http://www.nakedcapitalism.com/2008/09/why-you-should-hate-treasury-bailout.html

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quote:

This puts the Treasury's actions beyond the rule of law. This is a financial coup d'etat, .... Given the truly appalling track record of this Administration in its outsourcing, this is not an idle worry.

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The problem is there is no reasonable alternative. If all the behemoth financial entities are allowed to fail, the economy of the country would fall off the cliff it is hanging on to by the fingernails.

Getting caught up in the rhetoric of analysis of the details of this next obscene move by the Bush administration requires more concentration than I care to give anymore to a problem created, managed and left unsolved by the biggest bunch of thieves to run our government since the Nixon administration.

The bottom line is that there is nothing the taxpayer can do about any of it, except vote the crooks out of office that have taken all our money, directly and indirectly, by allowing the capitalistic model to run amok.

It's going to be a rough ride into '09. I have little sympathy for the big losers, having been in a negative cash flow for some time myself. It eats up all your savings and you read the paper each morning and all it says is "layoffs," and "jobs outsourced."

The government can not just buy up their own failure, they need to stop giving the farm away to companies that have done nothing short of destroying our economy through outsourcing overseas, locating offshore, paying no taxes, screwing their shareholders, keeping what small workforce in the U.S. they may still maintain on a short leash, etc. This practice of non regulation is not going to stop if the country as a whole doesn't realize that this is the direct result of Republicans getting everything they wanted. This isn't just a chance to bash the GOP, since it will be up to Democrats in Congress and Pres. Obama to lead the way out and there will be plenty of chances for them to screw up. This is, however, a complete condemnation of neo-conservative rhetoric about how to run the country.

The Crooks are everywhere Andy. They dress up in all kinds of clothes Democrat , Republican, Atheist , Christian, Muslim, Socialists ad nauseum take ur pic. There is no savior that classifies him/her self as a politician, not ever !We are still looking for 'the Savior'.

The only answer is to have a Star Trekian Universe where nobody needs money to be successful and live with dignity. There are no rich people or poor people and everyone has a purpose in life, a skill and a talent to contribute. Imagine' by John Lennon comes to my mind here. Well now, what I have just described smacks of Marxism to some, rational thought to others. So now there is a choice.

You dont want to think about he details, you say, but how else are YOU or anyone else going to solve the problem then? By voting ? Ah well , its gonnah take a little more than that kind of knee jerk reaction to solve this problem I think. One of the biggest problems in all this , is the fact that the WORLD ECONOMY that we participate in, is largely financed and supported by SOCIALISM. What we are doing this weekend and next week is reshuffling our deck of cards and joining the rest of the 20 deck boot that is already SOCIALISTICALLY based and supported.

Usher in the revised American Financial System remarried and fully Wed ,now , to the WORLD ECONOMY ! More later, I am so sure !

I think there is a more solid answer than the Star Trek bit.

Primary Politics.

I have to admit, I've been watching what is going on over at Kos and it's got some serious merit. Many successful primary challenges have been won. That means new blood and with that comes the threat that maybe serving the people isn't such a bad idea.

At least it's something. I need something, or it's pretty damn depressing.

After this election, I can't wait for that to start happening to the Republicans. Cycle out the asses, put the rest in jail, or fine them to a Plaid Pantry wage and see the party get back to it's REAL conservative roots.

I think we can deal with that nicely enough.

@ Missing: Yes, the Republican party I would love to see is the same one that ran Eisenhower in 1952 on an anti-war platform against Harry Truman. Unfortunately, the Republican Party acts more like the Italian mafia than a political party.

@Kennewickman: Voting is the only tool the average Joe has to change the system. I know you may reply cynically something along the lines of "They are all corrupt." Then in 2, 4, or 6 years you vote them out until the reps start listening. I have a degree in history and all major social movements in this country started from the ground up. the Revolution. the Abolition Movement. Women's Suffrage. Labor. Civil Rights. All started with common people wanting a change in the system. And they all got it. So you may put down voting but no election can be rigged if enough people get out and actually vote.

as for the original post, yeah the trend since Reagan (remember VooDoo economics?) is to privatize ALL profits, socialize (put it on the government's tab) ALL major losses (remember the S&L scandal, of which John McCain was one of the Keating 7?) So yeah I did what I could. I called my representative, and both Oregon Senators and told them that bailing out these mortgage-based equities is wrong. Let these free market monkeys that scream for less government restriction take a full on crash. Hurt them in the pocket book. Make them take the loss. THERE is Adam Smith in action for you libertarian minded Republicans out there.

No, the problem comes down to Socialism vs Capitalism. I happen to believe there is a happy medium somewhere. Our political system doesnt seem to handle all this very well these days. We go from one extreme to the next here lately. Real changes are needed, but I am not sure the Obama connection is going to fill the ticket here. You probably have an opposing view, and that is fine with me and everybody else on this forum I suspect.

Oh yeah I remember the 60s and the early 70s and I have 2 college degrees too, so what, BFD ! I remember all that crap about power to the people and REVOLUTION and Vietnam and Jane Fonda and flower power and the assasinations and the riots and the demonstations and the 'Walk on somewhere or another" ( which I participated in a few times myself) and how a lot of those power to the people Jerry Rubin dont trust anyone over 30 assholes turned into Wall Street money grabbin' Howard Milkin dickheads in the end. Piss on the damned baby boomers, I am one of them , and my constituents piss me off a good deal of the time, especially the ones in a position of power and monied influence.

I am mostly a Republican ( I do vote Demo once in awhile ) but dubahyuh pisses me off with his Robotic Max Headroom Big Brother attitude excuse for taking rights away from the citizen under the guise of some emergency or another, 9-11, Afghanistan ( Bin Laden), Iraq ( WMD ) , now this with the Markets...its always something with dubahya...and one crises after the next and then one ghastly power grab under the cover of an emergency the next.

