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Thread: The US Economy in the crapper starting Monday?

  1. #181
    Hood Rich FlashLackey's Avatar
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    Quote Originally Posted by japangreg
    No, actually - and I'd like to see which regs you are referring to in the CRA expansions. I'm planning on looking them up a little later, but if you have the info handy I'd appreciate a link.
    I've posted a number of articles already that go into specifics. The CRA expansion was probably the most significant action. But, the goal of making loans accessible to low-income people was pursued in many other ways that have also been touched on in links I've already posted.

    Quote Originally Posted by japangreg
    I don't think you quite understand the nature of the problem: accessability to loans for risky borrowers was only the beginning of the problem. The recombination, resale and mixing of complex financial instrucments to hide the risky investments is what puts us where we are today. That's why it's spread so far and so deep. The SEC and others who were supposed to oversee the situation were both ill equiped to deal with it and actively encouraged to let the market do its thing. If the bad debt hadn't been hidden so well in order to make the biggest bucks in the quickest time, it couldn't have seeped so far into the economic system worldwide.
    lol. Yes. Accessibility to loans for risky borrowers WAS the beginning of the problem. If it were fixed at the beginning, the shady dealings you refer to wouldn't have occurred.

    What you are describing about regulators being ill-equipped is exactly what the Republicans were saying and the Democrats denying before the problem escalated to this point. Bush warned that the size of Fannie and Freddie exposed our economic system to trouble. Later, when the poop started coming to the surface, Republicans basically said that we shouldn't be finding out about this just now. They proposed regulation reform. Democrats opposed that and killed the bill.

    Quote Originally Posted by japangreg
    Then why did it die in a Republican dominated committee?
    Having a Republican dominated committee doesn't mean that the minority party is without means of stopping a bill or prolonging negotiations. According to everything I have read, it was a partisan issue and the Democrats were holding the bill up. I have already posted a link that confirms that and offers a quote describing the reasons for the Democrats objection to the bill (which were all false reasons).

    [Part of the reason it didn't pass may be because some Republicans were in on the deal with Fannie and Freddie. It may be that the Republicans for the bill were not confident that they had the votes due to a few of their own on the Democrats side of the issue.]
    "We don't estimate speeches." - CBO Director Doug Elmendorf

  2. #182
    Hood Rich FlashLackey's Avatar
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    Quote Originally Posted by gerbick
    His country is actually helping the US. Can't say that about the elected republicans in the House. No plan, no comments, nothing other than idle banter.
    I don't have any problem with his country.

    Quote Originally Posted by gerbick
    Sounds just like you. Go ahead, counterpoint that to death, I seriously don't care what people like you think. You've finally completed my understanding of your position. And I was 100% right.
    You say that you finally understand my position every other day.

    Quote Originally Posted by gerbick
    And that's sad. Enjoy. I'll address you no longer in this thread since you seem hellbent on picking fights and spreading vitriol better than even I tend to do. Which... is amazing.
    At least you admit your accessory. Props for that.
    "We don't estimate speeches." - CBO Director Doug Elmendorf

  3. #183
    supervillain gerbick's Avatar
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    I believe in accountability. Too bad it seems like you or any of your "heroes" in DC do.

    Prove me wrong. Let's see if anything comes from the House Repubs other than more stalling.

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  4. #184
    Didn't do it. japangreg's Avatar
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    Quote Originally Posted by FlashLackey
    I've posted a number of articles already that go into specifics. The CRA expansion was probably the most significant action. But, the goal of making loans accessible to low-income people was pursued in many other ways that have also been touched on in links I've already posted.
    I haven't seen any specifics; maybe I'm missing somthing, and I'll check again, but if you can point to one specifically I'd appreciate it.

    So, in your mind, an expansion of a program in the 90s that was started in 1977 had more of an effect on a crisis occuring in 04-07 then say, changing the rules on bank consoldiations in 01? And that somehow, the 20% or so of all institutions providing sub-prime loans that were subject to CRA regs were the problem, and that the other 80% were just sucked down by the greedy low-income borrowers?

