View From Table 9

October 6, 2008

Pin the Tail on the Other Guy

Probably one of the most interesting side-show phenomenon of this whole Economic Meltdown Mess is the intense scrambling by many to pin the blame on somebody else (particularly someone who is on the ‘other side’). Depending on whom you hear from it’s the fault of:

1. President George W. Bush

2. Former President Bill Clinton

3. Wall Street Brokers

4. Alan Greenspan/Henry Brennacke/Henry Paulson

5. Fannie Mae and Freddie Mac

6. Congress

7. Banks

8. Countrywide

9. People who borrowed more than they can afford

10. Real Estate Marketers

11. Liberals

12. Conservatives

and so on…

What’s interesting is that there is no one smoking gun – no Ken Lay for Enron as the Bad Guy, no Michael Milikin for Junk Bonds, no Osama Bin Laden for 9/11 or Saddam Hussein for WMDs. No one whom everyone can drag out into the Village Square and throw tomatoes at because ITS THEIR FAULT WE’RE IN THIS MESS.

This would be especially convenient for those who are running for office, as having a scapegoat would conveniently absolve them of any responsibility.

The truth here is that we are all responsible –

from the person who borrowed way more than they knew somewhere in their heart they could not afford but did so because the bank said it was OK to the bank who lent that person money even though they knew in their heart that this loan would not be paid out because hey the computer models said it was OK and besides prices are going up up up

to the reseller who bundled loans and labeled them improperly even though they knew in their hearts that this was not good because hey, history says that most of these loans won’t go bad to the rating entity who labeled these loans without thoroughly checking them to the purchaser who knew in their hearts these were too complex to verify but did so because they didn’t want to be ‘left behind’

to the Wall street Broker who sold these bundles knowing in their heart they were not as good as they were purported to be to the investor who knew in their hearts that the market was way, way, overheated and based on no real wage growth but bought these securities anyway because they couldn’t resist the profits and hey Moodys said it was OK

to Congress and the President who knew in their hearts that this market buildup was not based on real sustainable growth but allowed it anyway, even to the point that they pressured lenders and purchasers of mortgages (that would be the Banks and Fannie/Freddie) to make those loans and buy them to sustain this ‘growth’ because they and their rich constituents were making money and they desperately did not want the house of cards to fall ‘on their watch’ and because ideologically they believed that more regulation was bad and the market corrects itself always.

The truth is we are all to blame, even those who did not gorge themselves on the feast, because we are all part of the system that created this. Failure to act does not absolve oneself of responsibility to act.

You see, we really can’t say we didn’t know what was going on. At least five years ago we knew, in our hearts, that something was wrong with our economy. When banks offered us loans without reason or rationality. When housing prices when insane. When our paychecks stopped getting bigger but we could still ‘afford’ so much thanks to mortgages and equity loans and credit cards.

The truth is that the “average” American trusted our leadership, the Really Smart People Whom We Elected, to take care of us, to protect us, and to help us live better lives. After all, they saved us in the Great Depression, right? They know best so we should let them Do Their Jobs.

Those Really Smart People Whom We Elected took that trust in their large, comforting hands, wrapped it in the American Flag and the rhetoric of good times, God, the American Dream and Patriotism, and then they promptly screwed us all.

Fool me once, shame on you. Fool me twice, shame on me.

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September 28, 2008

Ben Stein and I

I surely never thought I’d see the day when I, Liberal Patriot, would ever agree with anything Ben Stein, Arch-Conservative Patriot (yeah, I’m calling him a Patriot just like me…stunning) would write. So his article published in today’s NY Times is something of a surreal moment for me…one where I’d have to say right friggin on, Ben.

It also tells me that the Neo Cons (who are neither Neo or Con) are in more serious trouble than they may have previously thought.

From the article:

IMAGINE, if you will, that a man who had much to do with creating the present credit crisis now says he is the man to fix this giant problem, and that his work is so important that he will need a trillion dollars or so of your money. Then add that this man thinks he is so indispensable that he wants Congress to forbid any judicial or administrative questioning of anything he does with your dollars.