Change is needed , but change is HARD and takes a long time, usually. And the DEVIL IS IN THE DETAILS , that was my point above. The Star Trek reference was 'tounge in cheek" to make a point only.

Just a thought for those who used to freak out at the mere mention of Socialism ( You know who they were );

This action by the Federal Government ( us ) to create a bail out, for these companies, for these reasons, could not be more socialist.

Thats right. Socialism 101 to be practised soon at the Federal Reserve Bank.

I've said it before and I will say it again. You can thank the republicans for this one. Hands off government to the financial industry and the industry is about to fall apart. Hands off to the drug industry and we now can't trust our drugs. Hands off the oil industry......you don't really want me to go on do you?

The bottom line is if you're a corporate executive, you probably belong in prison. The naive CONservatives who believe in hands off big business really believe big business is run by people we can trust. In reality it's run by greed and deceit which is why we're in the mess we're in. Change will happen when the people at the top fear retribution for their actions. Right now they don't.

Tough call for the Democratic Congress. Push for components in the bailout bill to address CEO golden parachutes, salary, etc. or cave to the Boosh administration and let the bailout go through in its "naked" form. It's lose lose for the Democratic Congress. Either they look like wimps that are not addressing the causes or they look like incompetents for filling the legislation with penalties and limits the Boosh team will not accept, delaying the bill and causing more blood to spill on Wall Street.

If only they knew they can just step up right now and deal straight, they would have the support of a LOT of people.

ENOUGH people, IMHO.

McCain just announced that he does not regret the deregulation as it helped with the growth of our economy!!!

That should make the election a set piece for Obama. Take is 7 ideas that need to be embodied in this fix, draft up something solid we can live with and just deliver it right to Bush.

With all the organizing power Obama has harnessed, the Dems can bloody up just about anybody that does not want to play ball on this one.

..but they are highly likely to not do this, and those CEO's will not see jail, nor losses to their personal portfolio because "they were just doing their job".

I was reading in the New York Times today that some in the banking sector want to fold other "bad investments" they've made into the bailout -- beyond bad mortgages. This goes beyond the pale. Plus they are feverously resisting the idea of helping homeowners on the verge of foreclosure refinance their home mortgage loans. The banking sectors conduct in this fiasco is beyond sickening. They deserve jail, not a federally financed bailout.

I really hope the Democrats stand up to the White House, Sec. Paulson and the banking sector and force them to accept the Democrats demands.

I was reading in the New York Times today that some in the banking sector want to fold other "bad investments" they've made into the bailout -- beyond bad mortgages. This goes beyond the pale. Plus they are feverously resisting the idea of helping homeowners on the verge of foreclosure refinance their home mortgage loans. The banking sectors conduct in this fiasco is beyond sickening. They deserve jail, not a federally financed bailout.

I really hope the Democrats stand up to the White House, Sec. Paulson and the banking sector and force them to accept the Democrats demands.

Sure, why not?

If they are gonna hose us with no lube, why not go for the max?

I think they are resisting those on the verge because that opens the door to greater numbers of people realizing this isn't their fault and it opens the door to government actually protecting the people like it should, not just serving big industry like they think it should.

Ya, like an 'Ex' that I am very familiar with who ran up 35,000 dollars worth of debt, unsecured debt on several credit cards and personal loans luckily AFTER separation and divorce from someone else that I know very well. This was done over about 3 years or 4, I believe. WHY did this bank let her do that???

They must have written down the debt by now or maybe its in one of those " inliquid " mortgage securities they keep talking about parked in the walls of some former investment bank or insurance conglomerate because some one else I know very very well is not getting anymore of those 'notices' from the bank for the last year or so now.

By JULIE HIRSCHFELD DAVIS
2 HOURS AGO

WASHINGTON - A key Democrat negotiating a $700 billion financial bailout says the Bush administration has agreed to include mortgage aid and strong congressional oversight in the plan.

Rep. Barney Frank, the Financial Services Committee chairman, says a great deal of progress has been made in talks between lawmakers and President Bush's team on the rescue.

A government official with knowledge of the talks also said the administration has agreed to create a plan to help prevent foreclosures on mortgages it acquires as part of the bailout.

From the Independent of the UK:

Up to 10,000 staff at the New York office of the bankrupt investment bank Lehman Brothers will share a bonus pool set aside for them that is worth $2.5bn (£1.4bn), Barclays Bank, which is buying the business, confirmed last night.

The revelation sparked fury among the workers' former colleagues, Lehman's 5,000 staff based in London, who currently have no idea how long they will go on receiving even their basic salaries, let alone any bonus payments. It also prompted a renewed backlash over the compensation culture in global finance, with critics claiming that many bankers receive pay and rewards that bore no relation to the job they had done.

This is the kind of shit that makes me sick to my stomach. Bonuses in light of the worst financial crisis since the Great Depression? The greed and selfishness of these people is beyond comprehension. May they rot in hell!!! I hope to God that the candidates for president address this and the other MAJOR deficiencies in the financial services sector.

I supported the bailout in principle, but if the executives and their minions responsible for creating this disaster use this as a means by which to further enrich themselves, then forget it. I want a pound of flesh! These people need to pay, and in a tangible way.

And the line from Dubahya.... I like so much here...And I am paraphrasing...

If we assign legislation to this bill voiding the contract bonuses of the CEOs or other principals , we may discourage these banks from participating in this financial rescue, causing a cascade of defaults with very negative consequences on the American Economy.

Well, now , doesnt this idea just slam the exclamation mark at the end this whole sordid story. " IF I dont get my EXTRA pile of money, I wont allow my company to get straight essentially for free, so our stock holders are somewhat relieved and our economy and the American taxpayers get some relief".

