April 28, 2008

HP Special Post

An HP'er in the know wrote this letter to a friend who was thinking of buying a house, trying to recap for her the Great United States Housing Bubble and Crash, while warning her NOT to buy until this little crash thing is over.

The letter was so good, I post it here, in its entirety. He asked to remain anon, as he's in a position to see how bad it is, and how bad it's gonna get.


XXXXXX, I am delighted to explain. Some of this is theory and some is fact, but I feel very confident I am painting a very accurate portrait.

The early part of this decade was marked by the bursting of the tech bubble and 9-11, and resulting subsequent economic disruption. The many free trade agreements signed during the 1990's led to bleeding of middle-class manufacturing jobs that used to be the backbone of our economy. Since Bush took office, nearly 4 million manufacturing jobs have been lost. But it goes beyond that. American companies, looking for increased profits, have outsourced millions of white collar jobs so that careers that were supposed to be "the wave of the 21st century", such as computer programminng, engineering, and other high-tech areas, have continued to see negative growth.

In order to keep the economy going, the government did a series of unwise things. Our leaders were happy to have our economy heavily dependent on consumer spending (nearly 75% of total GDP) and debt (consumers have had a negative savings rate the past several years: only time since the Depression!). Moreover, the government greatly expanded legal immigration through H1B and L1 Visas. Much of this was done at the behest of the business community, which has continuously sought cheaper labor costs.

Part of the reason for this increased immigration was that the government wished to stimulate economic activity by expanding the population. Consistent with this, the government wished to greatly expand homeownership, in order to boost the land development and homebuilding industries, along with other related industires such as landscaping, real estate brokerage, and home improvement (Home Depot, etc.). Bush (also known as the Worst President in History: rest easy James Buchanan) regularly boasted about the "ownership society".

Of course, as has always been the case, these millions of first-generation immigrants (along with American renters) had little to no savings and work in service jobs with generally low household income. Notwithstanding that fact, the government and the private sector did a number of things to enable this homebuying orgy. All of these actions were unwise in the long run and are coming home to roost now.

First, Fed Chairman Allan Greenspan, the most overrated public official in American history, lowered rates more than 15 times and kept them extremely low far beyond what was dictated by circumstances. The rate cuts allowed the mortgage industry to offer unprecedented levels of adjustable-rate mortgages to unqualified borrowers, many using "teaser rates" that have huge built-in increases. The rate cuts also encouraged increased consumer borrowing for an already debt-laden society. This allowed Bush to brag about economic growth and "the ownership society" but the consequences of the rate cuts have been enormous. Consumer debt has led to unprecented levels of foreclosures and bankruptcy. The rate decreases have destroyed the value of the dollar. Now the impact of the rate cuts is being felt in terms of inflation. They have been a factor in the huge spikes in oil prices, as more people invest in commodities when dollar-denominat ed investments fall in value and inflation expectations rise.




Of course, the biggest factor in the increased oil prices has been demand from China and India. This was an unintended consequence of the aforementioned globalization, as American companies have been all too happy to outsource their production to the cheaper labor markets. Needless to say, retailers like Wal-Mart have been happy about these developments, and they have pushed hard for expanded so-called free trade. But the rapid growth of these overpopulated (both over 1 billion) third-world backwaters has hugely impacted global oil supply.

Another factor has been the greedy developers and greedy financial industry. These greedy developers, with state and local officials in their pockets, have managed to get subdivision after subdivision approved, many over the objections of the local communities. Because these developers control the politicians, they have not been forced to pay any impact fees. Consequently, taxpayers have been forced to pick up the tab for roads, schools, hospitals, and other infrastructure needs that have exploded due to unprecedented levels of hombuilding activity. Of course, this unprecedented growth has impacted traffic, the environment, schools, hospitals, and every other aspect of quality of life. Now states across the country, led by California, are going bankrupt as they try to keep up with all these costs. An unspoken factor in all of this is the fact that the homes have been built by an enormous wave of illegal immigrants from Mexico, who have been illegally hired by the greedy builders and developers. Needless to say, these low-wage, low-skill (Mexican immigrants average a 7th grade education) immigrants have been an enormous burden on social services, not to mention traffic and other factors.

As noted above, the government sought ways to put millions of people in these homes. The private sector contributed to this effort by disregarding the most basic banking fundamentals. Whereas lenders would hold mortgages in portfolio years ago, they almost never do today. Consequently, they have no concern whatsoever about the repayment capacity of the person to whom they are lending: they make their income from the origniation fees. The aforemenntioned Greenspan rate cuts allowed these lenders to offer adjustable-rate mortgages with very low rates. The lenders could then sell the loans to private investors, who would chop the pools of loans up into thousands of pieces and sell them as CMO (Collateralized Mortgage Obligations) or CDO (Collateralized Debt Obligations) tranches. Since worldwide rates have been very low, investors seeking higher yield have been all too happy to buy these, as they general ly did offer higher yields. Those investors were usually hedge funds and foreign governments, as American consumers with their negative savings have no money to invest.

