Cynical Nation

What would you like to see in the stimulus package, or not as the case might be? They've been having all these economists on NPR discussing how the bill is both over-sized and too tepid depending on who is speaking.

Sounds like the definition of 'irrelevant' to me. If the Republicans had such great ideas about how to turn the economy around, the time to share them was prior to November 4. It's awfully easy to simply vote no and take no responsibility and show no leadership. Frankly I expected better.

>Frankly I expected better.

One wonders what the Republicans have ever done during the past 10 years to set those expectations. ;-)

You put the Cynical in Cynical Nation, that's for sure!

"One wonders what the Republicans have ever done during the past 10 years to set those expectations. ;-)" (BNJ)


Absolutely true!

Since Gingrich left the scene (about 10 years ago), the GOP has been ALMOST as spendthrift as their Democratic cohorts.

The Gingrich Congress was the ONLY Congress to CUT the federal budget in OVER 100 YEARS!

Yes, they had to "nudge" Bill Clinton along (shutting down the federal government for a few weeks in '95) to get him to go along with those cuts (which COULD'VE actually been even deeper) and THAT is solely what created the booming economy of the late 1990sand all those budget surpluses.

After Gingrich, DeLay and Hatert were small men...and have only come to look in comparison to the inept Pelosi-Reid Congress.

Almost certainly why even Hastert's bunch enjoyed an approval rating in the mid-30 percent, while the Pelosi-Reid gang have fallen to the single digits.

TYPO: "After Gingrich, DeLay and Hastert were small men...and have only come to look GOOD in comparison to the almost completely inept Pelosi-Reid Congress."

Absolute total control for 6 years, full veto power for 2 more: result -- Great Depression II.

Sorry if we don't want to listen to Free Market trickle-down bullshit anymore, Repugs.

You lost for a reason. You are now irrelevant.

"Sorry if we don't want to listen to Free Market trickle-down bullshit anymore" (Barely Hanging)


We DIDN'T have a "free amrket over the last 6 years....nor the last 60! In FACT, America hasn't had a "Free Market" since 1912.

Over that period, we've had the SAME economic system as ALL of Western Europe, INCLUDING such "Scandinavian paradises" as Sweden and Iceland - BOTH have regulated-market economies (like our own) with extensive welfare benefits (as our own).

There were two factors involved with the current global credit crisis; (1) the government turbo-charged the CRA in 1995 and mandated more subprime loans for "low income Americans," while guaranteeing those loans (to protect the banks) via the GSE's (Fannie Mae and Freddie Mac) and (2) once the government guaranteed, in effect, "bad loans," banks and mortgage brokers couldn't make bad lonas fast enough...in fact, they created new kinds of lonas ("liar loans"), new ways of packaging collaterized obligations and new vehicles (like Credit Default Swaps).

The FIRST caused or triggered the SECOND!

That is, the government's mandating loans to specific income groups (a virulently anti-market policy) and then backing or GUARANTEEING dangerous levels of unacceptable/high-risk debt (another anti-market policy) MADE writing those bad loans VERY MUCH in the short-term best interests of the banks and mortgage brokers.

Ergo, flawed government policy CREATED the current economic crisis.

There is no one, going to make an argument as to why "the market failed and caused this crisis," because that argument can't be made.

Don't forget JMK that there are now two global economic crisises. You've mentioned the first: bad mortgage loans leading to a bank solvency crisis.

But there is now a second, more serious crisis. High oil and commodities prices triggered a slowdown in consumer spending. That has resulted in lower business spending and layoffs that is leading to even lower consumer spending.

The first crisis is serious but the second is what could result in another depression.

"Don't forget JMK that there are now two global economic crisises...High oil and commodities prices triggered a slowdown in consumer spending. That has resulted in lower business spending and layoffs that is leading to even lower consumer spending." (CRB)


That's true about the second crisis, CRB, although commodities prices grew on a combination of primarily consumer demand (new demand from places that were undevelopped even two decades ago) and far greater Hedge Fund speculation than previously existed.

Oil spiked to its record high, largely on China's stockpiling that commodity ahead of the Beijing Olympics and since then, we've witnessed the first global FALL in demand for oil since 1983.

http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A904043

Oil prices have fallen more than $100 a barrel from their record highs in July as the USA, Europe and Japan face their first simultaneous recession since the mid-1940s.

