Since the day Obama was inaugurated, attacks from the right have been unceasing. I believe it is patently unfair, and part of a bigger revisionist movement being conducted by both political parties.
A friend of mine sent me a few questions, as he is very worried how the climate of communication between the parties is undermining any positive initiatives. Keep in mind, my friend and I are both conservative, by nature. Yet, we both recognize the political atmosphere is only heating up. And that is a major concern for our country, as the divide appears to be widening, when coming together is desperately needed.
I do not wish to endorse one party over the other, only to understand what got us here. No solution will be found until its formula is based on what caused the problem. Only then can the solution fix what was wrongly done.
Below is a recent exchange of emails, and I offer them as only a simple guide to recognition of the problems, both present and past.
From my friend;
A friend of mine sent me a few questions, as he is very worried how the climate of communication between the parties is undermining any positive initiatives. Keep in mind, my friend and I are both conservative, by nature. Yet, we both recognize the political atmosphere is only heating up. And that is a major concern for our country, as the divide appears to be widening, when coming together is desperately needed.
I do not wish to endorse one party over the other, only to understand what got us here. No solution will be found until its formula is based on what caused the problem. Only then can the solution fix what was wrongly done.
Below is a recent exchange of emails, and I offer them as only a simple guide to recognition of the problems, both present and past.
From my friend;
What caused the derivatives' issuance and usage to skyrocket starting in '05? Did the AIG London office just 'discover' them and they took off virally? Or was there a set of circumstances in the mid-2000s that created some kind of perfect storm?
The reason I'm asking is, everyone I talk to says, consistently, both events started under Clinton, and that the Bush administration couldn't possibly have prevented an inexorable chain of events (?!) or even known about it (??!!), and that Obama is a pawn of the evil Clinton conspiracy and will make things worse.
If this type of blame-shifting is allowed to go on, there will be no popular support for the new administration's actions -- and whether you believe in bailouts or not, it's really bad for the country and the economy if the populace's confidence in the administration is undermined.
What the great depression teaches us is, even though there's little solid evidence that government projects and other actions brought us out of that predicament (ditto WWII) the 'propaganda value' of a confident government stressing progress and hope is perhaps the best thing we can create right now. My feeble understanding of Keynesian economics is such that I believe depressions--note the word choice there--are partly the result of the collective mood or attitude. If it's bad, the economy will spiral very quickly. If it's hopeful, people will not curtail their spending or business initiatives as radically. If it's full of optimism and confidence (watch a Roosevelt speech on YouTube) you will think you are on the upswing even if you're not.
Remember it's all about small business, this economy we have here. Create hope and a sense of the 'light at the end of the tunnel' and venture investment will spring back to life.
Naive and oversimplified, but that's how I roll.
My reply;
My reply;
You are spot on with your insight and questions. The political divide seems to have only worsened once the political agenda invested in programming on both radio and television. Deflection from actual reality seems to be their only tool, as winning the next election is their only motivation.
OK, I love dialogue, yet am accused of being didactic. It is because, as I see it, the answers to complex problems are rarely simple. So please bear with me through this.
As for debt based derivatives, they have been around since the Clinton years, so that part is somewhat true. But, the collapse of LTCM in the late 90's due to Russia defaulting on its sovereign debt only gave insight to some Wall Street boards that sometimes entities, no matter how badly they have acted, can be "bailed out." That cannot be blamed on Clinton. LTCM was actually registered off shore, I think Iceland. In fact, it was under his direction that the major broker-dealers find a solution, for he was told by Wall Street the collapse of LTCM would cause a global systemic financial meltdown.
Because of the Lewinsky affair, and do not make the mistake of thinking it was small potatoes, allowed the other side to start biting, when before all they could do is bark. When our intelligence showed Bin Laden might have been in Sudan, and Clinton tried to get him, what was the Republican reaction? The Republicans, all the way from Limbaugh to DeLay screamed, everyday for weeks, that it was Clinton's attempt to deflect the headlines from Lewinsky, where the Republicans wanted to remain. The Republicans screamed, and I emphasize screamed, that it was an aspirin factory we bombed, even after the CIA provided proof the building was making bombs, and bomb making debris was scattered for miles. Limbaugh still says it was an aspirin factory on one day, then a week later says it was a toy factory.
