!


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## Terpoxon (Sep 28, 2006)

Pelosi's speech was ill timed and disgraceful. Both sides are to blame, policies started under Carter and made worse under Clinton. No Republicans bothered trying to fix them (Well, McCain might have tried). Both sides deserve to be blamed. Her speech was just packed with lies. I am so tired of hearing about the Clinton surplus. It never existed. The closest they ever came was 1999 or 2000, one year the deficit was $18 billion. At no time did the government actually take in more than it spent. Anyone can project surpluses into the future using rigged numbers.

The plan was hastily thrown together, and I am not sure it was the best plan that could have been formulated.

I also agree that Pelosi is incompetent. All they needed was for the Democrats to vote for it, and she couldn't deliver. She should be run out of DC on a rail.


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## thunderw21 (Sep 21, 2008)

chatsworth osborne jr. said:


> Huzzah (except for the admiring the President part)!
> Speech by the less dashing man who should be the GOP nominee.


Preach it, Ron!


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## TMMKC (Aug 2, 2007)

chatsworth osborne jr. said:


> Huzzah (except for the admiring the President part)!
> Speech by the less dashing man who should be the GOP nominee.


Amen! Ron Paul may still get my write-in vote.


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## hurling frootmig (Sep 18, 2008)

Terpoxon said:


> Pelosi's speech was ill timed and disgraceful. Both sides are to blame, policies started under Carter and made worse under Clinton. No Republicans bothered trying to fix them (Well, McCain might have tried). Both sides deserve to be blamed. Her speech was just packed with lies. I am so tired of hearing about the Clinton surplus. It never existed. The closest they ever came was 1999 or 2000, one year the deficit was $18 billion. At no time did the government actually take in more than it spent. Anyone can project surpluses into the future using rigged numbers.
> 
> The plan was hastily thrown together, and I am not sure it was the best plan that could have been formulated.
> 
> I also agree that Pelosi is incompetent. All they needed was for the Democrats to vote for it, and she couldn't deliver. She should be run out of DC on a rail.


I agree that both sides are at fault. I'm surprised that the republicans in the house are such delicate flowers that a speech by Nancy Pelosi is going to make them change their vote. Never realized she really had so much pull.

Please enumerate the policies of the Carter administration that you are blaming for the present problems. As I recall, Clinton only had a democratic majority for two years in the house and the senate (1992-1994). So just how much could he had done? GWB had a republican majority for six years in the house . . . one would think that he would have been able to reverse a host of laws that his party didn't like. It's not like he actually used the veto much during those six years. 

One of the main pieces of legislation that some prominent economists point to as being responsible for some of what we are going through now is the Gramm-Leach-Bililey act of 1999. This act effectively gave the banking industry what they had been lobbying for quite some time - the repeal of the Glass-Steagall act. While Phil Gramm may have been the best friend of the banking industry it turns out that a number of pieces of legislation that he proposed and that were subsequently passed have not been good for the long term health of the country.

With all of that said, by no means is only Phil Gramm at fault. Clinton signed this legislation (which was basically veto proof if my memory is correct). You don't arrive at this point in history without a number of mistakes adding up. Including mistakes by Reagan (trickle down and de-regulation), Bush 41 (further de-regulation), Clinton (GLB and more de-regulation), GWB (bankrupcy laws and a lack of enforcing what regulation is left on the books). McCain has been in congress and the senate for most of the time that these laws were passed so I'd be interested in hearing where the legislation went wrong.


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## Terpoxon (Sep 28, 2006)

> Original Act
> 
> The CRA was passed by the 95th United States Congress and signed into law by President Jimmy Carter in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community.[1] Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act.[2] The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions after the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 repealed restrictions on interstate banking.[3] However, until 1995 the Act was laxly enforced and banks only were required to advertise in local minority newspapers or sit on the boards of local community groups.[4] The CRA is enforced by the financial regulators (Federal Deposit Insurance Corporation ("FDIC"), Office of the Comptroller of the Currency ("OCC"), Office of Thrift Supervision ("OTS"), and the Federal Reserve System).[citation needed]
> The bill encouraged mortgage lending through two government sponsored enterprises ("GSEs"). One, the Federal National Mortgage Association, commonly known as Fannie Mae, enables mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers. The other, the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, buys mortgages on the secondary market and sells them as mortgage-backed securities on the open market.[5] It also charged the Federal Reserve System to implement the CRA through ensuring banks and savings and loans met their CRA obligations.[3]
> ...


https://en.wikipedia.org/wiki/Community_Reinvestment_Act

I don't think many Republicans changed their votes based on Pelosi's speech. I think a lot of them were opposed to it, and her speech just made matters worse. There were probably a few that were on the fence, and she pushed them into the voting against it. It's disgraceful that anyone would choose that moment to make such a highly partisan speech, especially when Democratic fingerprints are all over this mess.


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## Terpoxon (Sep 28, 2006)

I'd also like to say that anyone (like Pelosi) who was "blindsided" by this is either lying or a fool. Anyone looking at financial markets and Fed policy for the last ten years knew this was coming. I have only a basic knowledge of economics but I've seen it coming for years. Anyone reading Bill Fleckenstein's column knew it was coming as well.

Over the years, I've started to wonder about these sorts of things. On many levels- from school administrations to local, state and national politics- I have seen examples of breathtaking incompetence and stupidity. So many times, I have thought to myself "Nobody could be the at dumb (or naive or shortsighted)." On several occasions I have come to the conclusion that incompetence is really a front for darker motives. I think many in our government wanted this to happen, certainly many in the financial markets did. the big companies- like Goldman Sachs, which has an incestuous relationship with the government, stand to make money from all this. The companies that helped to cause this made millions- so did their CEOs. The only real losers if this bailout passes, and it will eventually, are the American people. Some benefitted by taking out loans they couldn't afford based on dubious statements of income, and they may well benefit from all this before its over. But millions of Americans got nothing out of this deal but the bill. The government keeps mortgaging our future. They spend the money (to get reelected and to benefit their friends in corporations- and both sides do it, so don't try to just blame the Republicans) and the American people pay the bills. 