    No wonder you vote republican.
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  5. #185
    Hood Rich FlashLackey's Avatar
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    Quote Originally Posted by japangreg
    Community Reinvestment Act had nothing to do with subprime crisisEmphasis mine - that's most of the article, actually. Guess I should have just copied the entire thing...
    I appreciate the link. But, I think there are a number of problems with the assertions made in that article. However, in the interest of not having a link war (I could post others that support my view), I will wait for you to take the time to address the articles I have posted before taking the time to do the same.

    In particular, what fault do you find in the following statements:

    Though well-intended, the problem was that Congress was about to change hands, from the Democrats to the Republicans. Rather than submit legislation that the GOP-led Congress was almost sure to reject, Clinton ordered Robert Rubin's Treasury Department to rewrite the rules in 1995.

    The rewrite, as City Journal noted back in 2000, "made getting a satisfactory CRA rating harder." Banks were given strict new numerical quotas and measures for the level of "diversity" in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another.

    Loans started being made on the basis of race, and often little else.

    "Bank examiners would use federal home-loan data, broken down by neighborhood, income group and race, to rate banks on performance," wrote Howard Husock, a scholar at the Manhattan Institute.

    But those rules weren't enough.

    Clinton got the Department of Housing and Urban Development to double-team the issue. That would later prove disastrous.

    Clinton's HUD secretary, Andrew Cuomo, "made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis," the liberal Village Voice noted. Among those decisions were changes that let Fannie and Freddie get into subprime loan markets in a big way.

    Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks.

    Since they could borrow at lower rates than banks due to implicit government guarantees for their debt, the government-sponsored enterprises boomed.

    With incentives in place, banks poured billions of dollars of loans into poor communities, often "no doc" and "no income" loans that required no money down and no verification of income.

    By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market -- a staggering exposure.
    http://news.yahoo.com/s/ibd/20080924...80924general01

    Quote Originally Posted by japangreg
    Notice the running theme - CRA: supervision, scrutinized; Bush admin: cut back on enforcement, encourage, unregulated, gorged.
    Hah. It sounds like you are describing some kind of mantra.

    That does not accurately describe what happened.
    "We don't estimate speeches." - CBO Director Doug Elmendorf

  6. #186
    Hood Rich FlashLackey's Avatar
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    Quote Originally Posted by japangreg
    So, in your mind, an expansion of a program in the 90s that was started in 1977 had more of an effect on a crisis occuring in 04-07 then say, changing the rules on bank consoldiations in 01? And that somehow, the 20% or so of all institutions providing sub-prime loans that were subject to CRA regs were the problem, and that the other 80% were just sucked down by the greedy low-income borrowers?
    lol

    In your mind, the effects of programs changing diminishes over time?

    Or, are you under the impression that the sub-prime lending boom literally happened like a booming explosion in a matter of minutes?

    It took time for this problem to build. The "boom" occurred over many years. It is logical to look at changes occurring at the onset of the boom as being related to the boom.

    And again, I'm not going to sit here and be subjected to taking the time to contest articles if you aren't going to do the same. Show me where the flaws are in the articles I already posted if you want me to do the same.
    "We don't estimate speeches." - CBO Director Doug Elmendorf

  7. #187
    Didn't do it. japangreg's Avatar
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    Quote Originally Posted by FlashLackey
    I appreciate the link. But, I think there are a number of problems with the assertions made in that article. However, in the interest of not having a link war (I could post others that support my view), I will wait for you to take the time to address the articles I have posted before taking the time to do the same.
    Fair enough - found what you must have been referring to, by the way, re: CRA. Need to take some time to go through each, and might not be able to complete today before class, so bear with me on any delay.
    Though well-intended, the problem was that Congress was about to change hands, from the Democrats to the Republicans. Rather than submit legislation that the GOP-led Congress was almost sure to reject, Clinton ordered Robert Rubin's Treasury Department to rewrite the rules in 1995.

    The rewrite, as City Journal noted back in 2000, "made getting a satisfactory CRA rating harder." Banks were given strict new numerical quotas and measures for the level of "diversity" in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another.

    Loans started being made on the basis of race, and often little else.

    "Bank examiners would use federal home-loan data, broken down by neighborhood, income group and race, to rate banks on performance," wrote Howard Husock, a scholar at the Manhattan Institute.

    But those rules weren't enough.

    Clinton got the Department of Housing and Urban Development to double-team the issue. That would later prove disastrous.