They threatened everyday that Clinton had better not try to steer anything away until Lewinsky was over.
For Clinton, and yes, he lied under oath, Lewinsky never left.
Well, we didn't get Bin Laden either, did we?
You get my point how the message can be deflected, and is still.
Gramm, Leach Bliley was passed in 1999, and signed by the under siege Clinton. GLB removed Glass Steagall, one of the last vestiges of laws passed after the Great Depression designed to keep the banks from doing what caused the Great Depression. Remember, it was the collapse of fraudulent real estate bonds that set off the events which led to the Great Depression.
Congress passing laws for decades with the intention of helping those less fortunate were destined for failure if the very people being helped did not change WHY they needed help. Failure to have more oversight in Welfare, CRA, Medicare and almost every government program is partly to blame. Greenspan's inability to allow a corrective recession to take place after the Dot Com bubble is to partly to blame.
Here is where Bush (and the Republicans at large) comes in.
Clinton was more than a lame duck. The last year he was in office (2000) there was very little he or the Democrats could effect. The economy was moribund, Greenspan had wanted to lower interest rates for months, and the only thing Clinton could do was keep him from it.
Regardless of what you think of Clinton, he is one of the most intelligent people to ever sit in that chair. He single-handedly kept Greenspan from lowering the Fed Funds rate, knowing it would only increase lending, which is an increase in debt, and only pulls forward future demand which robs production from some future point.
What I mean is this - If you buy a TV today, on credit, then your demand (not need) for that item is gone for tomorrow. But, you have not done yourself any favor except gratification. Had you waited until you saved enough money to purchase the TV, then demand meets need. The consequence of buying on credit is two fold - 1) You just gave yourself extra payment on that item, because you have to pay interest, and 2) you robbed all future purchase because now you have less purchasing power due to the interest you paid. It is okay if a farmer buys seed on credit, because he is using it for something which is a necessity. It is not okay for a car buyer, because any car can get you from point A to point B, it is not a necessity to have the best car.
I know some will argue that credit grows economies. But they are stopping 80% of the way through the thinking process. Credit is always debt. Increase credit means increase debt. Increasing debt must stop somewhere.
That is what we did in this country. Since 10 families only need 10 houses, once all the upgrading is done, the process is over.
The incoming Bush administration was anxious to show they were like Reagan Redux. The first week of 2001, Greenspan, at the behest of the new administration, was green lighted to lower rates, and Clinton could not say no. It had an immediate effect. Mortgage rates dropped more than .75% instantly. I remember it well.
The drop in interest rates created instant stimulation, it worked. Homeowners, under constant advertising from mortgage lenders, refinanced their homes en masse. There were even some homeowners who refinanced 6, 7, 8 times and more within a few years span. They were able to do so because as the stimulus of the lower Fed rate wore off, Greenspan, under encouragement from the White House, would lower the Fed rate again, and again, and again. Each time the rate lowered, it provided a little stimulus. Until the Fed rate got to 1%.
OK, I love dialogue, yet am accused of being didactic. It is because, as I see it, the answers to complex problems are rarely simple. So please bear with me through this.
As for debt based derivatives, they have been around since the Clinton years, so that part is somewhat true. But, the collapse of LTCM in the late 90's due to Russia defaulting on its sovereign debt only gave insight to some Wall Street boards that sometimes entities, no matter how badly they have acted, can be "bailed out." That cannot be blamed on Clinton. LTCM was actually registered off shore, I think Iceland. In fact, it was under his direction that the major broker-dealers find a solution, for he was told by Wall Street the collapse of LTCM would cause a global systemic financial meltdown.
Because of the Lewinsky affair, and do not make the mistake of thinking it was small potatoes, allowed the other side to start biting, when before all they could do is bark. When our intelligence showed Bin Laden might have been in Sudan, and Clinton tried to get him, what was the Republican reaction? The Republicans, all the way from Limbaugh to DeLay screamed, everyday for weeks, that it was Clinton's attempt to deflect the headlines from Lewinsky, where the Republicans wanted to remain. The Republicans screamed, and I emphasize screamed, that it was an aspirin factory we bombed, even after the CIA provided proof the building was making bombs, and bomb making debris was scattered for miles. Limbaugh still says it was an aspirin factory on one day, then a week later says it was a toy factory.
