Posted on 12/18/2009 11:04:51 PM PST by CutePuppy
If you agree that they are not innocent, why hesitate taking them to court. Clogging up courts is not a good reason not to investigate and prosecute. Otherwise the wise guy financial types would repeat the scheme again banking that the scale of their crime amongst them would hinder prosecution, thus they will laugh all the way to the bank again and leaving the nation holding the bag.
I'll explain this simply: I'm a root cause analysis guy. Who caused the problem? Politicians advancing their vision of a social agenda. That same social agenda designed to create a permanent voting block to keep them in power, doling out government goodies to the moochers of our society, at the expense of those of us who work and produce.
Simply stated, remove the root cause of the problem so it never happens again. We disagree on who the real target should be.
bump
You are concentrating on the subprime issue caused by government instructing banks to loosen their loan requirements to help poor and disadvantage. Coupled with Fannie Mae and Freddie Mac, CRA and ACORN people who were not qualified for loans contributed to the financial meltdown. However not all collapsed mortgage loans were subprime in nature. There many banking CEO’s who wanted to meet their earning requirements for bonuses by pumping up earnings in a short time by accepting many loans as possible (earnings are thru fees and points). They did that by instructing mortgage orginators and underwriting departments not to verify the loan applicant’s info, and even encourage lying on the loan application for conventional mortgage loans. So far that is not illegal because the bank is risking itself with bad loans, the fraud occurs when these loans are bundled and the rating agencies give it a AAA rating and sold into the after market. This act IS FRAUD.
True your proposals may eliminate future fraud, but letting the fraudster get away with it will not solve the problem either. One thing about government regulations, it cannot account for every scheme possible, if such regulations existed no one in this country can conduct business. These fraudster will find another way to get around Glass Steagall or worst outright violate the act on a wide scale hoping they become too big to fail to nullify any government attempt to punish them. The only way to solve this is to eliminate this generation of fraudster, because the young ones down the road will become the middle managers or worst CEO’s, and since they survived current crisis richer and not prosecuted, they will be emboden to repeat the scheme. We barely survived this collapse, the next time we may not be too lucky. Remember what happen to Gov Huckabee when he got soft and let one criminal get away, four police officers are dead because of it. We barely survived this collapse, the next time we may not be too lucky. The last thing I need twenty years from now is find out we had a melt down caused by a banking CEO who began his career as a mortgage originator that made sale man of the year via liar loans in 2008.
As I stated before, you and I disagree on what the root cause of the problem is and what the fix is. Fair enough, you have your opinion, I have mine which is based on the fact that I spent 4 years working in the industry. Not saying my opinion or perspective is any more valid than yours, mine's just formulated on what I've personally SEEN and KNOW.
There many banking CEO’s who wanted to meet their earning requirements for bonuses by pumping up earnings in a short time by accepting many loans as possible (earnings are thru fees and points). They did that by instructing mortgage orginators and underwriting departments not to verify the loan applicant’s info, and even encourage lying on the loan application for conventional mortgage loans.
This may come as a surprise to you, but MANY companies (yes, outside Banking) do whatever they can do prop up their earnings as much as possible so their C level folks can hit their target bonuses. I've worked in Advertising, the Auto Industry and Banking and seen that behavior across all three. The fact that Banks did it and continue to do it by the way, is nothing new.
The difference between Banks and other companies is the mechanism they used, collateralization, securitization and bundling are all direct results of the very laws and regulations that were aimed at the Banking industry, designed to implement "social engineering" and create permanent Democrat voting blocks. That has been pointed out above by more than just this writer (me.)
Imagine if the same scenario had happened with oh, say AUTOMOBILES, where the Government were to implement a program designed to sell cars to people who couldn't otherwise afford them, with the promise of cheap, easy money, government rebates and dealers pressured to sell cars. Oh wait, that DID happen via Cash for Clunkers, at the cost of more than $24,000 U.S. Taxpayer dollars per vehicle (Source: Edmunds.com) and now we have high rates of vechicle re-posession as a result.
You see, it's GOVERNMENT MEDDLING in Markets that causes these problems, that's the root cause analysis. The rest of the facts on record here on this thread are also valid, but the fact remains if you want to really SOLVE the problem the ROOT of it must be dealt with, the rest are symptoms that will ultimately be resolved once the root cause has been dealt with.