    Clinton's HUD secretary, Andrew Cuomo, "made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis," the liberal Village Voice noted. Among those decisions were changes that let Fannie and Freddie get into subprime loan markets in a big way.

    Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks.

    Since they could borrow at lower rates than banks due to implicit government guarantees for their debt, the government-sponsored enterprises boomed.

    With incentives in place, banks poured billions of dollars of loans into poor communities, often "no doc" and "no income" loans that required no money down and no verification of income.

    By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market -- a staggering exposure.
    No problem per se with that - the moves at HUD were not the brightest or best from a financial standpoint. But certain other systemic problems that, in my opinion, were of greater significance are being left out: the Commodities Futures Modernization Act of 00, for instance, allowing the trading of debt outside of the regs overseeing the futures exchanges. And their assertion that Fannie and Freddie were improerly liquid against their assests ignores the fact that as late as 04, the SEC let 5 firms go from a 12:1 ratio to as high as 40:1 (including Lehman Brothers and Bear Stearns)

    However the number of sub-prime loans held by Fannie and Freddie isn't what triggered this crisis, and their failure is a symptom not a cause: these bad loans weren't just absorbed by some govt back agency, they were spread like a cancer, washed repeatedly in complex 'instruments' the served to hide their risk. The ability of low-credit people to obtain loans wasn't a great idea, but it's one that lenders took to and ran with because it made them money.
    Hah. It sounds like you are describing some kind of mantra.

    That does not accurately describe what happened.
    How so? Are you saying that institutions subject to CRA regulations did not perform better and hold less risky loans than those that weren't?
    Last edited by japangreg; 10-01-2008 at 04:41 PM.
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  8. #188
    Didn't do it. japangreg's Avatar
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    Quote Originally Posted by FlashLackey
    It took time for this problem to build. The "boom" occurred over many years. It is logical to look at changes occurring at the onset of the boom as being related to the boom.
    I'm well aware that this was in the works for some time, but you seem so hell-bent on blaming everything on Clinton that you're failing to see that whatever problems might have been present in the system when Clinton left, they were exasserbated and compounded by a market-based, lassiez-faire approach championed by Conservative philosophy. In the end, the creation of these sub-prime loans and their aggregation in Fannie and Freddie were bad, but the dropping of regulatory oversight on the debt market and the proliferation of derivative-of-a-derivative-of-a-derivative instruments was what brought everything crumbling down.
    Hush child. japangreg can do what he wants. - PAlexC
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  9. #189
    That web bloke Stoke Laurie's Avatar
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    Quote Originally Posted by FlashLackey
    As if the process was taking more time out of disregard for your needs. Do other people in your country really buy in to that?
    Yes 100% The US policy on poor status motgages is seen as the source of the global economic crisis. By all our media, Politicians and Financial experts.
    As I said, we have taken uncomfortable and expensive action to attempt to minimise the damage, including government guarantees to savers upto 50,000 in an attempt to prevent potential runs on the banks.
    We feel that we are putting the sandbags up to stem the flow, but the flood is under your control, and the anouncement that the rescue package was not passed by congress was greeted with disbelief by our markets.

  10. #190
    Hood Rich FlashLackey's Avatar
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    Quote Originally Posted by japangreg
    No problem per se with that - the moves at HUD were not the brightest or best from a financial standpoint. But certain other systemic problems that, in my opinion, were of greater significance are being left out: the Commodities Futures Modernization Act of 00, for instance, allowing the trading of debt outside of the regs overseeing the futures exchanges. And their assertion that Fannie and Freddie were improerly liquid against their assests ignores the fact that as late as 04, the SEC let 5 firms go from a 12:1 ratio to as high as 40:1 (including Lehman Brothers and Bear Stearns)
    What you are describing are failures of regulation. The SEC is a regulator. Lehman Brothers and Bear Stearns were highly regulated institutions. Fannie and Freddie were highly regulated. This entire situation is a testament to failures of regulation. The CRA is not the only cause of the problem. It is only one example of how politicians have used government fingers in the financial markets for political gain, to the detriment of the public.

    I think that we're getting a little buried here in the forest of articles and figures. I don't mind going through all of that too. But, if you don't mind, I would like to look at the fundamentals of this in order to determine where it is exactly that we disagree.