They threatened everyday that Clinton had better not try to steer anything away until Lewinsky was over.
For Clinton, and yes, he lied under oath, Lewinsky never left.
Well, we didn't get Bin Laden either, did we?
You get my point how the message can be deflected, and is still.
Gramm, Leach Bliley was passed in 1999, and signed by the under siege Clinton. GLB removed Glass Steagall, one of the last vestiges of laws passed after the Great Depression designed to keep the banks from doing what caused the Great Depression. Remember, it was the collapse of fraudulent real estate bonds that set off the events which led to the Great Depression.
Congress passing laws for decades with the intention of helping those less fortunate were destined for failure if the very people being helped did not change WHY they needed help. Failure to have more oversight in Welfare, CRA, Medicare and almost every government program is partly to blame. Greenspan's inability to allow a corrective recession to take place after the Dot Com bubble is to partly to blame.
Here is where Bush (and the Republicans at large) comes in.
Clinton was more than a lame duck. The last year he was in office (2000) there was very little he or the Democrats could effect. The economy was moribund, Greenspan had wanted to lower interest rates for months, and the only thing Clinton could do was keep him from it.
Regardless of what you think of Clinton, he is one of the most intelligent people to ever sit in that chair. He single-handedly kept Greenspan from lowering the Fed Funds rate, knowing it would only increase lending, which is an increase in debt, and only pulls forward future demand which robs production from some future point.
What I mean is this - If you buy a TV today, on credit, then your demand (not need) for that item is gone for tomorrow. But, you have not done yourself any favor except gratification. Had you waited until you saved enough money to purchase the TV, then demand meets need. The consequence of buying on credit is two fold - 1) You just gave yourself extra payment on that item, because you have to pay interest, and 2) you robbed all future purchase because now you have less purchasing power due to the interest you paid. It is okay if a farmer buys seed on credit, because he is using it for something which is a necessity. It is not okay for a car buyer, because any car can get you from point A to point B, it is not a necessity to have the best car.
I know some will argue that credit grows economies. But they are stopping 80% of the way through the thinking process. Credit is always debt. Increase credit means increase debt. Increasing debt must stop somewhere.
That is what we did in this country. Since 10 families only need 10 houses, once all the upgrading is done, the process is over.
The incoming Bush administration was anxious to show they were like Reagan Redux. The first week of 2001, Greenspan, at the behest of the new administration, was green lighted to lower rates, and Clinton could not say no. It had an immediate effect. Mortgage rates dropped more than .75% instantly. I remember it well.
The drop in interest rates created instant stimulation, it worked. Homeowners, under constant advertising from mortgage lenders, refinanced their homes en masse. There were even some homeowners who refinanced 6, 7, 8 times and more within a few years span. They were able to do so because as the stimulus of the lower Fed rate wore off, Greenspan, under encouragement from the White House, would lower the Fed rate again, and again, and again. Each time the rate lowered, it provided a little stimulus. Until the Fed rate got to 1%.
The Fed could not really go any lower. There is always a certain cost to doing business. For mortgages, the processors, underwriters, office space, office machines etc all need to be there to do business, so mortgage rates could not get any lower. Some money must be there to support the organization.
Now Wall Street needed something else. Since the lowering of interest rates had the effect of allowing more buyers into the real estate market, real estate was making dramatic climbs in value. At the same time, since the Fed rate was so low, so were the Treasury yields low. Wall Street, hungry for more profit, and knowing certain investment vehicles such as annuities, pension programs and the like needed a guaranteed rate of return much higher than the the 3.5% of Treasuries, went to work.
First, in order for the plan to work, the ratings agencies must agree. The largest pools of money available for investing reside with entities that, by law in most cases, are allowed to buy only AAA rated securities. So a plan was hatched that the ratings agencies could be convinced to give certain securities, otherwise deemed risky, the highest ratings.
The Mortgage Backed Security was, shall we say, re-born. MBS now were, in theory, structured in a way that they contained both good (prime) mortgages and bad (subprime) mortgages, and the argument Wall Street used was since only a portion of the MBS had risky mortgages, and historical models show only a certain rate of default, then if we plan for that default as reflected in the overall rate of return, then the MBS is extremely safe.
