How we got into this mess

Vanity ^ | 3-1-08 | Dangus

[dangus]

As destructive as socialism is, it would be powerless without “pragmatic conservatives.”

Socialism, like such explosions, is destructive in our society. Voters don't like destruction of our society, our wealth, or our institutions. So why do socialists keep winning elections? Because pragmatic conservatives, like President Bush and the Hastert/McConnell-era Republican Congress, witness socialists playing with dangerous reactants and try to make them safe. In doing so, they create bombs.

CDOs proved to be the ultimate bomb. Here's how they were created: Democrats were frustrated that banks didn't grant as many loans to black people as they did to white people. The banks weren't being racist though. Even though a more elite portion of blacks than whites were being granted mortgages, they were still at least as likely to default on a loan. As we're now seeing, banks actually do lose money on loan defaults. So it was not in the bank's self interest to lower loan criteria to blacks. In fact, it would be unjust and economically harmful to make loans to less qualifying people, and make up for that increased risk by raising interest rates on qualified people.

Some Democrats suggested forcing the banks to make loans. Of course, that would have immediately proved destructive when blacks started defaulting on the loans. The voters, the bank lobbyists, whoever it may be, someone would have forced that decision to be reversed. Maybe even the courts might have; nothing undermines affirmative-action-like remedies better than cold hard proof that they don't work.

Instead, the Republican party worked out a compromise. The ugly, brute force of governmental power wouldn't force banks to make loans; government would just motivate banks by allowing them to create abstract objects called “CDOs” which would allow banks to pass risk along to other entities at higher interest rates. Of course, flooding the housing market with new buyers caused prices to boom. When housing prices were escalating, CDOs seemed as safe as any other type of debt; even if the home-owner defaulted, the bank got a property which had gone up in value!

In a freer market, as banking policies made mortgages easier to get, housing construction would have grown, stirring the economy. But zoning and environmental policies limited the real estate available for new housing. Instead, prices went up. Construction did increase, but with government-mandated population growth (20 million immigrants), growth in demand outstripped growth in supply. Perversely, the increased debt caused by housing inflation made the GDP appear to grow, because the government price indexes dramatically undercount the portion of income spent on housing.

Unemployment was historically low, but people complained about the economy because wages weren't keeping up with housing costs. The solution was more government action: the federal reserve artificially lowered interest rates. This didn't help supply problems, it just triggered staggeringly high home prices. With interest rates so low, people were willing to assume debt to buy their houses. If they didn't buy now, who knows what their housing costs would become?

It's easy to attack people now for buying homes they couldn't afford. But say you were a new worker in 1998. You didn't get a mortgage because that $1000 mortgage seemed like too great of an expense. You'd be smart, and save your money, while you rent for $450. Now, forward to 2005, and you're rent is $1500. Are you feeling very smart? But hey, guess what? Interest rates have come down so far that you can still get a $1500 Adjustable-Rate Mortgage (ARM), even though the price of the house has tripled! Oh, happy day!

But then the government became concerned with escalating debt. The solution? Clamp down on CDOs? Repeal zoning ordinances? No, big government again! In the all-time biggest bonehead move in the history of America, Federal Reserve Chairman Ben Bernanke simply doubled interest rates. Hey, that was a painful, but successful action in 1982, wasn't it? Somehow it escaped his attention that a lot of people were affording their mortgages by getting Adjustable Rate Mortgages, an economic risk which seemed reasonable since the market didn't seem likely to raise interest rates.

Now, that $1500 payment is $2500. Is this the fault of the home-buyer? Not really. Getting that ARM seemed reasonable because there was nothing happening in the economy which would suggest a sudden surge in interest rates. The surge that happened was not a free-market correction, but a sudden change in government policy.

BOOM! There's your explosion. Who gets blamed? The Republicans. But don't just dismiss the electorate as having suddenly turned liberal, or curse fate. When St. John Crysostom (“the golden-mouthed”) said the floor of hell was paved with the skulls of bishops, he was defending the Christian Church. He recognized that weak leadership from within is far deadlier than anything the enemy can do from without; by seizing and misusing authority, the culpability of such bishops was worse even pagans who slaughtered Christians in the arena.