Needless to say, since these CMO's and CDO's were so esoteric and chopped up, it is doubtful that anyone knew what they were holding. But no one worried because the investments were secured by American homes and, as we all know, residential real estate always increases in value (sarcasm font). What the investors didn't count on was artificial home price inflation caused by compromised lending standards (no down payment, no verification of employment and income, low credit scores, minimal job history, and high debt-to-income ratios) and "flippers", those investors that came in and drove prices up in hopes of selling the home they don't live in and making a quick buck. The CMO's and CDO's were given the AAA stamp of approval from all the rating agencies, including Moody's, Standard and Poor's, and Fitch. Of course, what people did not know (and the lazy American media failed to report) was that these agencies were getting huge fees directly from the bond issuers, a nd they were therefore interest-conflicted and incentivized to give good ratings.

The run-up in home prices, and the unsustainability thereof, were demonstrated by price-rent ratios. These ratios have historically moved in tandem but became hugely out of whack in recent years, a true red flag that the homes were overvalued. If one wasn't inclined to look at these ratios, they could simply apply common sense. Here in Atlanta, the median household income is less than $60,000 per year. Yet you can't touch a new home for less than $250,000. It doesn't add up. And, in terms of home price compared to household income, Atlanta is way better off than places like LA, Phoenix, Washington DC, Las Vegas, and Miami. But, once again, our lazy media was asleep at the switch.

The growth in homebuilding and homeownership was greatly fueled by government-sponsored agencies FNMA and FHLMC. Historically, subprime and more marginal mortgages have been sold to private investors. The primo stuff has historically been sold to "Fannie" and "Freddie", who have securitized the mortgages into CMO's and CDO's as described above. But, during the current decade, Fannie and Freddie bent their standards and they purchased and securitized billions (maybe trillions) of mortgages they would not have done previously. Consequently, a number of economists are predicting that an enormous taxpayer-funded bailout of these agencies will be necessary.

Upon taking office, President Bush appointed a Texas banking buddy, Donald Powell, to be FDIC Chairman. Mr. Powell ran a small national bank in Texas that came within an eyelash of failure in the early 1990's. Powell had a severe disdain for regulation and regulators and immediately proceeded to gut the staff. He publicly stated that "all of these small community banks could fail and it would make no difference." He implemented the MERIT program, which equated to drive-by examinations. Banks throughout the nation (particularly here in Atlanta) proceeded to go crazy making nothing but Acquisition, Development and Construction loans to developers and builders. These local bankers lent millions to developers without regard to the fact that those borrowers were overleveraged and they continued to lend like crazy even when it became evident that the market was oversupplied. Underwriting was poor, to say the least. In other words, bankers did exactly what the banking industry did in the 1980's only on a bigger scale.
We as regulators stood by and let it happen. Now, development loans are defaulting at an incredibly rapid rate and the financial industry is likely to see massive bank failures.


So there it is. Incompetent government leadership, excessive desire by government leaders to make GDP and job growth numbers look good, corporate greed and short-sightedness, have led to an implosion of unprecedented magnitude. And the sad thing is that all of it could have been prevented by applying the most simple and basic fundamentals. But greed, politics, and stupidity took over.


As I have stated before, when the dust settles, this largely government-induced financial and economic implosion, which I think will rival the Depression, will be an even greater black mark on the nightmare that is the Bush legacy than even Iraq.

54 comments:

Anonymous said...

'Bout sums it up

Anonymous said...

WORD!


RayNLA

Lady Di said...

Agreed.

wings said...

That was an amazing piece of writing my friend.

I may ask permission to quote that some day, if I get back into the media.

We are so royally f-cked, I can't believe it.

Anonymous said...

That was amazing

Reality said...

Agree with most points. However, the point about first-generation immigrant having lower savings is incorrect. Americans have the lowest saving rate in the world . . . partly because the banking and finance industries have succeeded in brainwashing Americans into believing that speculations in the stock market and real estate market are more productive use of net wealth than traditional savings. The rest of the world (especially the third world) is much more conservative on borrowing/credits. Immigrants bring some of that old-time habits with them. It's routinely the case that first-generation immigrants saved like mad; second generation made a lot of money and spent a lot too; by the third generation, i.e. fully Americanized, we find a lot of dead beats.

Reality said...

Also, biggest reason for oil price increase is not India or China demand. The real reason is money printing, in other words, dollar debasement. Look at the price of other commodities. Both India and China are rice exporters, yet rice price has gone up just like oil price. Gold has practially zero industrial use, yet that price too has gone up just like oil price.

Blaming other countries would only lead to even more stupid government solutions, just like the Iraqi invasion scheme to hold the oil price down (which logically followed from the misunderstanding about how the 70's stagflation came about: oil embargo . . . whereas in reality men like Mark Rich were always present and ready to bypass oil embargoes, but monetary inflation by the government was something no "smuggler" could bypass).

Reality said...

