17 Responses to “The never-ending blame game” »»

1. Chris
   Comment by Chris | 12/20/11 at 3:55 am

   No, we can’t all agree to that.

   One political party keeps trying to take away any regulation of the supposed free market. That party keeps pointing to the issues at Freddie and Fannie as proof that government intervention with the markets doesn’t work and caused the market meltdown. This is part of the persistent meme that Government can’t get anything right. Neither of those statements are true.

   Freddie and Fannie did not fail because of government intervention. They failed because they took risks that proper regulation would have prevented them and other mortgage lenders from taking.

   It’s the responsibility of the adults in the room to say “No, that’s not true” loudly and repeatedly whenever someone lies to the public. And they need to keep on pointing out that the other side is lying until the message gets through.

2. MikeO
   Comment by MikeO | 12/20/11 at 5:41 am

   Actually Chris, the argument is that the government interfered with Fannie and Freddie by providing guarantees on their debt (not actual, but implied), rather than letting them stand on their own and requiring they borrow based on their actual financial condition. The result was people lent to them despite their poor financial condition, with predictable results. When the financial problems started becoming apparent, the political party you complain about was calling for changes at Fannie and Freddie, which were resisted by the other party, led most vocally by Barney Frank.

   So no, we cant’ agree to that, but your analysis is flawed. Without government intervention, the market would have refused to lend Fannie and Freddie the money to take the risks they ended up taking. So while government intervention was not the proximate cause, it enabled management to continue making bad decisions.

3. Funny
   Comment by Funny | 12/20/11 at 9:39 am

   It’s only relevant in a search for the truth where politics is trying to use their blame game to their own advantage.

   MikeO, that’s factually incorrect. We have the failure of every large banking institution to show that it’s wrong.

   The GSE’s had very conservative regulations put into place and were doing fine. By law they were not allowed to do this type of reckless investing. Congress, much like the damage they’re doing to USPS, jumped in and blew them up by forcing them to take on more MBS debt and leverage to follow where the industry was leading. It was just another example of plutocratic cronyism.

   Thats Bush’s homeowners society for you.

   They decided that letting the GSE’s buy up mortgage debt qualified as “getting people into houses” without direct government action. Thats a win for people who can’t directly use government to do anything or be lamented by their constituents. (See Romney’s MA problems)

   So they pushed them to buy up that debt from their private buddies on Wallstreet (another win). Goldman and the IBanks win as more services are funneled to them, and the politicians get to claim F&F were taking on more obligations and increasing home ownership, without technically creating more government.

   And then the market collapsed and everybody tanked. As said F&F were following the market, not creating it. Their laws were repealed and they were directed by congress into this situation.

   Facts are, if F&F were left alone to run their operations as they historically had been, guess who wouldn’t have been included in this mess? The IBanks still would have failed, as they were not taking their clues from F&F. Arguing so is laughable.

   That’s not the fault of regulation. It’s the fault of a specific ideology of government thinking that chasing the market was a wise idea, because the market is always right.

   Don’t even get me started that the stuff they did buy was AAA and guaranteed by the credit agencies to be financially safe investments. not that they should have been touching that sort of leverage in the first place, but they had a no idea what they were really holding.

   You might want to say “well F&F bundled MBS’s so they were part of that problem”, but all one has to do is look at the default rate of their mortgages to see that’s also patently false. Their loans haven’t seen the spikes that the private mortgages lenders have, nor did they troll around in alt-a and the subprime market; again by law.

   The private passthroughs were the ones committing unadulterated fraud. Then the credit agencies knowingly or unknowingly bundled the poison in with the ok stuff. When investors realized how bad the problem was, and didn’t really know what was in their portfolios, the market panicked and collapsed.

4. Funny
   Comment by Funny | 12/20/11 at 9:52 am

   Further, “to big to fail” is synonymous with a private GSE. If a company can get big enough and have a big enough reach to effect large swaths of the US Economy, then by default it has the implicit backing of the US Government and the FED. Moral hazard goes out the window, yet it still retains no accountability to taxpayers. Socializing losses and privatizing profits is not capitalism.

   Look at Wallstreet, and look at the US auto manufacturers.

   And lets not pretend this childish “let them die” argument has merit. Letting 10% of GDP evaporate overnight is economic Armageddon that we wouldn’t easily be able to slow or reverse. The amount of real, human suffering that entails is not worth winning some high brow libertarian argument.

   Government is supposed to be the counterweight to introduce moral hazard into the equation. to make these firms accountable to the people. If you’re two big to fail, and need to be bailed out, the taxpayers on the hook should be able to fire the CEO and executive management, dissolve the shareholders, restructure the company and sell it off piecemeal to recoup taxpayer losses.

   That’s a pretty big moral hazard to not get too big to fail, or to run shop conservatively. If you don’t and gamble, you pay the price. And parts of the company live to see the day as smaller, independent entities.

   Capitalism is like fire: leave it unattended and you’ll get burnt.

5. Newt
   Comment by Newt | 12/20/11 at 11:10 am

   Funny, I think you need a history lesson on the banking industry. I know this doesn’t fall in line with the Dems talking points, but let’s give it a try:

   On June 16, 1933, the Glass-Steagal Act was signed into law which was designed to control speculation such as the most recent housing bubble and bust.

   On November 12, 1999 the repeal of the Glass-Steagal Act was signed into law by President Clinton.

   So, get off your high horse and stop blaming Republicans when we both know the Democrats should share equal blame.