I would encourage everyone to start looking beyond partisan politics and party loyalty to see that the country is suffering and both parties are to blame.


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## Terpoxon (Sep 28, 2006)

One other thing. I just a headline on Matt Drudge's site that Congress has adjourned until Thursday. There isn't a story, just the headline. Is this true? 

I don't think there could be a better illustration of incompetence. 

"Ok, well, we had one idea, it got voted down so lets take 2 days off."

Obviously there need to be some back room meetings and all that, but shouldn't they at least pretend to work during that time. With nothing new on the table the markets will be in free fall.

Jim Cramer, who is a moron and a blowhard, is saying that he recommends avoiding buying stocks until the DOW hits 8200. Of course he said the market had reach a bottom about 6 weeks ago. 

I am normally in support of Congress not doing anything, but it seems they should be open for business right now.


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## hurling frootmig (Sep 18, 2008)

Terpoxon said:


> https://en.wikipedia.org/wiki/Community_Reinvestment_Act
> 
> I don't think many Republicans changed their votes based on Pelosi's speech. I think a lot of them were opposed to it, and her speech just made matters worse. There were probably a few that were on the fence, and she pushed them into the voting against it. It's disgraceful that anyone would choose that moment to make such a highly partisan speech, especially when Democratic fingerprints are all over this mess.


Thanks for the quote and the link. I remember this legislation but did not spend a lot of time studying it through the years. I see debate on both sides of the question as to if it really has anything to do with what we are going through now. I'll talk to some of my banking friends and Washington buddies to get a couple of different perspectives.

My gut says that there were a lot of things that happened over the last twenty five years or so that all contribute to what we're going through now. I'm still not a fan of de-regulation and I am sure that to some degree I have benefited from it over the years but that doesn't make it right. One of the things I have found in working in corporate America all these years is that people need some limits on what they can and can't do. Maybe I'm getting too cynical but I've seen very few folks behave as boy scouts. Most push the envelope as much as possible and I've seen more than my fair share who went too far.


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## Terpoxon (Sep 28, 2006)

hurling frootmig said:


> Thanks for the quote and the link. I remember this legislation but did not spend a lot of time studying it through the years. I see debate on both sides of the question as to if it really has anything to do with what we are going through now. I'll talk to some of my banking friends and Washington buddies to get a couple of different perspectives.
> 
> My gut says that there were a lot of things that happened over the last twenty five years or so that all contribute to what we're going through now. I'm still not a fan of de-regulation and I am sure that to some degree I have benefited from it over the years but that doesn't make it right. One of the things I have found in working in corporate America all these years is that people need some limits on what they can and can't do. Maybe I'm getting too cynical but I've seen very few folks behave as boy scouts. Most push the envelope as much as possible and I've seen more than my fair share who went too far.


I'd encourage you to look into Fannie Mae and Freddie Mac's role in all of this. They are government agencies, well quasi-government agencies. Everyone keeps talking about deregulation. Nobody is discussing the role of government policy (like the CRA) and the role of government agencies that don't have to play by the same rules as private companies (Fannie and Freddie).


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## Terpoxon (Sep 28, 2006)

https://www.bloomberg.com/apps/news?pid=20601087&sid=ahwz_k5JvuB8&refer=worldwide

I also find this interesting. While Congress is debating the $700 billion bailout, the Fed "injected" another $300 billion into the global currency market. A trillion here and a trillion there and pretty soon you are talking real money.

Since we have a fiat currency, it is a commodity and it responds to the laws of supply and demand like any other commodity. If the Fed keeps increasing the money supply the net result is that its value is weakened. They don't seem to understand this. This loose money policy helped get us here, more of the same isn't going to help.


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## Leather man (Mar 11, 2007)

I share our friend from Sweden's bewilderment. It is very hard for us in Europe to understand the politics of a country so far away , so I don't want to make a political comment. 

What we are hearing from our economics commentators is that the decision of the Congress was a shock and a disaster. 

I heard Pelosi's speech on the BBC and it was appalling and under the circumstances a derilication of duty IMO. However I find it hard to believe that the Republican Representatives who voted nay did so on the basis of hurt feelings.

The line the BBC is taking is that the American people didn't like this bail out of Wall Street and their Representatives have an eye to being re-elected - so it was politics that brought it down.

The Today programme this am took the line that the plan was not a great plan but neither was it a terrible plan. The main thing is it was a plan and that what is needed right now - not on Thursday but yesterday is direction and a plan being actioned. Today programme economist expressed real concern that the markets will tank whatever America now does - ie its all too late.


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## radix023 (May 3, 2007)

Congress is paused for Rosh Hoshana (think they'll take off for Eid on Thurs?).

Negotiations will continue, but don't expect any votes until Weds at the earliest.


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## Terpoxon (Sep 28, 2006)

A holiday celebrated by about 5% of the population is no excuse for taking time off in the midst of something like this. I have no idea how many members of Congress are Jewish, but I am sure that even without the Jewish members they could have a quorum.


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## pt4u67 (Apr 27, 2006)

Terpoxon said:


> I'd encourage you to look into Fannie Mae and Freddie Mac's role in all of this. They are government agencies, well quasi-government agencies. Everyone keeps talking about deregulation. Nobody is discussing the role of government policy (like the CRA) and the role of government agencies that don't have to play by the same rules as private companies (Fannie and Freddie).