Restricting supply, whether through tough permitting, "impact fee," or restricting building labor through whatever additional permit requirement (even if only women could build houses), would have only made the bubble even bigger and taken even longer to recover. Just look at San Francisco, New York City and Boston: the artificial supply side limit (zoning rules) make those markets all the more bubbly.

Reality said...

Too many irrelevent and tangential issues, the advocacy of which would only lead to even bigger government and more waste. The housing bubble knot is actually quite easy to untangle:

(1) The "comparables" were fake. The "buyers" were often enticed by cash-backs. Those were fraudulent transactions. Strip out those "comparables," you would not have the 2004-2006 prices.

(2) The frauds were rampant because money was easy. The FED was flooding the market place with money. With FED rate artificially pegged at 1%, savers the world over were scrambling to find higher returns . . . the US financial sector found just the higher return instruments for them . . . never mind the underlying pledges were fraudulent.

deepcgi said...

Clinton gets a pass? He was an innocent bystander to Greenspan's machinations? Don't be so quick to prosecute Republicans and exonerate Democrats in your disaster definition. The housing bubble was obviously unsustainable by 2002. Just ask the guys at patrick.net. And I don't see nearly enough blame being placed at the feet of the common speculator. People are smart enough to know not to sign themselves into debt just because they can. Or to lie on a mortgage application just because everyone else is. Or to move into a house far beyond their means to pay just because "real estate always goes up". I have no faith in either party. The Democrats have become true socialists, the Republicans are no longer fiscally conservative, and the public are greedy, get-rich-quick schemers. Enough blame to go around.

Anonymous said...

So is it a good time to bu a house?

Anonymous said...

As a HP'er, I typically agree with most of the sentiments of this blog. A few comments on this letter from anotherHP'er.

Legal immigration to the US is not to look for "low cost" labor. (Offshoring is). The unfortunate fact is that the decline in American education means that professionals trained in other countries (China, India, Russia) are sought out: they are better educated, have better analytical skills, more motivation to succeed etc. Ultimately, they do help generate and sustain jobs (although let's be clear: businesses care for nothing more than the bottom line - this is capitalism and not communism). Many older Americans who were earning higher pays *were* laid off for younger employees (many from other countries, but some native to the US as well) who get lower pay (as a result of lesser experience).

Also: the comment about third-world backwaters shows an ignorance of what's happened ad happening in places like India. Suffice to say, if you get your news from CNN or Fox News instead of actually traveling/meeting people around the globe, the world will be a very frightening and confusing place for those who never venture past their suburban lots.

Anonymous said...

I think this is an excellent summation.

Went to the grocery store yesterday.
Items that used to be $1.89 went up to $2.29 a few weeks ago. Yesterday they were at $3.59. Bought four bags of groceries, no frills, was $96.
Felt like a cold wind was blowing thru the place. Like, was I the only one in total shock.
This has more to do with gas prices, but because of India, Russia and China, gas isn't expected to ever come down again. I have a consignment shop. Every week...I am wondering how much longer should I stay open. Fewer and fewer customers as everyone struggles to pay for gas and food.
Don't know what to do.

Anonymous said...

They were plastic grocery bags, not big paper grocery bags. I mean, I can see why there is a run on rice. Almost need to just eat rice and beans...I don't know, things have changed a lot, very quickly.

Anonymous said...

That's like the "I am John Galt" speech from Atlas Shrugged.

...

Except for the fact that it isn't total gibberish.

GT said...

well said. but even with that exhaustive entry (and i'm unsure how the fdic guy comes in to play), the HPer missed many points, such as taking out money from the artificially priced homes, appraisers, all the HP wisdom of corrupt media, NAR, etc. i hope olick or someone uses some of this

No Good Deed goes unpunished. said...

No Good Deed goes unpunished.

Anonymous said...

The writer forgot to say that Bush also likes to eat kittens for lunch.

Give me a break. This housing bubble, like all bubbles was due to greed. People got greedy, took part in a pyramid scheme. Those who got in early made a lot of money. Those who got in late lost a lot of money.

Everything else is DailyKook, black helicopter stupidity.

Anonymous said...

The writer forgot to say that Bush also likes to eat kittens for lunch.

Give me a break. This housing bubble, like all bubbles was due to greed. People got greedy, took part in a pyramid scheme. Those who got in early made a lot of money. Those who got in late lost a lot of money.

Everything else is DailyKook, black helicopter stupidity.

Anonymous said...

But If we have rampant inflation, it could keep nominal home prices up (while their real value drops), and rent prices will soar along with the price of everything else, bringing the ratio of home prices and rent back in line without the drop in nominal prices.

Since a fixed rate mortgage payment would not change, rents would rise, and new mortgages would be issued at higher rates due to the increased inflation risk, a house purchase today (heavily financed with a fixed rate) may still act as a hedge against inflation even though the house's value in "real" terms would be sinking. Especially in areas that are less bubblicious than others.

I am not a homeowner/homedebtor/whatever. This is just an observation. Based on their behavior lately it seems to me that the government would rather try to inflate our way out of this mess (and into a different kind of mess) than let the housing market crash as it should.

