[Winstonm]

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Just a thought here but perhaps what needs to be done is a way to allow important companies to fail without the entire system failing? To put it in otherwords, shareholder equity in car companies and banks should be allowed to be wipedout?

Precisely. Even then you might need some government intervention to prevent too big to fail institutions from being created.

[kenberg]

goobers, on Dec 9 2008, 09:02 PM, said:

http://www.federalreserve.gov/newsevents/s...er20081203a.htm

They lent money to people who would not have been considered before, which is not equivalent to saying they took excessive risks. They simply used a different method of evaluation. As someone else already pointed out in the thread, their rate of default is low.

It at least appears that this was a serious attempt to get to the truth. One portion that I found significant:

>The final analysis we undertook to investigate the likely effects of the CRA on the subprime crisis was to examine foreclosure activity across neighborhoods grouped by income. We found that most foreclosure filings have taken place in middle- or higher-income neighborhoods; in fact, foreclosure filings have increased at a faster pace in middle- or higher-income areas than in lower-income areas that are the focus of the CRA.


We all have our ideological orientation. I reflexively distrust government agencies that are heavily staffed by people who know a lot about regulations and little about the industry that they are regulating. But I am really liking this thread as I see it as a chance to rise beyond ideology to get at facts.

Also, I found the quote from Geenspan remarkable. I was aware of some public soul searching on his part but I had not seem this exchange.

Every nation has its myths, usually with some basis in truth, but they should not go unexamined. Reality has a way of making you wish you had looked a little closer.

[Al_U_Card]

While walking, should you stumble, no big deal. If you are on a tightrope....that is another story.

The housing bubble was highly speculative in nature. No amount of surity (in an essentially unsure situation) will make the situation any more secure. A tightrope is always a tightrope. Having a safety net is the least one can do and our friends in the financial services industries figured that the fed and good ol' John Q. would pick up the pieces....so here we are.

[Winstonm]

kenberg, on Dec 10 2008, 10:43 AM, said:

goobers, on Dec 9 2008, 09:02 PM, said:

http://www.federalreserve.gov/newsevents/s...er20081203a.htm

They lent money to people who would not have been considered before, which is not equivalent to saying they took excessive risks.  They simply used a different method of evaluation.  As someone else already pointed out in the thread, their rate of default is low.

It at least appears that this was a serious attempt to get to the truth. One portion that I found significant:

>The final analysis we undertook to investigate the likely effects of the CRA on the subprime crisis was to examine foreclosure activity across neighborhoods grouped by income. We found that most foreclosure filings have taken place in middle- or higher-income neighborhoods; in fact, foreclosure filings have increased at a faster pace in middle- or higher-income areas than in lower-income areas that are the focus of the CRA.


We all have our ideological orientation. I reflexively distrust government agencies that are heavily staffed by people who know a lot about regulations and little about the industry that they are regulating. But I am really liking this thread as I see it as a chance to rise beyond ideology to get at facts.

Also, I found the quote from Geenspan remarkable. I was aware of some public soul searching on his part but I had not seem this exchange.

Every nation has its myths, usually with some basis in truth, but they should not go unexamined. Reality has a way of making you wish you had looked a little closer.

Thank you, Ken.

That is my position, as well. I obviously have my biases - but I try not to be poisoned by them and I try to be as objective as I can.

I think this nation has lost this quest to always place truth above ideologue, that somehow winning became more important than playing the game truthfully.

[Al_U_Card]

Just an aside, AIG (poster child for bail-out largesse) started the year with a stock price around $60.00 and is currently treading water at $1.75.

Just curious as to how much the company was valued at when the cash injection was arranged...

[Winstonm]

Al_U_Card, on Dec 10 2008, 04:49 PM, said:

Just an aside, AIG (poster child for bail-out largesse) started the year with a stock price around $60.00 and is currently treading water at $1.75.

Just curious as to how much the company was valued at when the cash injection was arranged...

And AIG just went back today saying they need another $10 billion.

But according to Paulson, et al, they are too big to fail.

[Winstonm]

For those of you who may not know, yesterday, 12-9-08, the auction of 4-week U.S. treasuries paid a yield of 0.00% for the firt time ever.

That's right. Hard-earned cash was turned into treasury bonds that paid no - zero - nada interest rate.

That's getting a little weird - especially as the bid-to-cover ratio was 4.2 (This means they could have sold 4.2 times as much due to demand.)


Any thoughts?

[kenberg]

Any thoughts you say? How about this:

Q: What's the difference between me and Hank Paulsen?
A: Neither of us understand the situation, but I am aware of the fact that I don't.