    My argument is that, if the financial institutions involved were left to benefit or to suffer based on their own lending decisions without government manipulation, this would not have happened.

    The simple fact is that possessing loans that the borrower is never going to be able to pay back is undesirable. Any fool understands that and nobody would enter a deal that had high odds of reaching that situation. Nobody would buy such loans unless they knew that there was another market to sell them in.

    The problems arose because the secondary market started buying those risky loans. It started doing so because government involvement created the illusion to investors that the pools of loans were safer than they were. The government regulation and standardization made people believe they were sound when they were not. The GSE status of Fannie and Freddie also led investors to believe that even if the loans failed, the US government would step in and bail them out.

    This illusion of safety, along with other leverages that allowed Fannie and Freddie to out compete other options caused the institutions to grow to unprecedented levels, exposing the entire system to risk based on whether or not government regulators were right or not.

    This is the same lesson learned by the failing of Communism in the Soviet Union. There is no board of experts or any level of bureaucracy efficient enough to effectively manage or regulate such a large industry. Attempting to do so is only to artificially isolate the expertise we rely on to a smaller group whose motivations frequently end up as the subjects of political manipulation.

    In theory, you could just have a group of smart, noble regulators that will always make the right call and will always be selected based on competency rather than for political reasons. But, that theory has repeatedly failed us. This is not to say that corruption doesn't occur in regular market conditions. It happens there too. We just aren't as prone to suffer the consequences as a society at large for individual errors of judgment or corruption.

    This is a case of, as they say, socializing risk and privatizing profit. We need the people gaining private profit to also be taking on private risk.

    Quote Originally Posted by japangreg
    However the number of sub-prime loans held by Fannie and Freddie isn't what triggered this crisis, and their failure is a symptom not a cause: these bad loans weren't just absorbed by some govt back agency, they were spread like a cancer, washed repeatedly in complex 'instruments' the served to hide their risk. The ability of low-credit people to obtain loans wasn't a great idea, but it's one that lenders took to and ran with because it made them money.
    It only made them money because government had artificially propped up a market to sell the loans to. Lenders didn't just decide at random all at once to start making money in this way. They started swinging these deals because giants like Fannie and Freddie loosened their standards and actively pressured banks to have portfolios based on political correctness at the expense of being financially sound.

    Quote Originally Posted by japangreg
    How so? Are you saying that institutions subject to CRA regulations did not perform better and hold less risky loans than those that weren't?
    No. The most substantial failings in the market were of heavily regulated institutions. CRA is only one sizable factor. I'm not sure why you seem to think that a 20% increase in sub-prime lending due to CRA somehow exonerates it's influence on the problem.
    "We don't estimate speeches." - CBO Director Doug Elmendorf

  11. #191
    Hood Rich FlashLackey's Avatar
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    To elaborate further on the proportion of CRA covered loans (I had to leave on short notice at the end of that last post), CRA covered at least 50% of the bad loans. What you seem to be saying is that CRA is designed to prevent market failure and that because it didn't cover a larger proportion of sub-prime loans, the foreclosures can't be blamed on it. It's the other way around. CRA was designed to make loans available to lower income people. According to your article, at least 50% of all sub-prime loans were subject to CRA. That means that half of the loans were made by institutions that felt pressure to give loans according to an agenda different than financial health. The note they gave that basically suggests that 30% of that 50% don't really count badly for CRA because they weren't subject to as much regulation is a misleading cop-out. Regulating against bad practices isn't what CRA was about. Those institutions responsible for the other 30% that wasn't as regulated as often felt pressure to have a good CRA rating whenever they were in a situation that required regulator involvement. As noted by the article I posted, this occurred basically when those institutions wanted to merge and grow their businesses.

    Quote Originally Posted by japangreg
    I'm well aware that this was in the works for some time, but you seem so hell-bent on blaming everything on Clinton that you're failing to see that whatever problems might have been present in the system when Clinton left, they were exasserbated and compounded by a market-based, lassiez-faire approach championed by Conservative philosophy. In the end, the creation of these sub-prime loans and their aggregation in Fannie and Freddie were bad, but the dropping of regulatory oversight on the debt market and the proliferation of derivative-of-a-derivative-of-a-derivative instruments was what brought everything crumbling down.
    It wasn't all Clinton's fault. It had help from other Democrats like Barney Frank along the way.