Epitome of GREED, and the President sets the tone to facilitate such Ideas ! He is killin' me here ! We all thought that Dubahya's legacy would be the Iraq war, well guess again , the big legacy is gonnah be this Government within a Government beaucratic Financial bailout ....

If the firms involved in the bailout are so short sided as to worry about the compensation of their executives, then perhaps the government should let them fail. Try to go find another deal. Maybe China or some Middle Eastern emirate will lend them the money?

These investment banking executives are behaving like parasites and should be jettisoned as quickly as possible.

Another quick point. I've been following this whole matter pretty closely and it's been pointed out in more than one medium how conservatism has failed in this matter -- and miserably. Had the conservatives behaved themselves, they could have maintained solid footing in a deregulated environment. But they got EXTREMELY greedy and screwed up while screwing the rest of us over.

Well, I've NO investments and a cheap living situation and a lot of skills.

I say, let them just fail, then go to jail. Take the big bucket of money, and instead of letting them satisfy their greed like the pigs they are, invest that money directly into the American people.

Public works, new business loan programs, home financing assistance, you name it. Fuck 'em.

Did you guys hear the news today? The investment banks are now gonna play ordinary bank now. Why? So they can get their share of the bucket of money!

There won't be investment banks anymore, just FDIC insured banks.

Weeks ago, I knew this was going to happen -- the writing was on the wall. When President Bush announced the bailout plan Friday morning, I thought it was a good idea. On some levels, I still feel it's a necessary evil. But the more I read and hear, the more angry I get with the financial services sector. These people are pure scumbags -- and they've ripped off the American taxpayer to the tune of over a trillion dollars. They deserve jail time!!! Now I’m really starting to wonder whether Hank Paulson should be involved in this at all. His former employer played a major role in this fiasco and I wonder can seriously stand up to these robber barons?

I was listening to Newt Gingrich on FOX tonight blaming everyone but the bankers for this mess. How in the hell can any right minded, moral person justify this kind of unadulterated greed (I have to remember that it’s Newt Gingrich speaking about the virtues of Wall Street). My favorite Newt remark was that placing caps on executive salaries would drive good people away from working for the bailout firms. You would have thought these firms would have hired good, smart people in the first place. Guess not. As Calvin Coolidge once said, there are a good many well educated idiots in this world and as we have come to find out many of them work on Wall Street. These SOB's and their friends in Washington DC are selling this country down the river and don't care one whit about our future. The only thing they care about is lining their pockets at our expense.

I’m sick about this thing because it was easily avoidable – or perhaps was it? Once again, the government is forced to step in and play baby sitter because adults in the financial services sector can’t play fair. These penned stripped capitalist heretics should be tarred and feathered.

It would have been avoidable if Americans would have not borrowed more than they could pay back. Just because credit is available to you doesn't mean you should max it out without considering the ramifications of repayment.

Vitalogy-

I agree that personal responsibility has to be owned up to if you borrow money and then overspent and didn't budget correctly.

But aren't lenders responsible to lend to people that show a good credit history?

I think so.

Business is offer and acceptance. We know absolutely we have an acceptance problem. Lay people are just not that smart. That's why we did the regulations we did.

The bigger story though is the derivatives and credit swaps. These clowns leveraged those loans multiple times! I'm still struggling to understand this, but it appears the regulations removed kept banks from playing in the investment markets and vice versa.

Now they all move the paper around, split it up, value it different ways and multiple times, literally making paper money where there isn't any.

Some of that, of course, is how investments work. But the degree of it going on is extreme. Why else does a few percent of foreclosure impact so much?

That's why, and it used to be illegal to do. Now it's not and we have no idea how much of that paper is out there, what it's value is and so on.

This isn't all about people borrowing too much.

The American people are not to blame here.

Keep singing your tune, Vitalogy. Maybe the Bankers Association will hire you as a spokesperson.

You're probably the only person I've read anywhere that blames the borrowers for creating this mess. For someone who purports to understand the nuances of high finance so well, I'm surprised by your myopic view of the realities of this crisis. I may not be the sharpest tool in the shed, but it doesn't take much for me to understand that the investment banks and their mortgage lending patsies fucked up -- and royally. All to the tune of a trillion dollars. Just ask Hank Paulson and Ben Bernanke, or are they wrong too?

Look. Nobody is ever forced to buy a home and take a risky mortgage! How anyone can say that the borrower does not shoulder the majority of the blame here is just crazy. Where does the buck stop folks? Is it up to big business to look over our every move to protect us from being idiots with our money? Idiot Americans in droves bought homes that were overpriced and took out mortgages they couldn't repay assuming home prices would go up up up and that they'd always be able to refi into something with a lower payment. They wanted something for nothing. Obtaining a mortgage is a completely voluntary action. Nobody forced anyone to do anything.

Like I've said before, just because you go to an all you can eat buffet doesn't mean the restaurant should be held responsible for your stomach ache because you stuffed your face.

"Like I've said before, just because you go to an all you can eat buffet doesn't mean the restaurant should be held responsible for your stomach ache because you stuffed your face".

If your an investment banking or mortgage firm, you can leave it up to the government to pump your stomach.


You can blame the homeowners all you want. Call me crazy, but the fact is the taxpayers are on the hook for over a trillion dollars and the American public sees these scumbags in the mortgage and investment banking sectors for who they are, greedy SOB's. In this case, I’d rather be an idiot than a scumbag – at least I have my morals intact.

So here's a question;

For the sake of argument, let's say that risky loans have been available for many years before this relative collapse. ( We can quibble about what kinds of loans later ). What do you think has changed that made it all go so far south so quickly?

Show your work.

Let the Buyer Beware. If it sounds to good to be true it probably is.