Solo said...

Nice..Phoenix, the best example of this epic ponzi scenario.
How about a TV mini-series or movie on this chapter of American demise and greed?

Idiots... said...

He's got the tail wagging the dog - lower interest rates and fewer regulations allowed the financial industry to sell CDO's/CMO's - and investors bought them to get better yield. Everything else is just piling on.

Trying to place blame on one political party or the other has the sheeple constantly looking in the wrong direction. Monetary policy - which has been fueling this disaster - took the wrong turn in the 60's - and over the cliff when Nixon closed the gold window. Everything after is an example of Man trying to impose its will on a natural cycle - leading to larger and larger oscillations. One day - it will break.

The coming overcorrection will result in a lower standard of living for all of us sheeple in the US. But the sheeple will be focused on the usual emotional issues - and leave the important issues (the economic issues) to someone else. So lets focus on immigration, the war in Iraq, bad Presidents, gun control, abortion, and all of the other sheeple issues so that the import issues can be managed by the all knowing, all powerful, elite. All of us sheeple deserve what we get.

area 51 said...

HA HA HA!

What a hilarious piece of Marxist propaganda.

Could have been penned by Mao/Che/Lenin or even Marx himself.....

Pretty much includes all the fail points in Sagan's "baloney detection kit".....logical and rhetorical fallacies.....

Great laugh, you made my day....

Most of you sycophants and cultists are indeed screaming "flying monkeys"......and Keith wears the magic hat....

By the way, I hope the fact the author is part and parcel to the failures he attributes to regulators, so how he implicates himself, is not lost on you. Yet now you trust his every word, analysis and conclusions.....

F-ing amateurs.....

Anonymous said...

wow! someone actually asking for some advice about all of this. most of the time my friends tell me to stfu about it.

Anonymous said...

That letter pretty much covers everything in a nutshell. People who don't agree should be shot.

Anonymous said...

Just like 9-11, the housing fraud also happened on the bush watch. He still has time for more as I fully expect another dose of bush built scheitt sandwich.

It will be comical when all his supporters, government retiree types, begin to get
their 'entitlement checks' cut back too, and have to pay for their healthcare as well. Bet they change their tunes then...

Anonymous said...

Great letter!

http://s.wsj.net/public/resources/documents/retro-HAGERTY.html

Anonymous said...

Basically, a v. good outline.

Anonymous said...

Wow - that was a looong letter. Lot of good points, but long...

I do disagree with blaming the economic problems on H-1 and L-1 immigrants. Most of those positions are for highly skileld technical work - those are immigratns who are educated and bring much needed skills to Amreican companies to keep us competitive in a global market. Like some else pointed out, Americans are not keeping up in our schools in areas of science and engineering - our graduation and turnout rates are woefully low in masters and phd programs than countries like china and asia. We just don't have enough of those skills in here. Immigrants coming to America on H1 and L1 visas did not screw up the housing market - usually banks require you are at least a green card holder before approving mortgage loans. The subprime market did hit some specific immigrant communities very hard, like the Hispanic community, who dominate industries such as construction, not IT, and geenrally tend to be less educated (and i suspect more vulnerable to predatory leanding practices as a result - read a lot of stories like that in the Washington Post).

Anonymous said...

I wonder what the recipient wrote?

"XXXXXX, thanks for writing. I would counter that most of what you wrote was personal comments unneeded in a discussion concerning facts.

It is helpful to see where you stand on so many things, although I only asked for your opinion on the housing market."

Then...
"XXXXXX, you're not going to believe what XXXXXX sent me. I asked what he thought of the housing market because he speaks as if he is pretty knowledgable. What a mistake that was. This guy took 4 left turns and still couldn't find his way home. And I mean BIG LEFT turns here. I feel bad that he wrote as much as he did, because I really just kind of scanned the last 9/10ths of it.

I don't get why XXXXXX would think that I actually have enough time to read such a thing. He knows I have a job, and a life, doesn't he? I guess it's hard for him to put himself in my shoes since he has neither. :)

If you see XXXXXX do me a favor and don't say anything about this e-mail, OK? Whatever you do, don't ask for his thoughts on housing. LOL"

Whirlybird said...

BORING. Couldn't get past the 3rd paragraph and whining about Bush, Iraq, and consumerism (all of which I oppose btw)

I couldn't imagine a less persuasive way of trying to persuade someone of anything. Maybe if you're trying to lull them into a deep sleep so they can't buy a house it works.

Jesus, just show the median income chart, the personal debt statistics, and explain HELOCS and ARMs and be done with it.

Anonymous said...

Legal immigration to the US is not to look for "low cost" labor. (Offshoring is). The unfortunate fact is that the decline in American education means that professionals trained in other countries (China, India, Russia) are sought out: they are better educated, have better analytical skills, more motivation to succeed etc. Ultimately, they do help generate and sustain jobs (although let's be clear: businesses care for nothing more than the bottom line - this is capitalism and not communism). Many older Americans who were earning higher pays *were* laid off for younger employees (many from other countries, but some native to the US as well) who get lower pay (as a result of lesser experience).