Precisely! Though not completely to blame, the CRA is in large part responsible for much of this mess. The Dems talk about how de-regulation is to blame. I would argue that it is government interference in free markets in the form of the CRA, applied through GSE's like Fannie/Freddie that played a large part in this.

By compelling financial organizations to make loans to people whom otherwise would not have had access to such credit, an artificial market was created. But of course its easy to blame CEOs and Wall Street "fat cats" because it makes for a pretty sound bite.


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## pt4u67 (Apr 27, 2006)

Is it just me or does anyone else find it odd that Christopher Dodd and Barney Frank are front and center in the debate over all this. Ahhh, to be a shameless politician!


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## jackmccullough (May 10, 2006)

hurling frootmig said:


> I agree that both sides are at fault. I'm surprised that the republicans in the house are such delicate flowers that a speech by Nancy Pelosi is going to make them change their vote. Never realized she really had so much pull.
> 
> Please enumerate the policies of the Carter administration that you are blaming for the present problems. As I recall, Clinton only had a democratic majority for two years in the house and the senate (1992-1994). So just how much could he had done? GWB had a republican majority for six years in the house . . . one would think that he would have been able to reverse a host of laws that his party didn't like. It's not like he actually used the veto much during those six years.
> 
> ...


I think that the repeal of Glass-Steagal, although it's gotten a lot of attention, was not as significant as the Commodity Futures Modernization Act, the Christmas tree for derivatives traders delivered in December, 2000 by Phil and Wendy Gramm, slipped into the must-pass budget bill, and rammed through. It prohibited regulation of the derivatives, like credit default swaps, that could have made a difference in the mortgage crisis if they were properly regulated and backed with secure assets.

In other words, we can all thank McCain's top economic advisor.


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## Spence (Feb 28, 2006)

So much blame going around, but this really just looks like a perfect storm. 

CRA, Greenspan, Mark to Market, Credit Default Swaps, corporate greed, bad government etc...

While I'm not sure I agree with the overall approach (because I may not be smart enough to understand it all) it did seem like they were able to vastly improve the proposal that came from the Administration. The fact that the House couldn't get it through is just pathetic on all sides.

-spence


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## Terpoxon (Sep 28, 2006)

Attempts by people like Jack to pin this on a single person are delusional. It was a failure of several levels of government, several administrations, dozens of corporations and thousands of people who took out loans they couldn't afford (many by lying about incomes).

If the government tells me I can jump off a bridge, it doesn't mean I have to do it. If the government loosened regulations it's no excuse for companies to engage in risky, highly volatile behavior. Fannie and Freddie had the government cover, and they pushed companies into making some of these loans. 

Stop playing partisan politics and realize that entire political class is to blame on this one. Throw all the bums outs.


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## Terpoxon (Sep 28, 2006)

Oh and if you wanted to pin it on a single person, Magoo, Alan Greenspan probably has more to do with it than anyone.


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## KenR (Jun 22, 2005)

My understanding of Judaism is that in times of crisis or emergency you can receive some relief from your religious obligations to deal with the issue. But I may be wrong on that. Someone correct me if I am.

Terpoxon, so far I have agreed with much of what you have said about the crisis, except for your ad hominem attacks on Jack. A point of view is just that, a point of view. And the Interchange is a great place to express it, but also to accept how other people see the world.


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## Terpoxon (Sep 28, 2006)

*A Harvard Economist's View*

https://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview



> *CAMBRIDGE, Massachusetts (CNN) -- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.*
> *This bailout was a terrible idea. Here's why.*
> *The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.*
> *Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.*
> ...


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## Terpoxon (Sep 28, 2006)

Jack and people like him keep pounding away on this as a partisan issue. They need to be called on it. Sorry if anyone is offending by that, but attempts to blame one side are misguided and intellectually dishonest.


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## jackmccullough (May 10, 2006)

Thanks, Ken.


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## KenR (Jun 22, 2005)

I agree with the rollback of government intervention in pushing bad mortgages.

But I disagree with the last part of the Harvard Economists view. The problem with these mortgage back securities is that many potential buyers are scared off because they believe that the market has not hit bottom yet. Many of those who _are_ offering to buy are trying to scoop up the securities in distress sales. It is a very illiquid market, but it is not completely dead. Some trading is still occurring. With the lack of a decent market firms must rely on a variety of measurements to price the securities, most of them analytical. Are most of the securities worth only 20 cents on the dollar? I don't think so. The mortgages backing them are not all in default, only a portion. In addition, per the SEC and, I believe the AICPA, distress sales should be given little consideration in pricing because they do not represent a true "market". I happen to be in Charlotte right now dealing with an Investment bank that is waist deep in the stuff. Have talked to numerous traders and "quants" who are trying to price their positions. It is a difficult thing to do. But don't believe all the posturing and bloviating on the subject. That's my somewhat knowledgeable opinion.


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## KenR (Jun 22, 2005)

My pleasure Jack.


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## hurling frootmig (Sep 18, 2008)

Terpoxon said:


> Attempts by people like Jack to pin this on a single person are delusional. It was a failure of several levels of government, several administrations, dozens of corporations and thousands of people who took out loans they couldn't afford (many by lying about incomes).
> 
> If the government tells me I can jump off a bridge, it doesn't mean I have to do it. If the government loosened regulations it's no excuse for companies to engage in risky, highly volatile behavior. Fannie and Freddie had the government cover, and they pushed companies into making some of these loans.
> 
> Stop playing partisan politics and realize that entire political class is to blame on this one. Throw all the bums outs.


I think Jack has a point but you are correct that there has been multiple failures over the years. Gramm is an easy target for two things (off the top of my head . . . I know there's more) Gramm-Leach-Bililey and the Enron loophole that Jack mentioned. I'd also agree that Greenspan and a host of others contributed to this.