You might think of a latter-day Lenin or Fidel Castro, but you would be far afield. Instead, you should be thinking of Treasury Secretary Henry M. Paulson Jr. and the rapidly disintegrating United States of America, right here and now.

But I am getting ahead of myself. First, I am furious at what the traders, speculators, hedge funds and the government have done to everyone who is saving and investing for retirement and future security. Millions of us did nothing wrong, according to the accepted wisdom of the age. We saved. We put a large part of our money into the stock market, as we were urged to do. Because the market wasn’t at ridiculously high levels, it seemed prudent to invest in broad indexes, foreign indexes and small- and large-cap indexes.

Now we have had the rug pulled out from under us.

Exactly.

Then this:

Almost no one (except Mr. Buffett) saw this coming, at least not on this scale. But let’s get back to the man of the hour. Why didn’t Mr. Paulson, the Treasury secretary, see it? He was once the head of Goldman Sachs, an immense player in the swaps world. Didn’t people at Treasury have a clue? If they didn’t, what was going on in their heads? If they did, why didn’t they do something about it a year ago, when saving the world would have been a lot cheaper?

If Mr. Paulson and Ben S. Bernanke, the chairman of the Federal Reserve, didn’t see this train coming, what else have they missed? What other freight train is barreling down the track at us?

All of this would be bad enough. But by far the most terrifying item I read in my morning paper last week was this: Mr. Paulson demanded that Congress forbid judicial review of his decisions on use of the money in the mortgage bailout. This would amount to an abrogation of the Constitution. Not only would his decisions be sacrosanct and above the law, but so would the actions of his pals in the banking world in connection with this bailout.

The people whose conduct got us into this catastrophe have not only taken our money, hopes and peace of mind, but they apparently also want a trillion or so more dollars to put into their Wall Street Buddy System Fund. This may be the most dangerous attack on the law in my lifetime. What anarchists even dared consider this plan? Thank heaven that minds more devoted to the Constitution on Capitol Hill are questioning this shocking request.

Exactly!  Woo hoo!

Finally, this (read the whole article, it’s really great….and I’m still in shock that I’m calling anything Ben Stein writes ‘great’).

Then there was Mr. Paulson’s insistence that there be no compensation caps for executives of companies being bailed out by the factory workers, the farmers, the schoolteachers and the medical doctors. He told a skeptical Congress on Tuesday that if these caps were put into place, bank executives simply wouldn’t participate in the bailout or sell us suckers their debts. Fine with me. If the banks are in good enough shape so that petulant executives can simply opt out rather than live on a few million a year, maybe we don’t need the bailout at all. Maybe we would be better off if those executives simply bailed out and were replaced by people with more sense and more patriotism.

One final little thought bubbles into my mind: Maybe the bailout should not be of the banks at all, but of homeowners themselves. Maybe if we make the government the buyer of last resort of homes, we will stabilize the markets, stabilize the debt associated with the markets and take the gain out of the credit-default swaps for the speculators. Yes, price would be a huge issue, but so it is for Mr. Paulson’s plan for buying debt from banks.

Why not? We do it for farmers. Why not for the individual homeowner? Oh, right. Because Treasury secretaries don’t know any of those people.

Game, set and match.  Thank you Ben (again, WOW!) for speaking truth.  Now let’s hope America hears it.

September 26, 2008

Want to REALLY Fix the Mortgage Crisis? Fix the Homeowners

Okaaay….so you big Wall Street Fat Cats have screwed the pooch (for lack of a better term) by lying and cheating so you could make huge profits and salaries.  Now that you’ve been caught,  rather than fix it you’re flapping around crying for a ‘bail out’ otherwise the World Will End.

