Let’s keep making the same mistakes

by Russ Roberts on September 29, 2009

in Government Intervention

The WSJ reports:

The Obama administration is close to committing as much as $35 billion to help beleaguered state and local housing agencies continue to provide mortgages to low- and moderate-income families, according to administration officials.

The move would further cement the government’s role in propping up the housing market even as some lawmakers push to curb spending at a time of rising debt.

What is the saying about making the same mistake over and over again? Please help me out in the comments. In the meanwhile, notice that this is just one more example of the government’s incessant intervention in housing markets over the last 15 years.

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{ 122 comments }

AdamGurri September 29, 2009 at 5:03 pm

Albert Einstein: “The definition of insanity is doing the same thing over and over again and expecting different results”.

Ike Pigott September 29, 2009 at 5:23 pm

Hey!

Let’s not forget that stellar leverage ratio, something like 50-to-1!

That couldn’t possibly be problematic, could it?

Anonymous September 29, 2009 at 9:46 pm

The FHA is an insurer, not an lender. As such its not really accurate to talk about it having a “leverage ratio”. As an insurer, its ratio of assets to potential liabilities is not going to be high – I don’t know the actuarial math in this case, but you wouldn’t expect your auto insurer to keep the value of your car on hand in case you had a crash, would you?

SteveO September 29, 2009 at 10:27 pm

Well, look who’s here. Hi Ike!

Ike Pigott September 29, 2009 at 11:03 pm

Steve? shoot me an email… ike {at} pigott [dot] name

Justin P September 30, 2009 at 12:45 am

Nothing to see here….move along!

Ike Pigott September 30, 2009 at 12:49 am

These are not the droids we’re looking for…

Anonymous September 29, 2009 at 5:24 pm

George Santayana’s, “Those who cannot remember the past are condemned to repeat it” is also relevant here, although I don’t think the issue is one of memory. Rather, the issue is one of interpretation; whose fault the problems were.

Anonymous September 29, 2009 at 5:33 pm

To start I want to agree with you that they shouldn’t be increasing these resources right now. You want to keep a roof over people’s heads? Fine. Help them pay rent. This fantasy of the need for homeownership has to end.However – one point of clarification on what we mean by “making the same mistakes”. The mistake was underestimated the default risk of these sorts of loans, right? So simply making the loans in and of itself isn’t really “making the same mistake”. It would only be “making the same mistake” if they were then securitized and sold to people who again underestimated their risk. THAT’S the dangerous part. Somehow I doubt that’s very likely right now.

Anonymous September 29, 2009 at 5:37 pm

No, the mistake is underestimating the risk. Or thinking that you can guarantee loans and think it’s a free lunch.

Right now, those loans are being guaranteed by you (if you’re a taxpayer) and me.

Anonymous September 29, 2009 at 5:39 pm

Right – isn’t that what I said?

Simply making the loans isn’t the same mistake as long as we’re cognizant of the costs. The problem was that people weren’t cognizant of the costs before.

Anonymous September 29, 2009 at 5:42 pm

I typed too quickly.

You missed the point of the post. The point of the post is that we’re continuing to make loans to people who can’t pay them back and making someone else bear the risk.

Stop being a nitpicker. It’s boring. Propping up state agencies making high risk loans is the same mistake we’ve been making for 15 years in the housing market. It’s divorcing risk and return.

Anonymous September 29, 2009 at 5:49 pm

:) Oh I didn’t miss the point of the post – I just think there’s a variety of opinions on when it’s a good thing to help bear other people’s risks.

But I don’t think it’s nitpicking! In the middle of a recession if someone reads “making the same mistakes” their mind might go to “introducing the risk for yet another recession”. We bear the risks of the poor all the time – Medicaid, foodstamps, etc. They all have costs but nobody ever credited an economic collapse to those programs because taxpayers for the most part recognized what those costs were. Those are only a “mistake” if you don’t like the concept behind welfare programs.

There’s a whole additional layer of “mistakenness” on these housing loans, though, that even people who think bearing the poor’s risk is occassionaly appropriate have to admit to. That’s not nitpicky or boring to point out the double-mistakenness in this case!

Justin P September 30, 2009 at 12:08 am

“Stop being a nitpicker”

Hit it squarely on the head.

mesaeconoguy September 30, 2009 at 12:10 am

It’s divorcing risk and return.

Bingo!

Almost everything that has gone wrong in the financial markets in the past 2 years is directly attributable to this. Realizing this, and tracing the incentives in place over this time (encouraging elevated risk via improper [government-mandated] risk/reward analyses) reveals a very clear picture of how we got to where we are.

You need to pay attention to see it, and you won’t get that info from Paul Krugman or the NY Times/MSM – they are incapable of this type of (correct) analysis.

Sam Grove September 29, 2009 at 6:54 pm

i think the systemic root of the mistake is the unstated assumption that the government can overwhelm problems via policy, overcome scarcity via credit/monetary expansion.

IOW, a lot of people grossly overestimate the ability and power of government.

Anonymous September 30, 2009 at 1:41 am

Sam,

One definitive example of this is the fact that no government ever has been able to eradicate the black markets it creates.

Since government gets its power from the consent of the people, if people do not consent to its power, then they will act as if they were free.

The argument can be made that when government discovers their identity they are toast, and I would agree; but they will only replaced with others. it is the inevitable results of the yearning of the human spirit to be free.

Anonymous September 30, 2009 at 11:38 pm

I know people who grew up in the Soviet Union. They had absolutely no respect for the law there. Black markets were rampant, and people did everything they could get way with, without any ethical inhibition. And they carried that same irreverence to government authority with them here.

Justin P September 29, 2009 at 7:17 pm

They are making loans to people they know can’t pay it back. FHA (aka the taxpayers) are on the line for over a trillion in loans. They didn’t learn anything, they haven’t changed their polices and they won’t. They are going to keep repeating the mistake over and over and over again.

Anonymous September 29, 2009 at 8:55 pm

But there are two mistakes – (1.) misunderstanding the risk, and (2.) taking on the risk once it is understood.

(1.) in part lead to the financial crisis and is really a failure in the most complete sense. Mistake (2.) is one that you obviously consider a mistake, but many people wouldn’t. (1.) is a question of calculation, (2.) is a question of values.

Justin P September 30, 2009 at 12:21 am

I agree with you on both. I consider both mistakes where as, I would wager mainly Liberals, wouldn’t see the second a mistake. Why is that? Why do you think it’s the function of the government to get everyone into a house? Where is it in the Constitution that mandates homes for everyone?

I think it’s a mistake because from experience, we know what can and probably will happen. I don’t think any politicians has learned anything from this mess. They raised the damn tax deduction! The Fed is keeping Interest rates low, just like Greenspan did, that lead to the creation of this bubble in the first place. The only difference now, is that the banks have taken a hit, but I don’t think they have learned anything from it. The Federal Government is still pushing for them to make the same kind of loans the lead to this crisis in the first place. But then I see that as a mistake as well…obviously you disagree.

Anonymous September 30, 2009 at 10:41 am

Re: “Why do you think it’s the function of the government to get everyone into a house?Where is it in the Constitution that mandates homes for everyone?”

Please read my comments above. I don’t think it’s the function of government to get everyone in a house. I explicitly said they shouldn’t be making these loans, above. I do think it could be done under the first clause of Art. 1 Sec. 8 – so I don’t think it’s unconstitutional. But just becauses it’s constitutional doesn’t mean it’s advisable.

The Other Eric September 29, 2009 at 7:32 pm

Dan writes: “The mistake was underestimated the default risk of these sorts of loans, right? So simply making the loans in and of itself isn’t really “making the same mistake”.” What?!

It is exactly the same mistake not for creating a chance at secondary systemic risk, but because this type of loan is so idiotic to begin with. This post was not about a potential danger. It’s about the incredible, unfathomable decision to pursue a policy of granting money to people who should not get it for the stated reason. As you first point out, correctly, there’s nothing wrong with supporting rent or even expanded higher education housing (which would provide shelter for low income families while the parent(s) go back to school). ANYTHING would be better than just shoveling money into the furnace of funding home ownership for people who cannot actually afford home ownership.