The bottom line at the moment is that the congress needs to get something done. Bush needs to kick some house republicans in line and if he can't do it then Bonehead er Boehner needs to do it.


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## XdryMartini (Jan 5, 2008)

*The Birk Economic Recovery Plan*

I'm against the $85,000,000,000.00 bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.

To make the math simple, let's assume there are 200,000,000 bona fide U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billion that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a "We Deserve It Dividend".

Of course, it would NOT be tax free.

So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes.

That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket.

A husband and wife has $595,000.00.

This even takes care of the AIG employees that lose their job.

What would you do with $297,500.00 to $595,000.00 in your family?

Pay off your mortgage - housing crisis solved. 

If you had insurance from AIG, now you have the money to replace it with a more stable company. 

Repay college loans - what a great boost to new grads

Put away money for college - it'll be there

Save in a bank - create money to loan to entrepreneurs.

Buy a new car - create jobs

Invest in the market - capital drives growth

Pay for your parent's medical insurance - health care improves

Enable Deadbeat Dads to come clean - or else

Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( "vote buy" ) economic incentive that is being proposed by one of our candidates for President. 

If we're going to do an $85 billion bailout, let's bail out every adult U SCitizen 18+!

As for AIG - liquidate it. Sell off its parts.

Let American General go back to being American General.

Sell off the real estate.

Let the private sector bargain hunters cut it up and clean it up.

Here's my rationale. We deserve it and AIG doesn't.

Sure it's a crazy idea that can "never work."

But can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion "We Deserve It Dividend" more than I do the geniuses at AIG or in WashingtonDC.

And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

And theoretically with the boost to the economy most of these people would be more productive and pay enough in additional taxes over a 5 to 10 year period to repay the $59.5 Billion. 

Ahhh...I feel so much better getting that off my chest.

Kindest personal regards,

Birk

T. J. Birkenmeier, A Creative Guy & Citizen


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## Quay (Mar 29, 2008)

jackmccullough said:


> I think that the repeal of Glass-Steagal, although it's gotten a lot of attention, was not as significant as the Commodity Futures Modernization Act, the Christmas tree for derivatives traders delivered in December, 2000 by Phil and Wendy Gramm, slipped into the must-pass budget bill, and rammed through. It prohibited regulation of the derivatives, like credit default swaps, that could have made a difference in the mortgage crisis if they were properly regulated and backed with secure assets.
> 
> In other words, we can all thank McCain's top economic advisor.


"Everything that's old is new again" goes part of a song line whose title I can't remember just now, but it's apt. I well remember Phil and Wendy Gramm in the 80's, two of the biggest proponents of magical thinking that ever sat in government. The magic being that of the markets being able to solve all things all the time while the "evil" was government regulation of nearly any kind. (Wendy was quite happy to have the regulatory protections of director immunity even though her seat on the Enron board eventually cost her a lot of money in settlements and legal bills.)

They definitely have a share in the current mess but they're sort of poster people for the rancid notion that any regulation is bad. This is one of the main reasons we have today's meltdown: the deregulation pushed through by those inspired by such notions made it possible. The stupidity, incompetence, greed and pursuit of newsmaking quarterly profit increases by private finaciers could not have happened as they did if the legislators did not make it possible by repealing, gutting and in many cases simply refusing to enforce regulations. Capitalists will rightly maximize opportunity within any given set of rules and push them to the absolute limits but when you have no rules the end result is always a disaster as the temptations are too great and the dreams of rewards too huge. It's human nature.


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## Quay (Mar 29, 2008)

*The politics, in color*

If anyone would like to see a map of the politics of the bailout no-vote, the New York _Times_ has put together a very interesting map of the country with the votes recorded, along with a political look at what kind of district each vote came from.

https://www.nytimes.com/interactive/2008/09/29/business/20080929-CONGRESS-VOTE-GRAPHIC.html


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## pichao (Apr 13, 2008)

*Bailout anaway?*

Most Europeans seem to believe that there will be a bailout anyway. They think that the alternative would result in a long time depression with high unemployement, etc.

The argument is that the financial system cannot be looked upon isolated. If there is no money to borrow, the companies cannot make any investments, etc

Is the bailout a step that has to be taken whether you like it or not? And is the alternative to a bailout a long time economic depression?

I am sure that you have opinions about this, gentlemen


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## charlie500 (Aug 22, 2008)

*History repeating...*

This seems a repeat of the late seventies, early eighties... inflation, high oil prices, underemployment and jobs going overseas, high food costs, etc...

"In 1965, President Johnson started increasing deficit spending to fund the Vietnam war. This fiscal policy (as predicted by Keynesian theory) increased inflation and reduced unemployment.

Unfortunately, inflation is a self-fulfilling prophecy. If business owners expect it, and raise their prices by the anticipated amount to compensate for it, then they have created the very inflation they fear. This process forms a vicious circle -- inflationary expectations and price increases feed off each other, with the potential of creating hyper-inflation. Unfortunately, economic theory at the time was such that economists didn't know how to stop it, at least safely.

Growing inflation in the 70s received two huge boosts: the first comprised the late-1973 and 1979 oil shocks from OPEC (the Organization of Petroleum Exporting Countries). Soaring oil prices compelled most American businesses to raise their prices as well, with inflationary results. The second boost to inflation came in the form of food harvest failures around the world, which created soaring prices on the world food market. Again, U.S. companies that imported food responded with an inflationary rise in their prices.

All this was accompanied by a growing crisis in monetary policy at the Federal Reserve. Traditionally, the Fed has fought inflation by contracting the money supply, and fought unemployment by expanding it. In the 60s, the Fed conducted an expansionary policy, accepting higher inflation in return for lower unemployment. It soon became clear, however, that this strategy was flawed. Expanding the money supply created jobs because it put more money in the hands of employers and consumers, who spent it. But eventually businesses learned to expect these monetary increases, and they simply raised their prices by the anticipated amount (instead of hiring more workers). The result was that the Fed gradually lost its ability to keep down unemployment; the more money it pumped into the economy, the more businesses raised their prices. As a result, both inflation and unemployment started growing together, forming a twin monster that economist Paul Samuelson dubbed "stagflation."