There has also been Hedge Fund speculation (in far greater volume) in some parts of the commodities market, with some large firms having bought storage capacity to keep inventory on contracts they looked to for longer term gains. Usually commodities transactions do not involve the exchange of the commodities, only the orders, which are then sold before the buyer of that order/future would have to take possession of the product.

I've read about two worries over global commodities prices, the first would be increasing prices that would cool demand and harm the global economy, the second is a potential deflationary spiral that would also have a devastating impact on the world economy.

Some have argued that the second possibility is more of a threat and was part of the Great Depression (a deflationary spiral in commodities, home prices, revenues and wages). Decreased international trade (due then to the disastrous Smoot-Hawley Tariff Act) that tried to "save American jobs by tariffing cheaper foreign goods and services," the result was that while the stock market had regained all its gains through March of 1929 by April of 1930 (after the October crash), the Great Depression worsened AFTER Smoot-Hawley.

Ironically enough, we have a number of anti-trade voices on the misanthropic Left today that would apparently be more than happy to re-embrace Smoot-Hawley.

The problem I have with the first crisis, the ongoing global credit crisis or freeze is the misinformation and demagoguery that surrounds it.

It WAS caused, primarily, by government action - government first mandating that bans and brokers make more loans available to low income people ("In 1997 President Clinton's HUD secretary...Andrew Cuomo, claimed Fannie Mae had exhibited "income discrimination" and proposed that 50 percent of the GSEs' (Fannie and Freddie) loan portfolio be made up of loans to low- and moderate-income borrowers by 2001.") and the "turbo-charged CRA (1995) mandated that more subprime loans be made available to low income borrowers - government guaranteed/backed those subprime loans through its GSEs.

Most Democrats and many Republicans supported that for different reasons - the Dems to cull more votes from "the poor," and the Republicans believing in Kemp's "Ownership Society," figuring that "homeownership would create more responsible, Republican voters."

Once government backed those kinds of loans, banks and mortgage brokerages couldn't make them fast enough, even inventing new kinds of loans ("Liar Loans") and new kinds of investment vehicles (re-configured CMOs and Credit Default Swaps), some investment banks even began collateralizing DEBT, not the assets, but the DEBT!

That out-of-control lending ended when default rates began to rise along with the rising interest rates and balloon payments on the first wave of subprimes. When it became clear that neither Fannie Mae, Freddie Mac, nor the Fed could back the tsunami of bad debt coming their way, credit markets all over the world froze and banks all over the globe that had invested in this "gold mine" were crushed. Smaller countries, like Iceland, which had encouraged that kind of speculative investment by its banks folded early – its Krona has been devalued by over 50% since September and its banking system has defaulted.

In looking at this, all I’ve said was that it’s not only bad (on a global scale), it could and probably SHOULD get worse, since we’re trying to solve a financial crisis CAUSED, primarily, by government action, with even MORE government action.

For the past six years, the Hastert, DeLay and Pelosi Congresses have all spent recklessly. Even though the overspending mushroomed over the past two years, it pales in comparison to the $2 TRILLION to $5 TRILLION planned by the current Congress!

Since we never spent our way out of a recession, there’s little reason to believe that we can do that today.

I believe the next wave of casualties are going to be among government employees. We already have a federal pay freeze and layoffs of state and Municipal workers across the country, but those will be nothing compared to the draconian cutbacks should these bailouts fail (and history says they should) and things go further south. NYC’s already looking at laying off 11,000 to 19,000 teachers, its decimating its social services and hiking revenues by increasing taxes and fines.

Like the last parts of the human body cut off from blow flow during shock, are the heart and brain, the last cuts a government makes are in its security apparatus (police, military, etc.) and its officials (elected reps).

I have a feeling that there could well be a LOT of very angry teachers, social workers and other government workers who’ll feel betrayed if this administration presides over a worsening situation.

TYPO: "Like the last parts of the human body cut off from blood flow during shock, are the heart and brain, the last cuts a government makes are in its security apparatus (police, military, etc.) and its officials (elected reps)."