    I understand that your opinion is that conservative principles made it worse. But, I don't see where you have shown that to be true.

    [derivative-of-a-derivative instruments have been around for a while now without problem. If the government hadn't sanctioned instruments and credit-raters and made those instruments seem regulated, groomed and secure, that market would not have grown like it did, in a "boom". It didn't help to have Barney Frank, Maxine Waters and others claiming that they were all good (who knows if they really even believed that themselves. I hope so.).]
    Last edited by FlashLackey; 10-01-2008 at 11:45 PM.
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  12. #192
    Hood Rich FlashLackey's Avatar
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    Quote Originally Posted by Stoke Laurie
    Yes 100% The US policy on poor status motgages is seen as the source of the global economic crisis. By all our media, Politicians and Financial experts.
    As I said, we have taken uncomfortable and expensive action to attempt to minimise the damage, including government guarantees to savers upto 50,000 in an attempt to prevent potential runs on the banks.
    We feel that we are putting the sandbags up to stem the flow, but the flood is under your control, and the anouncement that the rescue package was not passed by congress was greeted with disbelief by our markets.
    What you describe here is not an equivocation of what you quoted from me or what you were essentially saying before. But, I can appreciate this.

    Passing the rescue package is not taking longer due to the US not caring about the effects on other countries. It's taking some time because we want to get it right and there are varying perspectives within our government regarding how it would best be implemented.

    $700 billion is no small amount and how it gets used should be carefully considered lest we end up in an even worse situation down the road.
    "We don't estimate speeches." - CBO Director Doug Elmendorf

  13. #193
    supervillain gerbick's Avatar
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    Quote Originally Posted by FlashLackey
    It wasn't all Clinton's fault. It had help from other Democrats like Barney Frank along the way.

    I understand that your opinion is that conservative principles made it worse. But, I don't see where you have shown that to be true.
    so... lemme get this right. you can blame Clinton and Frank, and the democrat minority led congress was somehow able to pass these things without review and/or being overturned in some 8+ years?

    if it were a problem in the making, it should have been seen some 4 years ago. But it wasn't stopped. nor changed.

    and if you want to continue down this path of finger pointing drama; why was it not stopped? inquiries do not equate solution.

    simply put, it wasn't stopped by the republicans if you want to keep this blame game going.

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  14. #194
    Hood Rich FlashLackey's Avatar
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    See 'the rest of this discussion.' Japangreg and I have gone into the subject of what was seen and tried 4 years ago.

    It was seen 4 years ago and Republicans tried to do something about it. Democrats prevented that something from happening.
    "We don't estimate speeches." - CBO Director Doug Elmendorf

  15. #195
    Spartan Mop Warrior Loyal Rogue's Avatar
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    Quote Originally Posted by FlashLackey
    Having a Republican dominated committee doesn't mean that the minority party is without means of stopping a bill or prolonging negotiations. According to everything I have read, it was a partisan issue and the Democrats were holding the bill up. I have already posted a link that confirms that...
    And therein lies your main problem.
    According to "everything you've read" really doesn't count for much if all you read is heavily-biased partisan spin from a conservative thinktank.

    If what you are both discussing is the Federal Housing Enterprise Regulatory Reform Act of 2005, then it did indeed make it out of committee over objections by some key Democrats, but it was never brought up for vote by the Republican controlled Senate.
    It was entirely the Republicans that controlled the agenda at the time, and while the Democrats probably would have fought or filibustered the bill, they were never given the chance to by the Republicans.
    Attempting to lay the entire blame on the Democrats, as your source does, is extremely dishonest.

    This is one subject that goes way beyond simple partisan blame.
    Both parties, several former and current Presidents/administrations (Bush and Clinton included), the Federal Reserve (who slashed interest rates after the dot-com bust), Greenspan (who urged buyers to take out ARMs at the peak of the housing bubble), predatory lenders and real estate agents, greedy homebuyers/investors/flippers, deregulation, lack of enforcement/oversight by congress, and Wall Street firms (that issued bonds on risky MBS) are just a few of those to blame for the current financial crisis.