I think there is blame on both sides but there were truly dishonest lenders that took advantage of people with predatory loans and flat out lies.

Happy to be out of our mortgage these past few years. What a mess.

CJ-Great question. I look forward to the replies.

Now back to my huge workday.

I am not an expert, but IMHO, the borrowers and lenders at street level have a whole lot less to do with this collapse than the people in the corporate hierarchy who were trading, selling and profiting from the mortgages. I have read reports for a number of years that focused on discrimination and predatory loans to minorities and the elderly, but I have also seen articles on the practice of rating a risky loan as much better than it actually was in order to sell it at top dollar.

Though responsibility must be shared, speculators deserve far more blame than Joe Sixpack in this equation. If Joe Sixpack is one of over 660,000 people who lost their jobs this year, who is to blame? Millions of household incomes were found to be sufficient when the loans were signed, but many more people are out of work every day. When stockholders routinely use layoffs for profit, then whine and squeal because those layoffs resulted in defaulted mortgages, they want to have their cake and eat it too.

Refinancing and equity loans -- often on homes that were already paid for -- caused the single greatest loss of minority wealth in the history of our country. A cynic could believe that it was calculated to work that way. While it is convenient to blame people of lower incomes, people of color, old people and working folks who signed the dotted line, it shows a basic ignorance of the facts about these loans. This study showed that the overall risks were not any greater than other wealthier borrowers. It is silly to stay myopic about the sleaze involved in a largely unregulated market when the evidence has been coming out for quite awhile.

Huge financial institutions cooked the books, conjured up huge profits and eventually became mired in their own lies. Now, they have the gall to turn around and blame the people who simply wanted a piece of the American dream, while gladly charging them on tax day for corporate mismanagement. Thanks to a destructive approach to regulation that has existed from the top down since 1980, the financial industry has been steadily moving away from transparency to secrecy, from honesty to malfeasance, and from fiscal accountability to wanting a handout. Now that the party is over, they refuse to pick up the tab.

And what about reverse mortgages, those just sound like bad news to me. They sound like a predatory loan to take advantage of the elderly.

"What do you think has changed that made it all go so far south so quickly?"

You know more about this than I do. I do know that from where I stand, the chief issue is the lack of the so called "trickle-down" effect long part of the GOP/Conservative mantra about taxes and keeping the affluent companies sheltered from taxes.

Trickle down didn't happen. The man on the street didn't get raises, the self employed person or small business owner didn't see more work coming their way, in fact just the opposite was true. All the money started circulating at the top of the chain. And now the Boosh team has the unmitigated gall to lay another one of their failures on the working man. It's one failure after another coming out of D.C. Yesterday I thought we have to do something, but after reading the emerging details of the Boosh proposal, I'm thinking hell no, let the big guys fall. It can't hurt me any more than the current situation is. Making sure money is available to loan out is the justification I hear, but I'm not so sure bailing out those that got too damn greedy in the first place is any kind of solution.

I think there is too much emphasis being placed on mortgage failures. Scapegoating ARM's won't fly with me. There is a place for every kind of financial instrument. Smart borrowers arent' getting hurt by ARM's. I have a 30 yr fixed at 5.875 and the problem is trying to get my other debts paid every month with next to no work to be found. Running on plastic like many Americans throws off your debt/equity ratio and you can't 2nd mortgage the consumer debt or refi the whole thing to get the payment down. So all this talk in D.C. about bailouts isn't going to help me or anyone. The big companies will get more money to squander on profit making motives. They'll find something to replace cheap mortgages in no time at all.

The foolish war in Iraq is the single biggest mistake this country has ever made. It is the real root cause of our economy failing.

The foolish war in Iraq is the single biggest mistake this country has ever made. It is the real root cause of our economy failing.

I think you nailed it Andy.

This morning, it was reassuring to see Obama lay out four conditions that must be a part of any solution in order to protect the American people. He also called once again for a cooperative bipartisan effort. His steady calm and willingness to work out a solution with all parties involved is leading a growing number of Republicans to show him more than grudging support.

At the same time, John McCain has been displaying some very worrisome attributes to both sides of the aisle. He is simply not fit to lead. Conservative columnist, George Will, expressed that sentiment very well yesterday in The Washington Post.

Back that up just a little bit, George & Co are the real root cause of our economy failing! The war was just a vehicle they used to help that process.

I agree with that completely Darktemper! I wonder if this is just another fixed ballgame with him on the mound.

" And what about reverse mortgages, those just sound like bad news to me. They sound like a predatory loan to take advantage of the elderly."

Yes, they do sound like that.

They are not.

I will say that I find the " Why did this happen? " question and answer to be VERY complex. It's the housing industry's fault? No, wait, mortgage industry. Lenders. Borrowers. Enron.

I'm going to oversimplify my take and not support it one bit. How's that? But I'm serious - here's my take;

I believe there was a collective mindset that general unhappiness from our population ( consumers and any company that had something to sell ) that created a perfect storm. I think we got shook up by 9/11, watched as things important and mundane got squandered, emphasis got put on " go shopping or the terrorists will have won ", which created a smash and grab attitude adopted by our leaders and their constituency and was enabled by direct commands and leadership examples that squandered and caused people to forget what it is like to save, spend wisely and not get greedy.

I think that a culture of fear-mongering has run out of steam and we are all left standing with plasma TVs and empty 401Ks.

