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Is Clinton responsible for Fannie and Freddie? October 3, 2008

Posted by sliceof in American Politics, Economics.
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There is a claim running around Republican apologist circles that Cliton is respnosible for Fannie and Freddie’s fallout.  Here is the old NYTimes article going around:

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=all

The problem wasn’t that F&F were lending to poor people, it was that Fannie and Freddie and many others lent more to poor people than they could pay back with the hopes that they would be indebted for the rest of their lives.  It may seem appealing if you want to shift the blame to Clinton, but it is doesn’t explain away the real problems in the market.

The push by the federal government, supported by both Bush and Clinton, to expand Fannie and Freddie was to expand lending to lower income people.  The LENDING PRACTICES and the handling of debt were the problem.

Here is a bit from a non-partisan capitalist economics article.

“The proximate cause of current Housing situation (and eventual Credit crunch) stem primarily from 3 significant errors of the 2000:

1) Grenspan’s FOMC: Took Interest Rates taken to 1%, and kept their for over a year;

2) Banks and Mortgage Underwriters: Abdication traditional lending standards, and ignored the traditional principle that loans should only be made to those who can reasonably repay them;

3) Federal Reserve: Failed to adequately supervise banks; I consider this to be Greenspan’s Nonfeasance.

About the regulations which expanded F&F, done by BOTH Bush and Clinton, they say “While there is some merit to the argument that this movement impacted the housing market, it is for the most part significantly overstated, given what we now know about abdication of lending standards and the issuance of mortgages over the past 6 years.”

I am not blaming Bush and I am not absolving Democrats.  What I am saying is that the dominant Conservative Republican Ideology of refraining from regulating the market to allow it to grow quicker is flawed.  Regulations level out the economy.  With every windfall is a crash and we can level out the market to prevent such big spikes.

What could leaders have done differently?  Well instead of crafting legislation to spur growth in the economy in 2001, they could have left it alone.  The economy was in a natural cycle.   Perhaps lowering interest was helpful, however it was left low for too long and, In my opinion, left too low for political reasons.  It is not politically easy to add regulation to the market when it is steadily growing.

Why does most of the blame get assigned to the Republicans?

1. They were in charge of the House, Senate, and the White House until 2007.

2. Deregulation and less constraints on the market are an essential aspect of the Republican ideology.

I am primarily attacking the ideology.  This idea of putting regulation at the bottom (consumers and individuals) and removing regulations at the top is flawed.  I think it is remnant of Reganomics.  And while you may not agree, but the economic changes from Reagan era dominate the Republicans to this date.

There is a double speak with Republicans.  Republicans say less government, less spending, less taxes.  The Republican ideology is more government control at the executive level, excessive spending to the point the it nearly adds 50% to the defecit, and more taxes for the middle class while less for the richest in the country.

The Price of Delaying the Bailout September 30, 2008

Posted by sliceof in American Politics, Economics.
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There are two types of people that are going to be DIRECTLY affected by the failing financial market.

1. People with much of their wealth invested in the market.  These people are going to suffer some loss, but as long as they don’t pull out of the market, they will be fine.  The market will go back up and their money will be there.  Their loss will end up being the loss of interest and gain on their investment.

2. People who lose their jobs.  Well, if workers in any sector are going to lose their jobs, the workers in the financial sector is probably the most apt to handle it
a. They already have incomes well over the cost of living.  Without a 300k job, they are going struggle making payments on pricey houses and cars, but it is highly unlikely that they are going to struggle to eat.
b. Most of those in the investment sector are well educated.  Other sectors of the economy will be able to absorb their skills much easier than if a toothpaste factory shut down.  Again, they may not be making the same quarter of a million they were making on wall street, but it is probably not going to be devastating.

Cut backs for people on Wall Street are going to be less Starbucks and switching from Taxi’s to the subway.   I pulled that directly from ths BBC interview in this post:

The Hardships of Being a Wall Street Employee

The extent of this market failure depends on the passing of a bailout.  Waiting a week isn’t going to do irreversible damage.  Waiting a month may leave scars and may push the money of the world into other financial markets with more “socialistic” governments.

I am thankful for the discussion and the tug of war in the congress, but something needs to pass or the effects of this failure are going to reach much farther then Wall Street.

The Great Stock Market Crash of Ought Eight September 30, 2008

Posted by sliceof in Economics.
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Today, the House of Representatives voted against the Bailout Bill for the banks.  Although it was Bush who introduced the bill, it was mainly Republicans that shot it down.

Today, the Dow Jones Index fell 770 points.   The biggest fall of the Dow Jones in one day…even bigger than after September 11th, 2001.

Today is the start of the new Depression.

Or not…

It is probable that the House will eventually pass a bill to buy the junk mortgages and put confidence back into the investment market.  If and when the bailout is agreed upon, the market will make its way back up.

This delay may have been a good thing.  The price of stock is going to crash down.  Banks with bad debt, poor structure and  inefficient business models are being sold off or are dying out (Wachovia and the like).   The market is going to shed its fat quick and hit equilibrium hard.  So, how is this a good thing?

This may be a good thing because the economy will stabilize.  There won’t be a long, drawn out back and forth decline.  Instead of inefficient companies scurrying to eat at the Bailout buffet and folding when freebies are gone, these failed corporations will fold or be sold off to better, fitter banks.  Stock prices are going to be EXTREMELY low and with the security of the Federal Government backing up the banks, there are going to be some amazing deals, and the market will start to climb up again.  AND Investors who stayed out of the mortgage mess are going to see huge returns when they start being up the cheap stocks.

The unscrupulous and irresponsible will fall and those who played it safe will rise.  It will be Herbert Spenser’s “survival of the fittest” playing out in the financial sector…the way the free market is supposed to be.