Anonymous September 29, 2009 at 8:56 pm

RE: “this type of loan is so idiotic to begin with. ”

Why is it idiotic? We’ve been making sub-prime loans for decades. I hope we keep making sub-prime loans. It’s a valuable part of the market. What is idiotic is pretending that sub-prime loans are prime loans.

Anonymous September 30, 2009 at 1:37 am

I think you’re understimating the power of these risk to bring about recessions. If the government takes a loan on your behalf to back the loan on another party, it’s still a poorly leveraged loan. The consequences are identical. In one case it’s the government that can’t meet its future obligations, and in the other it’s investors. The one fundamental difference is that investors got to choose and have nobody to blame but themselves. In the other instance, it’s taxpayers, who had no say in the matter, other than wonderful one one-hundred thousandth of a decision in their riding.

Anonymous September 30, 2009 at 10:44 am

If the government knows it is subsidizing the risk, explain to me how it could bring about a recession? The risk of a recession comes in when people buy up securitized versions of these loans that they don’t fully understand, and then have to go through what Arnold Kling calls “recalculation”.

But sub-primes are no more inherently recession-prone than primes. Defaults don’t cause recessions. Unexpected defaults do.

BoscoH September 29, 2009 at 8:03 pm

So simply making the loans in and of itself isn’t really “making the same mistake”.

Actually, it is. Making these loans (paradoxically in the minds of some, but predictably in the minds of anyone with an ounce of economic sense) drives housing prices up, making housing less affordable and putting more people at risk of default. It is a far bigger problem than whether the people who receive these particular loans are at risk of default and whether that risk is priced into these particular loans.

mfarmer September 29, 2009 at 5:36 pm

Jung blamed most psychological disorders on the avoidance of what he called necessary pain — the same can be said about the problems with the US economy — until we face and deal with necessary pain the economy will only get worse, perhaps complicating the disorder beyond a cure.

What would be so bad about about housing prices going down, wages going down, prices going down, as long as it leaves everyone better off after the fall? Our fixation with keeping wages high and certain numbers up is ludricrous if the end result is inflation which eats up any gain and makes home prices unaffordable.

Randy September 29, 2009 at 6:03 pm

Disorder. Exactly.

Anonymous September 29, 2009 at 5:38 pm

AdamGurri,

That’s the quote I was looking for. But there’s no evidence that Einstein said it. It appears to be from Rita Mae Brown in a 1983 book of hers:

http://en.wikiquote.org/wiki/Rita_Mae_Brown

Anonymous September 30, 2009 at 1:44 am

Russ,

This old guy, vidyohs, remembers that line from long before 1983. But, then the military is a good training ground for understanding insanity.

Anonymous September 30, 2009 at 1:46 am

Oh, and BTW,

If you challenge me on it, I’ll just claim it is oral tradition from the native American branch of the military.

Can’t assail that, ya know.

Anonymous September 29, 2009 at 5:41 pm

Well, the Fed is keeping interest rates low again. Hoping for the speculators to borrow money to buy commodities and real estate and oil and gold….

Anonymous September 29, 2009 at 5:42 pm

Bio fuels….the next TVA

Pingry September 29, 2009 at 6:25 pm

Fool me once, shame on you
Fool me twice, shame on me

But to listen to George Bush mess it up, it almost sounds like that song by The Who: We Won’t Get Fooled Again

http://www.youtube.com/watch?v=4ufa-q7DcWM

Anonymous September 29, 2009 at 10:03 pm

Fool me umpteen times, …

Justin P September 29, 2009 at 7:21 pm

How long before we have to bail out FHA?

Anonymous September 29, 2009 at 8:27 pm

Hold on a second there cowboy … Why do we think the FHA and its state-level friends were a significant part of the problem during the bubble? Compared with the private sector sub-prime loans that were available, the FHA was (and remains) relaitively restrictive about loan-to-value ratios, credit scores and property valuations. The loans it guarantees are also of a very straightforward type – 30 year fixed rate fully amortizing mortgages. The bizarre variety of variable rate loans that were engineered to more-or-less guarantee default were again a purely private sector invention. In comparison, FHA loans have low default rates.

As far as I’ve been able to tell so far the idea that state intervention was a significant driver of the bubble is purely a right-wing myth. Anyone have any actual evidence to the contrary?

ColoComment September 29, 2009 at 9:07 pm

So, Simon. I’m curious: how does this op/ed from today’s WSJ fit in with your rosy FHA scenario? Excerpt: “…a new but still undisclosed HUD audit has found that FHA’s cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages.”

http://online.wsj.com/article/SB10001424052970204488304574428970233151130.html

Anonymous September 29, 2009 at 9:25 pm

By not being relevant to my point. It would be amazing if the FHA’s financial situation had not deteriorated over the past year – demand for FHA insurance is countercyclical, as are claims on it. FHA loans are (relatively) high risk by definition, so the statement that “FHA is underwriting record numbers of high-risk mortgages” is hardly a big surprise.

This doesn’t alter my point – FHA mortgages are relatively low risk compared with the private-sector sub-prime loans that were popular during the bubble, and have relatively low default rates. As such the idea that they were responsible for the bubble is … implausible. Once again, does anyone have any evidence that the FHA was a significant driver to the housing bubble?

Anonymous September 29, 2009 at 9:41 pm

Also, there are a couple of errors in that article.

The FHA is an insurer, not a lender, so you’d expect their ratio of assets to potential liabilities to be much, much higher than an investment bank like Bear Stearns. The appropriate comparison would be a private mortgage insurer. The FHA is also a federal agency no a “government sponsored enterprise”, so it can’t really be “bailed out” – its liabilities are government liabilities already.

Its also not correct to say that the federal government guarantees repayment on 80% of mortgages. Of the government mortgage-related entities only the USDA, the FHA and the VA operate by guaranteeing or insuring mortgages. Fannie Mae, Freddie Mac and Ginnae Mae buy and usually sell on mortgages. In some cases they act as lenders in their own right by holding mortgages on their own books, which is how two of them went bust. But if they sell on their loans (and they usually do) they don’t offer any guarantees.

Anonymous September 30, 2009 at 11:05 am

Home values are falling as a second order effect of the collapse. That doesn’t at all negate simonkinahan’s point that FHA loans were safer to begin with.

You question what you call a “rosy FHA scenario” rather than addressing specific points. How does the state of the FHA fund negate specific points he made?

Anonymous September 29, 2009 at 10:11 pm

You are right about one thing–the FHA’s culpability is small compared to the GSEs. Culpability for both must reside in Federal housing policy across two administrations and several congresses, potentiated by monetary policy.

Anonymous September 29, 2009 at 10:25 pm

I agree that the GSEs have more responsibility to bear than the FHA. But I don’t actually think the fundamentals have much to do with government policy. This was, remember, a world-wide property bubble, not simply a US one. There certainly was a credit-related component that was partly monetary, although it probably related to a savings glut too, but there was a real component too, in that certain cities (Dubai, Las Vegas) were testing the limits of their growth, and others (San Francisco, London) were unable to grow to accomodate the number of people who wanted to live there. We’ll be in the next phase of the cycle before we really know how big each component was.

Sam Grove September 30, 2009 at 3:18 am

This was, remember, a world-wide property bubble, not simply a US one.

Given that: the U.S. is the financial center of the world, the dollar the reserve currency, and there is a lot of foreign investment in the U.S., it would be surprising if events here did not have world wide impact.

Anonymous September 30, 2009 at 5:29 am

Yeah, but its not totally clear what such an impact would be. If the US govt were to increase the supply of dollars, that probably increases the supply of other currencies and thus reduces interest rates in the relevant countroes, so US monetary policy is relevant, granted. But the US govt being willing to insure mortgages for hispanic families in San Diego doesn’t obviously increase the demand for real estate in Dubai. And yet demand for real estate in Dubai did in fact grow, to an extent that’s hard to explain based on monetary policy alone.

Anonymous September 30, 2009 at 11:08 am

And GIVEN that it was a world wide property bubble, people should be looking beyond the Fed for the source of the bubble and consider rapid changes in Asian savings rates. I’m not saying Greenspan did things right – he didn’t, and he contributed. I’m simply saying we need to be realistic about how much that contributed.

