Learning from Europe while it is , in effect, on a gold standard

[EdwardBaiamonte]

This is the primary cause of the financial crisis of '08.

this???????????????????

In the Sam Jones analysis - that is the path to finding root cause.

first you say "this" is the cause then you are on a path to finding "This" the root cause.

I suggest law school where you would learn to write and think in an organized fashion.

 

[samjones]

I suggest law school where you would learn to write and think in an organized fashion.

This is the primary cause of the financial crisis of '08.

this???????????????????

In the Sam Jones analysis - that is the path to finding root cause.

first you say "this" is the cause then you are on a path to finding "This" the root cause.

I suggest law school where you would learn to write and think in an organized fashion.

The root cause is mark to market accounting. The Fed doesn't traditionally target housing prices by changing interest rates. It seeks stable prices and full employment by modifying interest rates.

I don't know what we would have said if Benanke's first order of business was raising interest rates because too many people were buying homes and for too much money. I don't think we would have been happy to hear that. Ultimately there's this presumption with a secured loan that the collateral is about equal to or greater than the outstanding note. If the banks systematically delude themselves into believing that the collateral is worth more than it actually is then conditions are rife for a bubble, be in houses or tulips.

 

[expat_panama]

...I suggest law school where you would learn to write and think in an organized fashion.

LOL! Law is like sales where the pro is paid to convince others that the client is right --regardless of reality. Business school grads have to know what's going on whether the client likes it or not.

 

[EdwardBaiamonte]

...I suggest law school where you would learn to write and think in an organized fashion.

LOL! Law is like sales where the pro is paid to convince others that the client is right --regardless of reality. Business school grads have to know what's going on whether the client likes it or not.

yes but each party has a lawyer. Socrates used the socratic method
and so do courtrooms. It may be the only positive thing about lawyers.

If your child were accused of murder would you want a lawyer using the socratic method to expose the lies or would you want an MBA trying to do it?

 

[EdwardBaiamonte]

The root cause is mark to market accounting. The Fed doesn't traditionally target housing prices by changing interest rates. It seeks stable prices and full employment by modifying interest rates.

so is the subject of that paragraph mark to market or the Fed???

I don't know what we would have said if Benanke's first order of business was raising interest rates because too many people were buying homes and for too much money.

1) it would not have mattered since the Fed is independent, 2) in retrospect we would have hailed him as a central banking God and presumably will do so in the future should mere mortals forget the lessons learned this time.

If the banks systematically delude themselves into believing that the collateral is worth more than it actually is then conditions are rife for a bubble, be in houses or tulips.

it took far more than banks, it took an entire liberal government all organized to get people into homes the free market said they could not afford.

 

[expat_panama]

...I suggest law school where you would learn to write and think in an organized fashion.

LOL! Law is like sales where the pro is paid to convince others that the client is right --regardless of reality. Business school grads have to know what's going on whether the client likes it or not.

...If your child were accused of murder would you want a lawyer...

Exactly, for law we need law grads and for 2008 finance mechanics we need MBA's.

btw, most people in the business see that crisis coming off a lot of causes. Mark to market works, but so does bank runs, politics, leveraging, bad law with Fannie & Freddie, etc. etc.

 

[EdwardBaiamonte]

Exactly, for law we need law grads and for 2008 finance mechanics we need MBA's.

I find using language in a scientific or Socratic way is equally applicable to law, business, and economics. Why wouldn't it be. You see the liberals here can't find the truth if they run into it. How do you explain that except to say that their particular kind of stupidity is related to a failure to use language in an Socratic or organized way.
My guess is that they are trying to adapt their illiterate everyday social language and methods to academic matters and failing 100% as a result.

btw, most people in the business see that crisis coming off a lot of causes. Mark to market works, but so does bank runs, politics, leveraging, bad law with Fannie & Freddie, etc. etc.

thats ok so long as we acknowledge that the dasterdly liberals are the primary cause!!!

 

[expat_panama]

...so long as we acknowledge that the dasterdly liberals are the primary cause!!!

Blaming liberals may or may not make things better. What we want are certain policy directions: less government taxes, spending, and market interference. I'd blame conservatives and vote Democrat if it would bring about economic freedom to create wealth and hire again.

 

[editec]

I only have one significant point to add to this discussion as it regards the insane increaes in housing prices.

What fueled those increases was the ready availability of money to buy homes.

Yeah but the WSJ and the NY Times actually agreed on something, and that was it. And Ed and I actually agreed on something and that was it. "Fueled' and "caused" are 2 different things.

Easy money to buy a home is as American as mom and apple pie. It will never stop and that makes me happy. Americans should buy their own homes. It's what makes us tick.

Easy money is important to borrower and lender alike - that means both the little guy and the big guy need for the American Dream to be amortized over 30 years.

The lament of our generation is that we didn't buy earlier.

Here's the problem, thoiugh, Sam.