"In 1980, Volcker tightened the money supply, which stopped job growth in the economy. In response to hard times, businesses began cutting their prices, and workers their wage demands, to stay in business. Volcker argued that eventually this would wring inflationary expectations out of the system.

The recovery of 1981 was unintentional, and with inflation still high, Volcker tightened the money supply even more severely in 1982. This resulted in the worst recession since the Great Depression. Unemployment in the final quarter of 1982 soared to over 10 percent, and Volcker was accused of the "cold-blooded murder of millions of jobs." Even high-ranking members of Reagan's staff were vehemently opposed to his actions. Congress actually considered bringing the independent Fed under the government's direct control, to avoid such economic pain in the future. Today, economists calculate that the cost of Volcker's anti-inflation medicine was $1 trillion -- an astounding sum. But Wall Street demanded that Volcker stay the course, and that may have been the only thing that saved him.

In the late summer of 1982, inflation looked defeated, so Volcker sharply expanded the money supply. Once as high as 14 percent in 1981, the Fed's discount rate fell from 11 to 8.5 percent between August and December 1982. Within months, the economy roared to life, and took off on an expansion that would last seven years. Because the recession had been so deep, and the number of available workers so large (with not only laid-off workers waiting to return to work, but also a record number of women seeking to join the workforce), the recovery was guaranteed to be long and healthy. "
https://www.huppi.com/kangaroo/L-carterreagan.htm


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## Yellman (Aug 25, 2005)

pichao said:


> Why was the 700 billion dollar bailout rejected?
> Does anyone have a plausible explanation


I have one point to make about this bill.

It is similar to your father telling you to clean your room or you will get the "strap".

You say no, he then hits you really hard with the belt strap (an old world analogy). Nothing changes, you still need to clean your room.

The bill will get passed one way or another. The only difference is now we have been hit with the strap.


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## charlie500 (Aug 22, 2008)

pichao said:


> The argument is that the financial system cannot be looked upon isolated. *If there is no money to borrow, the companies cannot make any investments*, etc
> 
> Is the bailout a step that has to be taken whether you like it or not? And is the alternative to a bailout a long time economic depression?
> 
> I am sure that you have opinions about this, gentlemen


"Reagan's tax cuts were passed in 1981, and were already in effect by 1982 -- but, as we have seen, 1982 was the year of the horrific recession.

Tax cuts were supposed to have spurred economic recovery by liberating the tax dollars of entrepreneurs and *allowing them to invest them in greater productivity and jobs. However, such greater investment never occurred. It appears that the rich simply pocketed the savings*, because investment fell during the 80s"


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## jbmcb (Sep 7, 2005)

charlie500 said:


> Tax cuts were supposed to have spurred economic recovery by liberating the tax dollars of entrepreneurs and *allowing them to invest them in greater productivity and jobs. However, such greater investment never occurred. It appears that the rich simply pocketed the savings*, because investment fell during the 80s"


If economics were only so easy as that. You'll usually see quick, small microeconomic bump from a tax cut, but you won't see the macro effects for years, when they can be masked by other factors one way or the other. Remember you had the S&L crisis in the 80's which depressed investing quite a bit.


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## charlie500 (Aug 22, 2008)

jbmcb said:


> If economics were only so easy as that. You'll usually see quick, small microeconomic bump from a tax cut, but you won't see the macro effects for years, when they can be masked by other factors one way or the other. Remember you had the S&L crisis in the 80's which depressed investing quite a bit.


Agreed that tax cuts would not be seen, but investment should have been seen, and investment fell in the 80's:

Private investment 1970 - 1979 18.6%1980 - 1992 17.4Paul Krugman, _Peddling Prosperity,_ (New York: W.W. Norton & Company, 1994), pp. 126-127Which says that the investors pocketed the money, just like the institutions will pocket the $700 billion and continue to build their house of cards.


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## pichao (Apr 13, 2008)

*dagens industri*

Here is a short comment (translated by google translate) from Dagens Industri, an economic newspaper:

Comment: The American consumer has taken power 
Updated 2008-09-30 18:05

SAN DIEGO 
Why should the financial sector, which earned a lot and chief executives, who were able to get bonuses of one hundred million kronor, be rescued over other crisis sectors such as automobiles and the newspaper business? Why is there no massive rescue plan for those affected by the lending boom and now are without homes? And why was ther no cap on salaries and bonuses in the rescue plan of 700 billion dollars? There is logic among ordinary people on the U.S. west coast.

They are sorry for the mortgage holders, those who took loans they could not afford. An almost socialist view in one of capitalism's most capitalist states. But San Diego-residents felt on their part, that the rescue plan was the socialist idea.

This verdict have apparently taken root even among the majority of Congress members. Any deeper insight into the financial world has long been global, and the importance of the sector of the economy at large does not seem to exist.

I was on the San Diego Union Tribune newspaper office, the biggest in San Diego, on Monday, when voting results breeze and the rescue plan was no. The news attracted some attention. Was highest among three top news on the newspaper's Web site. Yet it was one a day old news about San Diego Football Team - charging the profit against Oaklands Raiders - on Sunday as top news site's list of top stories. From late morning to late evening, although it is more than a day old.

"Maybe people follow political news on another site, trying to explain the entire Web while he shaked his head.

But 65 percent of readers think that the rjection of the rescue plan was right in a quick web survey an hour after voting was finished.