Anonymous September 29, 2009 at 10:34 pm

I should also say that I think government subsidies, guarantees and tax breaks for mortgages are a bad idea. However, if you’re going to do away with them it needs to be done gradually and not during a recession.

But its politically far too convenient for right-wing commentators to believe that government programs targeted at the disadvantaged are responsible for all the world’s woes. Especially when there’s no evidence whatsoever that they had anything to do with it.

mesaeconoguy September 30, 2009 at 2:17 am

Incredibly ignorant comment.

Come back when you have read some relevant material (not just Krugman’s talking points).

[Very much looking forward to your forthcoming ‘right-wing” paper, Russ]

Anonymous September 30, 2009 at 5:56 am

I agree with nearly everything in that paper. In regard to the parts the are specifically about US govt mortgage policy – I agree that its obviously insane. But its equally obviously not a major component of the current bubble. As the paper says, the UK and Spain have each had equally deranged levels of property speculation, but the UK govt did not interfere in the mortgage market until it had to start buying out lenders for systemic reasons, and Spain has not had to interfere in its banking system at all. So how do we arrive at the conclusion that the US govt policy was a factor? It seems to be merely politically convenient to supppose that, but there’s no evidence (unless you have some of course – I’ve not seen any yet).

Sam Grove September 30, 2009 at 3:15 am

that government programs targeted at the disadvantaged are responsible for all the world’s woes.

That’s quite a straw man.

Anonymous September 30, 2009 at 6:01 am

I plead guilt to a charge of mild exaggeration :-) But I really do find it amazing, that certain people are looking at bubble which, at its peak, was funded almost entirely by private sub-prime lending and blaming the FHA.

Anonymous September 29, 2009 at 10:44 pm

As far as I’ve been able to tell so far the idea that state intervention was a significant driver of the bubble is purely a right-wing myth. Anyone have any actual evidence to the contrary?

Who controls interest rates? The Federal Reserve.

Who controls the money supply? The Federal Reserve.

Who dictates financial institution’s reserves, thereby determining how much money they have to loan out? The Federal Reserve.

Who passes legislation demanding that banks grant loans to minorities and who dictates what factors may and may not be used to evaluate credit worthiness? The Federal government and the U.S. Congress.

Who requires banks and mortgage companies to pass periodic reviews to insure the percentage of loan applications from minorities is the same as from everyone else? The Federal government.

Who created the secondary market for the securities containing these subprime loans? The Federal government through the policies followed by government-sponsored entities Federal National Mortgage Association, the Federal Home Loan Mortgage Association and the Government National Mortgage Association.

Who rated these securities “AAA” to anesthetize the financial industry against their risk ? The government-controlled, government-approved investment rating cartel.

Who requires all financial firms to use the ratings put out by that cartel? The Securities and Exchange Commission.

And why were these government-sponsored entities created? To insure a “sufficient flow” of credit into the housing market for the “needy” and the “uncreditworthy” — because those “selfish” and “greedy” bankers and mortgage lenders, left to their own devices, would not make such loans.

Who filed 13 major lawsuits against major lenders charging them with discrimination in lending practices for not loaning sufficient funds to minorities? The Justice Department of the Federal government under the Clinton administration.

Who regulates the home mortgage sector of the American economy? The Federal government, through the following agencies: The Department of Housing and Urban Development (HUD), the Federal Housing Finance Board (FHFB), the Federal Housing Administration (FHA), the Federal Home Loan Bank (FHLB) and the Office of Federal Housing Enterprise Oversight (OFHEO).

Has any legislation been enacted dictating what policies and practices should be followed by all these regulators? Yes, including The Fair Housing Act, the Equal Credit Opportunity Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the National Affordable Housing Act, the Community Development and Regulatory Improvement Act, the Home Ownership and Equity Protection Act, the Updated Community Reinvestment Act and the American Dream Downpayment Act.

Who issued a booklet titled “Closing the Gap: A Guide to Equal Opportunity Lending” to all U.S. mortgage lenders — a booklet that derides as “arbitrary and unreasonable” such traditional credit standards as a 20% down payment or a history of paying one’s bills on time or a steady job yielding reliable income — a booklet that includes side-bar reminders of the fines and jail terms that await any lender found to be deficient in fighting discrimination by lending to less-than-creditworthy applicants? The Federal Reserve Board.

Who, in 2002, set a goal of artificially boosting the home ownership rate from 65% of households (the average for the preceding two decades) to a rate of 70% — and directed all Federal home loan regulators and agencies to communicate this goal to the market? The Federal Government, at the behest of the Bush administration.

Who, after dropping interest rates from 6% in 2001 to 1% in 2004, publicly criticized lenders for making too many traditional, fixed rate mortgages, and declared that “many homeowners might have saved tens of thousands of dollars had they held adjustable rate mortgages”? Alan Greenspan, Chairman of the Federal Reserve Board.

Who called a “White House Conference on Increasing Minority Homeownership” and then pledged to “use the mighty muscle of the federal government” to meet his goal of “increasing the number of minority homeowners to at least 5.5 million families by the end of the decade”? The President of the United States and Head of the Executive Branch of the Federal government, George Bush.

Who, in 2004, following Bush’s lead, promised to “close America’s homeownership gap” via “underwriting experiments that redefine creditworthiness” and promised to create “six million new homeowners” over the next 10 years? Federal National Mortgage Association chairman Franklin Raines.

Who precipitated the adjustable rate foreclosure crises by running interest rates back up from 1% to 5% in 2006? The Federal Reserve Board.

Who believes that private mortgage lenders — free from any pressure from government — free from any rules or regulations dictating their lending practices — with no implicit government guarantees to make good on any loans that might go bad — with no government-sponsored entities to take risky mortgages off their hands — – with no government agency having the power bail them out if they failed — simply woke up one morning in this new condition of total freedom and decided to flush their money down the toilet by trashing lending standards and making loans in the blind, to people who had little long term chance of repaying it? Dedicated statist and interventionists with an unlimited power to evade reality.

The notion that the private sector caused this problem is a fantasy that can be entertained only by evading the massive degree to which the Federal government controls, manipulates, cajoles, distorts, dictates and regulates the home mortgage market.

Go here and watch this presentation for more information: http://www.aynrand.org/site/PageServer?pagename=reg_ls_financial_crisis

SteveO September 29, 2009 at 10:55 pm

Hot damn!

Anonymous September 29, 2009 at 11:13 pm

Michael,

Bravo.

joenorton September 29, 2009 at 11:29 pm

Bravo sir!

Anonymous September 29, 2009 at 11:33 pm

A tour de force! Outstanding.

mesaeconoguy September 30, 2009 at 12:12 am

Outstanding.And now we’ve tasked the very people who caused most of the problem to “fix” it.

Obsessive Housing Disorder

They’ll fix it good, all right…..

Justin P September 30, 2009 at 12:22 am

Great post!

Anonymous September 30, 2009 at 1:47 am

Awesome.

Anonymous September 30, 2009 at 1:49 am

Kudos Michael!

Juan Carlos Vera September 30, 2009 at 2:44 am

yes sr… bien dicho!!!

Anonymous September 30, 2009 at 5:11 am

“The notion that the private sector caused this problem is a fantasy…”

BS. Explain to me how a really crappy NINJA type loan gets made and passed into a CDO with out the passage of the Gramm-Leach-Bliley Act of 1999 or the repeal of Glass-Steagall Act.

Quite simply you can not. It’s impossible. Your impressive list means NOTHING.

Oh and on the Fed. That was run by Alan Greenspan… an Ayn Rand Cultist. So The Ayn Ran.ORG people can STHU!

Volcker to Banks: Stop Trading with Taxpayer Money

http://blogs.wsj.com/deals/2009/09/29/volcker-to-banks-stop-trading-with-taxpayer-money/

Do you guys understand this? YOU LOSE the debate. YOU CAN NOT meet the challenge I’ve raised here. Without those Wall Street heavily lobbied for deregulatory policy changes THIS COLLAPSE DOES NOT HAPPEN!

