The Sources of the Meltdown

Simplex, Complex, Multiplex

Few things are simplex, most are complex – and when it comes to the current financial meltdown, the failures go beyond complex to multiplex. No depression coming, but a serious recession – here’s a lecture that enumerates the multiple sources of the multiplex stall we are in.

H/T LittleOldLady at Little Green Footballs

* My wife has a quibble with the statement on underwriting standards – she says in the bigger institutions the underwriting standards were there, but were too often over-ridden by Regional Managers to hit volumes. If regulators don’t pay attention to who can over ride an Underwriter’s “NO way in Hell!” as well as the securities risk managers, then we will just be back here in a few decades.

Senator Obama is Part of the Problem

Here’s a devastating video from the group “Let Freedom Ring”:

McCain: I wasn’t going to Phone it In

George Stephanopoulos interviews John McCain on the bailout plan:

Bailout Plan General Agreement Reached: Plan Being Written Now

The new plan puts caps on exective pay and golden parachutes, it also allows foreclosures to proceed (and this is a must – some people have walked away from their homes,) and it stops money from going to Acorn and other Democrat activist groups that led us to this crisis. So on the surface it looks good.

Over the next thirty years many of these mortgages will be paid off, producing potential profit, and those that aren’t are still backed by houses and property in the US, still one of the best countries in the world to live in. The bill will be posted for 24 hours before the vote, and you can bet that bloggers will be going over it with a fine tooth comb. I intend to read it, but won’t plan on commenting unless there is something egregiously wrong with it (beyond just the fact that we have to do this.)

Right now on paper these bundles of mortgages appear to have little value, but over time they will regain their worth. The similar period we saw in Japan took about ten years, if we build the energy sources we need and build our economy it could happen quicker than that here.
Much more on the deal at Washington Post:

  • The money would be dispersed in segments, with Paulson receiving $250 billion immediately, $100 billion upon White House certification of its necessity and the final $350 billion only after Congress has been given 15 days to object.
  • Firms participating in the bailout would be required to grant the government warrants to obtain nonvoting shares of stock, so taxpayers can benefit if the companies return to profitability.
  • Firms taking advantage of the bailout would be required to limit compensation for senior executives, with especially severe limits on “golden parachutes” at failing firms. The compensation limits will be enacted primarily, but not solely, through the tax code by reducing tax deductions for firms that pay executives more than $400,000 a year.

I like it that they are metering the money with checkpoints, I like it that there are these and other limits. What I don’t like is that there will be fees on the financial services industry as part of the agreement if they don’t turn this around in five years. Without seeing the details of how this all knits together, it’s really impossible to comment more on the plan. I await the posting of it.

Update: Also now note that President Clinton also pins this blowup directly on House and Senate Democrats.
Update: More at Big Lizards
UPDATE: The bill is posted, and it looks better than previously stated. The House Republicans have a fact page up on it. I got tied up at work today and have not yet had time to read it, but I will on the morrow. If anything pokes me in the eye I will be writing about it. Otherwise, for now I support this move.
Here’s Boehner thanking McCain for his assistance on the bill.

Mum

McCain has spoken about the financial crisis at length, in a couple of places I do disagree with him. Much of the fault here does lie with Congress, and John seems unwilling to assign their portion of blame. Perhaps he’s saving that for the debates however, you’ve seen plenty of material here. One thing I do know: Capitalism works best with less regulations. This whole mess is because of a crazy quilt of financial regs including CRA that work at counter purposes and which result in two socialist government backed housing lending agencies both ripe for corruption and abuse.

Enough is Enough

Before you view this remember that the Dems have been in control of congress in the two years leading up to the latest financial debacle. Remember that Joe Biden’s committee should have prevented this, but instead encouraged it. Remember that Barack Obama’s favorite housing advisor is Franklin D. Raines, former CEO of Fannie Mae who got out before the community outreach bad loan stack of cards collapsed. Remember that when the bad news hit Wall St yesterday that Obama was enroute to hobnob with Hollywood Highrollers.

John McCain’s 8 part economic plan, “Jobs for America” can be found here.