Can you say globalist. Ask the kids graduating with IT degrees why we need 120,000 Indians working here on visas when our IT people can't find a descent job. Don't argue read the stats.

Whirlybird said...

And by the way, there's a disgusting entitlement attitude permeating it, which is the real thing hurting America, not immigrants.

The idea that some foreigner or immigrant can do everything way better than some flag-waving war-fighting HELOCed American who can't even raise his kids to respect others or stand on their two feet, but he *deserves* a job over that hardworking foreigner/immigrant.

wordyeti said...

Love that Area 51 brings in the "Marxist" tag to try to discredit the author and shift blame. Nice try, 'tard. Did the whole bit about what a disaster de-regulation has been just kinda whoosh by your head? Every single time we've heard the (allegedly) conservative Republicans whine and cry about "damn government red tape" and get a rollback of regulations, an absolute disaster has been sure to follow - viz: the S&L meltdown of the late 80s (and will someone please ask St. McCain what the name "Charles S. Keating" means to him?), the power utility deregulation in California that led to outright fraud, rip-offs, and Bush's fatcat buddies in Enron stealing billions, to the current banking mess...

"Red tape" is a great phrase to inflame dummkopfs like Area 51. A much better word is "laws." That's what they are. When you hear conservative Republicans in an election year whining like bee-yotches about "red tape," what they are really saying is that they feel that they are just so special that they shouldn't have to obey the same laws as everyone else.

These laws exist for a reason, folks. When the cynical greedy manipulators buy congresscritters so as to rollback these laws, that is so that they can indulge in an orgy of stealing. The results of that are only now becoming evident.

The rich irony in all this is that the 'tards who voted for Bush and his ilk, i.e. the NRA Christian know-nothings, are going to be the first on the chopping block when the price comes to be paid. And you know what?

I have no sympathy for them at all. You are now the new serfs. You have forged the slave collars for your own necks, and you are now owned by the elite (what Bush so famously called "My base.").

mairca izda debol said...

and rent prices will soar along with the price of everything else, bringing the ratio of home prices and rent back in line without the drop in nominal prices.


Rents can never rise above what people can afford to pay. There is no financial wizardry in the world that can accomplish that feat. Home prices only got to unsustainable levels because people were allowed to borrow with teaser rates. I suppose landlords could offer teaser rates of 50% off rent for the first 6 months then add the bulk of it onto the last 6 months rent. Besides, if rents start to go out of control, the cities will pass rent control measures like LA and NYC. If people can't afford to live there, they will simply pack up and move after the lease expires. People stuck in a debt box can't do it so easily unless they want to wreck their credit for 10 years.


and new mortgages would be issued at higher rates due


Rising interest rates will force home prices down even more. Like I stated before, once the garbage financing is gone, people can only afford what they can afford. The banks will have to offload the empty decaying homes for lower prices. The builders will have to cut prices. That is how a true free market balances itself out without government intervention like FHA, GSE's and the Fed that pumped fake liquidity and demand into the mortgage markets.

The government can try to inflate, but if salaries don't inflate, then people will not have the money and the credit punchbowl dried up last year.

unomyname said...

Bush is a panty-waist

Anonymous said...

A GOOD READ! A storm of unseen magnitude is coming, hunker down.

HP Fan

Anonymous said...

But If we have rampant inflation, it could keep nominal home prices up (while their real value drops), and rent prices will soar along with the price of everything else, bringing the ratio of home prices and rent back in line without the drop in nominal prices.

That is clearly what the Fed has in mind with its un-ending money printing machine. Unfortunately, there is a large scale flaw in that logic pertaining to the current dilemma.

During the 70s, inflation was rampant but that also included wage increases. The logic was that fixed debt could be paid off with increasing salaries. So inflation was essentially across the board.

Unfortunately, the current situation only exhibits some aspects of a rapid inflation scenario. While food and energy costs are increasing rapidly, wages are actually stagnant or even declining. So in actuality, the Feds actions will not serve to mitigate the current problem but will in actuality, exacerbate it.

As food and energy costs continue to rise, families will have no choice but to cut back on other expenditures to compensate for the essentials. And since their wages are not increasing with inflation, their spending in other areas will have to decline. And this will include housing.

For especially bubbly areas where the rent versus buy ratio is incredibly skewed, there will be far larger drops in both nominal and inflation adjusted home values. Compounded by the fact that even if families do wish to entire the ownership market, they will not be able to get approval from banks to acquire the necessary loans due to the new, stricter lending standards. This snowball effect will continue until such time where current wages will be able to support increased food/energy costs as well as other ancillary expenses.

I have read many inflation/deflation arguments from an abundance of sources. Both sides provide good arguments. That being said, from a pricing level, I think we will have both: increased costs in essentials like food and energy with corresponding decreased costs in non-essentials.