Here's the good news; It's all about to change. When I talk about leaving pdxradio after Obama gets elected, I am projecting my own issues for my own reasons. But I want a fresh start. I feel like I have been through the wringer, been shaken so fucking hard at times by Bush that I am seriously shocked and awed at how much I let it get to me and how paralyzing I found it all to be. Look, I knew I was sick, but I didn't really realize how sick I was until I got healthy again. You now that feeling? When you finally get your appetite back and have energy after a nasty bout with the flu? Dude, Bush and Co ROCKED us. OK, me. So when I get the chance to clenn up my OWN messes I have made, and have the smallest bit of faith that our leadership will not squander pensions, taxes, social security, and everything else that has been grabbed at by Bush - then I will feel like my efforts are not going to waste or just flat out being stolen, any longer.

I will look back on this era in horror at just how effective Bush was. For all the wrong reasons. And that it taking into account my complete awareness of it WHILE it was happening. It STILL got to me.

..................TRUE STORY..................

As an example of what Vitalogy was talking about above. He is right ! We all need to use some prudence here, and think things through on our own and think reasonably about expenses. To thine own self be true !

Last Spring I was looking around for a new home. Or new to me, not necessary brand new. I have one now, it is small, 21 years old, manufactured house, but it is totally paid for,no mortgage anymore, but I wanted something better. I found one I liked. 170 thousand was the asking price. I went into Wells Fargo Bank and qualified for a loan. I had plenty of down payment for the loan at that time. But the loan officer, on commission by the way, said " Hey, I dont want to make you house poor and have you pay out so much in down payment, so just give me what amounted to 3 % down and his commission (ha ha )..so they worked it all out that way. I got to a bottom line of a house payment something like 1,220/mo. It included property tax, mortgage insurance, estimated home owners insurance etc. I can't see me paying that based upon my compensation. I just couldnt see me doing that. I am single, no help on paying here. Nice house, but no way !

So, I went back into the Bank and talked to this lender/loan officer. I told him " you have to be joking here", you know I wrote down all my correct information and I told you that I have a 420/mo car payment. How can you belieive I can afford 1,220/month for a house payment taxes,insurance etc???/ . He looked at his folder and some charts and said that " Mr. Kennewickman , your formulation shows that you will be able to afford this mortgage based upon your debt to 'gross income status' . Hardy har har !

So I still said NO. So much for their formulas ! You have to use your own head on these things.

Here's why we are where we're at:

Historically low interest rates combined with a housing market that was ripe for appreciation caused what Alan Greenspan once termed "irrational exhuberance." Only this time instead of tech stocks, it was real estate.

Because so many Americans want something now without waiting to earn it, they sought out loan products that have always been around, but were much more attractive and abundent due to investors willingness to seek ridiculous yields and buyers willingness to leverage themselves more than necessary to obtain the dream home. These loan products would allow the home buyer to get it all now! Why wait? After all, we're Americans and we deserve it, right? The government doesn't balance it's check book, so why should we?

As home prices started to climb due to increased buying power via these niche loan products, it created a frenzy. Anyone that understands the relationship between growth of incomes and growth of housing clearly knew what was eventually going to happen.

Here's a classic example of someone who probably blames the lender, yet should blame themselves:

Home buyer can afford $1500/mo for a home. So he goes to Lender A and that lender offers a FHA 30 yr fixed loan at 6.0% which requires a 3% down payment and documentation of income. This loan would allow the home buyer to buy something in the neighborhood of $200K. Home buyer then goes to Lender B and that lender offers a stated income loan, no down payment, a rate of 5.25% fixed for 3 years which is interest only, and that $1500 monthly payment now buys a home for $275K.

Which loan do you think the average home buyer liked better?

If you look at the number of FHA loans done over the last 7 years, it's clear that tons of home buyers didn't choose FHA!

And now they are going broke. FHA was the best program out there that wasent a rip off. IMO

FHA is doing much much more business these days and is still a great program for people who are willing to live within their means.

You're right but it's not the only reason we are where we're at.

Bad mortgage factor was only the infection that set in on a bad wound that had been waiting to explode into a major crisis ever since the Boosh team took over and elected to go to war instead of fixing the dot com implosion with sound financial planning, instead of working towards energy independence, instead of providing incentives to keep Americans working instead of sending their jobs to India. It's not just about mortgages. It's not just people who borrowed as you describe. This is a bigger problem, a more complex problem, a problem that has its origins in a lack of oversight of the Bush administration's policies by a Republican Congress that only cared about making the wealthy wealthier.

Would anyone like to guess at the percentage of homes that are in foreclosure?

I'm going out on a limb and am guessing it is quite a bit larger than Bush's approval rating.

Ah last I heard , in the entire US and estimated from all lending sources, either in forclosure and/or behind in payments, the stat was combined about 9%. This is up from first quarter 2008 , which was 2 or 3%.

The actual forclosure rate is less than 9 % ,but they are liking to include people behind in their payments in these stats because this portends a trend toward higher forclosure rates , of course.

I was right, it's 8% higher the George's approval rating.

1%

Yep, Mom & Dad.

This from KGW.com:

WASHINGTON (AP) -- The FBI is investigating four major U.S. financial institutions whose collapse helped trigger a $700 billion bailout plan by the Bush administration.

Two law enforcement officials said the FBI is looking at potential fraud by mortgage finance giants Fannie Mae and Freddie Mac, Lehman Brothers Holdings Inc., and insurer American International Group Inc.

A senior law enforcement official says the inquiries, still in preliminary stages, will focus on the financial institutions and the individuals that ran them.

Officials say the new inquiries brings the number of corporate lenders under investigation over the last year to 26.

Yeah. I'm follwoing that as well. I am not getting something that must be very obvious though; Someone needs to define " fraud " as committed by Fannie Mae and Freddie Mac. How woudl they commit fraud? Under-reporting defaults and sell them on the open market? I'm not getting it.

Ok then, the obvious question is how can 1 fricking percent put our entire market economy at risk.

Answer, it just can't.

The real story here is the relaxing of regulations that kept ordinary commercial banks seperate from investment banks, and with that came lots of complex derivatives that I don't yet understand.