    Eventually both sides will be forced to stop the political posturing and deal with the mess before we end up in another great depression, which we are certainly on the brink of despite the loud objections of those people who stick their fingers in their ears and "la-la-la" in denial.

    Since it looks like the only tool anyone in DC is willing to discuss for fixing the mess is "the bailout" what I want to know is why they don't simply reinstate the quarter percent transaction fee back on stock trades?
    It was one of the tools that helped us recover from the first great depression and was in effect from the 40's to the 60's.
    A quarter percent would only be equal to 25 cents on a $100 trade which wouldn't affect most Americans' portfolios, is currently in use on the UK stock exchange without any negative impact, and would generate between $150-160 billion a year to payback the taxpayers for the cost of the bailout within 5-6 years.

    That is one solution that is far easier for me to stomach than the current one of sticking the whole burden on us taxpayers' backs with no guarantees of any kind.
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  16. #196
    Hood Rich FlashLackey's Avatar
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    Quote Originally Posted by Loyal Rogue
    And therein lies your main problem.
    According to "everything you've read" really doesn't count for much if all you read is heavily-biased partisan spin from a conservative thinktank.

    If what you are both discussing is the Federal Housing Enterprise Regulatory Reform Act of 2005, then it did indeed make it out of committee over objections by some key Democrats, but it was never brought up for vote by the Republican controlled Senate.
    It was entirely the Republicans that controlled the agenda at the time, and while the Democrats probably would have fought or filibustered the bill, they were never given the chance to by the Republicans.
    Attempting to lay the entire blame on the Democrats, as your source does, is extremely dishonest.
    Ok. So, "everything you've read" doesn't count but your unsubstantiated assertion does? Ok.

    The argument doesn't even make sense. It's not the Democrats fault because it didn't go to vote, even though they would have obstructed the vote? A lot of bills don't go to vote when it's made clear that it will not go through. Given the outrage expressed by Democrats at the time, it seems pretty clear that they, probably along with a handful of Republicans in tow, killed it.

    I swear, you guys use a baton system or something. I have to take a break from this debate or I'm going to experience my own financial melt-down.
    "We don't estimate speeches." - CBO Director Doug Elmendorf

  17. #197
    N' then I might just
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    Quote Originally Posted by FlashLackey
    What you describe here is not an equivocation of what you quoted from me or what you were essentially saying before. But, I can appreciate this.

    Passing the rescue package is not taking longer due to the US not caring about the effects on other countries. It's taking some time because we want to get it right
    Or it is election time

    The biggest one day drop in market value ever. Gazillions wiped off people's ledgers.

    ...lets hope the house of reps gets it right this time.

    The flow on is pretty instantaneous if they don't. Rich people get poorer, and stop spending money...and we all know that 'money makes the world go around'.

    A local luxury cruiser builder on the gold Coast has lost $8,000,000 worth of cancelled contracts since Tuesday, and has had to lay off 100 workers. The flow on effect to local industries is like a pebble in a pond.

    Such events will get pretty common I should imagine, if the bill isn't passed Friday.

    david
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  18. #198
    supervillain gerbick's Avatar
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    Quote Originally Posted by FlashLackey
    See 'the rest of this discussion.' Japangreg and I have gone into the subject of what was seen and tried 4 years ago.

    It was seen 4 years ago and Republicans tried to do something about it. Democrats prevented that something from happening.
    You've been watching C-SPAN, it seems.

    http://www.youtube.com/watch?v=_MGT_cSi7Rs

    There's quite a few gaps. And "trying" to fix something that lasted for 4+ years after the first showing of concern means more than likely the posturing will continue for 4+ years without any idea of what's next until it's the next crisis.

    Quality leadership indeed. More worried about being re-elected than actually doing something. You blow past the fact that nothing was done and this whole situation seemed to have caught Bush and Paulson by surprise. And the rest of the US populace. Even you hadn't talked about this looming situation.

    Oh well.

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  19. #199
    Didn't do it. japangreg's Avatar
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    Quote Originally Posted by FlashLackey
    According to your article, at least 50% of all sub-prime loans were subject to CRA. That means that half of the loans were made by institutions that felt pressure to give loans according to an agenda different than financial health.
    Sorry, don't have a lot of time this morning, but that's not quite right:
    University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject [to] comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations
    So 50% were made by mortgage companies not subject to CRA regs, and an additional 30% were made by banks and thrifts that also were exempt from the regulations. That leaves only 20% supplied by institutions compleying with the CRA regs.