I am no more qualified to tell Hank Paulsen how to rescue the economy than I am to tell Bob Hamman how to make 6NT. But I am getting very nervous with this "rescue plan of the week" stuff. To use an expression form the 60s that had a brief resurgence of fame during the election: You don't have to be a weatherman to know which way the wind is blowing.

[Winstonm]

There are some significant terms being bandied about by other than what used to be known as the tinfoil hat crowd (They are now known simply as prescient.)

Bernanke is talking about quantitative easing - a method utilized by Japan in their fight against deflation with only moderate success.

Real economist have even allowed the "D" word (depression) to creep into discussions.

The world for the past 30 years has abused credit and debt - and like the line from the movie Independence Day, Payback's a bitch.

[kenberg]

I see the myth of our special nature as being particularly harmful. Religious folks see it as God watching over us. But the non-religious are not immune. We have a special destiny or we are the city on the hill, or the world's last best hope or something. No, we are folks. No better, no worse, then the French, the Chinese, the Brazilians, whatever. If we want things to go well for us we need to get down to work, same as they do.
Not exactly on topic I know, but I am more than a little worried about where we are headed and I think some confrontation with realism is long past due.

[Winstonm]

kenberg, on Dec 10 2008, 07:32 PM, said:

I see the myth of our special nature as being particularly harmful. Religious folks see it as God watching over us. But the non-religious are not immune. We have a special destiny or we are the city on the hill, or the world's last best hope or something. No, we are folks. No better, no worse, then the French, the Chinese, the Brazilians, whatever. If we want things to go well for us we need to get down to work, same as they do.
Not exactly on topic I know, but I am more than a little worried about where we are headed and I think some confrontation with realism is long past due.

This is some serious wisdom and it does not surprise me to see that Ken is aware of it. Ken, if you have not already, you might find "The Limits of Power: The End of American Exceptionalism" by Adrew J. Bacevich a good read.

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We have a special destiny or we are the city on the hill, or the world's last best hope or something. No, we are folks. No better, no worse

At the heart of the beast, when all excuses are stripped away, it is our own profligacy and hubris that has caused our grief - our belief that somehow because we were "better" or "more moral" that we deserved V-8 engines, everlasting cheap oil, and living beyond our means has made us dependent on foreign nations for the purchase of our debt in order for us to maintain a way of life.

This Empire Rents Its Clothes.

[Al_U_Card]

Every "empire" is full of itself. Nationalism is the movement of the masses that exemplifies the feeling of patriotism that is nothing more than wanting to belong and be part of the "in" group. Our familial and tribal roots gone to hell.

No need to save the world (spiritual) nor to conquer it (material). Peaceful co-existence is a natural state of being. Extending that sense of belonging and need of appartenance is the best application of the golden rule.

Understanding that there will always be a continuum of conditions within the human experience is what we need to provide perspective. It is all about respect and recognition.

[kenberg]

I'm not so confident that peaceful coexistence is a natural state of being. Desirable, of course. Natural? Maybe, but it needs some help.

Sustained and effective action is often rooted in self-interest and, to my mind, delusional thinking about our special place or our special destiny is ripe to be junked on that basis alone. We will thrive if we make sound decisions and work hard. Relying on destiny, or for that matter on the natural state of peaceful coexistence, won't do it.


Back to the CRA: Helping communities revitalize is a very good idea. It's good for them and it strengthens the nation. CRA, or any program with that intent, has to earn its keep by doing more good than harm. The balance of evidence appears to be that this is the case with CRA.

[Winstonm]

I am somewhat in the camp with Ken in that I had not previously been aware of the CRA until some of the hardline types started beating the drum on t.v. and in the news that it was the cause of the crisis.

That led - as I always try to do (but fail often) - me to try to discern the facts. The facts did not support the claims, yet the claims didn't stop.

Then I had the conversation with my brother, and I was certain (knowing him and his viewing habits) he was simply spewing the same false information he'd heard on radio or t.v. from some WingNut blindly pushing an Ayn Rand, greed-is-good: poor-are-evil ideology.

And that's what got us to here....sorry to anyone I have offended, but people spreading misinformation, hiding their own culpability, and pointing fingers at an innocent group makes me cranky.

[Al_U_Card]

kenberg, on Dec 11 2008, 09:46 AM, said:

I'm not so confident that peaceful coexistence is a natural state of being. Desirable, of course. Natural? Maybe, but it needs some help.