San Diego, which flourished thanks to the real estate sector has been hit hard by the mortgage crisis. Husmark custody is much less hot longer. The price of a TWO-ROOM FLAT has plummeted from a half million dollars to 320,000 U.S. dollars.

And the San Diego Union Tribune, which previously gave out a 60-page annex with its real estate, has today dieting material to a few pages as a regular part of the newspaper. The magazine will now be sold and 25 employees were bought out.

To some 12 percent price decline after the appeal from Swedbank Chairman Carl Eric Steel's last Thursday for a short peak of the financial shares can only wonder whether both the Financial Supervisory and Financial Minister Mats Odell interpreted the market reaction a bit naive. Now vigorous sacrifice is required and perhaps victims of the Swedbank will be able to reverse the traditional sail boat right. For the American consumer has again taken power over financial markets. This time by members of Congress in Washington.

KARIN SVENSSON 
Published 2008-09-30 17:10 
Updated 2008-09-30 18:05
svenska

» engelska

Översätt

Föreslå en bättre översättning


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## charlie500 (Aug 22, 2008)

jbmcb said:


> If economics were only so easy as that. You'll usually see quick, small microeconomic bump from a tax cut, but you won't see the macro effects for years, when they can be masked by other factors one way or the other. Remember you had the S&L crisis in the 80's which depressed investing quite a bit.


Funny you should mention the Bush family's Savings and Loan Scandal as this bailout seems to be right out of their play book.:

"There are several ways in which the Bush family plays into the Savings and Loan scandal, which involves not only many members of the Bush family but also many other politicians that are still in office and still part of the Bush Jr. administration today. Jeb Bush, George Bush Sr., and his son Neil Bush have all been implicated in *the Savings and Loan Scandal, which cost American tax payers over $1.4 TRILLION dollars* (note that this is about one quarter of our national debt).
Between 1981 and 1989, when George Bush finally announced that there was a Savings and Loan Crisis to the world, the Reagan/Bush administration worked to cover up Savings and Loan problems by *reducing the number and depth of examinations required of S&Ls* as well as attacking political opponents who were sounding early alarms about the S&L industry. Industry insiders were aware of significant S&L problems as early 1986 that they felt would require a *bailout*. This information was kept from the media until after Bush had won the 1988 elections.
*Jeb Bush* defaulted on a $4.56 million loan from Broward Federal Savings in Sunrise, Florida. After federal regulators closed the S&L, the office building that Jeb used the $4.56 million to finance was reappraised by the regulators at *$500,000, which Bush and his partners paid*. *The taxpayers had to pay back the remaining 4 million plus dollars.*
Neil Bush was the most widely targeted member of the Bush family by the press in the S&L scandal. Neil became director of Silverado Savings and Loan at the age of 30 in 1985. Three years later the institution was belly up at a cost of *$1.6 billion to tax payers to bail out*.
https://www.rationalrevolution.net/war/bush_family_and_the_s.htm


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## KenR (Jun 22, 2005)

charlie500 said:


> Agreed that tax cuts would not be seen, but investment should have been seen, and investment fell in the 80's:
> 
> Private investment 1970 - 1979 18.6%1980 - 1992 17.4Paul Krugman, _Peddling Prosperity,_ (New York: W.W. Norton & Company, 1994), pp. 126-127Which says that the investors pocketed the money, just like the institutions will pocket the $700 billion and continue to build their house of cards.


You're listening to Paul Krugman?! That would be like me getting my point of view from Sean Hannity. I'd say Michael Savage but I'm looking for an _intellectual_ opposite. It's a lopsided and doctrinaire slant on life from a snippy little 60's leftover who's angry that we're not leaning towards socialism.

Other than that, Hi I'm Ken. How ya doin! :icon_smile:


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## charlie500 (Aug 22, 2008)

KenR said:


> You're listening to Paul Krugman?! That would be like me getting my point of view from Sean Hannity. I'd say Michael Savage but I'm looking for an _intellectual_ opposite. It's a lopsided and doctrinaire slant on life from a snippy little 60's leftover who's angry that we're not leaning towards socialism.
> 
> Other than that, Hi I'm Ken. How ya doin! :icon_smile:


Regarding Paul Krugman, Even a broken clock is right twice a day. (I'm also a fan of Roland Barthes "Death of the Author" it doesn't matter who said it, if it's true.) As for us not leaning towards socialism, we're talking about a $700,000,000,000 government subsidy to private intstitutions how is that not socialist? The utopian idea that the US is or ever could be a purely capitalist society died with the Great Depression.

If you could point out the flaw in Krugman's argument, I'd be glad to hear it. As for his personal shortcommings, that's his wife's problem.


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## KenR (Jun 22, 2005)

charlie500 said:


> Regarding Paul Krugman, Even a broken clock is right twice a day. (I'm also a fan of Roland Barthes "Death of the Author" it doesn't matter who said it, if it's true.) *As for us not leaning towards socialism, we're talking about a $700,000,000,000 government subsidy to private intstitutions how is that not socialist?* *The utopian idea that the US is or ever could be a purely capitalist society died with the Great Depression.*


You got that right!

And I didn't think anyone equated pure capitalism with a utopian ideal since Ayn Rand.


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## TMMKC (Aug 2, 2007)

Oh, if we only knew then what we know now! Note the date of this story from the NYT.


Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
*Published:* *September 30, 1999*
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.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.


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## jbmcb (Sep 7, 2005)

charlie500 said:


> Funny you should mention the Bush family's Savings and Loan Scandal as this bailout seems to be right out of their play book.https://www.rationalrevolution.net/war/bush_family_and_the_s.htm


https://en.wikipedia.org/wiki/Keating_Five

D-, D-, D-, D-, and R-. Oops, that's McCain!