With out those 2 major policy changes this flow diagram doesn’t flow.

http://www.researchrecap.com/wp-content/uploads/2007/12/imf-subprime.gif

Anonymous September 30, 2009 at 12:27 pm

muirgeo wrote:

BS. Explain to me how a really crappy NINJA type loan gets made and passed into a CDO with out the passage of the Gramm-Leach-Bliley Act of 1999 or the repeal of Glass-Steagall Act.

Quite simply you can not. It’s impossible. Your impressive list means NOTHING.

So you would have us believe that these two particular pieces of regulatory legislation — 2 out of the dozens and dozens that presently exist — these two have an enormous impact on the market — an impact so great that their removal caused this entire crises — but that all the rest of the regulation and legislation has NO impact at all.

Mortgage lenders scrupulously followed those two pieces of regulatory legislation — but blithely ignore the dozens and dozens of other laws, and pay no heed to the exhortations of the President or the lawsuits of the Justice Department?

And the wide-spread extension of credit to uncreditworthy borrowers just happened to occur by mere chance — by mere coincidence — at the same time the nation’s most powerful institutions and politicians were agitating for and demanding this very sort of lending — and at the same time the Justice Department was filing lawsuits against lenders that failed to make these risky loans — and at the same time the Federal Reserve was creating a vast amount of new credit and driving down interest rates — that’s all mere coincidence?

What’s obvious , muirgeo, is that your beliefs are faith-based and thus impervious to reason. And like all faith-based believers, you have an incredible capacity to fool yourself into believing the most preposterous notions. No “impressive list” will ever mean anything to you if it contradicts any part of the list of leftist talking points you’ve swallowed and learned to regurgitate on cue.

Anonymous September 30, 2009 at 1:11 pm

Michael what ultimately was the elephant in the room? CDO’s and their brethren. Did the government invent those? Were they even legal prior to the Gramm-Leach-Bliley Act of 1999?

The strongest point you have is the creation of MBS and the massive utilization of them by the GSE’s. But they existed since FDR to some extent and never on their own created any such massive problem. Only allowing investment banks to merge with commercial banks and allowing these forms of unregulated financial insurance to be created and go unregulated did we get to a problem of this massive magnitude. And it was all what WALL STREET wanted. It was NOT pushed on them. They forced it onto the public.

These crazy products never saw the light of day when investment banks couldn’t sneak them into peoples retirement portfolios. In the old days these scum bags would have had only similar scum bags to trade such crap with so they had no market or utility.

But after 8-9 major lobbying attempts they got what they asked for. Repeal of Glass-Steagall and access to government loans and private holdings… they even tried to get into the social security trust fund.

Again YOU CAN NOT DESCRIBE a situation in which these high risks sub-prime mortgages get made WITH OUT those two policy changes.

But you keep Cheerleading for these principals that have brought down our economy… you keep defending your abusers because you think deep down they really care about you. Or are you one of them? What do you do for a living? Are you a productive member of society or one that feeds off of others hard labor like these Wall Street Casino Operators.

If you are like most hard working people your life has becoming impacted by the need to work extra hard to keep afloat and cost under control to support this economy and the massive distribution of wealth to the parasitic class.

I personally am working my ass off 7 to 7 with hardly a lunch break to make up for this BS they foisted on the working Americans and I’m pissed off and tired of hearing people defend and make excuses for it.

I don’t care how good your insurance policy is good luck if you get sick. Hospitals are cutting corners and YOUR care will likely be impacted. Same thing happens in other industries. Hopefully those overworked aeronautical mechanics don’t miss something on the next plane you fly. But the odds are greater because we have to support the elite wealthy class that you defend.

All the risk all the extra work falls onto the average guy because dumb people think it’s OK that some one makes billions of dollars scavenging from the real economy.

Anonymous September 30, 2009 at 6:42 am

That’s a lot to deal with in one comment … Let me break it down into the component parts.

1. Monetary policy. I agree that money was too lax in 2004-2006. No contest. I should have been clearer that I don’t think govt regulation of the mortgage market was a particular driver of the bubble.

2. The mortgage market is distorted by government regulation. Again, I agree. But the mortgage market has been distorted in much the same way since 1945, and the largest symptom of that distortion is the 30-year, fixed rate, tax exempt, 20% down, mortgage. No private sector entity could or would ever have created such a thing. But this regime has existed for 50 years and thus cannot be a major contributor to the bubble that lasted from (at most) 2000-2008. Over the last 50 years, house prices have barely kept up with inflation.

3. Specific regulations requiring lending to minorities. This line of thought is infuriating – it seems to amount to race bating and little more. The fed pamphlet you refe to is totally innocuous – it merely urges lending to minorities on the same grounds as everyone else at the time it was written (lending standards have ossified somewhat since – the GSEs used to allow some level of judgement in assessing credit-worthiness, they now rely entirely on FICO scores and LTV ratios). It does not refer to conventional lending standards as arbitrary – read it if you don’t believe me. The CRA covers only a tiny number of mortgages which are generally better performing than other loans in the same risk pools, which if anything shows it did in fact uncover real discrimination.

4. Sub-prime loans were never insured by the FHA, and until the bubble was almost burst were not bought and resold by the GSEs either. The GSEs did get into the sub-prime game right at the very end, and it was what ultimately broke them, but they were not instriumental in creating it. Traditional GSE and Ginnie Mae loans are considerered to be Prime because they either run to completion or are paid off in full, because they’re always insured. Sub-prime was (it doesn’t actually exist any more, really) the class of loans were the principal was not insured in the case of default, and default was a significant risk. Such loans were usually structured in such a way that they would have to be re-mortgaged after 1-2 years, usually with a substantial pre-payment penalty, or the monthly payments would go up to an unsustainable level. They were a purely private sector creation that only looked invest-able because of the magic of securitization.

Anonymous September 30, 2009 at 1:25 pm

simonkinahan wrote:

The mortgage market is distorted by government regulation. Again, I agree. But the mortgage market has been distorted in much the same way since 1945, and the largest symptom of that distortion is the 30-year, fixed rate, tax exempt, 20% down, mortgage. No private sector entity could or would ever have created such a thing. But this regime has existed for 50 years and thus cannot be a major contributor to the bubble that lasted from (at most) 2000-2008.

You’ve taken one particular phenomenon — ” the 30-year, fixed rate, tax exempt, 20% down, mortgage” — arbitrarily declared it to be the “largest distortion” created by government intervention in the mortgage market — and then used the fact that since it has been in use since 1945, this proves that government could not have caused the housing bubble.

Your reasoning rests on an arbitrary assumption — that the traditional 30 year fixed rate mortgage IS the “largest symptom of government distortion” — and uses that assumption to argue your point. Analyzed logically, that’s the fallacy of “petitio principii”, or “begging the question”. It consists of simply assuming the truth of what you want to prove and then using that “assumed truth” in your proof.

I could just as easily assert, “The housing bubble is the largest distortion caused by government intervention in the mortgage market, and since it just occurred recently, this proves that government intervention in the mortgage market has recently increased.”

That, too, would be question begging, if I provided no additional evidence. But I didn’t make that argument — I made an evidence-based argument instead.

If you want to establish that the traditional 30 year mortgage is the “largest distortion”, you’ve got to offer some proof of that fact, and you’ve got to logically explain away all the evidence I presented. You haven’t done either.

You also wrote:

The fed pamphlet you refer to is totally innocuous – it merely urges lending to minorities on the same grounds as everyone else at the time it was written

Lawsuits filed by the Department of Justice — which has virtually unlimited funds for pursuing such suits — are certainly not “innocuous”. It is pure fantasy to believe that company officials in the private sector — who often have a fiduciary burden to satisfy — ignore such things. A pamplet put out by the government entity that has the power to put you out of business tomorrow is not something that is going to be ignored.

You also wrote:

They (subprime loans) were a purely private sector creation that only looked invest-able because of the magic of securitization.

But why were these loans created? Are you in fantasy land with muirgeo, who thinks the creation of these loans at a time when government was doing so much to encourage and demand ever-greater credit for ever-more-uncreditworthy borrowers is mere coincidence?

And who convinced the market that it was safe to invest money in these risky securitizations? Who rated them “AAA” and who forced financial institutions to be guided by those ratings? Not the “private sector”.