Have a good evening.
So if the government meddles in your business, you now have the license to deviate from common commercial practices of the past, encourage applicants to lie on their applications, threaten rating agencies by boycotting future business unless they find a way to rate your mortgage back securities without providing the loan data to the rating agency analysts??!!!!!
Now you know why I want a trial and let a judge/jury decide. My advice is don’t run a company because you will get yourself in trouble with such a logic. The first thing a government official will say during the trial is they never told you to do that and you must have misinterpretted what they said. They will be off the hook and you will be in jail.
Even worst if you are middle management, your bosses will say they never told you to do that and you must have misinterpretted what they said. They will get blamed for not supervising you closely, but you will be in jail. That is something to think about.
I agree with the idea, I distrust the scum proposing it.
Did Deregulation Cause the Financial Crisis?
While many regulators may have been shortsighted and over-confident in their own ability to spare our financial markets from collapse, this failing is one of regulation, not deregulation. When one scratches below the surface of the “deregulation” argument, it becomes apparent that the usual suspects, like the Gramm-Leach-Bliley Act, did not cause the current crisis and that the supposed refusal of regulators to deal with derivatives and “predatory” mortgages would have had little impact on the actual course of events, as these issues were not central to the crisis. To explain the financial crisis, and avoid the next one, we should look at the failure of regulation, not at a mythical deregulation.
http://www.cato.org/pubs/policy_report/v31n4/cpr31n4-1.html
Banking deregulation of restrictions on branching and interstate banking lifted a set of constraints that had prevented better-run banks from gaining ground over their less efficient rivals. Big changes in the banking industry followed deregulation: many acquisitions and consolidation, integration across state lines, and a decline in the market share of small banks.
These changes allowed banks to offer better services to their customers at lower prices. As a result, the real economy – “Main Street” as it were – seems to have benefited. Overall economic growth accelerated following deregulation, and this faster growth seems to have been concentrated among new businesses. Sometimes we think that higher returns necessarily bring higher risk. But in the case of banking deregulation, volatility of the economy declined as growth went up.
http://fic.wharton.upenn.edu/fic/papers/02/0239.pdf
On How to take moral hazard out of banking
http://www.ft.com/cms/s/0/50664eb8-dfaa-11de-98ca-00144feab49a.html
Thank you, Cato and Wharton are good sources. Restoring Glass-Steagall would only make it less convenient for both the Wall Street and Main Street to do business (sort of like recreating the infamous Jamie Gorelick's Wall between FBI and CIA) and just roll back the advances in US banking system that the Main Street benefited from. It would not in the least affect the root causes of economic near-collapse and would make economic recovery more difficult, in the similar way that hastily created Sarbanes-Oxley hindered the recovery post-Enron and post-Internet bubble.
Sarbox R.I.P.?
Could the Sarbanes-Oxley Act of 2002 be repealed? The question is not quite as far-fetched as it once was. For one, the House of Representatives is likely to consider a Sarbox amendment that would permanently exempt small publicly traded companies (those with a market cap of $75 million or less) from the requirement to have an auditor opinion on internal controls. At the same time, the U.S. Supreme Court is slated to hear a case this month alleging that the Public Company Accounting Oversight Board (PCAOB), which was created by Sarbox, is unconstitutional. .....
In the meantime, the Chair of FDIC (which closes banks almost every week due to insufficient reserves or other going concerns) and Treasury Secretary are pushing the banks to loosen the lending to people who obviously can't repay the loans. And Obama administration is ratcheting up the stimulus just as the Fed is being responsible and starting the exit strategy by pulling back:
Taxpayer Burden Eases to $8.2 Trillion as Obama Supplants Fed - BL, 2009 December 23
The amount the Fed and U.S. agencies have lent, spent or guaranteed has fallen 15 percent since September to $8.2 trillion, the lowest in a year, based on data compiled by Bloomberg. Spending on infrastructure, tax breaks and other fiscal measures account for 52 percent of the total, up from 39 percent in March, as central bank loan programs are phased out. The change marks a new phase of public intervention in the economy. Congress and the administration’s $4.2 trillion portion, which amounts to 30 percent of everything produced in the country this year, also complicates any future exit strategy. It may be tough for elected officials to quit spending, prolonging the bailout and adding to the federal budget deficit. “There’s a danger of getting addicted to fiscal stimulus programs,” said David Wyss, chief economist with New York-based Standard & Poor’s, in an interview. ..... Congress and the Obama administration are taking a bigger role in the rescue of the economy from the Federal Reserve, shifting the strategy to stimulus spending from central bank lending.
