Can the Govt really fix the economy?

Devil505 wrote:

mr1precision wrote:I would answer this question with a question. What does the government do better than the private sector? Besides waste money and get fatter and dumber. I feel like the government is out on a bender and we the taxpayers are suffering with the hangover.

Except your little argument is wrong in that it's pretty well accepted that it was the lack of government oversight that got us into this crisis in the first place. (Lack of oversight let your beloved "Private Sector" get greedy & cheat when there were no umpires on the field of play, because they had been banned from the game).

It's "pretty well accepted that it was the lack of government oversight that got us into this crisis in the first place" only by those who choose to look at only part of the history. Government meddling,in the form of laws requiring banks to lend to people who lacked creditworthiness, was the ultimate cause. Fannie and Freddie backed these loans, so there was no penalty, as in the past, to banks for lending to people who they knew were unable to meet their obligation to pay back the loan. In attempting to "level the playing field" (in the interest of equal outcomes, rather than equal opportunity) the government set up conditions whereby normal market forces limiting imprudent lending were removed.

Man did not begin acting in his own self-interest--getting "greedy" in the parlance of the day--for the first time in the late 1990's-2000's, did he? So, why did these problems arise when they did, and not earlier? Only because the rules of the game changed by government edict.

BTW, I feel that describing another's argument as "little" is demeaning--as if one of us sees himself as somehow morally superior to someone else who doesn't hold the same opinion.

My view is that, with no exceptions exept the prosecution of criminal behavior, the best governmnent action is to get out of the way of productive people. No recession has ended because government taxed and spent more.

Phil Graham proposed easing the banking regulations, Bonnie frank and Chris Dodd ran with it, Bill Klinton signed it into law and we are all left holding the tab. If spending 3 trillion dollars will help, why not spend 9 trillion to get us out of this mess quicker? Because the govt. knows it won't work. Watch the stock market, every time Obama (One Big Ass Mistake America) opens his mouth about taxing and spending, the market goes down. The best thing the Govt. can do is to stand aside and let the market correct itself and let these businesses and banks that are failing fail. It won't happen because the crisis that will come out of their actions will allow them to seize more power and tighten the noose even more. Keep your powder dry and your skills sharp, the ballot box has failed. The Constitution is dead and it is a matter of time before the Govt. hits that trip wire that will mobilize people to action.

I hope I am wrong, but history has a strange way of repeating itself, and I do not think this once great nation is exempt.

Mike

Ashcat wrote:It's "pretty well accepted that it was the lack of government oversight that got us into this crisis in the first place" only by those who choose to look at only part of the history. Government meddling,in the form of laws requiring banks to lend to people who lacked creditworthiness, was the ultimate cause.

Can you cite a specific law that forced banks to make loans to people who couldn't qualify?

Loan officers make a tidy origination fee on loans, no matter if they go bad in the future. The bank makes profit on repackaging (and possibly by misrepresenting the quality of) loans also. Banks have every incentive to make loans, good or bad, since once sold they are off the hook.

The mechanism for disaster was that the CRA (Community Reinvestment Act) indirectly "incentivized" banks to lend to people in "targeted" areas that were believed to be discriminated against because of their race and locale. The incentive was that, in order for banks to expand, they had to have positive CRA numbers in profiled lending. In reality, the banks were just not lending to poor risks, but ACORN wanted, and got, a political stick. As you pointed out banks love to lend. That's how they make their money. Besides, why would neighborhood banks set up shop in a neighborhood and not do business there?

The second part of that mechanism was loose money. The FED and the treasury were complicit in creating gobs and gobs of money. They do this through bank lending. Bank reserve requirements are low giving a 9 to 1 multiplier. Looser money meant looser lending policies, especially in a time of a housing boom.

The last part of the mechanism leading to our economic demise was that the regional banks burgeoning portfolios of loans were plentiful from a heated housing market (from the plentiful loans bidding up housing prices in a heated market spiral). The problem for the banks was that they could make more money orginating loans than holding them. Then enter the investment bankers who had ready markets for those loans. They bought them and bundled up into bond form (securitized loans or CDO's) and backed them up by a new-fangled, "insurance policy" called a credit default swap which had no reserves except the full faith and credit of the institutional issuer. They were being issued by AIG and others (and vouched for by the bogus rating agencies in bed with them). They were traded on semi-secretive markets which hid their real value from the general public.

Also, investment banks created off-the-books entities called QSPE's or qualified special purpose entities. These entities were supposed to be arms-length trusts but ended up being covers for the horrendously unsecured portfolios of the banks. The securities in the QSPE's came back to the banks upon default. That in turn screwed up their balance sheets making them look like they were illiquid (technically they were illiquid and in some cases, insolvent) which triggered credit default swap prices to spike wildly causing further concern. Other obligations with references to bank balance sheet health were also in peril.

All that, coupled with the housing market price collapse, drove collateralizations way down in a total reversing of the spiral that inflated the bubble in the first place. LTV ratios had hit the skids and default risk became very real causing both swaps and loans to be called and runs on Bear Stearns last year. The rest is more recent history.

Who and what was at fault? Both political parties, the US Treasury, political activists, greed, lust for power, and marxian economists. There were regulations in place that were removed ,and regulations proposed and defeated, that could have saved us this problem. However there were overriding political concerns and a desire to expand an economy on consumption to hide from the population the fact that our economic influence in the world is shrinking rapidly. All warnings for two decades were ignored by the baby boomer presidents. Go figure!

djackman wrote:

Ashcat wrote:It's "pretty well accepted that it was the lack of government oversight that got us into this crisis in the first place" only by those who choose to look at only part of the history. Government meddling,in the form of laws requiring banks to lend to people who lacked creditworthiness, was the ultimate cause.

Can you cite a specific law that forced banks to make loans to people who couldn't qualify?