Now, we can blame metaphorical “pagans” like people like President Obama, Senator Dodd and President Clinton. But where's that going to get us? Another RINO administration and a new set of time bombs? Don't make it about people; make it about principles and policies. Obama's socialist policies will blow up in his hands. When that happens, we want a real conservative, not another John McCain to share the blame.

[dangus]

>> Here is where the author gets it right, <<

I’ll be sure to tell the author that. My wife looks at me wierd when I talk to him. ;^)

[marktwain]

“It may be wise to vote for George Bush over John Kerry in the general, but it’s fatal to vote for an Arlen Specter over a Brian Toomey in the primary.’

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I tend to agree with you on this. It is one of the ways to work against the MSM.

Unfortunately, crisis also ratchet us toward more powerful governments. GWB actually was working toward reducing the size and reach of the State when 911 hit.

[dangus]

>> Unfortunately, crisis also ratchet us toward more powerful governments. GWB actually was working toward reducing the size and reach of the State when 911 hit. <<

So it’s OK to sell out your principles when a crisis hits? A crisis reveals character. When the economic crisis hit, Bush was exposed to being only slightly to the right of Hugo Chavez. All that other stuff that streamed from his mouth was just enough to keep the conservatives electing him. After 2006, he had no more use for us at all.

Useful idiots. A phrase once used for communist sympathizers, but I feel like a useful idiot for having voted for Bush.

[dangus]

>> Unfortunately, crisis also ratchet us toward more powerful governments. GWB actually was working toward reducing the size and reach of the State when 911 hit. <<

So it’s OK to sell out your principles when a crisis hits? A crisis reveals character. When the economic crisis hit, Bush was exposed to being only slightly to the right of Hugo Chavez. All that other stuff that streamed from his mouth was just enough to keep the conservatives electing him. After 2006, he had no more use for us at all.

Useful idiots. A phrase once used for communist sympathizers, but I feel like a useful idiot for having voted for Bush.

[dangus]

>> I feel like a useful idiot for having voted for Bush. <<

(Well, no, I wasn’t going to vote for Gore, Kerry or McCain... but I sure would’ve been much grumpier about my options if I had known Bush’s true character.)

[Melas]

I don’t the early emphasis on blacks in your vanity. If you honestly believe that we’re in the this mess because of the extremely small number of loans made to black people, I have a bridge to sell you.

[Melas]

I’m not trying to sell it to the average liberal. Conservatives outnumber liberals.

The apolitical outnumber both combined.

[Califreak]

There it is in a nutshell.

Conservatism has been almost redefined out of existence.

I have even seen some people on this forum who believe in a “new” conservatism, which to me, means nothing but appeasing the enemy.

Some people are labeled as too conservative-like that’s a bad thing.

[mamelukesabre]

I had serious private fears about bush. I knew who is daddy was. But, what choice did we have? And then he became a hero after 9-11.

[palmer]

Not a bad analysis, but I think you mean MBS, not CDO. The CDO systemic risk is part of the problem however. The cart and horse are a little blurry, but back in 1999 and 2000 both parties passed the legislation to allow gambling on CDO's (specifically CDS). One of the criteria that Dems attached was more loans for minority areas. The big banks got their CDO's, insurance companies were merged with banks to help issue them using the insurance companies assets, and everyone else was allowed to gamble (could buy credit default swaps that essentially bet that the housing house of cards would fail).

The risk was effectively transferred to the taxpayers two ways. First Fannie and Freddie had nationalized their risks, so when they inevitably failed taxpayers would be on the hook. Second, the big banks and companies like AIG that had made or underwritten the bets on the market in either direction would be deemed to big to fail and would be bailed out. It was all perfectly inevitable except when some civic-minded republicans and a handful of progressive democrats voted against the bailout.