   BTW, I might not agree with you, but I do enjoy reading your comments

6. Funny
   Comment by Funny | 12/20/11 at 2:27 pm

   Newt, aka History Professor.

   How does Glass-Steagal have any relevance to the discussion F&F? Please do tell.

   The spineless Dems deserve lots of blame for letting both happen, but let’s not pretend these are not long term economic policy positions of the republican party, many of which, yes, have been adopted by Dems too.

   Nothing I said above is untrue. If there’s something I missed, lets hear it instead of pulling out republican talking points.

   I’m sad to hear you think facts are Dem talking points, but those were the structural problems that got F&F into trouble. Unfortunately, reality shows it wasn’t lending to brown people. Damn reality getting in the way of a good story!

7. MikeO
   Comment by MikeO | 12/21/11 at 3:50 am

   Funny, I do not suggest the Republicans do not share blame. But your position seems to be it’s all the fault of Republicans. You lay everything at the feet of “one political party.” That’s simply not true. Your facts are generally correct, but your extreme bias and cherry picking renders them distorted and misleading. BOTH parties share blame, and to suggest otherwise is to advance your political agenda at the cost of truth.

8. Newt
   Comment by Newt | 12/21/11 at 3:59 am

   Funny, history lesson part 2: Today’s history lesson is entitled CRA (Community Redevelopment Act) In the 1990’s Clinton and Barney Frank encouraged a loosening of lending standards throughout the banking industry. As a result, CRA subsidized the fall of F&F. The Dems were pressuring banks to serve poor unqualified borrowers knowing they were unable to pay back the loans.

   In 2008 in a House Committee hearing on the role of F&F on the housing bubble and bust and and how CRA fueled subprime loans, the former CEO of Fannie stated under oath that CRA was clearly a catalyst for bad behavior.

   Thank you very much Barney. Lucking for F&F someone was their to give them a historical lesson on how to correct their mistakes.

9. John Ford
   Comment by John Ford | 12/21/11 at 5:30 am

   Mike, I agree both parties need to take blame.

10. Funny
    Comment by Funny | 12/21/11 at 5:42 am

    MikeO, I do fault the Dems too. But their fault is they didn’t stop it, and bought into it. Let’s not be coy and pretend this sort of government action isn’t part of trickle down, back patting plutocratic ideology. Removing the regulations in place and funneling business to your private buddies on Wallstreet has long been the mantra of one party. After all, the free market knows best and private businesses are pious. Moving government functions to private markets is their goal, is it not?

    Newt, you’re a dishonest moron. Not surprising.

    Your belief that the CRA fuel subprime lending is factually incorrect. Private institutions we’re not beholden to the CRA, and yet they failed. Countrywide for instance was almost exclusively dealing with subprime lending in the late 2000’s. F&F was beholden to the CRA, yet their vast majority of their portfolio was not Alt-A. That not even getting into the microscopic number of mortgages that were subprime.

    Your talking points have no basis in reality, and don’t even conform to the known economic data on the subject. Come back when you’re not just sucking on the hot air blowing out of Newts ass.

11. Rob
    Comment by Rob | 12/21/11 at 6:22 am

    The repealing of the Glass-Steagall Act was the pet Project of two republicans; Phil Gram and Jim Leach. Thus, the repeal law was called the Gram-Leach-Bliliy Act.

12. MikeO
    Comment by MikeO | 12/21/11 at 7:54 am

    And Rob, repeal of Glass Stegal was the “pet project” of many people, not just Phil Gram and Jim Leach. Try Robert Rubin, who was Clinton’s Secretary of Treasury for all 8 years. Who came from Goldman Sachs. Who then left government to go work for (and run) Citigroup, the seminal beneficiary of the repeal of Glass Stegal (GBL was called the Travellers Citi act on Capitol Hill).

    Ah yes, it’s all the fault of those darn Republicans and how cozy they are with Wall Street.

13. MikeO
    Comment by MikeO | 12/21/11 at 8:08 am

    Ooops, my bad, Rubin was only SecTreas for four years, from Jan 1995 to July 1999 (but did oversee Treasury during GLB).

14. MikeO
    Comment by MikeO | 12/21/11 at 8:14 am

    John, looks like you’re right – the blame game IS never-ending…and so tiring. Both parties are to blame, it’s time to move on.

15. Funny
    Comment by Funny | 12/21/11 at 2:17 pm

    They are both to blame, but there’s one economic blueprint, and idea on government, behind both. Lots and lots of blue dogs loved this type of legislation, and voted for it gleefully.

    But look at Newt above, why spread fubar if they’re both to blame?

16. Newt
    Comment by Newt | 12/22/11 at 6:55 am

    From the WSJ Opinion page: “Congress created the two mortgage giants as well as their “affordable housing” mandates, and neither the financial system nor taxpayers will be safe until Congress shrinks the toxic twins and ultimately put them out of business.”

    …The SEC shows how the toxic twins turbocharged the housing bubble.

    my thoughts: How true, how true.

    Good read: http://online.wsj.com/article/SB10001424052970204791104577110643650732030.html?mod=googlenews_wsj

17. Funny
    Comment by Funny | 12/22/11 at 9:39 am

    Newt. You do know what that “opinion” tab means, right? For some reason they’ve hid who wrote that opinion too.

    I’m still looking for answers to my questions above. Again, you parrot talking points instead of factual evidence.

    With all that “advice” you gave F&F, I’d think you’d have some knowledge of financial instruments.

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