The bad home loans are just a small part of the paper out there that isn't really backed by anything!

Been reading estimates of 1.4 quadrillion dollars of paper that may be undervalued!

Folks, this 700 billion is the first of many installments aimed at getting wall street paid back for way too much gambling and very poor, over leveraged positions that presented as "growth" but really were not.

And that speaks right to Andy's point; namely, we don't produce enough to deal with what we spend. We haven't for a while.

We pulled the value out of just about everything to compensate for that and now it's all coming to a head.

There is a clear reason why the investment banks filed to reclassify as ordinary banks today. They want their share of the bucket of money they want to "fix" this stuff.

This is a bad deal all around. We shouldn't even entertain that amount without some assurances that it will fix the problem and as of right now NOBODY can even tell us the SIZE of the problem, let alone the scope of it.

In very lay terms, banks appear, until recently, to have been regulated such that their risk was low and backed by demonstrable value.

Investment banks had far fewer restrictions and that's why they were called investment banks. That's also why they were not FDIC insured. They gamble, there is risk, people lose.

The deregulation essentially permitted the mixing of the funny money with the real money and also permitted leveraging that multiple times.

There is absolutely no way this is all because of 1 freaking percent of home loans in default. None.

Had the regulations been in place throughout, we would have seen some shady lenders fail, but the market overall remain solid.

There is another thing too. I'm hearing a growing amount of discussion about how leveraged our treasury really is.

The fed is in a position where they basically either print a bunch of money, thus devaluing everything held by everybody everywhere. (massive inflation)

Or, they make us the LENDER OF LAST RESORT. That's the current plan as it lets the very wealthy maintain their position backed by the sweat off our backs, instead of whatever lousy asset they thought they were buying into.

That sucks ass people. Huge.

The reason for the lack of oversight in the draft I posted here is simple. Bad paper can be bought for some amount, then resold to whoever what's his name chooses. That moves it from outstanding to not-outstanding.

It moves 700 billion at a time, over and over and over, until all the actual wealth is filtered through the treasury and back out to the wealthy who will then get a big do over, while we struggle to realize our futures.

Think about that. Installments on what could be 1.4 quadrillion dollars.

That's the rest of your adult life, and a huge hobbling of our next President and Treasury Secretary before they even step foot in the door.

They want this with no oversight, no review, nothing. Just go in a dark, smoke filled room and decide who gets to stay wealthy and who does not, ON OUR DIME.

Ben Stein on Credit Swaps.

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quote:

The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn't have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of subprime mortgages are not paid off and go into default.

The profit can be wildly out of proportion to the real amount of defaults, because speculators can push down the price of instruments tied to the subprime mortgages far beyond what the real rates of loss have been. As I said, the profits here can be beyond imagining. (In fact, they can be so large that one might well wonder if the whole subprime fiasco was not set up just to allow speculators to profit wildly on its collapse...)

These Credit Default Swaps have been written (as insurance is written) as private contracts. There is nil government regulation of them. Who writes these policies? Banks. Investment banks. Insurance companies. They now owe the buyers of these Credit Default Swaps on junk mortgage debt trillions of dollars. It is this liability that is the bottomless pit of liability for the financial institutions of America.

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The credit swap works like this.

Everybody can get insurance on your house. If it burns down, you get paid it's value.

These financial instruments are like your neighbor buying a policy and THEY get paid if the house burns down!

Now, imagine lots of those being bought, sold and traded all over the place and now you realize how 1 percent of mortgages failing can bring such a mess about.

This is not our deal. It's those deregulators that permitted this crap.

After learning some of these things, I think the smart thing to do is invalidate all of those swaps, period.

Buyers are entitled to a straight refund, or value of policy equal to 10 cents on the dollar. Let all those bond holder types suck it up, eat their losses and go away.

We keep our economy, have money to invest in infrastructure, helping home owners stay afloat, green energy, health care and all the other stuff taxing the upper 5 percent would bring to the table.

Free market means FREE FREAKING MARKET. Win some lose some.

Are they real conservatives with a pair, or just liars, cheats and crooks?

A lot of these so called "toxic securities" are MBS or Subprime Mortgage Backed Securities. The subprime loans lost their value by up to 1/2 in many cases. And they got into the system like HIV and now have turned into full blown AIDS, its an analogy that can be used. Well the banks hid it inside pretty packaging and these became time bombs inside other good securities. So that is why the current forclosure rate NOW doesnt really reflect why we are in the trouble we are in NOW. This has a cascading effect because the subprime or MBS loans were defaulted heavily over the last 9 or 10 years. These defaults of the MBS loans were BURIED as toxic financial waste FOR YEARS and passed around like a blood born pathogen ! A virus or a Microbe. And now the entire body has been infected almost past the point of no return, like a blood infection.

Toxic securities are parts and pieces imbedded in something else called a VIE or a Variable Interest Entity. So now VIEs are bond issues that are part of the ARS market. ARS is Auction Rate Securities. If the Auction Market fails to sell the VIE package for a minimum value, it sits there like a rotten egg until the bond rating is lowered on the issuing entity, like a municpality of some kind, this even affects the bond markets for things like construction projects, public constructions for schools hospitals roads etc. Toxic Securities get into the entire world wide banking system, however America seems to have more of it than the rest of the world.

The customers of the banks who passed this off like a virus, didnt get into details of what was actually in the pretty papered box, all they wanted to know is what the 'market value of the bond was" or the market value of the VIE was. Not what was in it.