Wow, a lot of info there JMK. I'll just respond to this:

Since we never spent our way out of a recession, there’s little reason to believe that we can do that today.

While it is true that monetary policy is usually all that is needed, that won't work this time because the Fed used it all up on Crisis #1 (Banks). That is why fiscal policy or "stimulus" needs to be tried to reverse the negative spiral and prop up aggregate demand.

While I detest the notion of increased government spending, it is the better option IMO considering that the solution of last resort is for the Treasury to start printing more money (more than they normally do anyway). Unfortunately, we may get there before this mess is over.

>Unfortunately, we may get there before this mess is over.

Right. I'm becoming increasingly convinced that the only way out of this debt burden is to inflate our way out. The stimulus bill will just deepen the hole we have to escape from, IMO.

I don't know what path is the best right now CRB, or even if there is a "best path."

I'm afraid there won't be an easy or painless one.

I am concerned about the current deflationary trends in housing and some other commodities, but there are also some very real inflationary concerns amidst all that as well.

For instance, from 2000 through 2007, the money supply rose on average, appx. $351 billion a year, with annual growth only once exceeding $400 billion.

In 2008, the money supply grew by $691 billion. And that number has included only the first half of the TARP package and none of the coming "stimulus" package.

Most economists seem to agree that in the short term, this increase in the money supply won't cause significant inflation, given the current need to counteract the deflationary effect of all the money that vanished in the post-credit crisis meltdown. But the fear is that when consumer confidence returns and that cash comes back into circulation, we'll have far too much money chasing too few goods and services and that's a prescription for rampant inflation.

I got a mortgage back in 2005 (my eighth) and it WAS a very different process than any of the previous ones. The rules, that hadn't changed prior to that, were not merely "changed," but GONE.

My wife and I took out about the maximum amount we felt comfortable with using the old standard formulas and were told that we could "get that amount on either of our salaries alone," which was a ridiculous statement. On one of our salaries the payments would leave almost nothing left over for utilities, property taxes and living expenses.

Yes, the banks and mortgage brokers went wild and pigged out on illicit profits, but the government (1) mandated more loans be made available to "lower income borrowers" and (2) backed or guaranteed those loans via their GSEs, providing banks and brokerages the green-light to, in effect, print credit the way a counterfieter would print money. So, credit (which is a form of wealth) was created out of thin air and that was reckless and irresponsible and the government's backing those bad loans created the environment where that pretty much HAD TO happen.

I know a mortgage broker who said she was under tremendous pressure during that period to write as many loans as possible because her brokerage couldn't afford to become significantly less profitable (take in less money) than their competitors, so even those wary of that easy credit trap were drawn in because their competition would eat them alive if they didn't.

For that reason, I blame the government's incompetence, especially the SEC (under the control of the Executive branch) for falling down on its most basic oversight responsibilities.

Government at every level was both complicit and cooperative in creating the atmosphere for the credit crisis....and now we're asking those same nimrods to figure a way out of all this? Not at all likely.

Dodd, Frank, Bush (as well as Cox of Bush's SEC and Levitt of Clinton's SEC), McCain, Obama, Andy Cuomo ALL had a major hand in creating some of the idiotic regulations that led to this crash. In Obama's case he used them as a "community organizer" suing CitiBank for "not making enough subprimes available to the poor in Chicago.

Ultimately, Barry may well be right, that the "easiest" and most tempting way out of all this WILL BE to inflate our way out of it - with the government paying back that massive debt with cheaper dollars, BUT that's going to drastically reduce the quality of life for the vast majority of Americans.

During such periods wages NEVER keep pace with inflation (by design) and real purchasing power is irretrievably lost.

I recall reading a few years back that a NYC firefighter making $12,000/year back in 1972 had over 20% MORE purchasing power than the same firefighter would earning $72,000/year in 2002.

And those on fixed incomes fare even worse.

Inflation (increasing the money supply) is the cruelest tax of all.

The government didn't mandate anything, you moron. Not one loan was given because the government ordered banks to lend to anyone they didn't want to.

The problem was greed and theft, just like the last time the government went hands off (before the first Great Depression).