Raising rates is inevitable, the central bank can't do much about that except inflate or allow debt to build up to force default. So Greenspan raised rates, too much and too late. Now Bernanke is frantically lowering them too much and too late. Low rates now cause more problems than they solve. It is ridiculous for anyone to loan at low rates to an American with an overpriced house and dimming job prospects. Rates should be about 10-15% depending on the borrower, anything less is artificial and only contributing to the problem.

[palmer]

Bear market raids by Soros, Flower and John Paulson leading up to october.

European finance melted down October 5th when Germany threw in the towel and went financially protectionist. That spread here the next day. Whether these other bit players had anything to do with that timing is kind of irrelevant. Their money is small potatoes compared to the trillions owed by insolvent players like Eastern Europeans.

The bottom line is the whole credit charade was doomed. The most the people you mention could have done is affect the timing a little. Had the timing been different, we would now have an ineffective, although not malicious, President McCain. The financial meltdown would be just as real and deep, but at least McCain might have spared the job creators a bit.

[BuffaloJack]

We got into this by not standing up for Conservative principles.
Decades of politically correct pacifism and giving in to the socialists has caused this.
It stops now.
First don’t call them liberals or progressive.
They are socialists. Call them socialists.
They hate it because it is true.

[A Cyrenian]

bttt

[itsahoot]

“Yes, but [the pragmatic guy] is more electable than [the ideologue].”

_______________________________________

You have correctly identified the ratchet the MSM uses to drive us toward the left.

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One word

Arnold

....arrgh!!!!

Arnold

[marktwain]

“The liberals control the MSM fair and square, they were not given control by the government nor did they steal it from conservatives.”

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I am not certain of this at all. Much of the media was pushed into networks by government intervention and control of the airwaves. How much of the media was pushed into liberal hands by FDR policies during WWII is uncertain. In my darker moments, I wonder how much certain careers in the media may have been aided and abetted by money and influence from our enemies.

The media changed radically between 1930 and 1960, when it was most under government control. This was the same period when government funded universities most taught journalist schools that promoted journalism as an activist career rather than a job.

Thomas Sowell recently wrote mentioned how influential media types were ostracising conservatives as early as the 1950’s.

I'd love for someone to study how the MSM came to be completely dominated by “progressives” but I have not yet seen it. Perhaps it is a natural progression when all the MSM is based in urban centers.

[marktwain]

“The media changed radically between 1930 and 1960, when it was most under government control. This was the same period when government funded universities most taught journalist schools that promoted journalism as an activist career rather than a job.”

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That is what I get for typing rapidly without real thought. The Journalism schools have just continued to get much worse from 1960 to the present, and government control was pretty much the same from 1950 to the end of the “fairness doctrine” in 1987. Much of the damage of the Progressives taking over the MSM was done by 1980, I think, but the MSM has become more radical and activist since then, IMHO.

This is a subject that deserves serious study. Anybody know if any good books have been written about it?

[mountainbunny]

Virus was placed in banks through fellow travelers working at Fannie & Freddie.

If I understand what you are saying, your scenario doesn't seem to take into account the facts of the matter.

Are you saying that banks were somehow forced to make high-risk loans?

If so, why aren't all banks in trouble? I live in Colorado, where there is a tremendously high rate of default on mortgages, yet my bank (a local bank) is in excellent health, and my state have not had a single bank default. Add to that the fact that we've had an ever-growing illegal population for close to the last decade or so, which has been shown to directly feed the mortgage default rate, and you have a real puzzler on your hands.

ILLEGAL ALIENS & THE MORTGAGE MESS(^), Michelle Malkin, September 24, 2008, New York Post

Where the banks are failing(^)CNN

2008 Foreclosure Rates(^)CBSNews

If banks were unilaterally forced to make bad loans, why aren't they all failing? We actually checked to see the mortgage default rate at our own bank, and it is a tiny fraction of 1%, about as good as it gets.

So, some (in fact, probably most) banks did not dive head first into the shallow end of the mortgage pool, and are doing just fine, given the failure around them.

Why is that?