The Mortgage Backed Security was, shall we say, re-born. MBS now were, in theory, structured in a way that they contained both good (prime) mortgages and bad (subprime) mortgages, and the argument Wall Street used was since only a portion of the MBS had risky mortgages, and historical models show only a certain rate of default, then if we plan for that default as reflected in the overall rate of return, then the MBS is extremely safe.
Next, Wall Street began selling MBS at a rabid pace. Investors were clawing for greater returns than government bonds. Soon, all the mortgages that could be securitized had been securitized. Wall Street needed more.
The birth of the CDO now came. Several MBS were combined, and packaged as a new type of bond. An average MBS may have contained between $50 - $100 Million worth of mortgages. The CDO's would be a bet on the performance of as many as 10, sometimes more, MBS in one single bond. Most CDO's were sold for more than $1 Billion. Wall Street sold these new bonds, the CDO's, CLO's, CMO's, as the way for fixed income investments to realize the rate of return they needed. What Wall Street did not tell these investors is the underlying MBS owned the mortgages, not the CDO. Wall Street did not tell them the CDO was only a bet on the positive performance of the underlying MBS.
The fees were enormous. The demand from pension funds, money market account managers, sovereign wealth funds, annuity funds etc. for higher yield than Treasuries was increasing. Wall Street needed more loans. So the system expanded. Some banks, such as Wamu and IndyMac, already were realizing greater profits from lowering guidelines, and Wall Street was buying all of their loans. Some dealers set up internal channels to service loans they could then package into MBS, and then CDO's.
It got to the point that people with very poor credit histories were being given loans that exceeded the value of the property by as much as 25%. Debt to income ratios, forever at the 35% or less level, were raised sometimes to as high 60%. Some people were even allowed to have three, four or more properties at one time with these new guidelines.
It got to the point that people with very poor credit histories were being given loans that exceeded the value of the property by as much as 25%. Debt to income ratios, forever at the 35% or less level, were raised sometimes to as high 60%. Some people were even allowed to have three, four or more properties at one time with these new guidelines.
Very few people really lied to get a mortgage, they did not have to. Wall Street, the banks and the mortgage brokers feeding the banks were eager to let someone into a house, fully knowing the terms would never be filled, because they were selling the risk of that loan defaulting to someone else.
Again, Wall Street was selling the risk to someone else, at huge profits. They were doing everything they could to get more loans in, even giving loans to people they knew never had a chance of fulfilling the obligation. Was not the SEC, HUD, RESPA and every other regulator working at the pleasure of the President?
The real problem with all of this is housing values must keep increasing at an escalating rate greater than at the time of origination of the MBS. If a plateau is reached where housing prices remain steady, the people who had been given loans that exceeded their ability to pay had no way to get out of the house without default. If they had borrowed more than the house was worth, and housing prices remained flat, they could not flip the house for profit.
This was compounded by the credit card companies giving new homeowners cards with $10,000 to $50,000 limits. This practice escalated in 2005 when the banks figured out that a lot of people were buying houses, putting in granite counter tops and new appliances and selling the house for profit as the market rose. Why not give them a separate line of credit through a card which would be used at Home Depot, then paid off at the closing when they sold the house?
In 2005, something even more dramatic happened. Even with all of this, Wall Street was nearing the end run. If they could go beyond the legal leverage limits of 14:1, they could continue the game. Bush and Co. did not want anything to look bad, so they pressured congress. Henry Paulson begged in 2001 to allow leverage limits be lifted, and congress said no. In 2005, when he asked again, they said yes. By then end of 2006, Bear Stearns, Merrill Lynch, FNMA, FHLMC, Lehman Brothers were levered to 30:1 - 80:1. FNMA and FHLMC, despite what Republicans now say, were restricted until 2005. The accounting scandals of 2001-2002 brought severe limits on what they could take in. In 2005, the Republican Congress removed those limits and increased what they previously could do.
So XXX, since the escalation took place from January, 2001 on, tell me how Clinton is fully to blame? Was there a foundation laid years earlier? Yes, but that is not a pass to leapfrog over uncomfortable history.