I appreciate the info. I try to be careful with sources, still I find problems where the experts are wrong or partly wrong. (I still have questions on deregulation.) Here’s a good example:
THE FIFTY-NINE-STORY CRISIS
http://www.duke.edu/~hpgavin/ce131/citicorp1.htm
Capitalism Does Not Work
Henry Waxman: In other words you found that your view of the world, your ideology was not right. It was not working
Alan Greenspan: Precisely. It’s precisely the reason I was shocked because I’ve been going for forty years of more with very considerable evidence that it was working exceptionally well.
In other words the dirty secret is out: capitalism doesn’t work. Capitalism is a 0 sum game where by the creation of currency out of the value of existing currency you eventually reach a state where it is impossible to create new currency because there is no further value to extract. This is the law of diminished returns.
http://stockrankings.istockanalyst.com/article/viewarticle/articleid/2738244
The Logic of Trade
Whenever an expert touts a totally new theory, invention or miracle medicine, a healthy dose of skepticism is called for.
http://www.cato.org/pub_display.php?pub_id=3216
Also my comments here:
http://www.freerepublic.com/focus/f-news/2413110/posts
Management and the Financial Crisis(We have met the enemy and he is us …)
William A. Sahlman
In studying the financial crisis as it unfolded over the past couple of years, it seems clear that many organizations suffered from a lethal combination of powerful, sometimes misguided incentives; inadequate control and risk management systems; misleading accounting; and, low quality human capital in terms of integrity and/or competence, all wrapped in a culture that failed to provide a sensible guide for managerial behavior.
Every aspect of the system needs change – from government accounting to corporate board roles and structure – and changes to any single element of the system will fail unless all elements are changed. The most important and most difficult changes are those required of corporate managers. Managers bear a disproportionate share of the responsibility for what transpired and therefore for what must change.
Sadly, there seem to be few new lessons from this crisis. What happened recently has happened before though perhaps not at the same scale. There were some unique contextual factors that created and sustained a larger and more pervasive than average financial bubble, but the underlying managerial failures were no different than in previous episodes of financial excess. Managers made dangerous and foolish decisions, consumers and investors engaged in risky behavior, and regulators were ineffective.
Senior managers are paid private market salaries and have substantial stock ownership. If large losses occur, the U.S. government is on the hook. If the companies do well, the executives make a mint. That amounts to privatizing reward and socializing risk, a classic example of heads I win, tails you lose.
http://www.hbs.edu/research/pdf/10-033.pdf
Income Inequalities in the Age of Financial Globalization
Indeed, higher income inequality is associated with higher crime rates and lower life expectancy. Higher inequality may also deepen macroeconomic instability in the sense that low-income households may adjust more slowly to economic shocks. In addition, there are instances where richer groups may secure economically-inefficient advantages, such as distortive taxes or an allocation of public funds that goes against the economic interests of the country as a whole.
http://www.ilo.org/public/english/bureau/inst/download/world08.pdf
Credit Expansion, Economic Inequality, and Stagnant Wages
http://mises.org/story/2847
The Kennedy/Reagan/Bush (KRB) Tax Policy Paradox*
http://www.bus.ucf.edu/seminars/public/current/eco/downloads/2006_11_09_01_02.pdf
Asset Price Bubbles
http://www.frbsf.org/publications/economics/letter/2007/el2007-32.pdf
Regulation and deregulation are catch-all words, which are generic and thus usually meaningless without specific context, so questioning each and every specific reason for one is appropriate, especially in historic perspective.
Deregulation questions usually start being raised when it's obvious that regulation has gone too far and either doesn't do what it was meant to do or actually does more harm than good.