Here’s John speaking in Ohio today:

Transcript:

John McCain
Remarks
Vienna, OH
September 16, 2008

John McCain: “We’ve seen a telling moment in this campaign today. Senator Obama saw an economic crisis, and he’s found a political opportunity. My friends, this is not a time for political opportunism; this is a time for leadership.

“Too often, we hear people say America’s in decline. I reject that. I believe America’s best days are ahead of us. Governor Palin and I are going to reform Wall Street. We’re going to reform Washington. I’m going to fight for you, and I’m going to lead our nation forward in the greatest periods of prosperity in its history.

“And let’s have some straight talk. Senator Obama is not interested in the politics of hope, he’s interested in his political future and that’s why he is hurling in insults and making up facts about his record.

“Today, he claimed that the Congressional stimulus package was his idea. That’s news to those of us in Congress who supported it. Senator Obama didn’t even show up to vote.

“He talks a tough game on the financial crisis, but the facts tell a different story. Senator Obama took more money from Fannie Mae and Freddy Mac than anyone but the chairman of the committee they answer to, and he put Fannie Mae’s CEO, who helped create this problem in charge of finding his Vice President. That’s not change, that’s what’s broken in Washington.

“He talked about siding with the people, siding with the people, just before he flew off to Hollywood for a fundraiser with Barbara Streisand and his celebrity friends. Let me tell you, my friends, there’s no place I’d rather be than here, with the working men and women of Ohio. I’m going to fight for you and together we’re going to win in November.”

More on who really created the crisis at Hot Air
UPDATE: Here’s Chuckie Schumer and Jesse Jackson teaming up back in 2001 to help create this mess can you say “community organizer?”
Under the guise of stopping “predatory lending practices” Obama also participated in legislation like this in 2000. These programs supposedly stiffened controls, but at the same time took away all profitability from higher risk loans. By making it mandatory to treat risky borrowers just like borrowers with good credit through neighborhood HOME and HELP projects they created this crisis.
From the Chicago Tribune, 10-1-2000:

The senator believes that these inclusions will help reduce the number of foreclosures that have occurred in the state. The senator stated that “foreclosures started by subprime lenders in the Chicagoland area increased from 131 in 1993 to 4,958 in 1999, an increase of more than 3,600 percent.”

The senator obtained his foreclosure information from the National Training and Information Center, a non-profit organization in Chicago that does research on housing and other community related issues, including lending and neighborhood safety. It also provides training for those interested in how to do community organizing.

The NTIC currently also works with several affiliate groups, including the Indianapolis-based Organization for a New Eastside which compiles information that it receives from borrowers about their particular lending issues, as well as provides them with education, counseling and advocacy. O.N.E provides no funding to borrowers, though it refers them to local lenders and credit unions after counseling.

O.N.E recently took on the plight of a local family that felt it had been victimized during the purchasing of its home. The organization went to the local branch of the lender for a protest rally, demanding that the loan be looked at again.

So how can I say that when supposedly they were just worried about predatory lending practices and protecting borrowers? One of the things they enforced against was mandatory credit insurance for high risk loans. Without that they guaranteed more foreclosures even though they were supposedly preventing them.

UPDATE: Boston Globe reminds us of the other housing iniatives of Barack Obama
UPDATE: Who Supports Barack Obama’s Amazing fund raising abilities? Investment Bankers.
UPDATE: McCain Called for reform two years ago, See HERE.
UPDATE: Just a reminder that Republicans were calling for oversight of Freddie and Fannie five years ago but were blocked repeatedly by Democrats in Congress:

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

Crisis, and how to Overcome it

While the markets tumble Barack Obama is hob-knobbing with Celebrities and High Rollers in Hollywood.:

The polls are one thing, but it sounds like Barack Obama might make progress in other ways during two ultra-rich Beverly Hills fund-raisers Tuesday. According to Politico, the events could raise more than $9 million, which, if it happens, would be a one-day record.

More also at Jammie Wearing Fool.

It is also noteworthy that Obama made a remark about the crisis:

“Eight years of policies that have shredded consumer protections; have brought us to the most serious financial crisis since the Great Depression.”

If things got “shredded” then the Democrat-controlled senate Anti-trust Competition and Consumer Rights Sub Committee helped, and Barack’s running mate, Senator Joe Biden, was a member of that committee.