That is where the respect and recognition comes into play. Overcrowding and resource allocation is paramount. Making sure that there is enough to go around is the key.

[Winstonm]

There was another Op-Ed in the NYT today blaming the CRA. Barry Ritholtz iimmediately countered. He wrote today:

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In the 1960s and 70s, banks would redline neighborhoods. They would literally put a map on a wall, and with a red magic marker, draw a redline enveloping certain neighborhoods. If you lived within the redlined areas, regardless of your income, credit score, assets, debt servicing ability, if you were in the redlined area you could not qualify for a mortgage.

Although Redlining was made illegal by the Fair Housing Act of 1968, the practice still surreptitiously continued. The Community Reinvestment Act of 1977 was the next attempt to stop redlining. There were two main aspects of the CRA: First, it required banks to apply the same lending criteria in all communities. Credit Score, Loan-to-value, percentage of monthly take home, etc. had to be the same across different areas.

Second, the Community Reinvestment Act required banks to make good faith attempts to loan the money back to its own depositors. If you open up a branch in Harlem, you cannot suck up all the local business and residents’ cash, and then turn around and only lend it out to Tribeca condo buyers. You must make a fair attempt to loan the money locally. Banks have no obligation to open branches in Harlem, but if they did, they are required to at least try to lend the locals back their own money.

Note that there are no quotas, minimums or mandates. This is a very soft rating system.

As long as disinformation is clearly marked Op-Ed, I have no problem. Where I have a problem is when this type of information is presented as factual on news shows - "Some people say..."

[jtfanclub]

What I don't get is, redlining was almost unimaginably destructive. Cities became giant rings, and the inside of the ring was a lawless region of desperate poor and horrible crime. As somebody whose father grew up only a few blocks from downtown Detroit, I get to hear about just how much cities have improved in the last few decades.

The CRA is a major reason for that. Mortgages allowed the areas to stabilize, and gave the residents there a reason for improving their homes and their credit scores. Once you had some "good" people in the inner ring, the police and ambulances were willing to go help those "good" people. Businesses started to open in the inner ring, because the there were people with some money there, and the lawlessness dropped so much. And the cycle continued. The "generational poor" still exist- people who are born poor, have no chance outside of the lottery of making something for themselves, and will die poor. But they're a tiny fraction of what they were when my father was young.

Could this have been done without the CRA? I suppose. Big government grants and loans, heavy handed laws, and so forth. Was there a better method than the CRA out there? I can't imagine what it would have been.


The CRA did enormous good for over 25 years. I guess that's why the right-wingers want to blame it for the current catastrophe, instead of the more recent changes.

[Winstonm]

jtfanclub, on Dec 11 2008, 01:47 PM, said:

What I don't get is, redlining was almost unimaginably destructive. Cities became giant rings, and the inside of the ring was a lawless region of desperate poor and horrible crime. As somebody whose father grew up only a few blocks from downtown Detroit, I get to hear about just how much cities have improved in the last few decades.

The CRA is a major reason for that. Mortgages allowed the areas to stabilize, and gave the residents there a reason for improving their homes and their credit scores. Once you had some "good" people in the inner ring, the police and ambulances were willing to go help those "good" people. Businesses started to open in the inner ring, because the there were people with some money there, and the lawlessness dropped so much. And the cycle continued. The "generational poor" still exist- people who are born poor, have no chance outside of the lottery of making something for themselves, and will die poor. But they're a tiny fraction of what they were when my father was young.

Could this have been done without the CRA? I suppose. Big government grants and loans, heavy handed laws, and so forth. Was there a better method than the CRA out there? I can't imagine what it would have been.


The CRA did enormous good for over 25 years. I guess that's why the right-wingers want to blame it for the current catastrophe, instead of the more recent changes.

Well said.

[Winstonm]

This sums up the point I made at first. It is a real comment to Barry Ritholtz after Barry had pointed out on his website the facts concerning CRA (Barry supported McCain in 2004 but mostly he is apolitical.):

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December 11th, 2008 at 5:04 pm

Barry - i can see the veins popping out of your forehead…it’s so transparent that what is sooooo upsetting to you is that someone who’s not a far left loony dared to express some insight in the liberal soon to be bankrupt rag known as the New York Times….tThe reason you are sooooo defensive about CRA is that it is one of those things which clearly shows that the seeds for this mess were sown long before Bush 43 took office … heaven forbid Bill Clinton and the Dems bear any responsibility…go take a valium and try reading some publications that aren’t so clearly politically slanted.

Who can argue with such succinct logic?