Sources and independent analysis are very important. For instance, in the Capitalism Doesn't work editorial - while we can easily imagine former Ayn Rand's acolite Alan Greenspan talking like a puppet in his wife Andrea Mitchell's voice and with her hand up his arse, even he (she) couldn't possibly propound this nonsense : "In other words the dirty secret is out: capitalism doesn’t work. Capitalism is a 0 sum game where by the creation of currency out of the value of existing currency you eventually reach a state where it is impossible to create new currency because there is no further value to extract.
Capitalism is exactly opposite of Zero-sum game, and the words are not Greenspan's, they belong to author of the editorial, one Nicholas Ventimiglia who is likely as much of an economist as the other noted "economist" Howard Dean who recently famously declared The Debate Between Capitalism and Socialism Is Over.
Some analysts / researchers are better than others, and most of the time on the mark with their facts - even when I disagree with some of their analysis or thesis. Among many, I could recommend Randall Forsyth, Jim McTague, Thomas G. Donlan.
Here is the latest from Donlan Engines of Destruction (Fannie and Freddie) - B, 2009 December 21 "The CEOs of Fannie and Freddie made reckless bets that led to the downfall of their companies. Their actions could cost taxpayers hundreds of billions of dollars, but it is a myth to say they were the originators of the subprime crisis. Fundamentally, they were following the market, not leading it." Waxman exonerated the real culprit: "It is also a myth to blame the nation's affordable-housing goals. The bulk of Fannie and Freddie's credit losses are the result of their purchases of Alt-A loans and securities. Because many of these risky loans lack full documentation of income, they did not help the companies meet their affordable housing goals." (Alt-A usually means loans that are between prime and subprime.) Testimony and documents presented at the hearing that day would show that the two housing-finance corporations had worked hard to expand the mortgage market into a higher-risk zone -- and that many of the risky loans did help Fannie and Freddie meet their affordable-housing goals. ...... The new administration of President Barack Obama has been far more interested in bailing out borrowers and lenders than in placing blame where it belongs. It continues to rely on Fannie and Freddie to sustain the U.S. mortgage market, when it should be liquidating their portfolios and reducing the risk to taxpayers. ..... AS A HEARING OF THE HOUSE Oversight and Government Reform Committee opened a year ago to consider "The Role of Fannie Mae and Freddie Mac in the Financial Crisis," then-Chairman Henry Waxman, Democrat of California, rendered the verdict in advance of the testimony:
And here is the proof : Treasury removes ($400 billion) cap for Fannie and Freddie aid - FR / AP, 2009 December 25, by J.W. Elphinstone
So the Democrats are pointing the finger of blame on a "deregulation" legislature of more than 10 years ago having 3 Republican names on it, while exonerating the policy of "affordable housing to anyone" / CRA and others, where Fannie and Freddie and FHA were the main and willing parts of the Engine of Destruction. It's simple and, apparently, effective enough to confuse McCain and many others to want to reinstate S-G and, with that, rewrite the history and lessons of the real estate bubble and predictable consequent near-collapse of the US and world financial systems.
Another article, The Roots of the Crisis - B, 2009 December 08, by Jay Palmer - is a review of the book This Time Is Different by Carmen Reinhart and Kenneth Rogoff Reinhart and Rogoff make a compelling case that their "signals approach," grounded in a historical perspective, can deliver valuable information about whether an economy is "showing one or more of the classic symptoms that emerge before a severe financial illness develops." ..... Rapidly rising housing prices should have set off alarm bells, as well. Especially when the cumulative real-price increase in the United States over a decade was more than three times the 27% gain for the preceding 100 or so years -- and the total value of mortgages reached 90% of GDP. In This Time Is Different, Carmen Reinhart, a professor of economics at the University of Maryland, and Kenneth Rogoff, a professor of public policy and economics at Harvard, demonstrate that these worthies could have -- and should have -- known better. A tour de force of quantitative analysis covering financial crises affecting 66 countries over the past 800 years, the book identifies pre-crisis patterns that recur with eerie consistency. This Time Is Different is a must-read for anyone on the lookout for canaries in coal mines.
We know that the repeal of S-G had no effect on creation of housing bubble, the government policies (which are still continuing!) had, underwritten by the quasi-government institutions (GSEs) which could, in turn, dump all the risk and liabilities on the taxpayer... Waxman charade notwithstanding.
Thanks again. That makes much more sense.
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