And who provided the money to make all these loans possible? Who lowered interest rates to historically low levels to make these sucker loans all the more attractive to uncreditworthy borrowers? Not the “private sector”.

The evidence that I and others have presented is overwhelming: Government’s great big FEDERAL fingerprints are all over the housing bubble.

Sam Grove September 30, 2009 at 3:31 pm

The bubble and bursting occurred in the private sector, obviously, where else would they occur?It is an easy leap to assume that the causes of unusual events are to be found in the arena where they occur.I think it ill advised to assume that government interventions are transparent in every regard except for intended results.The purpose of government intervention into the market is to in some way thwart market functioning, by creating arbitrary signals, and by imposing constraints on the behaviors of market actors.The market actually resists exhibiting the ill effects of these interventions until the fiscal realities can no longer be suppressed.

In the context of these intervention, there are also many factors involved that affect how and when the bubble pops, but many of us are certain that the inflation of the bubble was driven by excessively low interest rates.
We are also highly suspicious that government policies directed this inflation into the housing market.

Government regulation and housing policy has not been static since 1945.
Then to, there was also a good bit of real economic growth after WWII which may have hidden or dwarfed the effects of government interventions.

The complexity of it all will take a good deal of unraveling to trace it out and we will likely never have a definitive “smoking gun” to lay the blame on, though George is certain that the repeal of a couple of regulations constitutes such a device.

Anonymous September 30, 2009 at 10:04 pm

Again YOU CAN NOT DESCRIBE a situation in which these high risks sub-prime mortgages get made WITH OUT those two policy changes.

Nonsense. Here is the description: Government demands an extension of ever-more-credit to ever-less-creditworthy individuals. It instructs it’s massive federal apparatus to make this happen. The Federal Reserve chips in by driving interest rates to historic lows. Laws are passed and lawsuits filed against any reluctant lenders. Penalties for noncompliance are made clear by banking regulators. ACORN agitators visit lending institutions. The high risk sub-prime loans get made.

No way bud. That BS and you know it. Mos tof the worst subprime loans happened outside of govenrment mandates. You really believe the government was forcing Bear Stearns and AIG to do what they did? NO WAY.

You have NOT explained it at all. You really just lied is all you did.

I challenge you to listen to The Giant Pool of Money over at NPR’s planet monet. It’s nothing but interviews of people on the ground during the housing bubble. Their hands were NOT forced by government to make these bad loans, to buy they up or to securitize them . That was Wall Street doing its thing.

And the only good argument against this that’s government related is the preverse incentives from past bailouts. But even with out that people would have built the bubble just the same once Wall Street got the ruuels it liked.

Nope this doesn’t happen without those two major Wall Street favored policy changes. You are compariing apples and oranges.

Really you are asking people to believ ethe government forced these investments banks to do what they did, AIG too, AND THAT IS A BALD FACED LIE!!!

Lying doesn’t prove your point. It makes it weaker!

iamse7en October 1, 2009 at 4:20 am

Thank you so much for that presentation by John Allison. It is excellent. I’ve been reading a ton about this whole crisis, reading Ron Paul’s book now, and will read Meltdown by Woods next, but really appreciate the great link. Half way through the lecture now, and it’s very well done!

Anonymous October 1, 2009 at 6:26 am

Go here and watch this presentation for more information: http://www.aynrand.org/site/PageServer?pagename

Looked at all the slides and listened for 10 minutes. No where does he explain how crap loans now could be repackaged as CDS’s where they couldn’t 15 years ago.

He NO WHERE answers the question/ addresses the issue that this could NOT have happened had Glass-Steagall been in effect and the Gramm-Leach-Bliley Act not been passed.

He failed miserably but explained things away predictably and just as his audience needed to hear. He’s a charlatan pushing blind faith for the true believers.

New question. So why aren’t lenders being forced to still make crappy loans? Did the government mandate that “made” Bear Stearns and Countrywide offer bad subprime loans end?

Anonymous September 30, 2009 at 4:43 am

“As far as I’ve been able to tell so far the idea that state intervention was a significant driver of the bubble is purely a right-wing myth. Anyone have any actual evidence to the contrary?”
simon

No but Russ is writing a book on just that… certainly with no preconceptions.

Anonymous September 30, 2009 at 11:02 am

Re: “As far as I’ve been able to tell so far the idea that state intervention was a significant driver of the bubble is purely a right-wing myth.”

What I’ll grant is mythical is the idea that state intervention is the only cause – that markets aren’t inherently prone to large cycles. Thankfully not too many people think that. But I hope you’re not dismissing any culpability of government in causing the crisis!

Brookings has a good report that details the differences between FHA loan originations and private loans and makes much the same points. I wish the people responding to you below would pay less attention to your “right-wing myth” comment and attempt to debunk your first paragraph. To steal a phrase from Russ, their laser-beam focus on your “right wing myth” comment was “boring”. The more interesting stuff is in your first paragraph.

Seth September 29, 2009 at 8:37 pm
Anonymous September 29, 2009 at 10:45 pm
SteveO September 29, 2009 at 11:01 pm

I have to assume this means he will no longer be on ABC? Unfortunately this is good news / bad news. It’s great overall that there will be more Stossel out there, but I don’t get Fox Business on my satellite package- and I assume a lot less people get Fox Business than get ABC, so the message will be concentrated to fewer people.

Also, Stossel was a nice change of pace to the mainstream news on the big channels. If he’s going to be gone from there, it’s like we’ve essentially surrendered the field.

Lastly, Fox, for better or worse, regardless of details and merit, has earned itself a reputation (or been given one) of crackpot tinfoil-hat wearing right wing loons. I’m not saying they are, although knowing they are under scrutiny, they have done some really stupid things that didn’t help themselves. This will just throw Stossel into a poisoned well- and a lot of people will say “See, I told you so”.

More preaching to the choir, and less infiltration of different points of view. I’m happy for Stossel, I’m sure he got a good deal, and lots more air time, but overall, this feels like a loss- especially for me.

Anonymous September 29, 2009 at 11:26 pm

You make good points. Fox Business is much better than Fox News, and so the company he is joining is not Glen Beck and Bill O’Reilly, but Niel Cavuto, David Asman, and Stuart Varney–plus a regular supply of capable guest economists and financial experts.

Stossel is still a giant among them, but he is joining the most upscale of the Fox networks, IMO.

Who knows, the way ratings have been trending for the broadcast networks, in a few years Stossel may find he has even more viewers than he otherwise would have.

Anonymous September 29, 2009 at 11:11 pm

Michael Smith: well done, your comment is excellent.

Juan Carlos Vera September 30, 2009 at 12:15 am

How do you say when I make the same mistake twice?. The first mistake was bad luck, but the second I was stupid.

Anonymous September 30, 2009 at 10:23 pm

Fool me once shame on you. Fool me twice shame on me.

So like believing in unregulated markets and seeing them lead to first Great Depression shame on them. Still believing the same baloney and having it happen a second time .. shame on the inculcated true believers.

So now we ware working on the fools taking us down a third time. So the cleche needs an amendment.

Fool me once shame on you. Fool me twice shame on me. Fool me a third time shame on you again…wtf?

Bunch of serf-wanna-be’s!

Name September 30, 2009 at 1:22 am

Everyone else probably thought of this first, but is too sophisticated to say it… I’m not. Russ, here’s an answer for you:

“First Rule of Holes: stop digging.”

Anonymous September 30, 2009 at 1:57 am

BTW, Russ,

The government’s intervention has been evident since the late 1960s, can I prove it, no. I was a young man, and while I was aware of what was happening in society and politics in the 1960s I certainly did not document what I was reading and hearing; that doesn’t mean it did not happen.

Government started screwing with lending to minorities in the 1960s after the upheavals of the Civil Rights movements and riots.

Much longer than 15 years.

mesaeconoguy September 30, 2009 at 3:00 am
Anonymous September 30, 2009 at 10:18 am

Gotcha, good stuff to know; but, I was writing from a personal anecdotal platform. The platform of a young man looking around, seeing what was going on, and knowing in the long run it had to be bad.

I grew up and left home (1959) in an atmosphere where banks, and other lending institutions, in the main practiced sound lending practices, such as looking closely at an applicant’s ability to repay a loan as well as his known track record (if available).