Much of the above scenario depends on the depth and severity of the recession. With people like Roubini and now Warren Buffett indicating that this recession will likely be severe, there won't be enough wage pressures to support bubble housing prices. As such, they will correct.

One last note: the outsourcing trend is increasing, not decreasing and that will put further downward pressure on wages. Especially once high and mighty wage markets like Silicon Valley. All these factors playing together should pretty much ensure downward movement in housing for many years to come.

keith said...

The letter was probably the longest HP post in history, but well worth it I thought, even for short-attention-span HP'ers

I hope some of you read every word, and emailed it to your friends too

Anonymous said...

Some of you rightwing retards think Bush is never to blame for anything. Prior to becoming president, Bush bankrupted three companies, dodged the draft, challenged his dad to fistfights, and just overall ran around as a rampant alcoholic fuck up. He was a loser in all ways, but because he had Daddy he was always given an easy exit. Never had to pay a price.

Now we've had 9/11, Katrina, Iraq, Runway Food&Oil prices, Legalized Torture, and (possibly) The Next Great Depression, and some folks still want to give him a pass. He may be president, but it wasn't his fault! It was UFOs! Evil liberals!

Rightwing Nutjobs: this all happened on your watch. That's just a fact. Take responsibility (isn't that what you always advise others to do?) and go crawl into a hole a die.

deepcgi said...

Leaving morality aside for a moment, the only problem with instantiating a war in Iraq is that Bush is NOT the absolutely evil jerk that the left paints him to be. By that, I mean that America is not going to just move into Iraq, rename it New Texas and keep all of the oil for itself. That's what a true bastard would have done - and it would have been much more profitable for us. But Bush isn't as evil as you give him credit for and we are not getting all of our money back in oil. He's just pouring money into a hole. It would have been much better for us financially, if he were like Adolf or Gheghis. You know, the way Air America portrayed him to be.

alba said...

I think he missed a very important point, when focusing on the culpability of Greenspan. The timing of raising and lowering FFR is the tip of the iceberg. Greenspan wants to be immortalized for his "financial engineering." Creating, utilizing secondary unregulated markets is all on him. This so-called shadow market is larger than the regulated markets. They needed the infusion of cash, and Greenspan was behind the process to encourage cash to be ripped from home equity. Some say it was to overcome the dot.com bubble...don't know. But they clearly saw a pot of funny money and created a method to pump up the secondary markets with tons of liquidity.

Anonymous said...

The Clintoons and Obama are fatcat millionaires. More then most Republicans. Why aren't they writing a big fat check to the gubment since they want higher taxes?

Anonymous said...

Nice

But he should have gone more into the Federal Reserve history. Its interesting to take that red pill.

Reality said...

Wordyeti,

"Redtape" is just a euphemism for some intrusive laws; there are intrusive laws that are far worse than red tapes; such as: the prihibition was the law; stripping all Jews of citizenship, banning them from important jobs and requiring them to wear a star of david was the law; putting them into gas chambers was the law; a few months later, not objecting to orders to put them into gas chambers made one liable to being hanged, and that was also the law; then turning in parents, kids and spouse to Stasi was also required by law. If one is inclined to worship law just because they are laws, the 20th century must have been a paradise . . . like headless chickens running to one set of arbitrary laws after another. Must have been a fun time for both right-wing statists and left-wing statists, if not for the alarming frequency of losing their own heads to the chopper.

Saying that something is the law is nothing more than saying that you are compelled to do or not do certain things under threat of bodily harm. It doesn't take a genius to figure out that any freedom-loving individual should be alarmed at the frequency of the threat of bodily harm outside the context of defending against bodily harm.

Free market capitalism does not suddenly make every human being into geniuses, nothing can; humans are by nature fallible. Free market capitalism just corrects mistakes more quickly than the alternatives. That's why you see bubbles and corrections after deregulations. Rigid socialist ecnomies also have malinvestments; they just take decades if not generations to correct. That's what we saw at the end of the soviet era: souless concrete slab housing, cars worth literally less than the material that went into building hem, and empty store shelves . . . that's the result of 60 years without stock market bubble, crash or speculation. People just spent their speculative energy on the officialdom ladder instead of the housing ladder or stock ladder . . . counting wealth and power in the form of raw political power instead of cash.

The simplistic view that just because there are laws they will be faithfully observed is rather laughable. Considering that laws are by nature a specially privileged monopoly to use violence in the market place, more laws and more regulators would only create more special privileges. Considering that the former US FDA chief is in jail for taking bribes. . . and on the other side of the globe, the former Chinese FDA, who had 100 times as many staff member than his American counterpart, was shot (as in execution) for taking bribes . . . and China has far more dangerous food supply than the US despite their 100 times bigger FDA . . . it shouldn't take a genius to figure out that having the government to nanny the population is bound to result in horrendous footages on the nanny cam.

Consumers have to protect themselves; any regulator is bound to side with the industry at the expense of consumers . . . just like what FAA is doing lately in cancelling flights on airline requests, so that airlines can pack more passengers into remaining flights using the contractual loophole citing FAA demand.