    You may say that's a cop out, but then saying that they were motivated by the increasing their CRA rating is a bit of a cop out too, as the rule changes governing mergers of these institutions allowed those calculations to sudden have the weight they did. Until they were able to combine as they did, the CRA rating wasn't as important.

    EDIT
    See the Financial Modernization Act from 99:
    The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub.L. 106-102, 113 Stat. 1338, enacted 1999-11-12, is an Act of the United States Congress which repealed part of the Glass-Steagall Act, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.

    The Gramm-Leach-Bliley Act (GLBA) allowed commercial and investment banks to consolidate. For example, Citibank merged with Travelers Group, an insurance company, and in 1998 formed the conglomerate Citigroup, a corporation combining banking and insurance underwriting services. Other major mergers in the financial sector had already taken place such as the Smith-Barney, Shearson, Primerica and Travelers Insurance Corporation combination in the mid-1990s. This combination, announced in 1993 and finalized in 1994, would have violated the Glass-Steagall Act and the Bank Holding Company Act by combining insurance and securities companies, if not for a temporary waiver process [1]. The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the financial services industry...

    ...The bills were introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA). The bills were passed by a 54-44 vote along party lines with Republican support in the Senate and by a 343-86 vote in the House of Representatives. Nov 4, 1999: After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. The final bill resolving the differences was passed in the Senate 90-8-1 and in the House: 362-57-15. This 'veto proof legislation' was signed into law by President Bill Clinton on November 12, 1999[1]...

    ...Crucial to the passing of this Act was an amendment made to the GLBA, stating that no merger may go ahead if any of the financial holding institutions, or affiliates thereof, received a "less than satisfactory [sic] rating at its most recent CRA exam", essentially meaning that any merger may only go ahead with the strict approval of the regulatory bodies responsible for the CRA.[3]...

    ...Economists Robert Ekelund and Mark Thornton have criticized the Act as contributing to the 2007 subprime mortgage financial crisis, arguing that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly". [5]...
    from Wiki
    Last edited by japangreg; 10-02-2008 at 11:59 AM.
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  20. #200
    Hood Rich FlashLackey's Avatar
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    Quote Originally Posted by japangreg
    Sorry, don't have a lot of time this morning, but that's not quite right:
    No worries. I've put way too much time into these battles over the last few days as well. It's cutting into my fantasy football time.

    Quote Originally Posted by japangreg
    So 50% were made by mortgage companies not subject to CRA regs, and an additional 30% were made by banks and thrifts that also were exempt from the regulations. That leaves only 20% supplied by institutions compleying with the CRA regs.
    The quote says that those 30% "are not subject to routine supervision or examinations." Not that they are "exempt from the regulations."

    From the article I posted:

    The rewrite, as City Journal noted back in 2000, "made getting a satisfactory CRA rating harder." Banks were given strict new numerical quotas and measures for the level of "diversity" in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another.
    Quote Originally Posted by japangreg
    You may say that's a cop out, but then saying that they were motivated by the increasing their CRA rating is a bit of a cop out too, as the rule changes governing mergers of these institutions allowed those calculations to sudden have the weight they did. Until they were able to combine as they did, the CRA rating wasn't as important.
    Combine or expand. I'm not a banking expert. But, it sounds like substantial pressure to me if you are limiting your options to expand or merge by ignoring CRA. For example, say a bank decides that it wants to open a new branch in a new neighborhood. I'm pretty sure that they would have to seek approval for that (correct me if I'm wrong) and would come under CRA scrutiny if they could not show compliance in their current portfolio.

    Quote Originally Posted by japangreg
    This seems to support what I've been saying, that Democrats have fought to keep CRA pressures.

    Regarding the critique, I don't think it makes any sense. What about this bill had any "welfare" aspect to it? Libertarians are often critical of Republicans. But, their assertion is even more bizarre in that they seem to be arguing for more government involvement, the exact opposite of what they usually fight for. According to basic Libertarian ideas, companies being able to merge should not be a "privilege" but a right.
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