Then with the upheavals in the 1960s I saw those same institutions being arm-twisted to open branches in areas they would not serve in the past, and to make loans to people who could not reasonable qualify in the past.

Had to be a bad thing for everyone because the bank is going to ask more from me to cover the additional risk they had to take on by loaning to poor risks. Even an uneducated hick like me could figure that one out without a text book. And, though I figured that one out I had no idea how viciously the government was going to distort the picture as time went on, until in the end we had “candy-store” time for anyone who walked in.

Lee Taylor September 30, 2009 at 3:05 am

I believe that we will temporarily incentivize another certain percentage of people, to fail.

I also believe that another certain percentage will make American neighborhoods better. I’ll bet on that percentage – probably 20%.

Are the basic, consumer level education and “enforcement” of standards for these government programs any good?

Not from what I’ve seen.

It’s deplorable to see people who have just a few thousand or a few even hundred dollars in the bank and just because they have a job, and they have a 620 credit score, they can get a loan with downpayment assistance.

The terms suck and their purchasing power places them in some dumpy submarkets with slim pickings…

But, we do need to stabilize some neighborhoods, so in my opinion, if we spend taxpayer money anywhere, we need to spend it on law abiding, productive citizens. Law abiding, productive citizens will stabilize our neighborhoods.

No more spending on bloated government fat cats and corporate subsidies and tax breaks.

It’s just too bad that the housing agencies are so inefficient and crooked at the local level so often…they are more like “hosing” agencies.

Things may change for the better – I choose to believe that they will, and I’m seeing it often. I’m also seeing some of the poor getting poorer.

Government handouts need to be temporary.

Dave Cribbin September 30, 2009 at 12:42 pm

Making the same mistake over and over again is the very definition of “Good Government

Randi September 30, 2009 at 2:49 pm

Please don’t say that this housing fiasco is due to low to moderate people taking out home loans, please don’t go there. The housing mess was caused by greedy lenders. I know a lot of people, people with money, yes, people who had their own downpayment who are losing their homes.

BoscoH September 30, 2009 at 3:01 pm

Please don’t say this housing fiasco is due to greedy lenders making bad loans, please don’t go there. The housing mess was caused by purchasers who could not afford to make payments. I know a lot of people, people with money, yes, people who lent their own money to borrowers who are losing their investments.

Anonymous September 30, 2009 at 7:36 pm

Randi,

You are totally out in left socialist field in your comment.

A loan never applied for is a loan never made.

A loan never made is a loan that can not be foreclosed.

A loan never made is a loan that can not be manipulated.

If people are in contracts that they can’t fulfill, they should never have asked to make the contract……and they knew going in that their chances of making the payments were crap. If not, then they were dirt bag stupid, or socialist to the core and knew government would bail ‘em out.

No room in this world for stupid, Randi. Stupid always gets hurt and all too ofter manages to hurt others in doing so.

Anonymous September 30, 2009 at 11:48 pm

I recently closed on a house. The closing documents included numerous single sheets that had just one or two sentences requiring a separate signature as confirmation that I understood what I was getting into. It bordered on ridiculous. I was told that each sheet was the product of a lawsuit.

That people in any significant numbers were tricked into signing mortgages is impossible to believe.

jojo October 1, 2009 at 3:24 am

Federal Reserve Bank of Boston
Memo dated April 2009 – The Impact of Recent Credit Market Turmoil on New England State Housing Finance Agencies

Is it the same mistake or is trying to rectify the unintended consequence of how the Feds propped up the GSEs. Hasn’t the Feds heavy purchasing of MBSs via Fannie & Freddie kept interest rates artificially low crippling the Federal Housing Agencies (Agencies)?

Then there the need to have someone step in to act as a liquidity provider. I was under the impression that after liquidity facility providers were downgraded last fall, that regulations of some sort prevented entities such as Money Market funds from holding assets in which a liquidity provider does not have the appropriate rating. Hopefully, the fed acting as a liquidity provider or, the insurer of last resort, is a temporary measure. The Feds (the taxpayers) only pays if the Agencies default on their bonds.

Also, I believe Agencies service the loans they originate so there’s an inducement to keep loan losses to an acceptable tolerance and one that is acceptable to the bond holders. To my knowledge, the Agencies default and foreclosure ratios have been lower than other affordability programs offered by Fannie/Freddie or insured by FHA or USDA.

briana October 5, 2009 at 1:44 pm

hay my name is briana

Greg_Ransom September 29, 2009 at 8:17 pm

The “good thing” to leftists it anything that gives them massive power and status and control — such as putting themselves in the cat’s seat as power broker stealing from and de-powering the middle class while shoveling billions and trillions to the super rich and the client dependent classes of the left.

That — in a nugget, is what this is all about.

The weird thing is that leftists have a religious experience any time they are able to rob the middle class and shower the super rich trillions and their clients with billions.

Greg Ransom September 29, 2009 at 8:20 pm

The OC Register has published dozens of articles showing how these programs are devastating to hard working people and lower middle class neighborhoods, where debt and foreclosure and turnover and wrecked lives and whole blocks.

This is what the left has done to real people and real families — and I’ve never come across a single leftist who cares one whit what they have done.

Anonymous September 30, 2009 at 1:33 am

Duplicitous Kuehn,”I just think there’s a variety of opinions on when it’s a good thing to help bear other people’s risks.”For Christ’s sake, kid, can’t you take a fucking hint? Russ told you that sharing your thoughts was nitpicking and boring…..damn kid, that is what I have been trying to get through your thick head for a year now.You want to know why they are nitpicking and boring? They are boring because they are usually wrong, and they nitpicking because you inevitably respond with that “yeah but”.No matter how divine your education, you just don’t have the experience of Russ, Don, Sam, Methinks, Mesaeconoguy, Ike, Randy, Brotio, Jeff, and God knows how many others to be interesting or informative.Stop it, just shut up for awhile.Oh, and thank you for your service.

Anonymous September 29, 2009 at 8:53 pm

Part of the reason why I said I opposed them.

Anonymous September 30, 2009 at 1:37 am

Greg,

Did you say de-powering the middle class or did you mean de-flowering the middle class?

I feel like it has been the latter especially since I am not a consentor, or is that consentee? :-)

R A P E!

Sam Grove September 30, 2009 at 2:15 pm

As the U.S. inflated, so did other countries.
Perhaps they bought the explanation that inflation encourages growth by stimulating demand.

It seemed to work in the U.S.

We must always remember that human psychology is a large factor.
The world is closely knit via telecommunications.

Anonymous September 30, 2009 at 4:34 pm

muirgeo wrote:

Michael what ultimately was the elephant in the room? CDO’s and their brethren. Did the government invent those? Were they even legal prior to the Gramm-Leach-Bliley Act of 1999?

Yes, CDOs were legal and existed prior to 1999. And by the way, who does the credit ratings for CDOs? The government-controlled, government-approved, and SEC-mandated cartel of ratings agencies, which everyone who sells investments is required to use.

Question: In a free market, if private agencies existed to rate the level of risk on different investment vehicles — and I think they would — what would happen to those agencies that rated bundles of high-risk securities “AAA”, leading to large losses for those that purchased them?

Answer: They’d be out of business in a heartbeat. The market would deal out swift punishment. No one would ever use their services again, and their more rational competitors would absorb their business.

But observe what happens to those agencies in a highly regulated, “mixed-economy” such as we have now — nothing! They are still in business and the SEC still mandates they be used.

And this is the sort of “justice” — this proping up of disastrous failure — that you support.

Muirgeo also wrote:

The strongest point you have is the creation of MBS and the massive utilization of them by the GSE’s. But they existed since FDR to some extent and never on their own created any such massive problem. Only allowing investment banks to merge with commercial banks and allowing these forms of unregulated financial insurance to be created and go unregulated did we get to a problem of this massive magnitude. And it was all what WALL STREET wanted. It was NOT pushed on them. They forced it onto the public.

1) How did “allowing investment banks to merge with commercial banks” result in the “massive utilization of MBS by the government sponsored entities“?

2) What makes you think that allowing investment banks and commercial banks to merge results in them being “unregulated”? It doesn’t.