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## jackmccullough (May 10, 2006)

TMMKC said:


> Oh, if we only knew then what we know now! Note the date of this story from the NYT.
> 
> 
> Fannie Mae Eases Credit To Aid Mortgage Lending
> ...


Is there any evidence that this is where the problem lies, or that this segment of the mortgage industry is performing worse than any other segment?


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## charlie500 (Aug 22, 2008)

KenR said:


> You got that right!
> 
> And I didn't think anyone equated pure capitalism with a utopian ideal since Ayn Rand.


* Atlas shrugs* 
I actually never could get through any Ayn Rand, or any Russian writers come to think of it. Doesn't everyone think all political ideologies are utopian?

I have to go, but nice to meet you Ken. I look forward to following this discussion when I get back.


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## TMMKC (Aug 2, 2007)

jackmccullough said:


> Is there any evidence that this is where the problem lies, or that this segment of the mortgage industry is performing worse than any other segment?


I certainly don't think it is the root of the problem, but it's definitley one of them. Wall Street greed, incompetence and short-sightedness is the far worse sin in this scenario IMO.

We should create as many opportunities as we can to boost home ownership, as I truly believe it gives people a sense of pride and makes them better citizens. However, as harsh as this sounds, there were too many people out there owning houses who had absolutely no business doing so. Granted, many plain lied about their income levels to get the loans, but totally blaming predatory lending practices belies the fact that these people did sign their names on the proverbial dotted line. Personal accountability in this whole fiasco tends to get overlooked.


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## jackmccullough (May 10, 2006)

I wouldn't assume "It's definitely one of them" without evidence.


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## KenR (Jun 22, 2005)

jackmccullough said:


> Is there any evidence that this is where the problem lies, or that this segment of the mortgage industry is performing worse than any other segment?


One of them. You also have those with decent incomes who bought the biggest homes they could get with adjustible rate mortgages that had a low "teaser rate". Normally, in a rising or stable market, when the time for the adjustment hits people would just refinance the same principal at another low rate. But with the decline in the equity in their homes borrowers found out that the banks would not let them refinance this same amount of principal as the original loan. So people were forced to come up with the difference between the new loan principal that they received, which was now lower, and the old, which they had to pay off as part of the refinancing. That can be a lot of money. And because many buyers stretched themselves thin they couldn't afford to come up with money to pay off old loan at the higher interest rate either, so voila, default.

Then there are the house flippers.....


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## jackmccullough (May 10, 2006)

*Interesting analysis*

Here's a comment that I just read on the Wall Street situation. I don't know if the guy's right or not, but what he's saying in essence is that under the proposed buyout there's a good chance we'll pay less for the assets than their intrinsic value, so the USA could wind up holding one or two trillion bucks worth of assets for $700 billion in expenditures.

Anybody in the business have a thought about it?


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## 16412 (Apr 1, 2005)

I don't understand how the bail-out is suppose to stop the crazy loans that dug the hole were in now. It seems to me the bail-out still alows the hole to be dug even deeper. Useing tax money to "bail-out" and then shutting our eyes so we can dream the problem is gone isn't working for me.

Another thought is about S.S. I think some of you are old enough to see the need for S.S. I think a lot of money should be shoved into investments for retirement, but enron and now this clearly shows how easy it is for your invested retirement money can fall through the cracks in the floor. Do you really think bad luck should be able to put you out on the street, because we don't want to pay into S.S., and calling the "under the bridge" home?


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## radix023 (May 3, 2007)

One part of this mess that continues to amaze me is the financially illiterate reporting. Let me give some examples:

BBCA ran a story the other night about a community organizer lady in Chicago (I think) who worked with the homeless. She was facing foreclosure on her own home. Nowhere in the story did it provide the cost of the home to her or her general income level. Without that information it is impossible to determine if she was acting responsibly or not when she originated the loan. So the news people were pushing a sympathy story but I have to consider the possibility that it was her own dumb fault.

The retirement story: John Doe has been working job X for years and was going to retire next year. Now he's wiped out and doesn't know when he will be able to retire. There is a financial principle that you reduce your exposure to risk as you get nearer to needing the money. So as you get closer to retirement you should be moving from stocks into bonds. If you're trying to retire next year and you're > 80% in stock, then the person to blame is in the mirror. None of the stories I've seen on this frame provide any information on the distribution of investments of the people in the story. (this was more of a generic entry, but I'm sure you've seen one of these)

It mirrors my frustration with the news coverage here in Atlanta for the gasoline shortage. They talk about how long people wait in line, they ask for you to send in pictures of the gas lines, but they don't tell you what the heck is going on. I have yet to see a news organization provide this link: https://www.oe.netl.doe.gov/named_event.aspx?ID=20 which gives you the report on systems coming back online after Ike.

I'd love to say that I've got a miracle solution to un- or counter- productive news hype, but I don't. Part of the problem with the bailout is that DC hasn't bothered to make much of a case to the people. The president spoke about how important it is, but nobody has detailed what is in the bill. What with the bipartisan adoration of earmarks, the public just doesn't trust Congress not to pass a crappy bill full of pork-corruption. I think if they really did slim down the bill, explain the essentials and prove that there isn't anything else in the bill it would have an easier time to get passed. Instead I think they're going to drag on until a few more banks fail and maybe a business or two doesn't make payroll due to credit scarcity and then rush through a big sh*t sandwich as the public panics and demands action.


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## jackmccullough (May 10, 2006)

Radix, I think you're right. The issue is pretty complicated, and most people haven't been shown either how the current system affects them, or how the proposal will fix it.

In addition, the bailout proposal doesn't address my biggest concern: how do we get derivatives like credit default swaps regulated to prevent getting into a similar problem in the future.