In 2005, something even more dramatic happened. Even with all of this, Wall Street was nearing the end run. If they could go beyond the legal leverage limits of 14:1, they could continue the game. Bush and Co. did not want anything to look bad, so they pressured congress. Henry Paulson begged in 2001 to allow leverage limits be lifted, and congress said no. In 2005, when he asked again, they said yes. By then end of 2006, Bear Stearns, Merrill Lynch, FNMA, FHLMC, Lehman Brothers were levered to 30:1 - 80:1. FNMA and FHLMC, despite what Republicans now say, were restricted until 2005. The accounting scandals of 2001-2002 brought severe limits on what they could take in. In 2005, the Republican Congress removed those limits and increased what they previously could do.
So XXX, since the escalation took place from January, 2001 on, tell me how Clinton is fully to blame? Was there a foundation laid years earlier? Yes, but that is not a pass to leapfrog over uncomfortable history.
The ramp up in over-leveraging by the banks was a direct consequence of the marriage between deregulation and lack of enforcement of laws. Understand, that is a direct Republican causation. They controlled everything from January 2001 to January 2007.
The effect of this illicit marriage allowed Wall Street to want looser guidelines for loans so they had more to securitize (make a bond out of) and sell for profit. Of course the people who live in our media controlled world want to live like a pro athlete, so when it was realized that you could make $8 an hour and buy a $400,000 house, and your loan officer and real estate agent said it was the American way, a lot of people threw caution to the wind. The very people that got into houses they couldn't really afford were being told by everyone, analysts on TV, real estate experts, Wall Street Titans, even Bush with his Ownership Society speeches, that it was their Patriotic Duty.
At best, Bush is guilty of allowing the law of unintended consequences to rule the day. At worst.......
You are so correct to worry about perception at this time in history. I think any objective reflection will illuminate what is wrong. How do we get everybody to drop the gloves? I don't know. The situation demands we all focus on creating a positive environment, and stop name calling.
When I listen to talk radio or watch cable TV, that is certainly not happening.
These people will first have to admit to themselves, and everyone they know, that the very ideology their belief system is based on is flawed enough to force all the rest of us to live in a depression.
I don't expect Rush to admit he could have done things differently.
I didn't see the Democrats falling on swords over Iraq, and now aren't willing to give up pork.
All of the above is why I have long believed it is foolish to buy into one political party over another.
My friend is right. "Create hope and a sense of the 'light at the end of the tunnel' and venture investment will spring back to life." I realize the bulk of my response can be viewed as offering no hope. I see it as valuable information to become knowledgeable, which has the effect of lessening the impact of vitriolic political agenda.
We have no choice, right now, but to come together.
Until Limbaugh and Pelosi agree, we will see little light.
United we stand, divided we fall.
The effect of this illicit marriage allowed Wall Street to want looser guidelines for loans so they had more to securitize (make a bond out of) and sell for profit. Of course the people who live in our media controlled world want to live like a pro athlete, so when it was realized that you could make $8 an hour and buy a $400,000 house, and your loan officer and real estate agent said it was the American way, a lot of people threw caution to the wind. The very people that got into houses they couldn't really afford were being told by everyone, analysts on TV, real estate experts, Wall Street Titans, even Bush with his Ownership Society speeches, that it was their Patriotic Duty.
At best, Bush is guilty of allowing the law of unintended consequences to rule the day. At worst.......
You are so correct to worry about perception at this time in history. I think any objective reflection will illuminate what is wrong. How do we get everybody to drop the gloves? I don't know. The situation demands we all focus on creating a positive environment, and stop name calling.
When I listen to talk radio or watch cable TV, that is certainly not happening.
These people will first have to admit to themselves, and everyone they know, that the very ideology their belief system is based on is flawed enough to force all the rest of us to live in a depression.
I don't expect Rush to admit he could have done things differently.
I didn't see the Democrats falling on swords over Iraq, and now aren't willing to give up pork.
All of the above is why I have long believed it is foolish to buy into one political party over another.
My friend is right. "Create hope and a sense of the 'light at the end of the tunnel' and venture investment will spring back to life." I realize the bulk of my response can be viewed as offering no hope. I see it as valuable information to become knowledgeable, which has the effect of lessening the impact of vitriolic political agenda.
We have no choice, right now, but to come together.
Until Limbaugh and Pelosi agree, we will see little light.
United we stand, divided we fall.
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