3) And it isn’t true that “Wall Street forced these products onto the public”. Wall Street has no legal power to use force on the public or anyone else — only government may legally use force.

You continue to assert:

Again YOU CAN NOT DESCRIBE a situation in which these high risks sub-prime mortgages get made WITH OUT those two policy changes.

Nonsense. Here is the description: Government demands an extension of ever-more-credit to ever-less-creditworthy individuals. It instructs it’s massive federal apparatus to make this happen. The Federal Reserve chips in by driving interest rates to historic lows. Laws are passed and lawsuits filed against any reluctant lenders. Penalties for noncompliance are made clear by banking regulators. ACORN agitators visit lending institutions. The high risk sub-prime loans get made.

There is your description.

What makes you think the massive government program to increase home ownership by extending ever-more-credit to ever-less-creditworthy individuals would have had a different effect if the investment banks and commercial banks remained separated?

What’s more, you conveniently ignore the fact the legislation you keep mentioning — the Gramm-Leach-Bliley Act — included a clause stating that “no merger may go ahead if any of the financial holding institutions, or affiliates thereof, received a “less than satisfactory” rating at its most recent CRA exam”, essentially meaning that any merger may only go ahead with the strict approval of the regulatory bodies responsible for the Community Reinvestment Act.

So while this act permitted these mergers to occur, it also strengthened the incentive make risky loans. Why is it you don’t mention that?

Furthermore, even if what you’ve asserted is true, you’ve merely identified a necessary precondition, but not a sufficient condition, for the housing bubble. That in no way attenuates the effects of the massive government intervention I detailed.

It is true that some degree of economic freedom is necessary for government to be able to create an asset bubble. I suspect that if one examined the history of the U.S.S.R, one would find no similar bubbles. Nor, I suspect, do such bubbles occur in places like North Korea. And risky loans to uncreditworthy minorities were not a problem under the slave system of the 19th century. Do you advocate a similar level of slavery for us now?

Your trouble, Muirgeo, is that you want to focus on one alleged consequence of giving people some additional, limited economic freedom — in this case, the “freedom“ for commercial banks and investment banks to beg the government’s permission to merge or get into one another‘s business — but you insist on ignoring all the incentives, threats, lawsuits, regulations, controls, rules, exhortations and demands that government then brings to bear on these individuals to get the sort of action, the sort of results, that it — the government — desires.

What you do is the inductive fallacy of exclusion. You simply ignore any evidence that contradicts your inductive case.

I personally am working my ass off 7 to 7 with hardly a lunch break to make up for this BS they foisted on the working Americans and I’m pissed off and tired of hearing people defend and make excuses for it.

What’s sad is that you cannot see that private individuals have no legal power to “foist” anything off on you — only government has that power. And yet you endlessly campaign to increase the power of government and extend its control over more and more of our lives. Very sad indeed.

BoscoH September 30, 2009 at 6:03 pm

I personally am working my ass off 7 to 7 with hardly a lunch break to make up for this BS they foisted on the working Americans and I’m pissed off and tired of hearing people defend and make excuses for it.

I could get really fat given the time you spend posting here, Dr, George :-) . But all that aside… My grandmother was in the hospital last week for about a week. Her room could comfortably fit four patients and their guests. It had two patients. The nurses and care staff were friendly, professional, and caring. Her doctors took their time to figure out the right course of action, which turned out to be removing her gall bladder. When I got lost in the halls trying to find her room, the staff were friendly enough and had enough time on their hands to walk with me in the right direction. Yes, it’s a great hospital and the only one in the area I can stand visiting. But just because George doesn’t have time to eat lunch doesn’t mean that health care is broken and only Obama can fix it.

iamse7en September 30, 2009 at 5:51 pm

I’m sorry muirgeo, but he’s killing you in this debate. All logic and evidence is proving you wrong.

matt September 30, 2009 at 9:00 pm

I was going to call muirgeo a dumbass, again, but instead I’ll use my time to thank you for taking him to task. I tend to learn something each time someone takes the time to debate him. Even though he’ll never admit simple facts, your effort is worthwhile from my end. Well done.

And muirgeo, you’re a dumbass. Oh look, I did it anyway. Two birds with one muirgeo. Wahooooo!

Anonymous September 30, 2009 at 9:39 pm

“And by the way, who does the credit ratings for CDOs? The government-controlled, government-approved, and SEC-mandated cartel of ratings agencies, which everyone who sells investments is required to use.”
MS

What are you talking about? Those rating agencies are private firms?

Anonymous September 30, 2009 at 9:43 pm

“Question: In a free market, if private agencies existed to rate the level of risk on different investment vehicles — and I think they would — what would happen to those agencies that rated bundles of high-risk securities “AAA”, leading to large losses for those that purchased them?

Answer: They’d be out of business in a heartbeat. The market would deal out swift punishment. No one would ever use their services again, and their more rational competitors would absorb their business. ”

You are kidiing me right. This is like Dr Evil on reanimation coming up with an evil plan to destroy the ozone layer only to be told… “that already happened”.

Dude you what if already happened and as far as I know they are all still very much in business. Come on now you can do better then Dr Evil!

Anonymous September 30, 2009 at 10:10 pm

“What’s sad is that you cannot see that private individuals have no legal power to “foist” anything off on you — only government has that power. And yet you endlessly campaign to increase the power of government and extend its control over more and more of our lives. Very sad indeed.”

Private indivduals can and did foist this upon Americans. They stole their money AND now we gat to bail them out.

The reason it happens is because you guys say money is free speech and coporations are persons. So with their personhood and unimaginable amounts of money they DO use the government to do their bidding and to make us pay for their raping us.

What I want is not a stronger government but one that has it’s power diffused amoungst all of its people andwith none of that power going diosproportionatly to a smalll minority of super wealthy people.

You defend the latter … I defend the former. You support our enslavement I support self governance. You suck … I don’t!

mesaeconoguy September 30, 2009 at 11:24 pm

Very well said, again, Michael.

Anonymous September 30, 2009 at 7:43 pm

Would you like to see the list of 41 muirpidities in total? Here is a teaser, the first on my list:

(STU)PIDITY OF THE (muir) DUCK
All of these are stands alone stupidity. Context is not necessary to understand that the person who created these is mentally defective.

1. “The rising income discrepancy is what prevents people from obtaining affordable housing.”
Posted by: muirgeo Nov 2007

iamse7en, he (muirduck) has no idea of what he is saying at any particular time. He is a typical socialist intellectual in that he constructs strings of words that sound good to young idiot uneducated children and they think he knows something, which of course pumps up muirduck’s ego and encourages him to go out and be an even bigger fool.

I don’t like to publish the entire list too often because at 41 (not all by any means – just some notable ones I pick out) the list is getting long. But, I will as long as Don and Russ tolerate it.

Anonymous September 30, 2009 at 10:14 pm

Oh OK I must have missed. Where did he explain how a incredible crap piece of a home loan gets made, bought, repackaged and securitizedw in the abscence of the Gramm-Leach-Bliley Act of 1999 or the repeal of Glass-Steagall Act?

I missed that. Wanna point that out for me? He attemted to do so with an outright lie. Was that what you are talking about? Maybe you can explain it yourself.

Anonymous September 30, 2009 at 11:18 pm

Hi Vidyohs,

not nice, once the pertinent response is given to the “nitpicking”, one can just move on and make their own pertinent points without telling anyone to shut up, unless the nitpicker was abusive or something. Just thought you were a bit harsh there. Better to just destroy their point conclusively or ignore it.

Anonymous September 30, 2009 at 11:37 pm

Actually, he did. You need to read more carefully. I can only hope you treat your patients with a more thorough reading of the medical material.

mesaeconoguy September 30, 2009 at 11:50 pm

Okay, let’s take that sequentially:

1. piece of crap loan [one of several piece of crap enabling movements to "expand lending" see #2]

2. loan bought – see above, also CRA (1977), Home Mortgage Disclosure Act (1975), Equal Credit Opportunity Act (1974), Fair Housing Act (1968) et al.

3. repackaging & securitization (note the year: 1997, when was G-B-L/repeal of Glass-Steagall again? Oh, 1999, that’s right. Thanks.)