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## KenR (Jun 22, 2005)

jackmccullough said:


> Here's a comment that I just read on the Wall Street situation. I don't know if the guy's right or not, but what he's saying in essence is that under the proposed buyout there's a good chance we'll pay less for the assets than their intrinsic value, so the USA could wind up holding one or two trillion bucks worth of assets for $700 billion in expenditures.
> 
> Anybody in the business have a thought about it?


That's quite possible. The owner of the bonds will still be collecting interest on the debt. Plus when, and if, the market turns around the value of the assets can go back up. Someone with deep pockets and a long time horizon can come out of this decently.


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## Mike Petrik (Jul 5, 2005)

Jack, the article is right but very speculative. The popular impression that the government is essentially giving lending institutions $700B is just not true. Explained somewhat simplistically, the proposal authorizes Treasury to use up to $700B to buy CMO interests from banks, and those CMOs are almost certainly worth more than what banks are required to book them at -- probably a lot more -- though certainly not "face." Accordingly, bank write-offs are fair and appropriate, but the accounting rules that require zero or next to zero valuation are a function of the lack of a market for CMOs that are difficult to value, but certainly have value. To use a very simplistic example, an interest in a $50,000,000 CMO paying 6% secured by 7% mortgages backed by real estate valued at $50,000,000 is going to decrease in value if more than the expected number of 7% mortgage holders stop paying and the real estate is likely worth closer to $40,000,000, but it is hardly worth zero. But the m-t-m accounting rules require a write-down to zero if there is no market for the CMO such that it can be promptly liquidated. The reason that there is no market is partly because of the difficulty of valuing the thousands of different mortgages embedded in the CMOs and partly because the players in that market are the same institutions who are being forced to write down values, and they therefore have no book capital to buy anything.

By way of an imperfect partial analogy, let's say you are asked to value your house. The value would be much different if you were told that you must find a buyer by tomorrow morning rather than take your time so that potential buyers can find you, study the house, and make offers. Banks are being forced to value based on the first assumption, and the phenom is aggravated by the fact that valuing these securities is more complicated than valuing a single parcel of real estate.

In any event, valuation is the key, but is very difficult. The less we pay the banks the more likely we end up making money and vice versa. But there is certainly room for a win-win given that the banks are being forced to book the securities at unrealistically low values.


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## jackmccullough (May 10, 2006)

Thanks, Mike, that's the way I understand it, too.

Now following up on this, I've seen proposals to abandon the mark-to-market rules. This seems like a terrible idea to me: it's just telling them they can keep on lying (or relying on laughably rosy scenarios) about the value of the assets on which they're basing their ongoing operations, including lending operations. In other words, mark-to-market is there to keep them from digging themselves in deeper.


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## jackmccullough (May 10, 2006)

*FDIC limit*

On a point relating to today's Senate bill, it sounds as though they're just putting the ornaments on the bill that they think they need to pass it. Aside from the fact that rural banks will like it, which might make rural members of Congress to like it, can anyone see any real policy value to increasing the FDIC limit to $250k? Given that you can spread your money around in different banks, how does this do anything for depositors except make it a little more convenient for them to save large amounts of money in the form of cash?


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## jbmcb (Sep 7, 2005)

jackmccullough said:


> can anyone see any real policy value to increasing the FDIC limit to $250k? Given that you can spread your money around in different banks, how does this do anything for depositors except make it a little more convenient for them to save large amounts of money in the form of cash?


I think it was time for a bump, it's been $100K for quite a while. It's (mostly) for show, the FDIC insurance really only protects you from banks completely imploding, when their creditors go after their assets and everything gets frozen. That isn't happening, and probably won't happen unless the economy totally collapses. We're a ways away from that yet.


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## radix023 (May 3, 2007)

This is a little one-sided as it does not plaster the Republicans who played the Fannie-Freddie game, but it does give you lots of source info to verify:


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## eagle2250 (Mar 24, 2006)

It seems to me, we are all pretty convinced that some form of a substantial bailout package will eventually pass...and for those who haven't bailed out (pun intended), our savings, investments, property values, etc., will hopefully recover. Just like everyone else, I've really hated to see my net worth wither away but, when all is said and done, will we have learned anything? Will so many, still be looking for a free lunch (read that, a sub-prime mortgage for a house they can't afford!)? Will we have had the courage and determination necessary to investigate,charge, try and convict those responsible for placing the financial security of so many at risk? Will our congress have created legislation that will prevent a recurrence of this fiasco? I'm increasingly feeling as if I am in Rome; the flames are rising, the chaos is increasing, I hear fiddle music in the background...Nero, Nero, are you practicing your violin again!


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## playdohh22 (Dec 4, 2007)

XdryMartini said:


> *The Birk Economic Recovery Plan*
> 
> I'm against the $85,000,000,000.00 bailout of AIG.
> 
> ...


If calculations were correct. It would be $425 (minus the extra three zeros) to each adult US citizen.


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## charlie500 (Aug 22, 2008)

KenR said:


> You're listening to Paul Krugman?! That would be like me getting my point of view from Sean Hannity. I'd say Michael Savage but I'm looking for an _intellectual_ opposite. It's a lopsided and doctrinaire slant on life from a snippy little 60's leftover who's angry that we're not leaning towards socialism.
> 
> Other than that, Hi I'm Ken. How ya doin! :icon_smile:


Couldn't help noticing that following this conversation Paul Krugman won the Nobel prize for economics. Which makes me feel only slightly better about listening to him.


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## brokencycle (Jan 11, 2008)

playdohh22 said:


> If calculations were correct. It would be $425 (minus the extra three zeros) to each adult US citizen.


You are correct.



charlie500 said:


> Couldn't help noticing that following this conversation Paul Krugman won the Nobel prize for economics. Which makes me feel only slightly better about listening to him.


When watching Colbert last night and heard the news, I literally exclaimed "WHAT?!?! No way! How?!?"


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