Loan officers make a tidy origination fee on loans, no matter if they go bad in the future. The bank makes profit on repackaging (and possibly by misrepresenting the quality of) loans also. Banks have every incentive to make loans, good or bad, since once sold they are off the hook.

Mike has it 100% correct. In addition to the CRA, look into "red line loans" and the Gramm-Leach-Bliley Act.

jpete wrote:Are you alleging collusion in the government?

If you've read any of my posts regarding this:


Document Says Oil Chiefs Met With Cheney Task Force

By Dana Milbank and Justin Blum
Washington Post Staff Writers
Wednesday, November 16, 2005; Page A01

A White House document shows that executives from big oil companies met with Vice President Cheney's energy task force in 2001 -- something long suspected by environmentalists but denied as recently as last week by industry officials testifying before Congress........
Sen. Frank Lautenberg (D-N.J.), who posed the question about the task force, said he will ask the Justice Department today to investigate. "The White House went to great lengths to keep these meetings secret, and now oil executives may be lying to Congress about their role in the Cheney task force," Lautenberg said.
http://www.ask.com/bar?q=cheney+energy+ ... 01842.html




That is EXACTLY what I have been alleging on this & other matters, which I have no doubt will be proven to have been CRIMINAL violations of U.S. Laws by the prior administration. (including Restraint of Trade & Price Fixing.....both felonies under U.S. Law)
Prevention of proper Constitutionally mandated Congressional oversight of Wall Street & the Banking Industry is simply one of these crimes, done for the age old reason of most crime..........To make money!

Excellent explanation mikeandgerry. Attempts to change the subject are a sure sign that you hit the nail on the head.

So when Chris Dodd gets special treatment on loans, and Barney Frank is LITERALLY in bed with the head of Fannie Mae, and those two, along with Jack Reed were taking MILLIONS from the banking industry while they all sat on the Banking Committee that had oversight on all these banks making all these bad loans would you call that bribery? Would you support investigations into their actions/inactions? You are putting your eggs in the wrong basket Devil. They are all criminals.

And I want bonus points for making a Deviled eggs joke in my last post!

Good post mikeandgerry. Right on.

People I know scream that the cause of this was lack of laws and effective oversight. And that's not an honest arguement. Only the letter of the law is enforceable. Not the spirit of it. Smart and greedy people will always find ways around the rules. And that's what credit-swap defaults are. Warren Buffet called these "financial weapons of mass destruction". You can't govern greedy people.

Mike, you've got a good grasp on what happened. However I do disagree with one point.

mikeandgerry wrote:

Who and what was at fault? Both political parties, the US Treasury, political activists, greed, lust for power, and marxian economists. There were regulations in place that were removed ,and regulations proposed and defeated, that could have saved us this problem.

Marxist economists? This was a market that had NO regulation, absolutely no government interference. Isn't this a free marketer's dream? They were able to say and do just about anything to their prospective clients, including encouraging them to lie on their loan applications, without fear of reprisal. The brightest CEO's in investment banking all came to the same conclusion, housing prices will never go down so they leveraged themselves out to something like 38:1 when a prudent bank wouldn't go much above 12:1. They then intentionally disguised the true risk of these loans with some extremely complicated mathematical wizardry and dumped them on unsuspecting investors. After all they were rated AAA investment grade by Moody's and Standard and Poors. You can blame marxist economists, political activitists and politicians all you want. The bottom line is the multinational investment banks bought themselves some favorable government rulings through the likes of Phil Gram and Chris Dodd, outright lied to investors throughout the world, used their image as 'loan professionals' to encourage people to take loans they had no chance in hell of being able to afford and used their huge volumes to influence the ratings companies to not question the 'small stuff'.

The blame for this doesn't lie with political activists trying to get community banks to make loans in minority neighborhoods it lies squarely with the investment banks buying themselves deregulation and lying to their customers and investors. The biggest failures of our government's reaction to this problem IMHO are

1. Attica prison isn't filled with the investment bank's upper management for perpetrating the biggest fraud ever seen in this world.

2. Instead of putting these banks out of business they're spending our money to keep them in business.

3. Chris Dodd, Phil Gramm and other politicians that turned a blind eye to this scam aren't in Attica along with the thieving CEO's.

billw wrote:The blame for this doesn't lie with political activists trying to get community banks to make loans in minority neighborhoods it lies squarely with the investment banks buying themselves deregulation and lying to their customers and investors. The biggest failures of our government's reaction to this problem IMHO are

1. Attica prison isn't filled with the investment bank's upper management for perpetrating the biggest fraud ever seen in this world.

2. Instead of putting these banks out of business they're spending our money to keep them in business.

3. Chris Dodd, Phil Gramm and other politicians that turned a blind eye to this scam aren't in Attica along with the thieving CEO's.

While I agree with your assessment, do you hold no members of the prior administration culpable as well? (after all...didn't they have 8 years to address these problems?)

Dev, I think I did say other politicians that turned a blind eye. Both political parties were represented in my statement, one R and one D. Their 'party' was going in full force right up to 2008. If I was to spend the time researching and naming every crooked politician involved with this scam my post would be 4-5 pages long.

I generally agree with your posts Bill & always enjoy reading your thoughts but......specifically naming minor guilty parties:

billw wrote:Chris Dodd, Phil Gramm and other politicians that turned a blind eye to this scam aren't in Attica along with the thieving CEO's.

& then saying:

billw wrote:Dev, I think I did say other politicians that turned a blind eye.

Is like writing a history of WWII & saying: "Many men incited the Germans to goto war & kill millions of innocent people! Evil men like Albert Speer, Joseph Goebbels, Heinlich Himmler & "Other Politicians"".....Without even mentioning Adolf Hitler's name!

Who's Hitler?