Just stop talking, muirgeo, I beg you. Please. You’re killing us with your stupidity & ignorance. But it’s incredibly entertaining at times.

mesaeconoguy September 30, 2009 at 11:53 pm

They are 3 private firms, Fitch, Moody’s and S&P, known as NRSROs (Nationally Recognized Statistical Ratings Organizations) chartered by the Federal Government to perform securities ratings functions. No other firms may engage in this activity, thus they are a government-sponsored oligopoly.

MWG October 1, 2009 at 12:03 am

…but of course muir already knew this as it is very common knowledge.

Anonymous October 1, 2009 at 12:09 am

Get some experience with Duplicitous Kuehn before chastising me please.Nitpicking DK can be abusive just by showing up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up and up, of course that is just on one thread from the hosts.Besides, if the hosts can tell him to cut it back, which they have done, should I feel terrible about reminding him? Nah, t’ain’t so, I don’t feel terrible at all.Last but not least junearunga, no one destroys Duplicitous Kuehn doncha know? DK never admits someone else has had the final say, or made the better point, it is always the “yeah but”. Stick around kiddo and you will see my conclusive point.DK is like the annoying little “know it all” kid who sat behind you in the second grade and always had his hand up, and when the teacher didn’t call on him and another kid got to give the answer, he still had his hand up because he could add to the other kid’s answer and it was terribly important that he do so; and, if the teacher didn’t give him the opportunity he would blurt it out anyway.:-D

Anonymous October 1, 2009 at 12:12 am

junearunga,

Nice is not always my goal. Sometimes truth spoken or written bluntly is much more important.

I hope you turn out to be nice, then I can be nice to you.

mesaeconoguy October 1, 2009 at 12:13 am

No, you’re the liar here, Dr. retard. See my comments above.

Sam Grove October 1, 2009 at 1:25 am

Really you are asking people to believ ethe government forced these investments banks to do what they did, AIG too

Straw man, I made no claim that the government “forced” these investment banks to “do what they did”.

While you are complaining about Wall Street, aren’t you a bit discomfited knowing that Wall Street won the election?
Bush=petro industry
Obama=Wall Street

Even for a serf, you sure are a dupe.

Anonymous October 1, 2009 at 6:00 pm

Muirgeo claimed:No way bud. That BS and you know it. Mos tof the worst subprime loans happened outside of govenrment mandates. I don’t expect you to understand this, but I’ll try one more time on a very basic level.What you fail to grasp is the way government intervention works. No, the government didn’t call up Countrywide Financial and demand that they begin issuing subprime loans — just as the government doesn’t call up employers and tell them to hire “X” number of minority workers next week. Instead, the government passes laws making “discrimination” in lending a crime — just as they made “discrimination” in hiring a crime. The Fair Housing Act, the Community Reinvestment Act — all of that long list of legislation I mentioned in my first post — all of it established and reinforced the illegality of discrimination in lending.And in both cases — as is generally the practice with government regulation — the normal burden of proof is reversed; if you are accused of discrimination in lending by, say, your local ACORN outfit, or if you are accused of discrimination in hiring by your local Al Sharpton-type, you are presumed guilty and must prove your innocence.Let me make sure you understand this point: At any point in time, if you are a lender or an employer, you must be able to prove that you have NOT discriminated in the granting of loans or the hiring of people.Putting aside, for a moment, the blatant injustice of denying to an employer or lender the very rights granted to accused criminals — the bottom line is this: to the government, the only thing that counts as proof that you have not discriminated is the racial makeup of your workforce or your loan portfolio.Think carefully about what this means. It means if you have a low percentage of minorities in your workforce, it doesn’t matter a whit to the government if this is due to the fact that no minorities applied for work at your firm — just as it doesn‘t matter a whit to the government if those minorities that applied had terrible work records. The lack of a “sufficient” number of minority employees is considered proof that you are guilty of discrimination. Likewise for lenders. It doesn’t matter if few minorities come forward asking for loans from a given mortgage lender — just as it doesn’t matter if the minorities that do come forward are uncreditworthy. The government doesn’t care a whit about that. If a lender doesn’t have a “sufficient” number of loans to minorities on his books, he’s considered guilty of discrimination — even if it is due to factors completely out of his control.What’s more, the lender must prove this “nondiscrimination” even if there is NO accusation from anyone against the firm. The mechanism for this is the periodic audits that are done under the Community Reinvestment Act. Bank examiners come into your bank and look at all their records. They demand to see the proof that you’ve not discriminated. You have to have those minority loans on the books.In addition, you have ACORN running a shakedown by threatening various banks and mortgage institutions to go public with an accusation of discrimination — and accusation sure to bring on more banking regulators.So eliminating actual racial discrimination in lending is not necessarily sufficient to keep a lender out of trouble. If there aren’t a sufficient number of qualified minorities seeking loans at a given institution, the institition has to find some way to get them to apply and to get them approved, so the minority loans get on the books — even if all indicators are that the loan is risky .This is how government “mandated” the issuance of sub-prime loans. It put lenders in a position wherein there was no choice but to accept ever-less-creditworthy minorities and to make every-more-risky loans. There was no other way to prove to government that they were not discriminating.That is the “stick” that government wielded. It also used a number of “carrots”. One “carrot” was in the form of the GSEs that were encouraged to create a secondary market for these loans, so that institutions would not have to carry too many of these risky loans simultaneously. The other HUGE “carrot” was the Federal Reserve, who drove interest rates to historic lows, thereby enabling lenders to put extremely attractive initial rates on these riskier loans. In addition, the Federal Reserve — as lender of “last resort” — represents an implicit promise that government will be there to bail you out if you get into trouble.Now I have not dealt with the element of time in this comment. The government’s “stick” was not applied all at once, but rather, the pressure to comply with the nondiscrimination requirement was ratcheted up over time. Likewise with the “carrots”. The net effect was to artificially inflate the demand for residential mortgages and residences. Millions of renters were induced to become owners. Home prices soared. The bubble was created. But reality would soon intervene.That’s the end of my effort to educate you, muirgeo. If you cannot grasp how government engineered the creation of the subprime mortgages and the entire housing bubble, there is no use discussing what happened at AIG, Bear Stearns and all the rest.

mesaeconoguy October 1, 2009 at 1:53 am

So how do we arrive at the conclusion that the US govt policy was a factor? It seems to be merely politically convenient to supppose [sic] that, but there’s no evidence

Wrong. See here: Anatomy of a Trainwreck

Absent the incentives provided, and the wildly out-of-control political patronage corruption of GSEs, the “bubble” would have been much smaller.

Fannie & Freddie, Barney Frank’s hobby horses, were THE major drivers, acting as lender of last resort. So while they may not appear as top line lenders (which they sometimes were), they wound up as ultimate purchasers and guarantors of most of these loans, the incentive for which was politically-driven, as was the securitization, as was the ratings, as was the entire sector.

You clearly have little understanding of the mechanisms at work.

Anonymous October 1, 2009 at 3:28 am

man, you take blog comments waaaaay too seriously

made me laugh tho, thanks

once I saw this web comic about some guy who said ‘wait, somebody is wrong on the Internet, I gotta fix it’ and I just pictured him going ape shit and cutting and pasting ‘and up’ a bunch of times, thinking he’s clever…

its just some comment man, don’t overcompensate for the shit you put up with on real life… chill out dude

also, calling people kid like its offensive? duuude, being a kid rules! we get to party all the time, we have the energy and the dontgiveafuckness you only wish you had

get a life you middle-aged, middle-class, whose great achievement in life was burning some other middle-aged middle class stranger on some blog thread

waaay to go!

=D

Anonymous October 1, 2009 at 3:33 am

running for messiah?

yeah, illuminate us all, reveal the truth would you?

bring it on, as bluntly as you can, cuz my skillz are sharp as the edge you lost some ten year ago, dude!

pwnd by some kiddo
nice!

Anonymous October 1, 2009 at 10:13 am

Welcome, there is always room for another Chihuahua up on the porch where muirduck, Gil, DK, various other little pets, and now you, can run back and forth yapping at big dogs.

I’ll be content to see your contributions and see if you can actually get down off the porch and run in the street.

Dazzle me Junior.

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