The banks lost their money by GAMBLING it for higher profits in the stock market. They made obscene profits, and then the bubble burst and Bush gave them our money so that they could continue to have private jets and 7 houses each.

It wasn't poor people who were bad loan risks, it was PEOPLE LOSING THEIR JOBS thanks to idiotic "free trade" policies that allowed allegedly American companies to fire their American workers in favor of cheap foreign labor, move all their factories to third world countries, and even avoid taxes by moving their company headquarters off shore.

Like most Republicans, Corporate America is nothing more than a bunch of traitors, thieves and liars who should all be hanged.

Seems like Barely’s out of his annual January torpor. Happy, happy joy...joy!

Sadly, still stuck on stupid, eh.

The subprime mortgage crisis that led to the global credit freeze was 3 parts government action, 1 part fiscal malfeasance by banks that were both encouraged and indemnified BY GOVERNMENT into making an ocean of (uh-hem) “non-traditional loans.”

Way baaaack in 1999, the LA Times reported, “When President Clinton took office in 1993, 42% of African Americans and 39% of Latinos owned their own home. By this spring, those figures had jumped to 46.9% of blacks and 46.2% of Latinos.

“All of this suggests that Clinton’s efforts to increase minority access to loans and capital also have spurred this decade’s gains. Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. The bottom line: Between 1993 and 1997, home loans grew by 72% to blacks and by 45% to Latinos, far faster than the total growth rate.

“Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac–the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend
more.

“In 1993, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. It has aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That’s made banks willing to lend to lower-income families they once might have rejected.”

http://articles.latimes.com/1999/may/31/news/mn-42807

Red-lining was the very sensible practice of charging higher interest rates in areas with higher default rates. Prior to the 1990s traditional lending practices required mortgage borrowers to put down a minimum of 20% of the home’s purchase price, no more than 2½X one’s annual income coul be borrowed, etc.

Changing those practices, made lending less profitable and far more risky.

Compounding the earlier troubles, “In his 2002 budget, Bush sought nearly $2.4 billion in tax credits for developers to help spur the rehabilitation or new construction of up to 200,000 homes for purchase by low-income households.

“Bush also pushed Congress to approve $200 million a year in grants to help low-income families buy their first homes. Most grants would be set at less than $5,000.Bush stressed that while government does its part, the real estate and mortgage-finance industries must join in the push to increase homeownership among minorities.”

Once Fannie Mae agreed to buy more loans with very low down payments – or with mortgage payments that represent an unusually high percentage of a buyer’s income, that made banks far more willing to lend to lower-income families they once would’ve rejected. And once Fannie Mae and Freddie Mac began buying more of these high-risk, subprime mortgages from lenders, to bundle them into “government-backed securities” (CDOs & CMOs), that pretty much indemnified the banks and mortgage brokers from the consequences of the bad debt they were writing.

With th likes of Harold Raines and Jamie Gorelick at Fannie Mae and Herb, Chris Dodd nd Barney Frank in the Senate and House Banking Committees running interference for the malfeasance at Fannie Mae & Freddie Mac, and committed Leftist conartists like Herb and Marrion Sandler inide at banks like World Savings & Loan, which alone wrote BILLIONS in bad debt, we had a veritable perfect storm of fiscal malfeasance. Between 2003 and 2006, the total amount of deferred interest from World borrowers, jumped from $21 million to a staggering $1.2 billion. (SEE: http://www.cbsnews.com/stories/2009/02/13/60minutes/main4801309.shtml)

The current financial crisis is indeed one that is 3 parts government action to 1 part private sector malfeasance. It was brought on primarily the result of wrong-headed government policy, from eradicating traditional lending practices (mandating bad loans), guaranteeing them thru Fannie & Freddie, to its initially misreading the crisis as one of liquidity, causing them to keep interest rates far too low for far too long, instead of recognizing the crisis for what it was – a crisis of counterparty risk.

Ironically enough, both G W Bush and John McCain were among the only pols in D.C. to push for oversight and regulation of the out-of-control GSEs (Fannie & Freddie), first in 2003 and again in 2005...I’d LOVE someone (anyone) to prove that claim wrong.

Now might be a good time for you to post a chart that proves the opposite of what you claim it does.