Anonymous said...

"Can you say globalist. Ask the kids graduating with IT degrees why we need 120,000 Indians working here on visas when our IT people can't find a descent job. Don't argue read the stats."

Maybe the people on visas "descented" from heaven..

Please don't generalize. I came to the US for grad school. Liked it. Have stayed here for 14+ years(legally I might add.) In my years here, I have seen very talented smart people come here on a visa. People the companies they work for would die to have on their payroll.

I have also seen the other extreme- some bodyshopping outfit sending people with fake degrees/resume to become a "software professional". The US companies that hire these unscrupulous Indian companies- just because they cost less- are the ones that encourage this behavior.

My savings rate by the way is ~ 45% and YES I rent at about 50% of what it would cost to buy the place today. This is after a 20% drop in the prices in my neighborhood.

CharlesMartel said...

So, some of you have fallen for the corporate agit-prop about lack of skilled workers. BofA laid off 1300 programmers and made them retrain their Indian replacements. Did those Americans lack skills? IT guys and engineers are going back to school to be nurses and school teachers. If there is a lack of skills in the latest fad computer language then the companies can train workers like they did 30 years ago.

Reality said...

Charlesmartel,

Do you really think the craftsmen in hand-built car shops suddenly lost their skills when Ford started mass production? Of course not. Did the soil in Central Park Manhatten suddenly lose fertility when the Erie Canal was finished and food floated down from midwest? Of course not. The product/service simply became commodity. One has to find better jobs, producing different products and services in order to have a wage that is not reflective of a commodity ("a dime a dozen").

wordyeti said...

Wow - conflating banking regulations with the Stasi. In what universe do laws requiring Jews to wear stars equal laws requiring bankers to perform due diligence when lending, or packaging up those loans and re-selling them?

>>It doesn't take a genius to figure out that any freedom-loving individual should be alarmed at the frequency of the threat of bodily harm outside the context of defending against bodily harm.<<

...aaaaand here comes the gliberarianism, right on cue.

Hey, I missed the references to the "invisible hand" and the ritualistic obeisance to unfettered laissez-faire capitalism. Come on, you've got all manner of Randroid talking points out there just begging to get thrown into the mix.

Meanwhile, back here in the really real world, things are somewhat more messy than the purist ideology you cling to - the "state is everything that is evil" viewpoint of Grover and his ilk is as much a crutch for lazy thinking as "the state is the source of all that is good" viewpoint of the Commies/Fascists that you name-check in your screed.

Try this on for size: the world is a messy place. Humans excel at figuring out how to "game the system." We put laws/red tape/regulations in place to try to keep them in check.

And yeah, just 'cause there's laws on the books don't mean that people obey them. If that were true, then passing a law against murder would mean there would be no murders right? So since laws against murder clearly don't work, why don't we just get rid of those laws?

Somewhere your frosh poli sci prof is sighing and wagging his head in disappointment.

The laws don't prevent market fluctuations. And they are not intended to do so. But removing all checks and balances from the system is like setting a bunch of greedy gradeschoolers loose in the candy store and then yanking out the security cameras and handcuffing the guards.

Reality said...

Wordyeti,

"Wow - conflating banking regulations with the Stasi. In what universe do laws requiring Jews to wear stars equal laws requiring bankers to perform due diligence when lending, or packaging up those loans and re-selling them"

In the universe of statist human follies. Why are any of those laws (spying on family members for the state, special dress code for ethnic identification, or laws that require banks to do its own diligence to perform its most basic function) even necessary? If we let banks fail when they fail to do their own diligence, they will have a very good incentive to perform due diligence, dah!

"the world is a messy place. Humans excel at figuring out how to game the system. We put laws/red tape/regulations in place to try to keep them in check. "

In case it's not obvious, your second sentence is contradicting with your first: humans excel at figuring out how to game the system, therefore they are equally good at gaming ad hoc new laws and regulations. Laws and regulations are at best only good at closing the barn after the horse have left . . . at worst, and in most cases, put the fox in place to watch the hen house. Why? Because the most mortal enemy to a greedy monopolist is a competitor; red tapes prevent the emergence of the competitor and thereby enrich the existing monopolist.

"So since laws against murder clearly don't work, why don't we just get rid of those laws? "

Law against murder is the use of bodily harm in defense against bodily harm . . . in other words, well justified on the non-initiation of violence principle. BTW, in case it's not obvious, most murder cases in the world are not solved, much less resulting in punishment for the offender. The primary deterrent against committing murder is not so much the punishment but the risk of commission itself; that's why defenseless people are far more likely to subject to murder.

"The laws don't prevent market fluctuations. And they are not intended to do so. But removing all checks and balances from the system is like setting a bunch of greedy gradeschoolers loose in the candy store and then yanking out the security cameras and handcuffing the guards."