But will the ‘bail out’ fix anything except P & L sheets of big investment funds and banks?  Interestingly, more and more I’m hearing that it won’t, because there’s still the fundamental problems out there:

1. The investment vehicle called a mortgage-backed security was sold as highly safe because Americans have a long history of always paying their mortgages, even when they didn’t pay other debt.   Now that, thanks to irresponsible loan origination (because it made tons in the resale market) and gross breach of fiduciary and shareholder responsibility (lying about the quality of mortgages being resold), there’s a trust issue in the market.

2.  Mortgages are being defaulted on (because people can’t afford the loans primarily and investors are walking away from investment properties they are under-water on) because of irresponsible loan origination (because it made tons in the resale market) and gross breach of fiduciary responsibility.

So how would taking these securities off private companies’ ledgers and putting them on the taxpayer’s fix either of the underlying causes?

Think about it.

OK if you’re thinking:  Uhhh…it won’t, than your right. And you’re not alone.  From the WSJ article linked here:

Congressional Budget Office Director Peter Orszag told lawmakers on Wednesday “that loss of trust has sharply increased the cost of raising capital and rolling over debt, which threatens the solvency of all financial institutions.”

But Robert Shapiro, a former Clinton economic advisor and the chairman of the globalization program at NDN, a Washington think tank, said the program outlined by the administration aimed at the wrong target. Rather than buying assets, he says, the government should provide money to people facing foreclosure, which would prevent the assets from going sour in the first place.

“This crisis will continue until the housing market stabilizes and as increasing foreclosures reduce the value of more mortgage-based securities,” Mr. Shapiro said.

Hmmm…. and more. This plan doesn’t actually reward or help those who responsibly made mortgages and held them, rather than repackaging them and selling them:

Much of the focus has been on mortgage-backed securities, not on the so-called whole loans that reside on the books of smaller lenders.

Cynthia Blankenship, chairman of Washington-based trade group Independent Community Bankers of America, said the government’s $700 billion fund won’t help smaller lenders unless it accepts whole real-estate loans, which bankers say is unlikely to happen, at least in the early stages of the program.

Ms. Blankenship, who runs Bank of the West in Irving, Texas, said struggling community banks in such once-hot but now sagging real-estate markets as Florida, California and Arizona would be eager to unload distressed mortgage or commercial real-estate loans. “It’s vitally important because it allows these banks to have some relief, as well as some big banks,” she said. “It’s just a matter of fairness.”

“We will not benefit from any of the programs that the federal government is proposing,” said J. Downey Bridgwater, CEO of Sterling Bancshares Inc., a Houston-based banking company whose $4.9 billion in assets don’t include any toxic mortgage-backed securities. But Mr. Bridgwater said the government’s efforts will “hopefully ease any concerns depositors may have about financial institutions across the country.”

So, it would seem to me this is a bailout for those who took the risks and lied, instead of even for those who are holding their loans and taking a lump where they have to.  Huh.

Now, seeing as how the underlying problem is that people can’t afford their mortgage payments, undermining both the note itself and the security it’s traded within, wouldn’t it make more sense just to funnel that $700 Trillion to the homeowner themselves in the form of either an increase in real wages or an ‘economic stimulus’ package or something like that?

Yeah, I get that it’s rewarding irresponsibility – I’ve gone on the record as saying that I think if you’re dumb enough to borrow more than you can afford, you should lose your house.  The way I see it though, bailing out large investors (who can afford it) is doing the same thing – rewarding them for irresponsibility and, worse, letting them off the hook for gross breach of trust and fiduciary responsibility.

So, if we’re going to bail out anyone, it should really truly be the little guy with the mortgage they can’t afford. Make them do it through the courts who can be sure the money gets funneled, make the banks refinance the loan to a reasonable amount, do all those things you need to do, but fix the problem. Then those securities will stabilize in value, investors can understand their true worth, and the markets go back to some semblance of normal.

(Come to think of it – this is not far off from how FDR pulled us out of the last Great Depression – by putting money in everyday people’s pockets via the WPA and other work programs and putting stricter regulations on both banks and the stock market…..)

What I see coming through Congress now does none of that.

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