A convertible security is one that a Bank or Investment organization can take a random VIE described above and CONVERT it to THEIR company STOCK. NOW the toxic securities are buried in what YOU as a customer believe to be a company stock like a Morgan Stanley stock or a Goldman Sachs stock or a WAMU stock. Now they have infected the whole damned system with Toxic Securities ! Also, toxic securities came from un secured DEBT like people going bankrupt to avoid paying off $80,000 in unsecured debt or uninsured debt. We changed the bankruptcy laws now, but to little to late.

the definition of Toxic Securities : They are convertible securities whose exercise price is tied to the market price of the underlying security AT TIME OF CONVERSION ! Knowing this you can see if these toxic time bombs are CONVERTED over and over and over guess what happens !!!!!! Get it !!! The value of the VIE is INFLATED over and over again, until we get to NOW. NOW SUCKS.

So the Govt wants to 'remove' the toxic securities or relieve them from the entire system, the Banks ! We get the toxic securities in a Toxic Bank and then we try to liquidate them for what ever little they are worth. What we pay for these Toxic securities or perhaps entire toxic or sick VIEs is to be determined by Asset Managers yet to be hired by the FEDS...

Too much credit ! In to many forms ! And credit not resolved by the primary lender AND the primary Borrower !

I hate the bailout because the money is going to the criminals instead of the victoms!

This will wind up bad! It'll be just like the US throwing money at the Iraq government to rebuild the infrastructure without making sure that the money is actually being spent on what it was intended for.

I say let them all crumble. Sometimes you need to hit bottom before you can start back up. Clawing and Scraping on the way down just makes the pain last all the longer.

My nickel's worth, used to be just two cents before the Bush inflation machine went into overdrive.

Sigh.

After lining their own pockets for 8 years, the Boosh team has successfully dumped the fiscal nightmare they have created right into the laps of the middle class, at least what's left of the middle class. It's lose lose for the American family. Lose if the bailout procedes, lose if it doesn't. The Boosh team will take 700 billion dollars and save those financial institutions that have skimmed all the available cash and have left only worthless paper. Win win for the greedy bastards that have already made their gains untouchable, untaxable, and untraceable.

I feel sorry for those of you that think that is just about mortgages.

The bailout is not going to undo all the wrong done by the Boosh administration. The bailout is not going to stop the real problems of no regulation, no penalties for shedding jobs to overseas labor, no nothing. The powerful are giving another handout to the wealthiest. It's a travesty.

The shrub has successfully segued his failure to the next administration and restored fiscal solvency to the companies that have bankrupted the nation.

Of course it isnt all about Mortgages...its about the CREDIT CARD debt, which isnt even being addressed in this first round of bailouts, the 'Card Market' portion of the lending system is in trouble too. Its about lack of oversight, which will be fixed somewhat now and more after the first of the year, when the next Congress is in session, no matter who is president next January.

It is about world economy and the HEAVY investment in our economy by foreign investors. And if we DONT remove these toxic assets from our porfolios, foreign investors WILL pull massive cash out of the American Markets which WILL lead to massive failure, which will pull money out of YOUR WALLET.

So, if you want that to happen , just keep praying for everyone to keep arguing and pissing on each other in Congress and in DC and do nothing and let it all fail.

A lot of it is going to fail anyway. The dollar is weak. The shrub printed up too much money for his war effort and the contracting buddies and war industry friends of Dickhead Cheney. They destroyed Iraq's infrastructure and now we're paying to rebuild it, at least those dollars that don't disappear through the cracks a million at a time. All the credit card debt is not a cause, it's a symptom of a mismanaged economy that has sacrificed jobs in America leaving many families no option but to use their credit or lose their assets and find themselves being gobbled up by the wealthy speculators that still remain solvent because they derive their profit by passing bad money through their fiscal instruments on the way to it becoming worse money.
The cycle of corruption is more the cause than any one fiduciary sector of the economy. It's systemic failure. Thanks to the Republicans. Totally. Their screw up.

I was watching a Paulson Treasury Department underling answer viewers questions on CNN about the bailout. Obfuscation is how I would best describe his answers. The administration with worst tin ear in modern history tries to sell this bailout with staff who sound more like former investment banking executives turned appointed Treasury Department bureaucrats.

And to all the Democrats ( like the Barney Frank and Chris Dodd crowd ) who insisted that the govt back home loans via Freddie and Fannie to people who could not afford them in the beginning all those guys in pursuit of ' 'political correctness' based govt backed financing. Which led to the sub prime and ARM loans, which led to failure of Fannie and Freddie, and then to all the other non govt backed banks when the pattern was set. What a Democrat crock of crap that was huh?

I guess we could do better and all move to Cuba , China, Russia or Venezuela and see how we fair in those places.

It's a vicious cycle and term limits is a double edged sword. Maybe 3 terms in Congress of 4 years each might be long enough to establish credibility and get something done but not long enough to succumb to the lobbies and become part of the problem and not part of the solution. Short of that, all you can do is vote in new blood and hope for the best. Although, history indicates the Republican party are worse at economics than the Democrats.

"Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.

That 1.14-point difference, if maintained for eight years, would yield 9.33 percent more income per person, which is a lot more than almost anyone can expect from a tax cut.

Such a large historical gap in economic performance between the two parties is rather surprising, because presidents have limited leverage over the nation’s economy. Most economists will tell you that Federal Reserve policy and oil prices, to name just two influences, are far more powerful than fiscal policy. Furthermore, as those mutual fund prospectuses constantly warn us, past results are no guarantee of future performance. But statistical regularities, like facts, are stubborn things. You bet against them at your peril."
Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve.

Fannie and Freddie did not back loans that people couldn't pay for. Their portfolios are suffering due to the subprime mess that has caused house values to decline along with a poor economy. Fannie or Freddie did not back any subprime loans.

I didnt say that Fannie and Freddie backed sub prime mortgages.