In other words, you are committing the classic mistake of statists: judging population at large to be children that require a nanny state to look after them for their own good. In the real world, there are stores with candies on the shelves that any shopper can reach for. Storeowners can put in their own security cameras and tell any shop-lifter they are not welcome in the store in the future. We do not live in a world where there is a government security guard standing next to each candy shelf. Seems to have worked so far. Big surprise!

Reality said...

Wordyeti,

"the world is a messy place. Humans excel at figuring out how to game the system. We put laws/red tape/regulations in place to try to keep them in check. "

This is really a fantastic paragraph that captures the classic intellectual dissonance of a statist mind. So we have had this massive failure of banks to do their most primary job: risk evluation on borrowers . . . guess what the regulators set up by the laws were doing both during the bubble and its aftermath:

(1) the top bank regulator (Greenspan) praising "financial engineering" at the top of the bubble;

(2) the new top regulator (Bernanke) bail out the banks that ran their own business into the ground at the expense of tax payers and dollar holders, two months after Wall Street handed out multi billion dollar bonuses;

So the net result is the fiat money law and regulations created the casino where, heads bankers win (billion dollar bonuses), and tails the peons lose.

It gets even better than that, now the states are fighting each other to offer financial industry "tax incentives" to keep fake jobs in their states! All at the expense of captive state tax payers of course.

That's what you get from laws and regulations. Like you said, humans are good at gaming the system . . . the political system is no exception. More laws and regulations would just mean more closing barn doors after the horse has left, and more foxes guarding hen houses.

Reality said...

Wordyeti,

BTW, the calling card is not "Randian" per se; British classical liberals were advocating free-market and less government intervention at least a century before Ayn Rand. By the 1910's, 1920's, about half a century before Rand, Austrian economists like Ludwig von Mises and Frederick Hyek already worked out why socialism (including Fascism, which is just right-wing socialism) doesn't work (namely, the caculation problem, the socialist wisemen would know what price for everything should be without the market price discovery process); also why any "middle road" mixed system would inevitably lead to socialism, precisely because like you mentioned, humans excel at gaming the system: any boundary between regulated and less regulated (like our coercive currency system, and the supposedly less regulated banking) would lead to massive dislocations that would bring forth calls for more regulation . . . what that process eventually leading to is everything getting regulated, just as in pure socialism (including fascism). Most of the theoretical work was done before Ayn Rand fled Russia to come to the US, BTW.

maurice said...

Unregulated securitization of debt - bad idea. Those investors holding the worthless paper became the real mortgage lenders. Since the bankers could unload the risk downstream, they became more and more agressive in making these subprime, liar loans, whatever. The Fed and other agencies failed because these were not normal lending practices. As housing prices declined, foreclosures increased and the house of cards started to fall.

It is not just securitization of mortgages, but credit card debt, student loans, you name it - they securitize the debt - But what happens when no one will invest in the pile of crap??? This does not even take into account derivatives - Which are essentially bets made on market value of some investment vehicle and an agreement to pay up if you lose. I have read that 450 trillion is at stake with these bets.

The greed and foolishness that has been operating these past 7 to 8 years will result in the destruction of our economic system.

There is lots of blame to go around, but this system of govt. has proven itself incompetent and criminal. They may have planted the seed of their own downfall.

Reality said...

Maurice,

Seucritization of debt is not exactly new; the same regulated debt securitization agencies, such as FannieMae, FreddieMac and SallyMae have been existence since the 1930's, courtesey of the US government. You know what else? this won't be the first time they go bankrupt! Fannie and Fredie were bankrupt in the 1970's.

This whole debt securitization mess is the result of government regulations, through two inter-related sets of policies:

(1) Creating agencies like Fannie and Freddie to securitize mortgage loans, and Sallie to securitize student loans, all with implied government guaratee.

(2) Forcing everyone to take the Federal Reserve Notes at face value, and cap the interest rate at 1%!

Guess what? When interest return was forced to be capped at 1% by the FED, all the savers and retirment fund managers had to scramble and find higher returns. What they found were those government-sponsored agencies securitizing debt! The 3-5% return offered by implicitly government-backed agencies sounded great. A whole cottage industry mushroomed around those agency loans, eventually growing to trillions of dollars.

Channelling people's savings towards mortgages loans and student loans sound like noble forms of government intervention right? Well, like Wordyeti said so loud and clear: HUMANS EXCEL AT GAMING THE SYSTEM. Those government "channelling" turned home buyers and college students into debt slaves . . . all for the benefit of the financial industry executives and their multi-billion dollar bonuses when the going was good. Of course, just like the down cycle inevitably follow such bubbles, and the peons are left to pick up the pieces after the party is over.

450 trillion notional value derivatives in and of itself is okay so long as the gamblers take their own chances at their own expense. The problem is that, many of those gamblers are playing with other people's money, money that had to be handed over to those gamblers to manage because of government tax codes and retirement regulations. The next big news IMHO will be public retirement funds going bankrupt. Mark my words, Calpers, the big Californian public employee retirement system will soon be in big trouble. How do I know? the gamblers at the helm are getting off the ship like rats running from a sinking ship.