It wasn't really EASY money.

Much of those loans were really TRAPS.

No money down, absurdly low interest rates AT FIRST.

And then?

Then the real rate of interest kicked in and suddenly people couldn't keep up with their payments.

And as that ahppened so duffenly to so many people?

Their plans for getting out from under the now much higher payments (by selling or refinancing into FIXED RATES) couldn't be realized.

Why?

Two reasons:

1. Banks (now facing their own solvency problems) didn't want to lend at fixed rates to people who couldn't afford those homes; and

2. The home owners couldn't sell the homes because the market value of homes had collapsed.


What really caused this?

1. The disconnect between the originators of the loans and who ultimately ended up owning the debt.

2. The FED keeping interest rates too low in order to keep the faltering economy going.

Who is responsible?

The government and the banks who had the ability to influence the FED.

See?

There's plenty of blame to go around.

The people who hate government have half the story right.

The people who blame the bansters have the other half right.

It took both institutions to screw this pooch.

 

[samjones]

What really caused this?

1. The disconnect between the originators of the loans and who ultimately ended up owning the debt.

In the end they're really the same, right?

Fannie and Freddie do has shareholders, and truth be told, their shareholders were the large financial institutions who were both the orginators of the loans and the ones who owned virtually all of the shares of the company that ended up owning the debt.

I will not deny that other federal agencies (HUD) jumps to mind, exercised substantial influence over Fannie and Freddie policies that really were the cause of Fannie/Freddie buying more subprime, but IIRC those were in response to the free market increase in subprime lending. Subprimes were profitable.

 

[samjones]

it took far more than banks, it took an entire liberal government all organized to get people into homes the free market said they could not afford.

So let's get one thing straight. The "free market" does not tell you how much house you can afford. Subprimers (and primers) would often (dare I say typically) decrease their housing costs by purchasing. Especially when the tax consequences are factored in.

FICO tells the bank whether you're subprime or not and FICO is a joke.

Let's get one more thing straight. 2 George Bush's and alot of Republicans in congress supported legislation aimed at extending home ownership to low income people.... and for good reason. It's a good idea.

 

[EdwardBaiamonte]

George Bush's and alot of Republicans in congress supported legislation aimed at extending home ownership to low income people.... and for good reason. It's a good idea.

Much of this is far far over your head. What you need to write down is that 100% of the energy to get rid of FanFred came from Republicans.



Sen. Charles Schumer (D., N.Y.): And my worry is that we're using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie's mission. And I don't think there is any doubt that there are some in the administration who don't believe in Fannie and Freddie altogether, say let the private sector do it. That would be sort of an ideological position.




Sen. Christopher Dodd (D., Conn.): I, just briefly will say, Mr. Chairman, obviously, like most of us here, this [Fanny Freddie] is one of the great success stories of all time. And we don't want to lose sight of that and [what] has been pointed out by all of our witnesses here, obviously, the 70% of Americans who own their own homes today, in no small measure, due because of the work that's been done here. And that shouldn't be lost in this debate and discussion. . . .
Rep. Waters: However, I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn't broke. Housing is the economic engine of our economy, and in no community does this engine need to work more than in mine. With last week's hurricane and the drain on the economy from the war in Iraq, we should do no harm to these GSEs.[Fanny Freddie] We should be enhancing regulation, not making fundamental change.

Mr. Chairman, we do not have a crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact, the GSEs have exceeded their housing goals. . . .

Rep. Frank: Let me ask [George] Gould and [Franklin] Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?

Mr. Raines?

Mr. Raines: No, sir.

Mr. Frank: Mr. Gould?

Mr. Gould: No, sir. . . .

Mr. Frank: OK. Then I am not entirely sure why we are here. . . .

Rep. Frank: I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.

* * *
Senate Banking Committee, Oct. 16, 2003:

 

[samjones]

George Bush's and alot of Republicans in congress supported legislation aimed at extending home ownership to low income people.... and for good reason. It's a good idea.

Much of this is far far over your head. What you need to write down is that 100% of the energy to get rid of FanFred came from Republicans.

I do believe that.... That's not to say 100% of Republicans wanted to get rid of Fannie/Freddie or that the Republicans as a legislative force have always worked to do so. An Ike privatized Fannie. A Dick empowered it to buy private loans. A Ronnie let it securitize those loans. A George told Fannie it had to buy low-income loans and another George say by and let the show effin mess of '08 happen on his watch.

In actuality I agree with your contention that promoting the goal of making the dream of home ownership available to all is a "liberal" one and when Republcans support it - as so many do and have, they are crossing party lines a bit.

 

[EdwardBaiamonte]

In actuality I agree with your contention that promoting the goal of making the dream of home ownership available to all is a "liberal" one and when Republcans support it - as so many do and have, they are crossing party lines a bit.

of course, savy politicians will always cross party lines as independents decide elections. It means nothing.