Yes, true, house values that fell in value, and the people who have the Fannie/Freddie mortgage backed loans are defaulting because some couldnt really afford the damned loan in the first place, thinking they could "RE FI" or handle a 100% loan arrangement or were looking to essentially ' FLIP " their house in a couple of years and many were financing second and third houses and GETTING approved !

Most of these loans , the people are paying ok. But its the very few that have defaulted over the last 8 years coupled with those in danger or default now that have caused Fannie/Freddie problems.

Above, you notice I said , " Led to ", not that fannie and freddie did sub prime . See when one large entity like the Fed Govt backs the Idea that everyone has a right to a new house for no money down , and an income that cant support the payment or terms, this led the WHOLE market into the home loan mortgage business , big time, which led to scam artists selling mortgages to people on big houses and/or more money over and above the mortgage amount required to buy the house for 'extra money' to buy whatever they wanted, furniture, boats, vacations etc. Inflated lending to under qualified people, under conditions by which many didnt get to do the 'RE FI'before the crazy balloon market deflated on a house many times that was was OVERPRICED to start with. And they got stuck with interest rates around 10 or 11 percent after paying 2.0 percent on their subprime deal that only lasted for 2 years or so. So this brought up their payments by double or greater in some cases on a loan that was many times inflated OVER the amount required to actually buy the house. Big money Greed in many cases by the BUYERS..Oh we can get big money for very little and we can Sell or RE FI and get a better payment because our house will APPRECIATE ! Surprise ! ...

Your house ( primary residence) is to live in over a relatively long term, and we need to plan it that way...dont use it like a short term line of credit as if you were playing a Hedge Fund buying stocks short and expecting big returns.

Kennewickman: You got it backwards. Fannie and Freddie did not lead the charge on 100% loans. They played catch up with the private market that was taking business away from Fannie and Freddie via 100% loans. The big difference between a Fannie/Freddie 100% loan and a subprime type loan is that Fannie/Freddie required people to document their incomes. So, those loans were underwritten with full documentation and were deemed good loans that people could pay back based on debt to income ratios. Subprime loans mostly allowed people to state their income or provide no income at all, debt ratios be damned. Huge difference! And, Fannie/Freddie loans gave good interest rates slightly above market, did not carry prepayment penalties or crazy adjustable rate schemes like those given from the private market. 98% of Fannie/Fredddie loans ARE NOT IN FORECLOSURE. From where I sit, I can tell you that Fannie/Freddie were not the cause of this, but a victim of outside market forces.

So all those former CEO s of Fannie and Freddie can blame outside market forces for their failures?

I dont think so.

Exactly.

Markets expand until they fill whatever constraints put on them. Greed drives this.

Those constraints are law, money, norms and physics.

When we relaxed the regulations, ignoring risk and it's inevitable cost, greed consumed that space and now we are paying the price.

This is not outside market forces at all. This is business, operating within a market they worked hard to expand. They did this by buying laws, one at a time, from whom ever would sell them.

Greed knows no bounds.

They wanted to satisfy their greed at any cost. We are now learning that cost is high. We don't know just how high, only that it's high enough to be a serious and sobering reminder of why we have government, how it constrains markets to serve us better, and that the danger in unbridled greed is always with us.

They did this because they wanted to. They will do it again, and again, and again, because they will want to again and again and again.

That's what this is about. It's about failure of our government to act in the best interests of we the people. We lost out to greed and ambition.

Both of those things are not bad. They drive us to do wonderful things. However, they also drive us to do horrible things too, like the addict who loves the drug so much they have a problem without help.

This has been building a long time. It's not just a simple correction, or error, mistake or accident. It's the pinacle of an ideology that puts greed first in the hopes that just going all out, to the mat, stone cold to serve it might actually do us some good.

Well, it just doesn't. It can't because of the nature of it.

Now that we know this, we really should structure our market rules -->those constraints in such a way that greed serves us and is kept in check.

The long building up of this ideology started with "I'm from the government and I'm here to help" being demonized by Reagan. Since that time, we've been undoing regulations that opened up markets far and wide.

At first, it's like that first really big rush. You know, having dipped into the drug a little it's good. When you finally just commit, consume it with vigor and conviction, you feel it totally. It's the absolute best!

Then you come down.

What do you want?

That next hit, of course!

So then, we deregulated this and that, outsourced one industry at a time, feeling that rush of "growth" at all the new dollars created by the lack of rules.

Slowly, as the cache of solid wealth left the nation, it became harder and harder to make that hit, so we deregulated the system itself!

We said you can make money out of thin air, over and over and over! Billions and nobody has to know.

Extending credit hooked nearly everybody big. When it all runs dry, pull some value out of the house, the 401K, invest it in the market, looking for rush after rush, day trading, re-fi over and over, thinking it won't end.

Well, it's ending now.

All that paper, all that risk has yet to really be valued. The bailout is really about putting that off in the hopes that something else can be done besides finally having to account for all that risk.

It's not really about addressing the problem.

Perhaps it's better now, because people won't get so hurt. But I can't help but wonder if that just isn't like being that maintenance drunk. Never get hammered any more, just sip away, maintaining enough to function, but never really free of the disease.

Probably would be better to go cold turkey. We would lose standing and it would be really hard work to build again, but at least that would be solid, real value that competes with others in a way that makes sense.

Yes and in the case of Fannie and Freddie the CEO salaries , bonuses were predicated upon the amount of 'paper' they wrote or insured. The compensation packages were formulated and changed by the Principals in both corporations with money backed by the Federal Govt. The Feds and key people in Congress , like Barney Frank , didnt do a damned thing about it.

That is a fact. So they wrote/backed paper for borrowers that really didnt qualify for the loans extended amongst those who did qualify for loans to increase there respective values and thereby increasing their own Executive and board member compensation packages, just like being on a salary plus commission. A scam all backed by the Federal Reserve ! What a deal !